Fair Value Measurements (Tables)

12 Months Ended

Dec. 31, 2013

Balances of Liabilities Measured at Fair Value on Recurring Basis

The following table presents the balances of liabilities measured at fair value on a recurring basis by level as of December 31, 2013:

	Fair Value Measurements at December 31, 2013 Using
	Quoted Prices in		Significant Other		Significant
	Active Markets for		Observable		Unobservable
	Identical Assets		Inputs		Inputs
	(Level 1)		(Level 2)		(Level 3)		Total

Derivative liability	$	-	$	-	$	300,939	$	300,939
Warrant liability		-		-		803,484		803,484
Total	$	-	$	-	$	1,104,423	$	1,104,423

	Fair Value Measurements at December 31, 2012 Using
	Quoted Prices in		Significant Other		Significant
	Active Markets for		Observable		Unobservable
	Identical Assets		Inputs		Inputs
	(Level 1)		(Level 2)		(Level 3)		Total

Derivative liability	$	-	$	-	$	605,516	$	605,516
Warrant liability		-		-		1,730,044		1,730,044
Total	$	-	$	-	$	2,335,560	$	2,335,560

Changes in Liabilities with Significant Unobservable Inputs (Level 3)

The following table presents changes in the liabilities with significant unobservable inputs (Level 3) for the years ended December 31, 2013 and 2012:

	Warrant		Derivative		Total
	Liability		Liability		Liability

Balance December 31, 2011	$	-	$	-	$	-

Liability on issuance of debt and warrants		2,507,868		2,167,341		4,675,209

Elimination of liability on conversion		(490,204)		(581,696)		(1,071,900)

Change in estimated fair value (1)		(287,620)		(980,129)		(1,267,749)

Balance December 31, 2012		1,730,044		605,516		2,335,560

Liability on issuance of debt and warrants		762,111		929,156		1,691,267

Elimination of liability on conversion		-		(107,639)		(107,639)

Change in estimated fair value (1)		(1,688,671)		(1,126,094)		(2,814,765)

Balance December 31, 2013	$	803,484	$	300,939	$	1,104,423

(1) Included in the Statement of Operations on the line “Change in fair value of derivative liabilities.”

Derivative and Warrant Liabilities

Management used the following inputs to value the Derivative and Warrant Liabilities for the year ended December 31, 2013:

12/31/2013

12/31/2012

Derivative Liability

Warrant Liability

Derivative Liability

Warrant Liability

Expected term

6 months - 1 year

5 years

6 months

5 years

Exercise price

$0.045 - $0.099

$0.075 - $0.1287

$0.0573- $0.099

$0.0745 - $0.1287

Expected volatility

70% - 244%

175% - 186%

98% -193%

95% - 170%

Expected dividends

None

Risk-free interest rate

.04% - .14%

.77% - 1.75%

.11% - .15%

.62% - 1.11%

Forfeitures

None

- Definition

Tabular disclosure of financial instruments measured at fair value, including those classified in shareholders' equity measured on a recurring or nonrecurring basis. Disclosures include, but are not limited to, fair value measurements recorded and the reasons for the measurements, level within the fair value hierarchy in which the fair value measurements are categorized and transfers between levels 1 and 2. Nonrecurring fair value measurements are those that are required or permitted in the statement of financial position in particular circumstances.

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- Definition

Tabular disclosure of the fair value measurement of liabilities 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 liability.

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