Note 11 - Fair Value Measurement

12 Months Ended

Dec. 31, 2014

Fair Value Disclosures [Abstract]

Fair Value Disclosures [Text Block]

NOTE 11: FAIR VALUE MEASUREMENT

The Company measures the fair value of its assets and liabilities under the guidance of ASC 820, Fair Value Measurements and Disclosures, which defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles and expands disclosures about fair value measurements. ASC 820 does not require any new fair value measurements, but its provisions apply to all other accounting pronouncements that require or permit fair value measurement.

ASC 820 clarifies that fair value is an exit price, representing the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants based on the highest and best use of the asset or liability. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. ASC 820 requires the Company to use valuation techniques to measure fair value that maximize the use of observable inputs and minimize the use of unobservable inputs. These inputs are prioritized as follows:

•  Level 1: Observable inputs such as quoted prices for identical assets or liabilities in active markets;

•  Level 2: Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly such as quoted prices for similar assets or liabilities or market-corroborated inputs; and

•  Level 3: Unobservable inputs for which there is little or no market data, which require the reporting entity to develop its own assumptions about how market participants would price the assets or liabilities.

The valuation techniques that may be used to measure fair value are as follows:

A.  Market approach - Uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities

B.  Income approach - Uses valuation techniques to convert future amounts to a single present amount based on current market expectations about those future amounts, including present value techniques, option-pricing models and excess earnings method

C.  Cost approach - Based on the amount that currently would be required to replace the service capacity of an asset (replacement cost)

The Company also adopted the provisions of ASC 825, Financial Instruments. ASC 825 allows companies to choose to measure eligible assets and liabilities at fair value with changes in value recognized in earnings. Fair value treatment may be elected either upon initial recognition of an eligible asset or liability or, for an existing asset or liability, if an event triggers a new basis of accounting. The Company did not elect to re-measure any of its existing financial assets or liabilities under the provisions of this Statement and did not elect the fair value option for any financial assets and liabilities transacted in the years ended December 31, 2014 and December 31, 2013.

The Company’s financial assets or liabilities subject to ASC 820 as of December 31, 2014 include the conversion feature and warrant liability associated with convertible debentures issued during fiscal 2008 and 2009, the warrants issued during 2011, 2013 and 2014 that are associated with notes payable that were issued to our Chief Executive Officer and Director, Cornelis F. Wit, and the value of Intellectual Property and a customer list associated with the acquisition of Promasys B. V. during 2013. The conversion feature and warrants were deemed to be derivatives (the “Derivative Instruments”) since a fixed conversion price cannot be determined for either of the Derivative Instruments due to anti-dilution provisions embedded in the offering documents for the convertible debentures.  The derivative instruments were not issued for risk management purposes and as such are not designated as hedging instruments under the provisions of ASC 815 Disclosures about Derivative Instruments and Hedging Activities.  See Note 10 – Convertible Notes Payable.

Following is a description of the valuation methodologies used to determine the fair value of the Company’s financial assets including the general classification of such instruments pursuant to the valuation hierarchy.

A summary as of December 31, 2014 of the fair value of assets measured at fair value on a recurring basis follows:

	Fair value at December 31,		Quoted prices in active markets for identical assets/ liabilities		Significant other observable inputs		Significant unobservable inputs
	2014		(Level 1)		(Level 2)		(Level 3)
Derivatives: (1) (2)
Conversion feature liability	$	2,944,402	$	-0-	$	-0-	$	2,944,402
Warrant liability		6,695,060		-0-		-0-		6,695,060
Total of derivative liabilities	$	9,639,462	$	-0-	$	-0-	$	9,639,462

(1) The fair value of the derivative instruments was estimated using the Income Approach and the Black Scholes option pricing model with the following assumptions for the year ended December 31, 2014

(2) The fair value at the measurement date is equal to their carrying value on the balance sheet

Significant valuation assumptions of derivative instruments at December 31, 2014

Risk free interest rate		0.13%
Dividend yield		0.00%
Expected volatility	119.8%	to	155.7%
Expected life (range in years)
Conversion feature liability	1.00	to	1.25
Warrant liability	1.00	to	2.25

A summary as of December 31, 2014 of the fair value of assets measured at fair value on a nonrecurring basis follows:

	Carrying amount December 31,		Carrying amount December 31,		Quoted prices in active markets for identical assets/ liabilities		Significant other observable inputs		Significant unobservable inputs
	2013		2014		(Level 1)		(Level 2)		(Level 3)
Acquired assets (3)
Promasys B.V. customer lists (4)	$	134,739	$	110,948	$	-0-	$	-0-	$	136,253
Promasys B.V. software code (4)		70,512		55,842		-0-		-0-		72,943
Promasys B.V. URLs/website (4)		64,991		37,131		-0-		-0-		68,814
Total	$	270,242	$	203,921	$	-0-	$	-0-	$	278,010

(3) The fair value of the acquired assets was estimated using the Income Approach with a discounted cash flow valuation methodology applied.

(4) The acquired Promasys B.V. software code, customer list and URLs/website are not measured on a recurring basis since their initial fair value has been deemed to have a finite life and is being amortized periodically. Instead the Company performs an impairment analysis on a quarterly basis in order to determine whether the carrying value of the assets reflects the fair value of the assets in a market based transaction.

A summary as of December 31, 2013 of the fair value of liabilities measured at fair value on a recurring basis follows: 

	Fair value at December 31,		Quoted prices in active markets for identical assets/ liabilities		Significant other observable inputs		Significant unobservable inputs
	2013		(Level 1)		(Level 2)		(Level 3)
Derivatives: (1) (2)
Conversion feature liability	$	3,126,206	$	-0-	$	-0-	$	3,126,206
Warrant liability		5,943,977		-0-		-0-		5,943,977
Total of derivative liabilities	$	9,070,183	$	-0-	$	-0-	$	9,070,183

(1) The fair value of the derivative instruments was estimated using the Income Approach and the Black Scholes option pricing model with the following assumptions for the year ended December 31, 2013

(2) The fair value at the measurement date is equal to their carrying value on the balance sheet

Significant valuation assumptions of derivative instruments at December 31, 2013 

Risk free interest rate	0.12%	to	0.13%
Dividend yield		0.00%
Expected volatility	166.7%	to	217.1%
Expected life (range in years)
Conversion feature liability	1.00	to	2.00
Warrant liability	1.00	to	2.25

A summary as of December 31, 2013 of the fair value of assets measured at fair value on a nonrecurring basis follows:

	Carrying amount December 31,		Carrying amount December 31,		Quoted prices in active markets for identical assets/ liabilities		Significant other observable inputs		Significant unobservable inputs
	2012		2013		(Level 1)		(Level 2)		(Level 3)
Acquired assets (3)
Promasys B.V. customer lists (4)	$	-0-	$	134,739	$	-0-	$	-0-	$	136,253
Promasys B.V. software code (4)		-0-		70,512		-0-		-0-		72,943
Promasys B.V. URLs/website (4)		-0-		64,991		-0-		-0-		68,814
Total	$	-0-	$	270,242	$	-0-	$	-0-	$	278,010

(3) The fair value of the acquired assets was estimated using the Income Approach with a discounted cash flow valuation methodology applied.

(4) The acquired Promasys B.V. software code, customer list and URLs/website are not measured on a recurring basis since their initial fair value has been deemed to have a finite life and is being amortized periodically. Instead the Company performs an impairment analysis on a quarterly basis in order to determine whether the carrying value of the assets reflects the fair value of the assets in a market based transaction.

The Company’s goodwill and other identifiable intangible assets with indefinite lives are measured at fair value on a nonrecurring basis using significant unobservable inputs (Level 3).

Goodwill and other identifiable intangible assets with indefinite lives are reviewed for impairment annually, and whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Long-lived assets and identifiable intangible assets are also reviewed for impairment whenever events or changes in circumstances indicate that amounts may not be recoverable. If the testing performed indicates that impairment has occurred, the Company will record a noncash impairment charge for the difference between the carrying amount of the goodwill or other intangible assets and the implied fair value of the goodwill or other intangible assets in the period the determination is made.

The table below presents the fair value of the Goodwill as of December 31, 2014 and December 31, 2013.

	December 31, 2014		December 31, 2013
(Level 3)
Goodwill	$	596,620	$	675,710

Other identifiable intangible assets, which are subject to amortization, are being amortized using the straight-line method over their estimated useful lives ranging from 3 to 15 years. The Impairment or Disposal of Long-Lived Asset subsection of the Property, Plant and Equipment Topic of the FASB ASC, requires us to test the recoverability of long-lived assets, including identifiable intangible assets with definite lives, whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. In testing for potential impairment, if the carrying value of the asset group exceeds the expected undiscounted cash flows, we must then determine the amount by which the fair value of those assets exceeds the carrying value and determine the amount of impairment, if any.

	Other income/(expense)
	for the year ended
	December 31, 2014		December 31, 2013
The net amount of gains/(losses) for the period included in earnings attributable to the unrealized gain/(loss) from changes in derivative liabilities at the reporting date	$	58,807	$	(95,121	)
Total unrealized gains/(losses) included in earnings	$	58,807	$	(95,121	)

The tables below set forth a summary of changes in fair value of the Company’s Level 3 financial liabilities at fair value for the years ended December 31, 2014 and December 31, 2013. The tables reflect gains and losses for all financial liabilities at fair value categorized as Level 3 as of December 31, 2014 and December 31, 2013.

	Level 3 financial liabilities at fair value
						Net unrealized
						gains/(losses)			Net
						relating to			purchases,
	Balance,					instruments still			issuances			Net transfers		Balance,
	beginning			Net realized		held at the			and			in and/or out		end of
	of year			gains/(losses)		reporting date			settlements			of Level 3		year
Year ended December 31, 2014
Derivatives:
Conversion feature liability	$	(3,126,206	)	$	-0-	$	181,804		$	-0-		$	-0-	$	(2,944,402	)
Warrant liability		(5,943,977	)		-0-		(122,997	)		(628,086	)		-0-		(6,695,060	)
Total of derivative liabilities	$	(9,070,183	)	$	-0-	$	58,807		$	(628,086	)	$	-0-	$	(9,639,462	)

	Level 3 financial liabilities at fair value
						Net unrealized
						gains/(losses)			Net
						relating to			purchases,
	Balance,					instruments still			issuances			Net transfers		Balance,
	beginning			Net realized		held at the			and			in and/or out		end of
	of year			gains/(losses)		reporting date			settlements			of Level 3		year
Year ended December 31, 2013
Derivatives:
Conversion feature liability	$	(2,287,323	)	$	-0-	$	(838,883	)	$	-0-		$	-0-	$	(3,126,206	)
Warrant liability		(6,287,598	)		-0-		743,762			(400,141	)		-0-		(5,943,977	)
Total of derivative liabilities	$	(8,574,921	)	$	-0-	$	(95,121	)	$	(400,141	)	$	-0-	$	(9,070,183	)