Derivative Liability

12 Months Ended

Dec. 31, 2017

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Liability

Note 5- Derivative Liability

The FASB has issued authoritative guidance whereby instruments which do not have fixed settlement provisions are deemed to be derivative instruments. Certain warrants issued to investors and conversion features of notes payable did not have fixed settlement provisions because either their exercise prices will be lowered if the Company issues securities at lower prices in the future or the conversion price is variable. In addition, since the number of shares to be issued is not explicitly limited, the Company is unable to conclude that enough authorized and unissued shares are available to share settle the conversion option. In accordance with the FASB authoritative guidance, the conversion feature of the notes was separated from the host contract (i.e., the notes) and the fair value of the warrants have been recognized as a derivative and will be re-measured at the end of every reporting period with the change in value reported in the statement of operations.

The derivative liabilities were valued at the following dates using a Black-Scholes-Merton model with the following average assumptions:

	December 31, 2017			December 31, 2016
Stock Price	$	0.31		$	4.0
Risk free interest rate		0.84	%		0.51% - 0.62 %
Expected Volatility		476	%		383	%
Expected life in years		.25-.79			0.21-0.57
Expected dividend yield		0	%		0	%
Fair Value – Warrants	$	0		$	11,930,000
Fair Value – Note Conversion Feature		1,867,000			1,238,000
Total	$	1,867,000		$	13,168,000

The risk-free interest rate was based on rates established by the Federal Reserve Bank. The Company uses the historical volatility of its common stock to estimate the future volatility for its common stock. The expected life of the derivative securities was determined by the remaining contractual life of the derivative instrument. For derivative instruments that already matured, the Company used the estimated life. The expected dividend yield was based on the fact that the Company has not paid dividends to its common stockholders in the past and does not expect to pay dividends to its common stockholders in the future.

During the year ended December 31, 2016, the Company recorded a gain of $558,000 upon the extinguishment of derivative liabilities related to the payment and conversion of certain convertible notes, and a loss of $9,054,000 relating to the change in the fair value of the derivatives during the period. As of December 31, 2016, the aggregate fair value of the derivative liabilities was $13,168,000.

During the year ended December 31, 2017, the Company recorded $1,067,000 in derivative liability as a result of conversion features from the issuance of new convertible notes payables (see Note 3). In addition the Company recorded a gain of $9,792,000 to account for the change in fair value of the derivative liabilities related to the conversion features and warrants from December 31, 2016 to December 31, 2017. Also the Company recorded a gain from various warrants accounted for as derivative liabilities expired and as such their corresponding fair value at the expiration date of $2,575,000 was extinguished from the derivative liabilities balance. As of December 31, 2017, the derivative liability amounted to $1,867,000.