We evaluated the convertible debentures in accordance with ASC Topic 815, "Derivatives and Hedging," and determined that the conversion feature of the convertible promissory notes were not afforded the exemption for conventional convertible instruments due to their variable conversion rates. The notes have no explicit limit on the number of shares issuable so they did not meet the conditions set forth in current accounting standards for equity classification. We elected to recognize the notes under paragraph 815-15-25-4, whereby there would be a separation into a host contract and derivative instrument. We elected to initially and subsequently measure the notes in their entirety at fair value, with changes in fair value recognized in earnings. We recorded a derivative liability representing the imputed interest associated with the embedded derivative.

The debt discount is amortized over the life of the note and recognized as interest expense. For the years ended December 31, 2015 and 2014, we amortized debt discount of $1,388,935 and $1,287,418 to interest expense, respectively. The derivative liability is adjusted periodically according to stock price fluctuations and other inputs and was $10,852,906 and $2,718,652 at December 31, 2015 and 2014, respectively.

At December 31, 2015, the convertible debentures and related accrued interest payable were convertible into approximately 2,496,336,000 shares of our common stock. Based on the assumptions used to estimate the fair value of the derivative liability at December 31, 2015, and assuming all lenders converted the notes payable at the December 31, 2015 conversion prices, the Company would have had insufficient authorized shares of common stock to complete the debt conversions.

During the years ended December 31, 2015 and 2014, the Company had the following activity in its derivative liability account:

Derivative liability at December 31, 2013	$2,104,849
Derivative liability at inception of new debt	1,127,938
Derivative liability at issuance of warrants	2,334
Elimination of liability on conversion	(1,014,809)
Elimination of liability for cash payments	(26,659)
Loss on derivative liability	524,999

Derivative liability at December 31, 2014	2,718,652
Derivative liability at inception of new debt	1,227,524
Elimination of liability on conversion	(1,364,115)
Loss on derivative liability	8,270,845

Derivative liability at December 31, 2015	$10,852,906

For purpose of estimating the fair market value of the derivative liability, we used the Black Scholes option valuation model.

The significant assumptions used in the Black Scholes valuation of the derivative liability at December 31, 2015 are as follows:

Stock price at valuation date: $0.0056	Risk free interest rates: .16% - 1.06%
Conversion prices: $0.00025 - $0.0047	Volatility: 129.22% - 356.07%
Years to maturity: .18 - 1.93

These assumptions are subject to significant changes and market fluctuations from period to period; therefore, the estimated fair value of the derivative liability will fluctuate from period to period and the fluctuation may be material.