Derivative Liability

12 Months Ended

Dec. 31, 2015

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Liability

Note 8 - Derivative Liability

The FASB has issued authoritative guidance whereby instruments which do not have fixed settlement provisions are deemed to be derivative instruments. Certain warrants issued to investors and conversion features of notes payable do not have fixed settlement provisions because their exercise prices will be lowered if the Company issues securities at lower prices in the future. In accordance with the FASB authoritative guidance, the conversion feature of the notes was separated from the host contract (i.e., the notes) and the fair value of the warrants have been recognized as a derivative and will be re-measured at the end of every reporting period with the change in value reported in the statement of operations.

The Company had four convertible notes payable, five convertible note payable to a related party and warrants to purchase a total of 900,000 shares of common stock as of December 31, 2015 that were accounted for as derivative liability. The derivative liability was valued at the following dates using a probability based weighted-average Black-Scholes-Merton model with the following average assumptions:

	Issuance Date			December 31, 2015
Stock Price	$	0.489		$	0.001
Risk free interest rate		0.003	%		0.003	%
Expected Volatility		443	%		404	%
Expected life in years		1.17			0.614
Expected dividend yield		0	%		0	%
Fair Value – Warrants	$	454,361		$	3,657,895
Fair Value – Note Conversion Feature	$	2,031,497		$	1,014,722

The risk-free interest rate was based on rates established by the Federal Reserve Bank. The Company uses the historical volatility of its common stock to estimate the future volatility for its common stock. The expected life of the warrant was determined by the remaining contractual life of the derivative instrument. For derivative instrument that already matured, the Company used the estimated life. The expected dividend yield was based on the fact that the Company has not paid dividends to its common stockholders in the past and does not expect to pay dividends to its common stockholders in the future.

In 2015, the Company recognized additional derivative liabilities of $454,361 related to the warrants issued in conjunction with the sale of the Company’s common stock (described in Note 9) and $2,031,497 related to the beneficial conversion feature of certain of our notes payable. For the fiscal year ended December 31, 2015, the Company recognized a change in fair value of the derivative liability of $2,262,774 and gain of $76,015 due to extinguishment of the derivative liability due to conversion of certain notes to equity. As of December 31, 2015, the aggregate fair value of the derivative liabilities was $4,672,617.