The Company issued warrants in conjunction with the issuance of convertible debentures. These warrants contain certain reset provisions. Therefore, in accordance with ASC 815-40, the Company reclassified the fair value of the warrant from equity to a liability at the date of issuance. Subsequent to the initial issuance date, the Company is required to adjust to fair value the warrant as an adjustment to current period operations.

As described in Notes 9 and 10, above, on July 7, 2014, the Company exchanged previously issued warrants that contained certain reset provisions with warrants without these provisions. At the date of the exchange, the Company reclassified the determined fair value of $129,551 from liability to equity. The fair values were determined using the Binominal Option Pricing Model with the following assumptions: contractual terms of 3.75 years, an average risk free interest rate of 1.00%, a dividend yield of 0%, and volatility of 217.48%.

The Company recorded a gain (loss) on change in fair value of warrant liability of $59,478 and $(188,670) for the year ended December 31, 2014 and 2013, respectively.

At December 31, 2014, the fair value of the remaining 1,155,000 warrants containing certain reset provisions were determined using the Binomial Option Pricing Model based on the following assumptions: (1) dividend yield of 0%, (2) expected volatility of 206.84%, (3) weighted average risk-free interest rate of 1.10%, (4) expected life of 3.51 years, and (5) estimated fair value of the Company’s common stock of $0.091 per share.

At December 31, 2014, the warrant liability valued at $98,702, the Company believes an event under the contract that would create an obligation to settle in cash or other current assets is remote and has classified the obligation as a long term liability.