Note 7 - Derivatives

12 Months Ended

Dec. 31, 2014

Note 7 - Derivatives

Note 7 - Derivatives

Note 7 – Derivatives

The Company determined that the embedded conversion feature included in the November 2014 Peak Debenture required liability treatment because it is convertible into a fixed dollar amount based on a variable conversion rate. On the date of issuance, the Company recorded the fair value of the conversion option of $66,423 as a derivative liability and debt discount to be amortized into interest expense through the maturity date. The Company adjusted the derivative liability its fair value on December 31, 2014, of $65,422, resulting in derivative income of $1,001 for the year ended December 31, 2014. The fair value of the embedded conversion option was determined using Monte Carlo simulations and the following assumptions:

	Issuance Date			December 31, 2014
Expected Volatility		41.50	%		44.10	%	%
Expected Term	3.00 Years			2.85 Years
Risk Free Interest Rate		0.51	%		1.02	%	%
Dividend Rate		0	%		0	%	%

The Company’s convertible debt issued in November 2012 with a face value of $42,500 provides for conversion of the note into the Company’s Common Stock at a conversion rate equal to the average of the lowest three trading prices during the ten trading days immediately preceding the conversion date. Because of the uncertainty regarding the number of shares of Common Stock that may be issuable upon the conversion of the convertible debt, the embedded conversion option is required to be accounted for separately and presented as a derivative liability on the Company’s balance sheet, with subsequent changes in fair value reported in the Company’s statement of operations. The Company determined the fair value of this derivative liability using Monte Carlo simulations. The Company used the following assumptions in estimating the fair value of the derivative liabilities on the issuance date through the conversion dates of the debt.

	Issuance Date			December 31, 2012			March 30, 2013			May 22, 2013			June 19, 2013
Expected Volatility		51.08	%		52.67	%		40.55	%		38.46	%		25.09	%
Expected Term	0.75 Years			0.6 Years			0.3 Years			0.16 Years			0.1 Years
Risk Free Interest Rate		0.19	%		0.16	%		0.07	%		0.04	%		0.05	%
Dividend Rate		0	%		0	%		0	%		0	%		0	%

The Company recorded an initial derivative liability of $32,622 with an offsetting discount against the convertible debt to be amortized into interest expense through the maturity of the convertible debt. From the date of issuance to the date of conversion into 166,744 shares of common stock, the fair value of the derivative liability changed to $32,007 resulting in expense of $616 and a reclass to additional paid in capital of $31,990 that during the three months ended June 30, 2013, the period the transaction settled.

The Company’s convertible debt issued in January 2013 with a face value of $37,500 provides for conversion of the note into the Company’s common stock at a conversion rate equal to the average of the lowest three trading prices during the ten trading days immediately preceding the conversion date. Because of the uncertainty regarding the number of common shares that may be issuable upon the conversion of the convertible debt, the embedded conversion option is required to be accounted for separately and presented as a derivative liability on the Company’s balance sheet, with subsequent changes in fair value reported in the Company’s statement of operations. The Company determined the fair value of this derivative liability using Monte Carlo simulations. The Company determined the assumptions in estimating the fair value of the derivative liabilities on the issuance date and as of June 24, 2013.

	Issuance Date			March 31, 2013			June 24, 2013
Expected Volatility		50.77	%		49.82	%		29.43	%
Expected Term	0.75 Years			0.45 Years			0.16 Years
Risk Free Interest Rate		0.11	%		0.11	%		0.06	%
Dividend Rate		0	%		0	%		0	%

The Company recorded an initial derivative liability of $28,603 with an offsetting discount against the convertible debt to be amortized into interest expense through the maturity of the convertible debt. From the date of issuance until the full payment of $57,606 was made, the fair value of the derivative liability changed to $18,733 resulting in derivative income of $9,870 that was recorded during the three months ended June 30, 2013, the period the transaction settled.