6. Fair Value Measurements

The Company has adopted FASB ASC Topic 820, “Fair Value Measurement and Disclosures” (“ASC 820”). This topic defines fair value, establishes a framework for measuring fair value under US GAAP and enhances disclosures about fair value measurements. Fair value is defined under ASC 820 as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value under ASC 820 must maximize the use of observable inputs and minimize the use of unobservable inputs. The standard describes a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value which are the following:

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Level 1 — Quoted prices in active markets for identical assets or liabilities.

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Level 2 — Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

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Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value

A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.

The following table sets forth Company’s assets and liabilities which are measured at fair value on a recurring basis by level within the fair value hierarchy:

Fair Value measurements at June 30, 2013 :

	Level 1		Level 2		Level 3		Total
Assets
Money Market Accounts (a)	$	200,000	$	-	$	-	$	200,000

Targets (b)	$	246,351	$	-	$	-	$	246,351
Liabilities
MDFA Warrant Liability 1	$	-	$	-	$	13,350	$	13,350

MDFA Warrant Liability 2	$	-	$	-	$	16,079	$	16,079

Hercules Warrant Liability	$	-	$	-	$	851,620	$	851,620

Convertible Debt Warrant Liability	$	-	$	-	$	1,064,416	$	1,064,416

Conversion Feature	$	-	$	-	$	1,064,828	$	1,064,828

	Level 1		Level 2		Level 3		Total
Assets
Money Market Accounts (a)	$	239,504	$	-	$	-	$	239,504

Targets (b)	$	315,350	$	-	$	-	$	315,350
Liabilities
MDFA Warrant Liability	$	-	$	-	$	111,811	$	111,811

Fair Value measurements at December 31, 2012 :

(a)

Included in cash and cash equivalents and restricted cash on the consolidated balance sheet

(b)

Included in other current assets on the consolidated balance sheet.

The Company values the warrant liabilities issued in conjunction with the MDFA Note Payable (Note 5) using a Black-Scholes option pricing model, at each reporting date, which incorporates assumptions about underlying asset value, volatility, expected remaining life and risk free interest rate. The assumptions used at June 30, 2013 and December 31, 2012, respectively, were as follows:

	June 30,			December 31,
	2013			2012
Fair value of underlying stock per share	$	.31		$	3.00
Risk-free interest rate		1.81% -2.24	%		1.48	%
Expected term		8.29- 10 years			8.79 years
Dividend yield		0.0	%		0.0	%
Volatility		66.00% - 70.21	%		46.67	%

The Company values the warrant and derivative liabilities issued in conjunction with the Hercules Note Payable and the Convertible Debt (Note 5) using a Black-Scholes option pricing model, at each reporting date, which incorporates assumptions about underlying asset value, volatility, expected remaining life and risk free interest rate. The assumptions used at June 30, 2013 were as follows:

	Hercules Warrants			Prior Note Warrants			Conversion Feature
Fair value of underlying stock per share	$	1.99		$	.31		$	.31
Risk-free interest rate		1.96	%		1.04	%		1.04	%
Expected term		6.85 years			3.29-3.85 years			3.79-4.35 years
Dividend yield		0.00	%		0.00	%		0.00	%
Volatility		71.59	%		90.78	%		86.91	%

Marked-to-Market

The change in fair value during the period is as follows:

	Targets		MDFA Warrants 1		MDFA Warrants 2		Hercules Warrants		Convertible Debt Warrants		Conversion Feature		Total Fair Value
Balance 12/31/12	$	315,350	$	111,811	$	-	$	-	$	-	$	-	$	427,161

Initial Measure May 2013		-		-		15,330		845,922		1,027,770		1,028,517		2,917,539

Mark to Market		(68,999)		(98,462)		750		5,698		36,646		36,311		(88,056)

Balance 6/30/13	$	246,351	$	13,349	$	16,080	$	851,620	$	1,064,416	$	1,064,828	$	3,256,644

The Company recorded a total net decrease of $88,056 in fair value as a credit to the statement of operations during the six months ended June 30, 2013.