4. Fair value measurements

As of September 30, 2016 and December 31, 2015, the carrying amounts of cash and cash equivalents, accounts receivable, accounts payable and other current liabilities, the note payable to related party, the demand loan payable and dividends payable approximate their fair values due to the short term maturities of these instruments. Management considers that the carrying amounts for loans receivable as of September 30, 2016 and December 31, 2015 approximate their fair value as the stated interest rates approximate market rates.

Under US GAAP, fair value is defined as the exit price, or the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants as of the measurement date. US GAAP guidance also establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs market participants would use in valuing the asset or liability and are developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the factors market participants would use in valuing the asset or liability. The guidance establishes three levels of inputs that may be used to measure fair value:

Level 1 - Quoted prices in active markets for identical assets or liabilities.

Level 2 - Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

Assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurements. The Company reviews its fair value hierarchy classifications on a quarterly basis. Changes in the observability of valuation inputs may result in a reclassification of levels for certain securities within the fair value hierarchy.

The following table presents the Company’s fair value hierarchy for assets and liabilities measured at fair value as of September 30, 2016 and December 31, 2015:

	September 30, 2016
	Level 1		Level 2		Level 3		Total

Assets
Recurring
Restricted cash	$	-	$	-	$	-	$	-
Certificate of deposit	$	-	$	-	$	-	$	-

Nonrecurring
Investment in OC-BVI	$	-	$	-	$	3,942,869	$	3,942,869

Liabilities
Recurring
Net liability arising from put/call options	$	-	$	-	$	658,000	$	658,000

	December 31, 2015
	Level 1		Level 2		Level 3		Total
Assets
Recurring
Restricted cash	$	428,203	$	-	$	-	$	428,203
Certificate of deposit		-		5,637,538		-		5,637,538
Total recurring	$	428,203	$	5,637,538	$	-	$	6,065,741

Nonrecurring
Investment in OC-BVI	$	-	$	-	$	4,548,271	$	4,548,271

The activity for the Level 3 asset and liability for the nine months ended September 30, 2016 was as follows:

Investment in OC-BVI
Balance as of December 31, 2015	$	4,548,271
Profit sharing and equity from earnings of OC-BVI		319,598
Distributions received from OC-BVI		-
Impairment of investment in OC-BVI		(925,000)
Balance as of September 30, 2016	$	3,942,869

Net liability arising from put/call options^[1]
Balance as of December 31, 2015	$	-
Issuance		383,000
Unrealized loss		275,000
Balance as of September 30, 2016	$	658,000

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(1) The net liability arising from the put/call options is included other liabilities in the accompanying condensed consolidated balance sheets as of September 30, 2016.