DERIVATIVE LIABILITY

9 Months Ended

Sep. 30, 2015

Derivative Instruments and Hedging Activities Disclosure [Abstract]

DERIVATIVE LIABILITY

4. DERIVATIVE LIABILITY

For stock based derivative financial instruments, the Company estimated the total enterprise value based upon a combination of the trending of the firm value from December 2006 to September 2015, market comparables, and the market value of the Company’s stock, considering company specific factors including the changes in forward estimated revenues and market factors.  Once the enterprise value was determined an option pricing model was used to allocate the enterprise value to the individual derivative and other securities in the Company’s capital structure.  The classification of derivative instruments, including whether such instruments should be recorded as liabilities or equity, is evaluated at the end of each reporting period. Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument could be required within twelve months of the balance sheet date.

The Company’s derivative liabilities as of September 30, 2015 and December 31, 2014 are as follows:

· The debt conversion feature embedded in the various Convertible Promissory Notes which contain anti-dilution provisions that would be triggered if the Company issued instruments with rights to the Company’s common stock at prices below this exercise price (described in Note 2.)

· Derivative liabilities related to outstanding warrants and options due to the Company having insufficient authorized shares to satisfy the exercise or conversion of all outstanding instruments as of September 30, 2015 and December 31, 2014.

The fair value of the derivative liabilities as of September 30, 2015 and December 31, 2014 are as follows:

	September 30, 2015		December 31, 2014
Note conversion feature liabilities	$	519,622	$	375,949
Warrant liability		713		11,772
Total	$	520,335	$	387,721

The change in the fair value of the derivative liability resulted in a loss of $48,751 in the third quarter of 2015 and a loss of $132,614 for the nine months ended September 30, 2015 and has been recognized in the statement of operations for the respective periods. A change in fair value of the derivative liability of resulted in a gain of $52,977 in the third quarter of 2014 and a loss of $337,132 for the nine months ended September 30, 2014 and has been recognized in the respective periods. Significant fluctuations in the variables used in calculating the value of the Company’s derivative liabilities could have significant impact on the fair market valuation.