FAIR VALUE MEASUREMENTS
 12 Months Ended
Dec. 31, 2019
Fair Value Disclosures [Abstract]  
FAIR VALUE MEASUREMENTS
NOTE 4. FAIR VALUE MEASUREMENTS

Liabilities Related to Warrants to Purchase Common Stock

At the end of each reporting period, we use the Monte Carlo Simulation model to estimate and report the fair value of liabilities related to certain outstanding warrants. As of December 31, 2019, 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”) and warrants we issued as a result of an amendment to the Financing Agreement related to the acquisition (the “CBG Financing 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 warrants:
 
December 31,
 
2019
 
2018
CBG Financing Warrants
 
 
 
Expected volatility
85.00
%
 
70.00
%
Risk-free interest rate
1.60
%
 
2.52
%
Expected remaining term (years)
0.73

 
1.73

CBG Acquisition Warrants
 
 
 
Expected volatility
75.00
%
 
70.00
%
Risk-free interest rate
1.65
%
 
2.46
%
Expected remaining term (years)
3.72

 
4.72




During 2019, we increased the expected volatility we use as an input to the model. We made the change after reviewing our recent stock price performance and the historical stock price volatilities of our peer group, which led us to conclude that volatility over the expected period of the warrants would be higher than we had previously estimated. In addition to the quantitative assumptions above, we also consider whether we would issue additional equity and, if so, the price per share of such equity. At December 31, 2019, we estimated that one future equity financing event would potentially occur within the subsequent twelve months.

Our estimate of expected volatility and our stock price tend to have the most significant impact on the estimated fair value of the CBG Financing Warrants and the CBG Acquisition Warrants. If we added or subtracted five percentage points with regard to our estimate of expected volatility, or if our stock price increased or decreased by five percent, our estimates of fair value would not materially change.

The following table presents the change in the liability balance associated with our liability-classified warrants (in thousands):
 
Year Ended December 31,
 
2019
 
2018
Balance at beginning of period
$
1,383

 
$
89,169

Warrant exercises
—

 
(59,907
)
Increase (decrease) in fair value
(1,268
)
 
(27,879
)
Balance at end of period
$
115

 
$
1,383




At January 1, 2018, our outstanding liability-classified warrants included warrants we issued in connection with our acquisition of Vegas.com in September 2015 and the financing related thereto (such warrants, the “VDC Acquisition Warrants”
and the “VDC Financing Warrants”, respectively). On January 8, 2018, holders of VDC Acquisition Warrants with respect to 2,416,996 shares of our common stock exercised such warrants. Because the VDC Acquisition Warrants provided that such warrants were exercisable on a cashless basis only, we issued a total of 750,102 shares of common stock in settlement of such warrants without receiving any proceeds from the exercise thereof.

On January 10, 2018, we exercised our right to exercise all remaining VDC Acquisition Warrants and VDC Financing Warrants (which right became effective when the closing price of our common stock reached $14.00), exercising VDC Acquisition Warrants with respect to 6,184,414 shares of our common stock and VDC Financing Warrants with respect to 3,117,148 shares of our common stock. Because the VDC Acquisition Warrants and VDC Financing Warrants provided that such warrants were exercisable on a cashless basis only, we issued a total of 2,236,915 and 1,385,396 shares of common stock to the holders of the VDC Acquisition Warrants and the VDC Financing Warrants, respectively, in settlement of such warrants without receiving any proceeds from the exercise thereof.


Contingent Consideration Issued in Business Acquisition

We used the discounted cash flow valuation technique to estimate the fair value of the liability related to certain cash payments stipulated in the VDC Acquisition 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.

The following table presents the change during the years ended December 31, 2019 and 2018 in the balance of the liability associated with the Earnout Payments (in thousands):
 
December 31,
 
2019
 
2018
Balance at beginning of period
$
990

 
$
1,930

Payments
(8
)
 
(1,000
)
Change in fair value of contingent consideration
10

 
60

Interest accrued on unpaid balance
94

 
—

Balance at end of period
$
1,086

 
$
990




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