10. DERIVATIVE LIABILITIES

12 Months Ended

Dec. 31, 2015

DerivativeInstrumentsAndHedgingActivitiesAbstract

DERIVATIVE LIABILITIES

During 2015 and 2014, the Company had outstanding common stock warrants that contained anti-dilution provisions including provisions for the adjustment of the exercise price if the Company issues common stock or common stock equivalents at a price less than the exercise price.  In addition, the Company also had outstanding convertible notes payable to various lenders that were convertible at discounts ranging from 30% to 50% of the fair market value of the Company’s common stock.

As of December 31, 2015, the Company did not have a sufficient number of common shares authorized to fulfill the possible exercise of all outstanding warrants and the conversion of all outstanding convertible notes payable. As a result, the Company determined that the warrants and the embedded beneficial conversion features of the debt instruments do not qualify for equity classification.  Accordingly, the warrants and conversion options are treated as derivative liabilities and are carried at fair value. During 2014, the convertible notes were repaid or converted to stock. As of December 31, 2015, some of the outstanding common stock warrants with the anti-dilution provision remained outstanding.

The Company estimates the fair value of the derivative warrant liabilities by using the Black-Scholes Option Pricing Model and the derivative liabilities related to the conversion features in the outstanding convertible notes using the Black-Scholes Option Pricing Model assuming maximum value, a Level 3 input, with the following assumptions used:

Year	2015		2014
Dividend yield:		0%		0%
Expected volatility	133.81 to 167.50%		103.35% to 155.36%
Risk free interest rate	.13% to 1.07%		.13% to 1.07%
Expected life (years)	0.00 to 1.57		0.82 to 2.57

The following table sets forth the changes in the fair value of derivative liabilities for the years ended December 31, 2015 and 2014:

Balance, December 31, 2013	$	(1,040,850	)
Convertible debt derivatives recognized as derivative loss		(22,500	)
Convertible debt derivatives recognized as debt discount		(90,000	)
Resolution of convertible debt derivatives upon conversions		132,417
Resolution of convertible debt derivatives upon debt payoff		59,311
Resolution of warrant derivatives no longer qualifying as derivative liabilities		918,580
Gain on change in fair value of derivative liabilities		41,334
Balance, December 31, 2014		(1,708	)
Derivative warrants exchanged for debt		1,693
Loss on change in fair value of derivative liabilities		(295	)
Balance, December 31, 2015	$	(310	)

The aggregate gain (loss) on derivative liabilities for the years ended December 31, 2015 and December 31, 2014 was $295 and $78,145, respectively.