FAIR VALUE MEASUREMENTS

9 Months Ended

Sep. 30, 2014

FAIR VALUE MEASUREMENTS [Abstract]

FAIR VALUE MEASUREMENTS

NOTE 9 – FAIR VALUE MEASUREMENTS

We have adopted the guidance of ASC 820, Fair Value Measurement, which clarifies the definition of fair value, prescribes methods for measuring fair value, and establishes a fair value hierarchy to classify the inputs used in measuring fair value as follows:

Level 1-Inputs are unadjusted quoted prices in active markets for identical assets or liabilities available at the measurement date.

Level 2-Inputs are unadjusted quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, inputs other than quoted prices that are observable, and inputs derived from or corroborated by observable market data.

Level 3-Inputs are unobservable inputs which reflect the reporting entity's own assumptions on what assumptions the market participants would use in pricing the asset or liability based on the best available information.

The following table provides our liabilities carried at fair value measured on a recurring basis as of September 30, 2014:

	Level 1		Level 2		Level 3		Total
Derivative liability	$	—	$	—	$	165,488	$	165,488

We did not have any liabilities carried at fair value measured on a recurring basis as of December 31, 2013.

We value our derivative instruments related to embedded conversion features from the initial borrowing of $282,500 under the Typenex convertible note payable (see Note 12 below) and accrued interest of $21,312 thereon in accordance with the Level 3 guidelines. For the nine month period ended September 30, 2014, the following table reconciles the beginning and ending balances for financial instruments that are carried at fair value measured on a recurring basis:

Derivative liability as of December 31, 2013	$	—
Additions to derivative liability for convertible debt conversion feature recorded as debt discount		151,937
Additions to derivative liability for interest payable conversion feature recorded as interest expense		11,609
Loss on revaluation of derivative liability at period end		1,942
Derivative liability as of September 30, 2014	$	165,488

The fair values of embedded conversion features issued with our convertible debt and accrued interest payable were estimated using the Black-Scholes option pricing model. The key inputs to this valuation model during the nine months ended September 30, 2014, were as follows:

Risk-free interest rate	0.43% – 0.58%
Dividend yield	—
Volatility	146% – 157%
Expected life in years	1.96 – 2.09
Exercise price	$3.00

The following tabular presentation reflects the components of derivative financial instruments on our condensed balance sheets at September 30, 2014 and December 31, 2013:

	September 30,  2014		December 31,  2013
Derivative Liabilities:
Embedded derivative liability in convertible debt	$	153,879		$	—
Embedded derivative liability in interest payable		11,609			—
Total derivative liability	$	165,488		$	—