NOTE 6 - STOCK SETTLED DEBT OBLIGATION

6 Months Ended

Jun. 30, 2015

Note 6 - Stock Settled Debt Obligation

NOTE 6 - STOCK SETTLED DEBT OBLIGATION

NOTE 6 – STOCK SETTLED DEBT OBLIGATION

The Company determined that the 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. Because of the uncertainty regarding the number of shares of common stock that may be issuable upon the conversion of the convertible debt, the conversion option is required to be accounted for separately and presented as a stock settled debt obligation on the Company’s balance sheet, with subsequent changes in fair value reported in the Company’s statement of operations. On the date of issuance, the Company recorded a stock settled debt obligation of $66,423 with an offsetting discount against the convertible debt to be amortized into interest expense through the maturity of the convertible debt. The Company adjusted the stock settled debt obligation to its fair value on June 30, 2015, of $50,560, resulting in derivative expense of $454 and $1,091 for the three and six months ended June 30, 2015, respectively. During the three months ended June 30, 2015, the holder of the Peak Debenture elected to convert $30,000 of principal into 1,373,625 shares of Common Stock, resulting in a change to stock settled debt obligation of $15,953 to record the transaction. The Company used Monte Carlo simulations and the following assumptions in estimating the fair value of the embedded conversion option of the derivative liability:

	Issuance Date		December 31, 2014		June 2, 2015		June 18, 2015		June 30, 2015
Expected Volatility	41.50	%	44.10	%	37.40	%	37.70	%	37.20	%
Expected Term	3.00 Years		2.85 Years		2.43 Years		2.39 Years		2.36 Years
Risk-Free Interest Rate	0.51	%	1.02	%	0.64	%	0.66	%	0.64	%
Dividend Rate	—	%	—	%	—	%	—	%	—	%

The following table presents changes in Level 3 liabilities measured at fair value for the quarter ended June 30, 2015. Both observable and unobservable inputs were used to determine the fair value of positions that the Company has classified within the Level 3 category. Unrealized gains and losses associated with liabilities within the Level 3 category include changes in fair value that were attributable to both observable (e.g., changes in market interest rates) and unobservable (e.g., changes in unobservable long-dated volatilities) inputs.

	Stock Settled
	Debt Obligation
Balance at December 31, 2014	$	65,422
Change in fair value		1,091
Fair value recorded to APIC related to conversion of debenture		(15,953	)
Balance at June 30, 2015	$	50,560