Note 9 - Fair Value Measurement

3 Months Ended

Mar. 31, 2016

Fair Value Disclosures [Abstract]

Fair Value Disclosures [Text Block]

NOTE 9: 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 methods

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”). 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. The Company elected the fair value option for the issuance of warrants associated with the new promissory notes issued in the three month periods ended March 31, 2016 and March 31, 2015.

The Company’s financial assets or liabilities subject to ASC 820 as of March 31, 2016 include the conversion feature and warrant liability associated with convertible debentures issued during 2008 and 2009 and the warrants issued during 2011 and 2016 that are associated with notes payable that were issued to our Chief Executive Officer and Director, Cornelis F. Wit. 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 8 – 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 March 31, 2016 of the fair value of liabilities measured at fair value on a recurring basis follows:

	Fair value at		Quoted prices in active markets for identical assets/ liabilities		Significant other observable inputs		Significant unobservable inputs
	March 31, 2016		(Level 1)		(Level 2)		(Level 3)
Derivatives: (1) (2)
Conversion feature liability	$	1,302,806	$	-0-	$	-0-	$	1,302,806
Warrant liability		2,601,060		-0-		-0-		2,601,060
Total of derivative liabilities	$	3,903,866	$	-0-	$	-0-	$	3,903,866

(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 period ended March 31, 2016

(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 March 31, 2016
Risk free interest rate	0.53%	to	0.90%
Dividend yield		0.00%
Expected volatility	100.4%	to	119.7%
Expected life (range in years)
Conversion feature liability	1.00	to	2.00
Warrant liability	1.00	to	3.00

A summary as of December 31, 2015 of the fair value of liabilities measured at fair value on a recurring basis follows:

	Fair value at		Quoted prices in active markets for identical assets/ liabilities		Significant other observable inputs		Significant unobservable inputs
	December 31, 2015		(Level 1)		(Level 2)		(Level 3)
Derivatives: (1) (2)
Conversion feature liability	$	901,243	$	-0-	$	-0-	$	901,243
Warrant liability		1,914,923		-0-		-0-		1,914,923
Total of derivative liabilities	$	2,816,166	$	-0-	$	-0-	$	2,816,166

(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, 2015

(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, 2015
Risk free interest rate	0.48%	to	1.2%
Dividend yield		0.00%
Expected volatility	91.0%	to	132.2%
Expected life (range in years)
Conversion feature liability	1.25	to	2.25
Warrant liability	0.00	to	3.01

A summary as of March 31, 2016 of the fair value of assets measured at fair value on a non-recurring basis follows:

	Carrying amount		Carrying amount		Quoted prices in active markets for identical assets/ liabilities		Significant other observable inputs		Significant unobservable inputs
	December 31, 2015		March 31, 2016		(Level 1)		(Level 2)		(Level 3)
Acquired assets (3)
Promasys B.V. customer list (4)	$	92,444	$	94,384	$	-0-	$	-0-	$	136,253
Promasys B.V. software code (4)		41,274		37,633		-0-		-0-		72,943
Promasys B.V. URLs/website (4)		15,159		11,049		-0-		-0-		68,814
Total	$	148,877	$	143,066	$	-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.

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 ASC 360, Property, Plant and Equipment 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.

The table below presents the unrealized gains/(losses) for the three month periods ended March 31, 2016 and March 31, 2015.

	Other income/(expense)
	For the three months ended
	March 31, 2016			March 31, 2015
The net amount of gains/(losses) for the period included in earnings attributable to the unrealized gain/(losses) from changes in derivative liabilities at the reporting date	$	(762,011	)	$	(1,517,719	)
Total unrealized gains/(losses) included in earnings	$	(762,011	)	$	(1,517,719	)

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 periods ended March 31, 2016 and December 31, 2015. The tables reflect changes for all financial liabilities at fair value categorized as Level 3 as of March 31, 2016 and December 31, 2015.

	Level 3 financial liabilities at fair value
						Net unrealized
						gains/(losses)			Net
						relating to			purchases,
	Balance,					instruments			issuances					Balance,
For the three months ended	beginning			Net realized		held at the			and			Net transfers		end of
March 31, 2016	of year			gains/(losses)		reporting date			settlements			in and/or out		period
Derivatives:
Conversion feature liability	$	(901,243	)	$	-0-	$	(401,563	)	$	-0-		$	-0-	$	(1,302,806	)
Warrant liability		(1,914,923	)		-0-		(360,448	)		(325,689	)		-0-		(2,601,060	)
Total of derivative liabilities	$	(2,816,166	)	$	-0-	$	(762,011	)	$	(325,689	)	$	-0-	$	(3,903,866	)

	Level 3 financial liabilities at fair value
						Net unrealized
						gains/(losses)		Net
						relating to		purchases,
	Balance,					instruments		issuances					Balance,
For the year ended	beginning			Net realized		held at the		and			Net transfers		end of
December 31, 2015	of year			gains/(losses)		reporting date		settlements			in and/or out		year
Derivatives:
Conversion feature liability	$	(2,944,402	)	$	29,875	$	2,013,284	$	-0-		$	-0-	$	(901,243	)
Warrant liability		(6,695,060	)		-0-		2,482,639		(868,128	)		3,165,626		(1,914,923	)
Total of derivative liabilities	$	(9,639,462	)	$	29,875	$	4,495,923	$	(868,128	)	$	3,165,626	$	(2,816,166	)