Topic 815 (ASC 815) requires that all derivative financial instruments be recorded on the balance sheet at fair
value. Fair values for exchange traded securities and derivatives are based on quoted market prices. Where market prices are not
readily available, fair values are determined using market based pricing models incorporating readily observable market data and
requiring judgment and estimates.
Company issued convertible notes and has evaluated the terms and conditions of the conversion features contained in the notes
to determine whether they represent embedded or freestanding derivative instruments under the provisions of ASC 815. The Company
determined that the conversion features contained in the notes represent freestanding derivative instruments that meet the requirements
for liability classification under ASC 815. As a result, the fair value of the derivative financial instruments in the notes is
reflected in the Companys balance sheet as a liability. The fair value of the derivative financial instruments of the convertible
notes was measured at the inception date of the notes and warrants and each subsequent balance sheet date. Any changes in the
fair value of the derivative financial instruments are recorded as non-operating, non-cash income or expense at each balance sheet
Company valued the conversion features in its convertible notes using the Black-Scholes model. The Black-Scholes model values
the embedded derivatives based on a risk-free rate of return ranging from 0.29% to 0.30%,
grant dates at 8/1/2011 and 9/30/2012, the term of convertible note, conversion
prices is 58% of stock bid price at date of note conversion, current stock prices on the measurement date ranging from $0.0028
to $0.0051, and the computed measure of the Companys stock volatility, ranging from 2,342.87%
in the September 30, 2012 financial statements is a derivative liability in the amount of $111,111
to account for this transaction. It is revalued quarterly henceforth and adjusted as a gain or loss to the consolidated
statements of operations depending on its value at that time.
in our Consolidated Statements of Operations for the years ended September 30, 2012 and 2011 are $0
in change of fair value of derivative and $61,111 of debt discount amortization in non-cash charges pertaining to the derivative
liability as it pertains to the gain on derivative liability and debt discount, respectively.