Derivative Liability

3 Months Ended

Mar. 31, 2019

Notes to Financial Statements

NOTE 8 - Derivative Liability

The Company determined that the conversion features of the convertible notes represented embedded derivatives since the notes are convertible into a variable number of shares upon conversion. Accordingly, the notes are not considered to be conventional debt and the embedded conversion feature is bifurcated from the debt host and accounted for as a derivative liability. Accordingly, the fair value of these derivative instruments is recorded as liabilities on the balance sheet with the corresponding amount recorded as a discount to each note, with any excess of the fair value of the derivative component over the face amount of the note recorded as an expense on the issue date. Such discounts are amortized from the date of issuance to the maturity dates of the notes. The change in the fair value of the derivative liabilities are recorded in other income or expenses in the statements of operations at the end of each period, with the offset to the derivative liabilities on the balance sheet.

The Company uses a weighted average Black-Scholes option pricing model with the following assumptions to measure the fair value of derivative liability at March 31, 2019 and December 31, 2018:

	March 31,			December 31,
	2019			2018
Risk free rate		2.44	%		2.56	%
Volatility		266	%		231	%
Terms (years)	0.11 to 0.50			0.27 to 0.50
Dividend rate		0	%		0	%

The following table represents the Company’s derivative liability activity for the three months ended March 31, 2019:

Derivative liability balance, December 31, 2018	$	5,540,889
Fair value of beneficial conversion feature of debt converted		(230,845	)
Change in derivative liability during the period		(1,753,969	)
Derivative liability balance, March 31, 2019	$	3,556,075

Loss on fair value of derivatives for the three months ended March 31, 2019 and 2018 is comprised of:

	Three Months Ended March 31,
	2019			2018
Initial derivative expense	$	-		$	185,358
Fair value change in derivatives		(1,753,969	)		(199,128	)
Loss (gain) on fair value of derivatives	$	(1,753,969	)	$	(13,770	)