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FAIR VALUE OF FINANCIAL INSTRUMENTS (Tables)

9 Months Ended

Sep. 30, 2014

Schedule of liabilities measured at fair value on a recurring basis

	Level 1		Level 2		Level 3		Total

Derivative liability related to fair value of beneficial conversion feature	$	-	$	400,000	$	--	$	400,000
Derivative liability related to fair value of warrants		-		-		4,582,716		4,582,716
Total	$	-	$	400,000	$	4,582,716	$	4,982,716

Schedule of fair value measurements within the fair value hierarchy of derivative liabilities using Level 3 inputs

	Total

Balance at January 1, 2014	$	6,000,000
Additional Warrants issued January 2014		444,000
Additional Warrants issued June 2014		34,222
Additional Warrants issued 3rd Quarter 2014		166,791
Change in fair value of derivative liabilities		(2,062,297	)

Balance at September 30, 2014	$	4,582,716

Schedule of embedded derivative liability valuation assumptions

Closing trade price of Common Stock	$	0.05
Series A Preferred Stock Conversion Price	$	0.03
Intrinsic value of conversion option per share	$	0.02

Schedule of common stock purchase warrants valuation assumptions

	Sept 30, 2014
Annual Dividend Yield		0.0%
Expected Life (Years)		3.25 – 4.98
Risk-Free Interest Rate		1.67%
Expected Volatility		205.4% – 240.2%

- Definition

Tabular disclosure of the fair value measurement of financial instruments classified in shareholders' equity using significant unobservable inputs (level 3), a reconciliation of the beginning and ending balances, separately presenting changes attributable to the following: (1) total gains or losses for the period (realized and unrealized), segregating those gains or losses included in earnings (or changes in net assets), and gains or losses recognized in other comprehensive income (loss) and a description of where those gains or losses included in earnings (or changes in net assets) are reported in the statement of income (or activities); (2) purchases, sales, issues, and settlements (each type disclosed separately); and (3) transfers in and transfers out of level 3 (for example, transfers due to changes in the observability of significant inputs) by class of equity.

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- Definition

Tabular disclosure of liabilities, including [financial] instruments measured at fair value that are classified in stockholders' equity, if any, by class that are measured at fair value on a recurring basis. The disclosures contemplated herein include the fair value measurements at the reporting date by the level within the fair value hierarchy in which the fair value measurements in their entirety fall, segregating fair value measurements using quoted prices in active markets for identical assets (Level 1), significant other observable inputs (Level 2), and significant unobservable inputs (Level 3). Where the quoted price in an active market for the identical liability is not available, the Level 1 input is the quoted price of an identical liability when traded as an asset.

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