INVO Fertility, Inc.IVF

INVO Fertility, Inc. Fair Value Disclosure

10-KFiled Mar 17, 20173 min read
NOTE  11
FAIR VALUE MEASUREMENTS

Our short-term financial instruments, including cash, accounts payable and other liabilities, consist primarily of instruments without extended maturities, the fair value of which, based on management’s estimates, reasonably approximate their book value.  The fair value of long term convertible notes is based on management estimates and reasonably approximates their book value after comparison to obligations with similar interest rates and maturities.  The fair value of the Company’s derivative instruments is determined using option pricing models.

As a result of the adoption of ASC 815-40, the Company is required to disclose the fair value measurements required by ASC 820, “Fair Value Measurements and Disclosures.”  The other liabilities recorded at fair value in the balance sheet as of December 31, 2015, 2014, 2013, 2012, and 2011 are categorized based upon the level of judgment associated with the inputs used to measure their fair value.  Hierarchical levels, defined by ASC 820 are directly related to the amount of subjectivity associated with the inputs to fair valuations of these liabilities are as follows:

Level 1 —
Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date;
 
 
Level 2 — 
Inputs other than Level 1 inputs that are either directly or indirectly observable; and
 
 
Level 3 — 
Unobservable inputs, for which little or no market data exist, therefore requiring an entity to develop its own assumptions.

The following table summarizes the financial liabilities measured at fair value on a recurring basis as of the dates indicated,  segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value:

December 31, 2011:
                    
Liabilities
  
 
  
Level 1
    
Level 2
    
Level 3
    
at fair value
  
Derivative liability
    
-
      
-
    
$
80,484
    
$
80,484
  

December 31, 2012:
                  
Liabilities
  
 
  
Level 1
    
Level 2
    
Level 3
  
at fair value
  
Derivative liability
    
-
      
-
    
$
39,243
    
$
39,243
  

December 31, 2013:
                    
Liabilities
  
 
  
Level 1
    
Level 2
    
Level 3
    
at fair value
  
Derivative liability
    
-
      
-
      
-
    
$
-
  

December 31, 2014:
                    
Liabilities
  
 
  
Level 1
    
Level 2
    
Level 3
    
at fair value
  
Derivative liability
    
-
      
-
      
-
    
$
-
  

December 31, 2015:
                    
Liabilities
  
 
  
Level 1
    
Level 2
    
Level 3
    
at fair value
  
Derivative liability
    
-
      
-
      
-
    
$
-
  

Warrant and conversion option derivative liability — these instruments consist of certain of our warrants with anti-dilution provisions, and conversion options embedded in convertible notes payable.  These instruments were valued using pricing models, which incorporate the Company’s stock price, volatility, U.S. risk free rate, dividend rate and estimated life.

The following is a summary of changes in fair value of the derivative and warrant liability for which Level 3 inputs were used in determining fair value:

 
  
Warrants
    
Conv Op
    
Total
  
Balance at January 1, 2011
  
$
130,824
    
$
37,731
    
$
168,555
  
Issued
    
49,536
      
86,015
      
135,551
  
Revalued
    
(147,823
)
    
53,368
      
(94,455
)
Note paid
    
-
      
(11,012
)
    
(11,012
)
Note converted
    
-
      
(118,155
)
    
(118,155
)
Balance at December 31, 2011
  
$
32,537
    
$
47,947
    
$
80,484
  
Issued
    
23,126
      
-
      
23,126
  
Revalued
    
(24,216
)
    
48,705
      
24,489
  
Note paid
    
-
      
-
      
-
  
Note converted
    
-
      
(88,856
)
    
(88,856
)
Balance at December 31, 2012
  
$
31,447
    
$
7,796
    
$
39,243
  
Issued
            
-
      
-
  
Revalued
    
59,649
      
43,901
      
103,550
  
Note paid
    
-
      
-
      
-
  
Note converted
    
-
      
-
      
-
  
Charged to APIC
    
(91,096
)
    
(51,697
)
    
(142,793
)
Balance at December 31, 2013
  
$
-
    
$
-
    
$
-
  
Issued
    
-
      
-
      
-
  
Revalued
    
-
      
-
      
-
  
Note paid
    
-
      
-
      
-
  
Note converted
    
-
      
-
      
-
  
Balance at December 31, 2014
  
$
-
    
$
-
    
$
-
  
Issued
    
-
      
-
      
-
  
Revalued
    
-
      
-
      
-
  
Note paid
    
-
      
-
      
-
  
Note converted
    
-
      
-
      
-
  
Balance at December 31, 2015
  
$
-
    
$
-
    
$
-
  

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About Fair Value Disclosures

Fair value disclosures classify all assets and liabilities measured at fair value into a three-level hierarchy: Level 1 (quoted market prices), Level 2 (observable inputs like yield curves), and Level 3 (unobservable inputs requiring management estimates). The proportion of Level 3 assets directly reflects how much of the balance sheet depends on internal models rather than market evidence.

Key signals: a growing Level 3 balance relative to total fair-value assets increases valuation uncertainty and earnings volatility risk. Watch for transfers between levels — assets moving from Level 2 to Level 3 often signal deteriorating market liquidity. Unrealized gains and losses on Level 3 positions flow through earnings or other comprehensive income, so large swings deserve scrutiny. For financial institutions, examine the sensitivity disclosures that show how Level 3 valuations change under alternative assumptions. Compare the fair value of debt against its carrying amount to gauge hidden leverage.

Other Available Disclosures

Income TaxesPP&EGoodwill & IntangiblesLeasesSegmentsCommitmentsStock CompensationNew StandardsPay vs PerformanceNEO Compensation Adjustments