DERIVATIVE LIABILITY

12 Months Ended

Dec. 31, 2016

Derivative Instruments and Hedging Activities Disclosure [Abstract]

DERIVATIVE LIABILITY

NOTE 8 –DERIVATIVE LIABILITY

Due to the potential adjustment in the conversion price associated with certain of these convertible debentures and the potential adjustment in the exercise price of certain of the warrants, the Company has determined that certain conversion features and warrants are considered derivative liabilities.

The fair values of the embedded conversion features and the warrants are estimated and recorded as derivative liabilities on the date of issuance, offset by a discount on the related convertible note payable up to the face amount of the note, with any excess fair value recorded as derivative expense on the date of issuance. The Company’s convertible debt is convertible into common stock at conversion rates that vary based on certain triggering events. Accordingly, the conversion feature is required to be presented at fair value on the dates of issuance, settlement, and at each reporting date. The Company also has warrants to purchase common stock outstanding that provide for adjustments to the exercise prices upon the future dilutive issuances. The Company utilizes Monte Carlo simulations and stochastic forecasting to estimate the fair value of the warrants and conversion options. The ranges of assumptions utilized in estimating the fair value of the warrants and conversion options on the dates of issuance, settlement, and as of and for the years ended December 31, 2016 and 2015, are as follows:

	2016	2015
Expected Volatility	19% to 87%	58% to 83%
Expected Term	0.0 to 5.0 Years	0.0 to 5.0 Years
Risk Free Rate	0.036% to 1.93%	0.02% to 1.8%
Dividend Rate	0.00%	0.00%
Triggering Capital raise probabilities	50% to 75%	25% to 75%

A summary of derivative activity for the years ended December 31, 2016 and 2015 is as follows:

Balance at January 1, 2015	$	—
New issuances		5,337,711	1
Conversion feature reclassified to equity upon conversion of related notes payable.		(2,706,167	)
Change in fair value		22,814,101
Balance at December 31, 2015	$	25,445,645
New issuances		648,836
Conversion feature reclassified to equity upon conversion of related note payable and repayments		(692,850	)
Change in fair value		(7,345,000	)
Balance at December 31, 2016	$	18,056,631

¹The fair value of derivative liabilities on the dates of issuance is recorded as a discount up to the face amount of the note. During the year ended December 31, 2015, the fair value of derivative liabilities on the dates of issuance exceeded the face value of the related debt by $3,832,920, which was recorded as derivative expense on the date of issuance and is included in loss on derivatives on the accompanying consolidated statement of operations.

As discussed above (Notes 6 and 7) certain notes payable, convertible notes payable and related interest were converted into equity in January 2017. Accordingly, the associated derivative liability related to these notes payable, convertible notes payable and related interest is classified as long-term liabilities at December 31, 2016 in accordance with US GAAP.