|
NOTE
6 – FAIR VALUE MEASUREMENT
Fair
value is defined as the price that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date. Fair value measurements are classified and disclosed in one of the following
categories:
| Level
1: |
Unadjusted
quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.
GulfSlope considers active markets as those in which transactions for the assets or liabilities occur in sufficient frequency
and volume to provide pricing information on an ongoing basis. |
| Level
2: |
Quoted
prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the
full term of the asset or liability. This category includes those derivative instruments that GulfSlope values using observable
market data. Substantially all of these inputs are observable in the marketplace throughout the term of the derivative instrument,
can be derived from observable data, or are supported by observable levels at which transactions are executed in the marketplace.
Instruments in this category include non-exchange traded derivative financial instruments as well as warrants to purchase
common stock and long-term incentive plan liabilities calculated using the Black-Scholes model to estimate the fair value
as of the measurement date. |
| Level
3: |
Measured
based on prices or valuation models that require inputs that are both significant to the fair value measurement and less observable
from objective sources (i.e. supported by little or no market activity). |
As
required by ASC 820-10, financial assets and liabilities are classified based on the lowest level of input that is significant
to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement
requires judgment, and may affect the valuation of the fair value of assets and liabilities and their placement within the fair
value hierarchy levels.
Fair
Value on a Recurring Basis
The
following table sets forth by level within the fair value hierarchy the Company’s derivative financial instruments that
were accounted for at fair value on a recurring basis as of March 31, 2020:
| Description |
|
Quoted
Prices in
Active
Markets for
Identical
Assets
(Level 1)
|
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
|
Significant
Other
Unobservable
Inputs
(Level 3)
|
|
|
Total
Fair
Value as of |
|
| Derivative
Financial Instrument at September 30, 2019 |
|
$ |
— |
|
|
$ |
3,534,456 |
|
|
$ |
— |
|
|
$ |
3,534,456 |
|
| New
Derivative Instruments Issued |
|
|
— |
|
|
|
880,462 |
|
|
|
— |
|
|
|
880,462 |
|
| Derivative
Instruments Converted |
|
|
— |
|
|
|
(458,893 |
) |
|
|
— |
|
|
|
(458,893 |
) |
| Change
in fair value |
|
|
— |
|
|
|
(1,738,803 |
) |
|
|
— |
|
|
|
(1,738,803 |
) |
| Derivative
Financial Instrument at March 31, 2020 |
|
$ |
— |
|
|
$ |
2,217,222 |
|
|
$ |
— |
|
|
$ |
2,217,222 |
|
Non-recurring
fair value assessments include impaired oil and natural gas property assessments and stock-based compensation. During the six
months ended March 31, 2020, the Company recorded stock-based compensation expense of $728,091 of which $373,350 was capitalized
to oil and gas properties.
|