DERIVATIVE FINANCIAL LIABILITY

12 Months Ended

Dec. 31, 2014

Derivative Instruments and Hedging Activities:

DERIVATIVE FINANCIAL LIABILITY

10 DERIVATIVE FINANCIAL LIABILITY

Certain of the short-term convertible notes disclosed in note 9 above, had variable priced conversion rights with no fixed floor price and would re-price dependent on the share price performance over varying periods of time. This gave rise to a derivative financial liability, which was valued at $224,442 at inception of the convertible notes using a Black-Scholes valuation model. The value of this derivative financial liability is re-assessed at each financial reporting period, with any movement thereon recorded in the statement of operations in the period in which it is incurred or the convertible debt is converted into equity.

Upon repayment or conversion of the outstanding notes, the derivative financial liability is no longer required. During the year the derivative liability on convertible notes converted into common stock was valued at $668,756. Mark to market valuations of the derivative liability during the year amounted to $426,352.

The movement in derivative liabilities is as follows:

	December 31,2014			December31, 2013
Opening balance	$	237,799		$	-
Derivative financial liability arising on short-term notes with variable conversion prices		23,060			201,382
Conversion of derivative liability for stock issued at a discount		(668,756	)		-
Fair value adjustments to derivative financial liability		426,352			36,417
	$	18,455		$	237,799

The following assumptions were used in the Black-Scholes valuation model:

	Year endedDecember 30, 2014			Year endedDecember 31, 2013
Stock price over the period		$0.17 – $0.23			$0.20 –$ 0.94
Risk free interest rate		0.13% to 0.25	%		0.09% to 0.16	%
Expected life of short-term notes payable		9 to 14 months			8 to 12 months
Expected volatility		95.24% - 119.45	%		114.14	%
Expected dividend rate		0	%		0	%