6.	RELATED PARTY CONVERTIBLE NOTES PAYABLE AND DERIVATIVE LIABILITY

On September 29, 2016, the Company issued Convertible Promissory Notes Series 2016 due October 1, 2017 in the aggregate principal amount of $3,000,000 in a private placement to the Chairman of the Board and the Chairman of the Strategic Advisory Board of the Company, both of whom are greater than 10% shareholders of the Company. The notes bear interest at a rate of six percent (6%) per annum. The Company may prepay the notes at any time without penalty. If the Company does not prepay a note in full or the holder does not convert the note before the maturity date, the Company may pay the outstanding principal amount and any accrued and unpaid interest on the maturity date with cash or with common stock or through a combination of cash and stock at the Company’s discretion. The conversion price of the notes is the lesser of $3.00 per share or eight-five percent (85%) of the lowest per share purchase price of common stock in the next sale of common stock in which the Company receives gross proceeds of an amount greater than or equal to $3,000,000.

On August 3, 2017, the conversion price of the notes was modified to $1.00 per share and the maturity date was extended to April 1, 2019.

Under ASC 815, these notes require liability classification and must be measured at fair value at the end of each reporting period.

The following table sets forth, by level within the fair value hierarchy, the Company’s financial liabilities that were accounted for at fair value as of June 30, 2017 and December 31, 2016:

	Level 1		Level 2		Level 3		Total
LIABILITIES:
Derivative liabilities as of June 30, 2017	$	0	$	0	$	780,165	$	780,165
Derivative liabilities as of December 31, 2016	$	0	$	0	$	1,832,013	$	1,832,013

The following table represents the change in the fair value of the derivative liabilities during the six months ended June 30, 2017 and the year ended December 31, 2016:

Fair value of derivative liabilities as of December 31, 2015	$	0
Fair value of derivative liability at September 30, 2016 recorded as debt discount		2,394,974
Change in fair value of derivative liabilities		(562,961	)
Fair value of derivative liabilities as of December 31, 2016	$	1,832,013
Change in fair value of derivative liabilities		(1,051,848	)
Fair value of derivative liabilities as of June 30, 2017	$	780,165

The amortization of the debt discount is $1,092,492 and $302,818 for the six months ended June 30, 2017 and the year ended December 31, 2016, respectively. The $3,000,000 payable associated with the Convertible Promissory Notes Series 2016 due October 1, 2017 is $2,000,336 as of June 30, 2017, net of a $999,664 debt discount which is being amortized over the life of the loan using the effective interest method. On August 3, 2017 the notes were amended to extend the maturity date to April 1, 2019 and, accordingly, they have been reclassified as long term liability as of June 30, 2017.