Derivative Liability

9 Months Ended

Sep. 30, 2016

Notes

Derivative Liability

NOTE 7 – DERIVATIVE LIABILITY

The Company adopted ASC 815 which defines determining whether an instrument (or embedded feature) is solely indexed to an entity’s own stock. The exercise price of the newly issued and outstanding warrants are subject to “reset” provisions in the event the Company subsequently issues common stock, stock warrants, stock options or convertible debt with a stock price, exercise price or conversion price lower than exercise price of these warrants. If these provisions are triggered, the exercise price of the warrant will be reduced. As a result, the Company has determined that the exercise feature is not considered to be solely indexed to the Company’s own stock and is therefore not afforded equity treatment. In accordance with ASC 815, the Company has bifurcated the exercise feature of the warrants and recorded a derivative liability.

ASC 815 requires Company management to assess the fair market value of certain derivatives at each reporting period and recognize any change in the fair market value as another income or expense item. The Company’s only asset or liability measured at fair value on a recurring basis is its derivative liability associated with warrants.

At origination, the Company valued the conversion features using the following assumptions:  stock price of $0.50 and annualized volatility of 232%.  The Company determined that at origination the liability related to the debt issued was $102,327, which was $47,327 greater than the transaction value and was expensed at the time of origination.

At December 31, 2015, the Company revalued the conversion features using the following assumptions:  stock price of $0.94 and annualized volatility of 240%, and determined that, during the year ended December 31, 2015, the Company’s derivative liability increased by $94,566 to $196,893.  The Company recognized a corresponding loss on derivative liability in conjunction with this revaluation during the year ended December 31, 2015.

The Company revalued the conversion features at September 30, 2016 using the following assumptions:  stock price of $0.40 and annualized volatility of 170%, and determined that, during the three and nine-month period ended September 30, 2016, the Company’s derivative liability increased by $8,558 for the three months and decreased by $133,874 for the nine month period to $63,019.  The company recognized a corresponding loss of $8,558 on derivative liability in conjunction with this revaluation during the three-month period ended September 30, 2016.

During the nine-month period ended September 30, 2016 and the year ended December 31, 2015 we had the following activity in the accounts related to our convertible notes payable:

	Derivative Liability	Debt Discount	Gain (Loss) on Derivative Liability
Derivative liability at inception of  new convertible debt	$102,327	$(55,000)	$(47,327)
Loss on derivative liability	94,566	0	(94,566)
Amortization of debt discount to interest expense	0	4,583	0
Balance at December 31, 2015	$196,893	$(50,417)	$(141,893)
Gain on derivative liability	(133,874)	0	133,874
Amortization of debt discount to interest expense	0	20,625	0
Balance at September 30, 2016	$63,019	$(29,792)	$(8,019)