FAIR VALUE MEASUREMENTS OF CERTAIN LIABILITIES

9 Months Ended

Sep. 30, 2020

FAIR VALUE MEASUREMENTS OF CERTAIN LIABILITIES

NOTE 4. FAIR VALUE MEASUREMENTS OF CERTAIN LIABILITIES

Liabilities Related to Warrants to Purchase Common Stock

At the end of each reporting period, until expiry, we use an option pricing model to estimate and report the fair value of liabilities related to certain outstanding warrants to purchase common stock. As of September 30, 2020, our outstanding liability-classified warrants include the warrants we issued or that we are obligated to issue as part of the consideration for our acquisition (the “CBG Acquisition”) of assets of China Branding Group Limited (“CBG”) in September 2016 (the “CBG Acquisition Warrants”). The warrants we issued in connection with the financing we obtained for the CBG Acquisition (referred to in our prior reports as the CBG Financing Warrants) expired on September 24, 2020 without being exercised; therefore, the balance of $0.7 million as of September 30, 2020 represents the liability associated with the CBG Acquisition Warrants.

The following table presents the quantitative inputs, which we classify in Level 3 of the fair value hierarchy, used in estimating the fair value of the CBG Acquisition Warrants:


	September 30, 2020		December 31, 2019
Expected volatility	85.00	%	75.00	%
Risk-free interest rate	0.16	%	1.65	%
Expected remaining term (years)	2.98		3.72

The following table presents the change in the liability balance associated with our liability-classified warrants (in thousands):


	Nine Months Ended September 30,		Year Ended December 31,
	2020		2019
Balance at beginning of period	$	115	$	1,383
Increase (decrease) in fair value	633		(1,268)
Balance at end of period	$	748	$	115

As of September 30, 2020 and 2019, warrants outstanding included CBG Acquisition Warrants which may be exercised to purchase 40,000 shares of our common stock at a per-share exercise price of $10.00 (we are also committed to the future issuance of additional CBG Acquisition Warrants to purchase up to 5,710,000 of the Company’s common shares at the same per-share exercise price as the CBG Acquisition Warrant that has already been issued) and, as of September 30, 2019, the CBG Financing Warrants, which could have been exercised to purchase 3,808,423 shares of our common stock at an exercise price of $3.86 per share.

Contingent Consideration Issued in Business Acquisition

Through December 31, 2019, we used the discounted cash flow valuation technique to estimate the fair value of the liability related to certain cash payments that we were obligated make related to our acquisition of Vegas.com, LLC (“Vegas.com”) in September 2015 that were contingent upon the performance of Vegas.com in the years ended December 31, 2016, 2017, and 2018 (the “Earnout Payments”). The significant unobservable inputs that we used, which we classify in Level 3 of the fair value hierarchy, were projected earnings before interest, taxes, depreciation and amortization (“EBITDA”), the probability of achieving certain amounts of EBITDA, and the rate used to discount the liability. On August 19, 2020, we paid all amounts that had remained outstanding related to the Earnout Payments and extinguished this liability.

The following table presents the change during the nine months ended September 30, 2020 and the year ended December 31, 2019 in the balance of the liability associated with the Earnout Payments (in thousands):


	Nine Months Ended September 30,		Year Ended December 31,
	2020		2019
Balance at beginning of period	$	1,086	$	990
Payments	(1,132)		(8)
Change in fair value of contingent consideration	—		10
Interest accrued on unpaid balance	46		94
Balance at end of period	$	—	$	1,086

On the Condensed Consolidated Balance Sheets, we had included the liability for contingent consideration as a component of Accrued expense and other current liabilities.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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