| SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The accompanying consolidated financial statements and footnotes as of December 31, 2015 and 2014 and for the years ended December 31, 2015, 2014 and 2013 have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The merger with Lindblad has been accounted for as a reverse acquisition in accordance with U.S. GAAP, Financial Accounting Standards Board (“FASB”), Accounting Standards Codification (“ASC”) 805-40-45. Under this method of accounting, Capitol has been treated as the “acquired” company for financial reporting purposes. This determination was primarily based on Lindblad comprising the ongoing operations and assets of the combined entity and Lindblad senior management comprising the senior management of the combined company. In accordance with guidance applicable to these circumstances, the merger has been considered to be a capital transaction in substance. Accordingly, for accounting purposes, the merger has been treated as the equivalent of Lindblad issuing shares for the net assets of Capitol, accompanied by a recapitalization. The net assets of Capitol have been stated at historical cost, with no goodwill or other intangible assets recorded. Operations prior to the merger are those of Lindblad. Additionally, the historical financial statements of Lindblad are now reflected as those of the Company. Principles of Consolidation The consolidated financial statements of the Company as of December 31, 2015 included Lindblad Expeditions Holdings, Inc. and its wholly-owned subsidiaries. The consolidated financial statements of the Company as of December 31, 2014 and 2013 included Lindblad, its wholly-owned subsidiary, Lindblad Maritime Enterprises, Ltd (“LME”), a Cayman Islands corporation, as well as the subsidiaries of LME, and Sea Lion Sea Bird Sea Lion Sea Bird Reclassifications Certain items in the consolidated financial statements of the Company have been reclassified to conform to the 2015 classification. Use of Estimates The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the consolidated financial statements, and also affect the amounts of revenues and expenses reported for each period. Actual results could differ from those which result from using such estimates. Management utilizes various estimates, including but not limited to determining the estimated lives of long-lived assets, determining the fair value of assets acquired and liabilities assumed in business combinations, the fair value of the Company’s common stock and related warrants, the valuation of securities underlying stock-based compensation, income tax expense, the valuation of deferred tax assets, the value of contingent consideration and to assess its litigation, other legal claims and contingencies. The results of any changes in accounting estimates are reflected in the consolidated financial statements in the period in which the changes become evident. Estimates and assumptions are reviewed periodically and the effects of revisions are reflected in the period that they are determined to be necessary. Revenue Recognition Tour revenues consist of guest ticket revenues recognized from the sale of guest tickets, and other revenues from the sale of pre- and post-expedition excursions, hotel accommodations, land-based expeditions, air transportation to and from the ships, goods and services rendered onboard that are not included in guest ticket prices, trip insurance, and cancellation fees. Revenue from the sale of guest tickets and other revenue are recognized gross, as the Company has the primary obligation in the arrangement, has discretion in supplier selection, and is involved in the determination of the service specifications. The Company’s tour guests remit deposits in advance of tour embarkation. Guest tour deposits consist of guest ticket revenues as well as revenues from the sale of pre- and post-expedition excursions, hotel accommodations, land-based expeditions, air transportation to and from the ships and trip insurance. Guest tour deposits represent unearned revenues and are initially included in unearned passenger revenue in the consolidated balance sheet when received. Guest deposits are subsequently recognized as tour revenues on the date of embarkation. Tour expeditions average ten days in duration. For tours in excess of ten days, the Company recognizes revenue based upon expeditions days earned. Guest cancellation fees are recognized as tour revenues at the time of the cancellation. Revenues from the sale of additional goods and services rendered onboard are recognized upon purchase. Insurance The Company maintains insurance to cover a number of risks including illness and injury to crew, guest injuries, pollution, other third-party claims in connections with its tour expedition activities, damages to hull and machinery for each of its vessels, war risks, workers’ compensation, employee health, directors and officers liability, property damages and general liabilities for third-party claims. The Company recognizes insurance recoverables from third-party insurers for incurred expenses at the time the recovery is probable and upon realization for amounts in excess of incurred expenses. All of the Company’s insurance policies are subject to coverage limits, exclusions and deductible levels. The Company self-insures for medical insurance claims up to $60,000 and cancellation insurance extended to guests. The Company has Stop Loss coverage for medical claims in excess of the $60,000 amount. In 2015, the Company recorded a liability for Incurred-But-Not-Recorded (“IBNR”) medical claims, which was determined based on claims experience over the prior three years. The Company uses an insurance company to manage passenger insurance purchased to cover a variety of insurable losses including cancellations, interruption, missed connections, travel delays, accidental death and dismemberment, medical coverage and baggage issues. The Company is self-insured for the claims only which cover cancellations, interruption, missed connections and travel delays. The required reserve was determined based on claims experience over the prior four years. While the Company believes its estimated IBNR and accrued claims reserves are adequate, the ultimate losses may differ. The Company participates in a traditional marine industry reinsurance solution for liability exposure through their Protection and Indemnity (“P&I Club”) Reinsurers, which are similar mutual marine P&I Club’s that join and severally indemnify each other to provide discounted primary and excess Protection and Indemnity coverage to club members. The resulting aggregated surplus of the clubs combines to provide the Company with below market primary and high excess liability coverage for covered losses. For consideration of long-term below market P&I rates, the joint and several liability obligation requires the
down stream indemnification by their members,
including the Company. Selling and Administrative Expense Selling expenses include commissions and a broad range of advertising and marketing expenses. These include direct mail, print and online advertising costs, as well as costs associated with website development and maintenance. Also included are social media and corporate sponsorship costs. Advertising is charged to expense as incurred. Advertising expenses totaled $12.9 million, $12.5 million and $12.1 million for the years ended December 31, 2015, 2014 and 2013, respectively. The largest component of advertising expense was direct mail, which totaled $5.8 million, $5.8 million and $5.5 million for the years ended December 31, 2015, 2014 and 2013, respectively. Administrative expenses represent the costs of our shore-side vessel support, reservations and other administrative functions, and incudes salaries and related benefits, professional fees, and occupancy costs, which are typically expensed as incurred. Earnings per Common Share Earnings per common share are computed by dividing net income by the weighted average number of common shares outstanding during the period. Diluted earnings per share are computed using the weighted average number of common shares and, if dilutive, potential common shares outstanding during the period. Potential common shares consist of the dilutive incremental common shares issuable upon the exercise of stock options (if such option is an equity instrument, using the treasury stock method). For the year ended December 31, 2015, the Company determined, using the treasury method, there were 657,558 dilutive common shares related to stock options. For the years ended December 31, 2014 and 2013, the Company determined there were no dilutive potential common shares. In 2014 and 2013, the two-class method was used in the calculation of basic and diluted earnings per share. Under the two-class method, earnings per common share were allocated to the Class A (common as a result of the merger) and Class B common shareholders of Lindblad based on the weighted average shares outstanding. On July 8, 2015, as a result of the mergers, in accordance with FASB ASC 805-40-45 and related to the reverse merger treatment and recapitalization, all historical weighted average common shares were adjusted by the exchange ratios established by the merger agreement. Weighted average shares outstanding after the mergers excluded the shares underlying the outstanding warrants. The warrants have an exercise price of $11.50 per share and were anti-dilutive. Basic weighted average shares outstanding prior to the mergers included the shares underlying a warrant to purchase 60% of the outstanding common shares. As the shares underlying this warrant could have been issued for little consideration (an aggregate exercise price of $10.00), these shares were formerly deemed to be issued for purposes of basic earnings per share. Effective May 8, 2015, in connection with Lindblad closing on a transaction to purchase 100% of Cruise/Ferry Master Fund I, N.V. (“CFMF”), the warrant was cancelled. On July 8, 2015, as a result of the merger agreement, and the reverse merger treatment and recapitalization, these shares were not considered part of the recapitalization and therefore not included in basic or dilutive weighted average shares outstanding. For the years ended December 31, 2015, 2014 and 2013, the Company excluded 1,912,833 (converted from 6,747 shares as a result of the merger) shares of common stock as these shares were subject to the warrants described above. For the years ended December 31, 2015, 2014 and 2013, the Company calculated earnings per share in accordance with FASB ASC 260 and 805-40-45 as follows: For the Years Ended December 31, (In thousands, except per share data) 2015 2014 2013 Net income for basic and diluted earnings per share $ 19,742 $ 22,245 $ 14,844 Weighted average shares outstanding: Shares outstanding, weighted for time outstanding 44,917,829 50,878,894 51,106,436 Total weighted average shares outstanding, basic 44,917,829 50,878,894 51,106,436 Effect of dilutive securities: Assumed exercise of stock options, treasury method 657,558 - - Dilutive potential common shares 657,558 - - Total weighted average shares outstanding, diluted 45,575,387 50,878,894 51,106,436 Common stock Net income available to common stockholders $ 19,742 $ 19,551 $ 12,988 Weighted average shares outstanding Basic 44,917,829 44,717,759 44,717,759 Diluted 45,575,387 44,717,759 44,717,759 Earnings per share Basic $ 0.44 $ 0.44 $ 0.29 Diluted $ 0.43 $ 0.44 $ 0.29 Class B common stock Net income available to Class B common stockholders $ - $ 2,694 $ 1,856 Weighted average shares outstanding Basic - 6,161,135 6,388,677 Diluted - 6,161,135 6,388,677 Earnings per share Basic $ - $ 0.44 $ 0.29 Diluted $ - $ 0.44 $ 0.29 As of December 31, 2015, there were 45,224,881 shares outstanding. Upon completion of the mergers on July 8, 2015, the Company had 44,717,759 shares of common stock outstanding. The Company is authorized to issue 200,000,000 shares of common stock, par value $0.0001, and 1,000,000 shares of preferred stock, par value $0.0001. The Company’s Board of Directors adopted the 2015 Long-Term Incentive Plan (the “2015 Plan”), subject to shareholder approval, which was obtained on July 8, 2015. The 2015 Plan includes the authority to issue up to 2,500,000 shares of LEX’s common stock under the 2015 Plan. In connection with the mergers with Lindblad, certain stock options previously granted by Lindblad under the Lindblad Expeditions, Inc. 2012 Stock Incentive Plan (the “Lindblad Plan”) were assumed and converted into options to purchase shares of the Company’s common stock. As of December 31, 2015, options to purchase an aggregate of 2,849,071 shares of the Company’s common stock with a weighted average exercise price of $2.69 per share were outstanding. As of December 31, 2015, 14,008,382 warrants to purchase common stock at a price of $11.50 per share were outstanding. Cash and Cash Equivalents The Company considers all highly liquid instruments with an original maturity of three months or less, as well as deposits in financial institutions, to be cash and cash equivalents. Concentration of Credit Risk The Company maintains cash in several financial institutions in the U.S. and other countries which, at times, may exceed the federally insured limits. Accounts held in the U.S. are guaranteed by the Federal Deposit Insurance Corporation up to certain limits. The Company has not experienced any losses in such accounts. As of December 31, 2015 and 2014, the Company’s cash held in financial institutions outside of the U.S. amounted to $3.9 million and $2.5 million, respectively. Restricted Cash and Marketable Securities Included in “Restricted cash and marketable securities” on the accompanying consolidated balance sheets are restricted cash and marketable securities, consisting of six-month certificates
of deposit and short-term investments. Restricted cash and marketable securities consist of the following: As of December 31, (In thousands) 2015 2014 Restricted cash and marketable securities: Credit negotiation and credit card processor reserves $ 5,030 $ 5,030 Federal Maritime Commission escrow 2,233 2,115 Certificates of deposit and other restricted securities 1,197 1,190 Total restricted cash and marketable securities $ 8,460 $ 8,335 The amounts held in restricted cash and marketable securities represent principally funds required to be held in certificates of deposit by certain vendors and regulatory agencies and are classified as restricted assets since such amounts cannot be used by the Company until the restrictions are removed by those vendors and regulatory agencies. Interest income is recognized when earned. The
Company has classified marketable securities, principally money market funds, as trading securities which are recorded at market value. Unrealized gains and losses are included in current operations. Gains and losses on the disposition of securities are recognized by the specific identification method in the period in which they occur. In order to operate guest tour expedition vessels from U.S. ports, the Company is required to post a performance bond with the Federal Maritime Commission or escrow all unearned guest deposits in restricted accounts. To satisfy this requirement, the Company entered into an agreement with a financial institution to escrow all unearned guest revenues collected for sailings from U.S. ports. A $5.0 million cash reserve at December 31, 2015 and 2014 is required for credit card deposits by third-party credit card processors. The above arrangements are included in restricted cash and marketable securities on the accompanying consolidated balance sheets. Amounts in the escrow accounts include cash, certificates of deposit, and marketable securities. Cost of these short-term investments approximates fair value. Inventories and Marine Operating Supplies Inventories consist primarily of gift shop merchandise and other items for resale and are stated at the lower of cost or net realizable value. Cost is determined using the first-in, first-out method. Marine operating supplies consist primarily of fuel, provisions, spare parts, items required for maintenance, and supplies used in the operation of marine expeditions. Marine operating supplies are stated at the lower of cost or net realizable value. Cost is determined using the first-in
first-out method. In the third quarter of 2015, the Company adjusted cost of tours by $0.3 million due to a change in application of accounting procedures, and reclassified $0.4 million in items from inventories and marine operating supplies to property and equipment, net. The change in application of accounting procedures was a result of the Company’s review of its inventory process during the third quarter which found the counting of certain small supply items a disruption to operations, impractical and expensive and discontinued the count of these items in the third quarter and in the future. Prepaid Expenses and Other Current Assets The Company records prepaid expenses and other current assets at cost and expenses them in the period the services are provided or the goods are delivered. The Company’s prepaid expenses and other current assets consist of the following: As of December 31, (In thousands) 2015 2014 Prepaid tour expenses $ 5,269 $ 5,181 Prepaid client insurance 1,706 1,663 Prepaid air expense 1,379 856 Prepaid port agent fees 1,080 827 Prepaid taxes 938 653 Prepaid corporate insurance 673 523 Other prepaid expenses and other current assets 1,221 1,618 Total prepaid expenses and other current assets $ 12,266 $ 11,321 Property and Equipment Property and equipment are stated at cost less accumulated depreciation and amortization. Depreciation and amortization were computed using the straight line method over the estimated useful lives of the assets, as follows: Years Vessels and vessel improvements 15-25 Furniture & equipment 5 Computer hardware and software 5 Leasehold improvements, including port facilities Shorter of lease term or related asset life The tour and expedition industry is very capital intensive and as of December 31, 2015 and 2014, the
Company owned and operated six vessels. Therefore, the Company has a capital program that it develops for the improvement of its vessels and for asset replacements in order to enhance the effectiveness and efficiency of its operations; comply with, or exceed all relevant legal and statutory requirements related to health, environment, safety, security and sustainability; and gain strategic benefits or provide newer improved product innovations to its guests. Vessel improvement costs that add value to the Company’s vessels, such as those discussed above, are capitalized to the vessels and depreciated over the shorter of the improvements or the vessel’s estimated remaining useful life, while costs of repairs and maintenance, including minor improvement costs and drydock expenses, are charged to expense as incurred and included in other vessels operating expenses. Drydock costs primarily represent planned major maintenance activities that are incurred when a vessel is taken out of service for scheduled maintenance. For U.S. flagged ships, the statutory requirement is an annual docking and U.S. Coast Guard inspections, normally conducted in drydock. Internationally flagged ships have scheduled dockings approximately every 12 months, for a period of up to three to six weeks. Long-Lived Assets The Company reviews its long-lived assets, principally its vessels and operating rights, for impairment whenever events or changes in circumstances indicate that the carrying amounts of these assets may not be fully recoverable. Upon the occurrence of a triggering event, the assessment of possible impairment is based on the Company’s ability to recover the carrying value of its asset, which is determined by using the asset’s estimated undiscounted future cash flows. If these estimated undiscounted future cash flows are less than the carrying value of the asset, an impairment charge is recognized for the excess, if any, of the asset’s carrying value over its estimated fair value. A significant amount of judgment is required in estimating the future cash flows and fair values of its vessels and operating rights. As of December 31, 2015 and 2014, there was no triggering event and the Company did not record an impairment of its long-lived assets. The Company reviewed the remaining useful life of the National Geographic Endeavour Via Australis National Geographic Endeavour’s National Geographic Endeavour Operating Rights The Company operates two vessels year-round in the Galápagos National Park in Ecuador; the National Geographic Endeavour National Geographic Islander In June 2015, a new Ecuadorian Special Law for Protected Areas was approved and updated in November 2015. A Presidential Decree issued by President Correa of Ecuador in November 2015 established that cupos, which were in effect as of July 2015, will have a validity of nine years. The Company’s operating rights are up for renewal in July 2024 and based on the new law, the Company will begin the renewal process in 2020. The current “owners” of the cupos will have the opportunity to re-apply for them, but any other enterprise or individual will have the opportunity to bid for the cupos. All bidders must present proof that they fulfill the conditions to properly utilize the license (access to a vessel, experience in tourism, proven environmental behavior, marketing, etc.). While the Company believes that, based on the expected criteria to retain cupos and its past operating history in the Galápagos, there is a strong possibility that the Company will retain its cupos, from an accounting perspective, it will assume they retain no value after July 2024. Once the renewal process is begun and if it can be determined that the Company will be successful in its bid, then the Company will adjust its amortization prospectively. Investment in CFMF and Additional Paid-In Capital The Company uses the equity method of accounting for business investments when it has active involvement, but not control, in the venture. In 2015, the Company changed its accounting treatment for the investment in CFMF to the cost method and derecognized any earnings previously reported in the current year and adjusted the treatment of the CFMF transaction. On March 3, 2009, Lindblad issued a note payable to Cruise/Ferry Master Fund I, N.V. (see Note 8 – Long-Term Debt). On December 11, 2014, Lindblad entered into a Profit Participation Loan Purchase Agreement with DVB Bank America, N.V. (“DVB”), a Profit Participation Rights Purchase Agreement with Buss Kreuzfahrtfonds 1 GmbH & Co. KG and Buss
Kreuzfahrtfonds 2 GmbH & Co. KG, and a Stock Purchase Agreement with Cruise/Ferry Finance Partners Private Foundation. These three agreements enabled Lindblad to purchase the financial and equity interests in CFMF in order to recapture and extinguish an outstanding warrant to purchase 60% of the outstanding equity of Lindblad on a fully diluted basis. On December 11, 2014, the date of the purchase agreements, an initial payment of $25.0 million was made to DVB under the Profit Participation Loan Purchase Agreement. The remaining payments of (i) $22.7 million to DVB, (ii) $48.4 million to Buss Kreuzfahrtfonds 1 GmbH & Co. KG and Buss Kreuzfahrtfonds 2 GmbH & Co. KG, as increased by $0.3 million per month from December 31, 2014 until the close of the transaction, and (iii) $1.00 to Cruise/Ferry Financing Partners Private Foundation were made on May 8, 2015 (“CFMF Closing”). In
connection with the CFMF Closing, the 60% warrant was cancelled; the junior debt note receivable was cancelled; and the related junior debt facility offset by the outstanding unamortized balance of the debt discount was cancelled, resulting in a gain on the transfer of assets, and Lindblad commenced liquidation procedures on CFMF. Utilizing the proceeds from the new loans, Lindblad also paid in full its preexisting senior debt facility in the amount of $39.8 million held by DVB. The investment in CFMF was liquidated subsequent to the purchase of CFMF on May 8, 2015. The CFMF assets acquired were the junior mortgage note receivable and warrant and both were cancelled and resulted in the removal of the junior mortgage note receivable, which had a relative fair value of $8.5 million, and related junior debt, which had a fair value of $16.0 million (a face value of $20.0 million less the debt discount of $4.0 million). This resulted in a $7.5 million gain on the transfer of assets and an $83.7 million adjustment to additional paid-in capital for the cancellation of the warrant. Assignment and Assumption Agreement In connection with Lindblad’s agreement to purchase CFMF, Mr. Lindblad earned a success fee of $5.0 million from DVB for the purchase of CFMF (DVB was a partner in CFMF and the lender of Lindblad’s preexisting senior debt facility). On March 9, 2015, Mr. Lindblad and Lindblad entered into an Assignment and Assumption Agreement pursuant to which Mr. Lindblad (i) assigned and transferred to Lindblad his right to receive a $5.0 million fee payable to Mr. Lindblad personally by DVB and (ii) exercised his outstanding option to purchase 809,984 shares (converted from 2,857 shares at the merger date) of Lindblad’s stock for $0.1 million in aggregate exercise proceeds. In exchange for the assignment to Lindblad of the fee payable by DVB, all of Mr. Lindblad’s obligations under his loan agreement with Lindblad (the “Mr. Lindblad Loan Agreement”), which had a balance of principal and accrued interest of $2.8 million as of March 9, 2015, were deemed satisfied in full, the Mr. Lindblad Loan Agreement and related promissory note were terminated, and Mr. Lindblad’s obligation to pay the aggregate exercise price for the exercise of the option described above was satisfied in full. On May 8, 2015, Lindblad received the $5.0 million fee from DVB and compensated Mr. Lindblad $5.0 million (success fee compensation expense), which was paid by settling the $2.8 million outstanding amount of principal and interest owed and the aggregate exercise proceeds of $0.1 million payable in connection with the exercise of the option (above), and also offset by $2.1 million in required withholding taxes. Accounts Payable and Accrued Expenses The Company records accounts payable and accrued expenses for the cost of such items when the service is provided or when the related product is delivered. The Company’s accounts payable and accrued expenses consist of the following: As of December 31, (In thousands) 2015 2014 Accounts payable $ 8,843 $ 5,109 Accrued liabilities 7,175 5,637 Bonus compensation 3,465 3,150 Income taxes 2,045 1,836 Royalty payable 1,310 999 Other 3,130 3,297 Total accounts payable and accrued expenses $ 25,968 $ 20,028 Leases The Company leases office space with lease terms ranging from one to ten years. The Company amortizes the total lease costs on a straight line basis over the minimum lease term. The Company leases computer hardware and software, office equipment and vehicles with lease terms ranging from three to six years. Fair Value Measurements and Disclosure The Company applies ASC 820, “Fair Value Measurements and Disclosures,” which expands disclosures for assets and liabilities that are measured and reported at fair value on a recurring basis. Fair value is defined as an exit price, representing the amount that would be received upon the sale of an asset or payment to transfer a liability in an orderly transaction between market participants. Fair value is a market-based measurement that is determined based on assumptions that market participants would use in pricing an asset or liability. A three-tier fair value hierarchy is used to prioritize the inputs in measuring fair value as follows: Level 1 Quoted market prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity has the ability to access at measurement date. Level 2 Quoted market prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable, either directly or indirectly. Fair value is determined through the use of models or other valuation methodologies. Level 3 Significant unobservable inputs for assets or liabilities that cannot be corroborated by market data. Fair value is determined by the reporting entity’s own assumptions utilizing the best information available, and includes situations where there is little market activity for the investment. The carrying amounts of cash and cash equivalents, accounts payable and accrued expenses, approximate fair value due to the short-term nature of these instruments. The carrying value of long-term debt approximates fair value given that the terms of the agreement were comparable to the market as of December 31, 2015. The asset’s or liability’s fair value measurement within the fair value hierarchy is based upon the lowest level of any input that is significant to the fair value measurement. The following table provides a summary of the liabilities that were measured at fair value on a recurring basis as of December 31, 2014. As of December 31, 2015, the Company had no liabilities that were measured at fair value on a recurring basis. (In thousands) Total Quoted Prices in Active Markets for Identical Assets or Liabilities Quoted Prices for Similar Assets or Liabilities in Active Markets (Level 2) Significant Unobservable Inputs (Level 3) Obligation for the repurchase of common shares subject to put as of December 31, 2014 $ 4,966 $ - $ - $ 4,966 Obligation cancelled in the merger – July 8, 2015 (4,966 ) - - (4,966 ) Obligation for the repurchase of common shares subject to put as of December 31, 2015 $ - $ - $ - $ - Lindblad and certain of its stockholders who acquired shares through the exercise of stock options, entered into agreements providing for the redemption of outstanding shares at any time by the holder. Accordingly, these shares were subject to repurchase under the terms of these agreements. As of December 31, 2014, there were 1,912,833 (converted from 6,747 shares as a result of the merger) shares outstanding subject to such
redemption. The obligation for the repurchase of common shares was cancelled as a result of the merger on July 8, 2015. Level 3 liabilities are valued using unobservable inputs to the valuation methodology that are significant to the measurement of fair value. For fair value measurements categorized within Level 3 of the fair value hierarchy, the Company’s Chief Financial Officer determined its valuation policies and procedures. The development and determination of the unobservable inputs for Level 3 fair value measurements and fair value calculations are the responsibility of the Company’s Chief Financial Officer with support from the Company’s consultants and which are approved by the Chief Financial Officer. Level 3 financial liabilities consist of obligations for which there is no current market for these securities such that the determination of fair value requires significant judgment or estimation. Changes in fair value measurements categorized within Level 3 of the fair value hierarchy are analyzed each period based on changes in estimates or assumptions and recorded as appropriate. The fair value of the Company’s common stock was determined by the Company and was derived from a valuation prepared by the Company’s Chief Financial Officer using a weighted analysis of peer multiples of earnings before interest, taxes, depreciation and amortization (“EBITDA”) and discounted cash flows. Income Taxes Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. The measurement of net deferred tax assets is reduced by the amount of any tax benefit that, based on |
