Derivative Liability Note

3 Months Ended

Sep. 30, 2013

Notes

Derivative Liability Note

NOTE 6 - DERIVATIVE LIABILITY

In June 2008, the FASB issued authoritative guidance on determining whether an instrument (or embedded feature) is indexed to an entity’s own stock. Under the authoritative guidance, effective January 1, 2009, instruments which do not have fixed settlement provisions are deemed to be derivative instruments. The conversion feature of certain of the Company’s Convertible Promissory Note (described in Note 5), does not have a fixed settlement provision because conversion of the Asher Notes and the Continental Notes will be lowered if the Company issues securities at lower prices in the future. The Company was required to include the reset provisions in order to protect the holders of the Asher Notes and the Continental Note from the potential dilution associated with future financings.  In accordance with the FASB authoritative guidance, the conversion feature of the Asher Notes and the Continental Notes were separated from the host contract and recognized as a derivative instrument. The conversion feature of the Asher Notes and the Continental Notes have been characterized as a derivative liability to be re-measured at the end of every reporting period with the change in value reported in the statement of operations.

The following table summarizes the derivative liabilities included in the consolidated balance sheet:

Derivative liability
Derivative liabilities as of December 31, 2012	39,028
Change in fair value of derivative liability	157,254
Derivative on new loans	182,796
Settlement of derivative liability due to conversion of related notes	(302,044)
Derivative liabilities as of September 30, 2013	77,034