The initial fair value of the embedded debt derivative of $206,062 was allocated as a debt discount up to the proceeds of the note ($100,000) with the remainder ($106,062) charged to current period operations as interest expense for the nine months ended September 30, 2013.

During the nine months ended September 30, 2013, the Company issued common stock for converting $142,000 of a convertible note payable by issuance of 4,081,788 shares of common stock of the Company and the balance of the convertible note of $78,000 along with accrued interest of $7,795 was paid in cash. Derivative liability as of date of conversion of $334,082 was transferred to additional paid in capital. Excess value of shares over the converted value of note for $24,235 was charged to interest expenses.

At September 30, 2013, the Company adjusted the recorded fair value of the derivative liability to market on both notes resulting in non-cash, non-operating gains of $-0- and $137,570 for the three and nine months ended September 30, 2013, respectively.

During the nine months ended September 30, 2013 and 2012, the Company amortized $210,136 and $-0-, respectively, of beneficial debt discount to the operations as interest expense. During the three months ended September 30, 2013 and 2012, the Company amortized $174,987 and $-0-, respectively, beneficial debt discount to the operations as interest expense

Convertible debenture July 2013 and August 2013

On July 19, 2013, the Company issued a $78,500 Convertible Promissory Note which bears interest at a rate of 8% and is convertible into the Company’s common stock at the holder’s option, at the conversion rate of 60% of the lowest three day trading price for ten trading days immediately preceding the date of conversion.

On August 26, 2013, the Company issued a $53,000 Convertible Promissory Note which bears interest at a rate of 8% and is convertible into the Company’s common stock at the holder’s option, at the conversion rate of 60% of the lowest three day trading price for ten trading days immediately preceding the date of conversion.

The Company received a net of $100,000 from the debenture holder and the balance of $31,500 was paid towards the accrued legal expenses and due diligence fees.

The Company identified embedded derivatives related to the Convertible Promissory Note entered into in July, 2013 and August, 2013. These embedded derivatives included certain conversion features. The accounting treatment of derivative financial instruments requires that the Company record the fair value of the derivatives as of the inception date of the Convertible Promissory Note and to adjust the fair value as of each subsequent balance sheet date. At the inception of the Convertible Promissory Note, the Company determined a fair value of $334,639 of the embedded derivative. The fair value of the embedded derivative was determined using the Binomial Lattice Model based on the following assumptions:

The initial fair value of the embedded debt derivative of $334,639 was allocated as a debt discount up to the proceeds of the note ($131,500) with the remainder ($203,139) charged to current period operations as interest expense for the three and nine months ended September 30, 2013.

The fair value of the described embedded derivative of $264,110 at September 30, 2013 was determined using the Binomial Lattice Model with the following assumptions: