Fair Value Measurement, Policy

9 Months Ended

Sep. 30, 2016

9. NOTE 9: FAIR VALUE MEASUREMENT

The guidance on fair value measurements defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants. This guidance also specifies a fair value hierarchy based upon the observability of inputs used in valuation techniques. Observable inputs (highest level) reflect market data obtained from independent sources, while unobservable inputs (lowest level) reflect internally developed market assumptions. In accordance with this guidance, fair value measurements are classified under the following hierarchy:

Level 1	Quoted prices for identical instruments in active markets.
Level 2	Quoted process for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which significant inputs or significant value drivers are observable in active markets.
Level 3	Model derived valuations in which one or more significant inputs or significant value-drivers are unobservable.

When available, the Company uses quoted market prices to determine fair value, and classifies such measurements within Level 1. In some cases, where market prices are not available, the Company makes use of observable market based inputs to calculate fair value, in which case the measurements are classified within Level 2. If quoted or observable market prices are not available, fair value is based upon internally developed models that use, where possible, current market-based parameters such as interest rates, yield curves and currency rates. These measurements are classified within Level 3.

Fair value measurements are classified according to the lowest level input or value-driver that is significant to the valuation. A measurement may therefore be classified within Level 3 even though there may be significant inputs that are readily observable.

Fair value measurement includes the consideration of nonperformance risk. Nonperformance risk refers to the risk that an obligation (either by counterparty or the Company) will not be fulfilled. For financial assets traded in an active market (Level 1), the nonperformance risk is included in the market price. For certain other financial assets and liabilities (Level 2 and 3), the Company’s fair value calculations have been adjusted accordingly.

As of September 30, 2016 and December 31, 2015, respectively, there are no financial assets or liabilities measured on a recurring basis at fair value with the exception of the liability related to the conversion feature.

In addition to the methods and assumptions to record the fair value of financial instruments as discussed above, the Company used the following methods and assumptions to estimate the fair value of our financial instruments:

9. FAIR VALUE MEASUREMENT - CONTINUED

—	Cash and cash equivalents – carrying amount approximated fair value.
—	Restricted cash – carrying amount approximated fair value.
—	Receivables from related parties (current) – carrying amount approximated fair value due to the short term nature of the receivables.
—	Accounts Payable – carrying amount approximated fair value.
—	Note payable – carrying amount approximated fair value due to the short term nature of the note payable.
—	Bank liabilities - carrying amount approximated fair value due to the short term nature of bank liabilities.
—	Notes receivable - carrying amount approximated fair value.
—	Notes payable to related parties - Dr. M. Rssler (current) –The fair value was calculated based on the underlying publically traded shares. However, the Company records the loan at nominal value. The Company does not have sufficient cash to repurchase the shares as of balance sheet date and hence repay the loans in shares.
—	Notes payable to related parties – (current) – carrying amount approximated fair value due to the short term nature of the notes payable.
—	EUR– bond (old) – carrying amount approximated fair value due to its short term nature
—	EUR- bonds – The fair values of the bonds payable are classified as level 3 fair values. The fair values of the bonds have been determined by discounting cash flow projections discounted at the respective interest rates of 7.25% for EUR bonds, which represents the current market rate based on the creditworthiness of the Company. Hence, the carrying values approximate fair value.
—	CHF-bonds – The fair values of the bonds payable are classified as level 3 fair values. The fair values of the bonds have been determined by discounting cash flow projections discounted at the respective interest rates of 7.25% for CHF bonds, which represents the current market rate based on the creditworthiness of the Company. Hence, the carrying values approximate fair value.
—	Notes payable to related parties – Aires (non-current) – The fair values of the notes payable to Aires International Investments Inc. are classified as level 3. The fair values of the notes were determined by discounting cash flow projections discounted at the respective interest rates of 7.25%, which represents the current market rate based on the creditworthiness of the Company. Hence, the carrying value approximates fair value.
—	Convertible CHF-bonds – The fair values of the convertible bonds payable are classified as level 3 fair values. The fair values of the convertible bonds have been determined by discounting cash flow projections discounted at the respective interest rates of 6.00% for convertible CHF bonds, which represents the current market rate based on the creditworthiness of the Company. Hence, the carrying values approximate fair value.
—	Liability related to conversion feature - The fair value of the liability related to conversion feature is classified as level 3 in the fair value hierarchy. The fair value of the liability is determined using a Black Scholes model to calculate the option value at each reporting date and multiplied by the number of potentially convertible shares.

9. FAIR VALUE MEASUREMENT - CONTINUED

The fair value of our financial instruments is presented in the table below:

September 30, 2016				December 31, 2015
	Carrying		Fair	Carrying	Fair
	Amount $		Value $	Amount $	Value $	Levels	Reference
Cash and cash equivalents 2,985,698			2,985,698	111,830	111,830	1	Note 4
Restricted cash 1,673,563			1,673,563	1,684,467	1,684,467	1	Note 5
Receivables from related parties – 20,643			20,643	19,945	19,945	3	Note 10
Accounts Payable 4,814,034			4,814,034	8,048,608	8,048,608	1	-
Bank liabilities		- - 179,313			179,313	1	Note 11
Note payable		- - -			-	1	Note 17
Notes payable to related parties – 4,256,580 4,256,580 - - 3 Note 10 Dr. M. Rssler (current)
Notes payable to related parties – 2,021			2,021	1,973	1,973	3	Note 10
Notes payable to related parties – 1,764,447			1,764,447	1,129,005	1,129,005	3	Note 10
Notes receivable 280,242			280,242	280,242	280,242	3
EUR-bonds 8,728,720			8,728,720	8,488,631	8,488,631	3	Note 12
Convertible CHF-bonds 38,394,718			38,394,718	28,720,443	28,720,443	3	Note 12
Notes payable to related parties – 48,611,633			48,611,633	47,198,362	47,198,362	3	Note 10
Liability related to conversion 6,760,662			6,760,662	6,976,322	6,976,322	3	Note 12

The Company's financial liabilities measured at fair value on a recurring basis consisted of the liability related to conversion feature as of the following date:

Balance at December 31, 2015	6,976,322
Additions	1,474,622
Change in Fair Value of Conversion Feature	(1,860,806)
FX Revaluation	170,524
Balance at September 30, 2016	6,760,662

Total income (+) or expense (-) related to the conversion feature in the nine months up to September 30, 2016, amounts to $386,184. The Company used a Black-Scholes model to value the liability related to conversion feature as of September 30, 2016 and December 31, 2015. Increase of the conversion feature due to increase of bond volume are accounted for under interest expense.

The assumptions as of December 31, 2015 are as follows:

Stock Price: CHF 5.08 Annualized Risk Free Rate: 0.72% Exercise Price: CHF 8 Annualized Volatility: 80% Time to Maturity: 2.75 years

The assumptions as of September 30, 2016 are as follows:

Stock Price: CHF 5.08 Annualized Risk Free Rate: 0.00% Exercise Price: CHF 8 Annualized Volatility: 80% Time to Maturity: 2 years