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5. Embedded Derivative Liabilities
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9 Months Ended |
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Sep. 30, 2012
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| Derivative Instruments and Hedging Activities Disclosure [Text Block] |
5.
Embedded Derivative Liabilities
The
Company has issued convertible notes (see note 4) without
enough authorized shares to settle. Due to the Company having
insufficient authorized shares, the conversion options
embedded in these notes have been accounted for in accordance
with ASC 815-40, which requires that the Company bifurcate
the embedded conversion option as liability at the grant date
and to record changes in fair value relating to the
conversion option liability in the statement of operations as
of each subsequent balance sheet date.
February
2012 Convertible Note
At
September 30, 2012, the Company determined a fair value of
$44,193 of the embedded derivative of the note issued in
February 2012. The fair value of the embedded derivative was
determined using the Black Scholes Model with gains and
losses from the change in fair value of derivative
liabilities recognized on the consolidated statement of
operations.
On
August 26, 2012 the February convertible note became
available for conversion. On that date, the company
determined a fair value of $77,741 for the conversion option
based upon the following: dividend yield of -0-%, volatility
of 687.84%, risk free rate of 0.11% and an expected term of
approximately 0.263 years. The Company recognized a
non-cash loss of $32,471 related to the recognition of the
derivative.
On
September 7, 2012 the Company converted $12,000 of the
February 2012 convertible note into 1,714,286 shares of
common stock. On the conversion date, the company determined
a fair value of $32,729 for the conversion option of the
converted shares based upon the following: dividend yield of
-0-%, volatility of 709.00%, risk free rate of 0.11% and an
expected term of approximately 0.260 years.
For the
period ended September 30, 2012, the Company recognized a
reduction of embedded derivative in the amount of
$548. This amount was recorded as a gain on
derivative.
March
2012 Convertible Note
At
September 30, 2012, the Company determined a fair value of
$84,028 of the embedded derivative of the note issued in
March 2012. The fair value of the embedded derivative was
determined using the Black Scholes Model with gains and
losses from the change in fair value of derivative
liabilities recognized on the consolidated statement of
operations.
On
September 18, 2012 the March convertible note became
available for conversion. On that date, the company
determined a fair value of $84,495 for the conversion
option based upon the following: dividend yield of -0-%,
volatility of 671.61%, risk free rate of 0.10% and an
expected term of approximately 0.271 years. The Company
recognized a non-cash loss of $39,495 related to the
recognition of the derivative.
For
the period ended September 30, 2012, the Company recognized
a reduction of embedded derivative in the amount of $468.
This amount was recorded as a gain on derivative. |