Quarterly report pursuant to Section 13 or 15(d)

FAIR VALUE MEASUREMENT

FAIR VALUE MEASUREMENT

6 Months Ended

Jun. 30, 2016

ASC 825-10 defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact and considers assumptions that market participants would use when pricing the asset or liability, such as inherent risk, transfer restrictions, and risk of nonperformance. ASC 825-10 establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 825-10 establishes three levels of inputs that may be used to measure fair value:

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

	Level 2—	Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which all significant inputs are observable or can be derived principally from or corroborated by observable market data for substantially the full term of the assets or liabilities.

	Level 3—	Unobservable inputs to the valuation methodology that are significant to the measurement of fair value of assets or liabilities.

Items recorded or measured at fair value on a recurring basis in the accompanying consolidated financial statements consisted of the following items as of June 30, 2016:

	Level 1		Level 2		Level 3		Total

Derivative liability	$	-	$	-	$	2,699,418	$	2,699,418
Warrant liability						20,706		20,706
Total	$	-	$	-	$	2,720,124	$	2,720,124

Items recorded or measured at fair value on a recurring basis in the accompanying consolidated financial statements consisted of the following items as of December 31, 2015:

	Level 1		Level 2		Level 3		Total

Derivative liability	$	-	$	-	$	170,531	$	170,531
Warrant liability						22,746		22,746
Total	$	-	$	-	$	193,277	$	193,277

The table below sets forth a summary of changes in the fair value of the Company's Level 3 financial liabilities from December 31, 2015 through June 30, 2016:

	Debt Derivative Liability			Warrant Liability

Balance, December 31, 2015	$	170,531			22,746
Transfers in (out):
Initial fair value of debt derivative at note issuance		2,322,077
Fair value of debt derivative at note extinguishment transferred to equity		(262,271	)
Mark-to-market at June 30, 2016:
Embedded derivative		469,081			(2,040	)
Balance, June 30, 2016	$	2,699,418		$	20,706