6. Fair Value of Financial Instruments

9 Months Ended

Sep. 30, 2014

Fair Value Disclosures [Abstract]

Fair Value of Financial Instruments

Under FASB ASC 820-10-5, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (an exit price). The standard outlines a valuation framework and creates a fair value hierarchy in order to increase the consistency and comparability of fair value measurements and the related disclosures. Under GAAP, certain assets and liabilities must be measured at fair value, and FASB ASC 820-10-50 details the disclosures that are required for items measured at fair value.

The Company does not have any financial instruments that must be measured under the new fair value standard. The Company’s financial assets and liabilities are measured using inputs from the three levels of the fair value hierarchy. The three levels are as follows:

Level 1 - Inputs are unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.

Level 2 - Inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (e.g., interest rates, yield curves, etc.), and inputs that are derived principally from or corroborated by observable market data by correlation or other means (market corroborated inputs).

Level 3 - Unobservable inputs that reflect our assumptions about the assumptions that market participants would use in pricing the asset or liability.

The following schedule summarizes the valuation of financial instruments at fair value on a non-recurring basis in the balance sheets as of September 30, 2014 and December 31, 2013:

	Fair Value Measurements at September 30, 2014
	Level 1		Level 2			Level 3
Assets
Cash	$	71,963	$	–		$	–
Intangible assets		–		–			451,391
Goodwill		–		–			1,355,361
Total assets		71,963		–			1,806,752
Liabilities
Lines of credit		–		83,260			–
Capital leases		–		7,031			–
Notes payable, related parties		–		1,186,618			–
Convertible debts, net of discount of $0.00		–		152,275			–
Long term debts, including current maturities		–		911,467			–
Total Liabilities		–		2,340,651			–
	$	71,963	$	(2,340,651	)	$	1,806,752

	Fair Value Measurements at December 31, 2013
	Level 1		Level 2			Level 3
Assets
Cash	$	208,567	$	–		$	–
Intangible assets		–		–			374,162
Goodwill		–		–			255,460
Total assets		208,567		–			629,622
Liabilities
Lines of credit		–		73,232			–
Capital leases		–		17,421			–
Long term debts		–		1,211,929			–
Notes payable, related parties		–		482,368			–
Convertible debts, net of discount of $109,583		–		157,294			–
Total Liabilities		–		1,942,244			–
	$	208,567	$	(1,942,244	)	$	629,622

There were no transfers of financial assets or liabilities between Level 1 and Level 2 inputs for the nine months ended September 30, 2014 and the year ended December 31, 2013.

Level 2 liabilities consist of various debt arrangements, and Level 3 assets consist of intangible assets and goodwill. Fair value adjustments related to the measurement of intangible assets of $-0- and $276,282 were necessary during the nine months ended September 30, 2014 and December 31, 2013, respectively.