Convertible Debt - Derivative Liabilities

3 Months Ended

Mar. 31, 2015

Notes to Financial Statements

Convertible Debt - Derivative Liabilities

NOTE 4           DERIVATIVE LIABILITIES

The Company identified conversion features embedded within convertible debt issued in 2015 and 2014 and warrants issued in 2015 and 2014. The Company has determined that the features associated with the embedded conversion option should be accounted for at fair value as a derivative liability.

As a result of the application of ASC No. 815, the fair value of the conversion feature is summarized as follow:

Derivative Liability - December 31, 2014	$	3,234,792
Fair value at the commitment date for convertible instruments		974,533
Change in fair value of embedded derivative liability for convertible instruments		(460,555	)
Reclassification to additional paid in capital for financial instruments that ceased to be a derivative liability		(577,526	)
Derivative Liability - March 31, 2015	$	3,171,244

The Company recorded the debt discount to the extent of the gross proceeds raised, and expensed immediately the remaining value of the derivative as it exceeded the gross proceeds of the note.  The Company also recorded the value of the warrants issued for services as derivative expense for the three months ended March 31, 2015.  The Company recorded a derivative expense for the three months ended March 31, 2015 and 2014 of $167,523 and $0, respectively.

The fair value at the commitment and re-measurement dates for the Company’s derivative liabilities were based upon the following management assumptions as of March 31, 2015:

	Commitment Date		Re-measurement Date
Expected dividends:	0	%	0	%
Expected volatility:	133.33% - 149.37%		128.45% - 238.77%
Expected term:	0.97 - 2 Years		0.07 - 1.95 Years
Risk free interest rate:	0.01% - 1.16%		0.12% - 1.10%

The fair value at the commitment and re-measurement dates for the Company’s derivative liabilities were based upon the following management assumptions as of December 31, 2014:

	Commitment Date		Re-measurement Date
Expected dividends:	0	%	0	%
Expected volatility:	109% - 304%		120% - 140%
Expected term:	0.44 - 3 Years		0.16 - 2.9 Years
Risk free interest rate:	0.06% - 0.94%		0.12% - 1.10%