4. DERIVATIVE LIABILITIES

3 Months Ended

Mar. 31, 2015

Notes to Financial Statements

4. DERIVATIVE LIABILITIES

NOTE 4 –  DERIVATIVE LIABILITIES

The Company identified conversion features embedded within convertible debt and warrants issued in the first quarter 2015 and in 2014, and the Company also identified derivative liabilities embedded within warrants detachable with subscription agreement. The Company has determined that the features associated with the embedded conversion option, in the form of a ratchet provision, should be accounted for at fair value, as a derivative liability, as the Company cannot determine if a sufficient number of shares would be available to settle all potential future conversion transactions.

As a result of the application of ASC No. 815, the fair value of the ratchet feature related to convertible debt and warrants is summarized as follow: 

	Warrants with convertible Debt			Warrants with subscription agreement			Warrants issued for services			Total
Fair value at the commitment date		87,189			259,278			—			346,467
Fair value mark to market adjustment		429,948			323,293			—			753,241
Balances as of December 31, 2014		517,137			582,571			—			1,099,708
Fair value at the commitment date-in the first quarter of 2015		125,708			—			43,704			169,412
Fair value mark to market adjustment		(24,677	)		(17,841	)		(219	)		(42,737	)
Balances as of March 31, 2015		618,168			564,730			43,485			1,226,383

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			Remeasurement Date
Expected dividends		0	%		0	%
Expected volatility		150	%		150	%
Expected term		3 years			1.98 – 2.92 years
Risk free interest rate		0.75% - 1.1	%		0.89	%