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7. FAIR VALUE

6 Months Ended

Jun. 30, 2015

In accordance with FASB ASC 820, “Fair Value Measurements and Disclosures”, the following table represents the Company’s fair value hierarchy for its financial assets and liabilities measured at fair value on a recurring basis as of June 30, 2015 and December 31, 2014. Upon the retirement of the convertible notes, the fair value of the derivative liability was $0 as of June 30, 2015.

June 30, 2015:	Level 3		Total

Derivative Instruments	$	-	$	-

December 31, 2014:	Level 3		Total

Derivative Instruments	$	1,728,883	$	1,728,883

Level 3 financial instruments consist of certain embedded conversion features. The fair value of these embedded conversion features that have exercise reset features are estimated using a Monte Carlo valuation model. The Company adopted the disclosure requirements of ASU 2011-04, “Fair Value Measurements.” (See note 6) The unobservable input used by the Company was the estimation of the likelihood of a reset occurring on the embedded conversion feature of the Convertible Notes. These estimates of the likelihood of completing an equity raise that would meet the criteria to trigger the reset provisions are based on numerous factors, including the remaining term of the financial instruments and the Company’s overall financial condition.

The following table summarizes the changes in fair value of the Company’s Level 3 financial instruments for the period ended June 30, 2015 and December 31, 2014. Upon the retirement of the convertible notes, the fair value of the derivative liability was $0 as of June 30, 2015

		June 30, 2015 (Unaudited)			December 31, 2014
Beginning Balance	$	1,728,883		$	7,665,502
Change in fair value		3,810,955			(5,936,619	)
Reclassification to additional paid in capital due to retirement of convertible notes		(5,539,838	)		-
Ending Balance	$	-		$	1,728,883

Changes in the unobservable input values would likely cause material changes in the fair value of the Company’s Level 3 financial instruments. The significant unobservable input used in the fair value measurement is the estimation of the likelihood of the occurrence of a change to the conversion price based on the contractual terms of the financial instruments. A significant increase (decrease) in this likelihood would result in a higher (lower) fair value measurement. As of June 30, 2015, the balance of derivative liability was $0 as the convertible notes were retired prior to the end of the quarter.