DERIVATIVE LIABILITIES

3 Months Ended

Dec. 31, 2014

Derivative Liability [Abstract]

DERIVATIVE LIABILITIES

WARRANT DERIVATIVE LIABILITY

 The Company has warrants issued in connection with its convertible notes payable with price protection provisions that allow for the reduction in the exercise price of the warrants in the event the Company subsequently issues stock or securities convertible into stock at a price lower than the exercise price of the warrants. Simultaneously with any reduction to the exercise price, the number of shares of common stock that may be purchased upon exercise of each of these warrants shall be increased or decreased proportionately, so that after such adjustment the aggregate exercise price payable for the adjusted number of warrants shall be the same as the aggregate exercise price in effect immediately prior to such adjustment. The Company accounted for its warrants with price protection in accordance with FASB ASC Topic 815.

 The Company’s derivative warrant instruments have been measured at fair value at December 31, 2014 and September 30, 2014 using the Black-Scholes model, which approximates a binomial or lattice model. The liability is revalued at each reporting period and changes in fair value are recognized currently in the consolidated statements of operations. The initial recognition and subsequent changes in fair value of the warrant derivative liability have no effect on the Company’s cash flows.

 The fair value of the warrants at December 31, 2014 and September 30, 2014 is $6,095 and $241,336, respectively, which is reported on the consolidated balance sheet under the caption “Derivative Liabilities”.

Fair Value Assumptions Used in Accounting for Warrant Derivative Liabilities

 The Company has determined its warrant derivative liabilities to be a Level 3 fair value measurement and has used the Black-Scholes pricing model to calculate the fair value as of December 31, 2014. The Black-Scholes model requires six basic data inputs: the exercise or strike price, time to expiration, the risk free interest rate, the current stock price, the estimated volatility of the stock price in the future, and the dividend rate. Changes to these inputs could produce a significantly higher or lower fair value measurement. The key inputs used in the December 31, 2014 and September 30, 2014 fair value calculations were as follows:

	December 31, 2014			September 30, 2014
Stock Price	$	0.01		$	0.80
Volatility		130%-145	%		130%-145	%
Strike Price	$	0.0007		$	0.30
Risk-free Rate		0.25	%		0.13	%
Dividend Rate		0	%		0	%
Expected Life	12 months – 16 months			12 months – 16 months

SERIES A CONVERTIBLE PREFERRED STOCK

 The Company’s Series A Convertible Preferred Stock contains price protection provisions that allow for the reduction in the conversion price of the preferred stock into common stock. The Company accounted for its preferred stock with price protection in accordance with FASB ASC Topic 815.

 The Company’s derivative preferred stock instruments have been measured at fair value at issuance on August 27, 2014, September 30, 2014 and at December 31, 2014, based on a market approach method utilizing level 2 inputs which include the following considerations:

· The trading price of a share of common stock of the Company at the pricing dates

· The Company’s market capitalization based on the publicly traded value of the Company’s common stock

· The value of the exchange consideration

· The value of publically traded shells

· The sale by the Company of other preferred shares

 The fair value of the preferred shares at December 31, 2014 and September 30, 2014 is $624,330 and $972,000, respectively, and is included in the consolidated balance sheet under the caption “Derivative liabilities”.

SERIES B CONVERTIBLE PREFERRED STOCK

 The Company’s Series B Convertible Preferred Stock contains price protection provisions that allow for the reduction in the conversion price of the preferred stock into common stock. The Company accounted for its preferred stock with price protection in accordance with FASB ASC Topic 815.

 The Company’s derivative preferred stock instruments have been measured at fair value at issuance on October 03, 2014 and on December 31, 2014, using the Black-Scholes model, which approximates a binomial or lattice model. The liability is revalued at each reporting period and changes in fair value are recognized currently in the consolidated statements of operations. The initial recognition and subsequent changes in fair value of the derivative liability have no effect on the Company’s cash flows.

 The fair value of the preferred shares was calculated utilizing level 3 inputs and at December 31, 2014 and October 3, 2014 is $19,200 and $160,000, respectively, and is included in the consolidated balance sheet under the caption “Derivative liabilities”.

At December 31, 2014, the estimated fair values of the liabilities measured on a recurring basis are as follows:

	Fair Value Measurements at December 31, 2014
	Balance at December 31, 2014		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Warrant derivative liabilities	$	60,95	$	-	$	-	$	60,95
Series A convertible preferred stock		624,330		-		624,330		-
Series B convertible preferred stock		19,200		-		-		19,200
	$	649,625	$	-	$	624,330	$	25,295

The following tables present the activity for liabilities measured at estimated fair value using unobservable inputs for the year ended December 31, 2014:

	Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
	Derivative Liabilities
Beginning balance at September  30, 2014	$	241,336
Issuance of Series B derivative liabilities		160,000
Changes in estimated fair value		(376,041)
Ending balance at December 31, 2014	$	25,295

	Fair Value Measurements Using Significant Unobservable Inputs (Level 2)
	Derivative Liabilities
Beginning balance at September  30, 2014	$	972,000
Changes in estimated fair value		(347,670)
Ending balance at December 31, 2014	$	624,330