DERIVATIVE LIABILITY

9 Months Ended

Sep. 30, 2017

Notes to Financial Statements

Note 9 - DERIVATIVE LIABILITY

The following table summarizes fair value measurements by level at September 30, 2017 for assets and liabilities measured at fair value on a recurring basis:

	Level I		Level II		Level III			Total
Cash	$	127,816	$	—	$	—		$	127,816
Derivative liability		—		—	$	(482,837	)	$	(482,837	)

No financial assets or liabilities were measured on a recurring basis as of December 31, 2016.

The Company has issued convertible promissory notes during 2017. The convertible notes require us to record the value of the conversion feature as a liability, at fair value, pursuant to ASC 815, including provisions in the notes that protect the holders from declines in the Company’s stock price, which is considered outside the control of the Company. The derivative liabilities are marked-to-market each reporting period and changes in fair value are recorded as a non-operating gain or loss in our statement of operations, until they are completely settled. The fair value of the conversion feature is determined each reporting period using the Black-Scholes option pricing model, and is affected by changes in inputs to that model including our stock price, expected stock price volatility, interest rates and expected term. The assumptions used in valuing the derivative liability during 2017 were as follows:

	September 30, 2017
Significant assumptions (weighted-average):
Risk-free interest rate at grant date		1.92	%
Expected stock price volatility		84.43	%
Expected dividend payout		-
Expected option life (in years)		1
Expected forfeiture rate		0	%

The following is a reconciliation of the derivative liability for 2017:

	September 30, 2017
Value at December 31, 2016	$	-
Initial value at the debt issuance		658,430
Decrease in value		(175,593	)
Value at September 30, 2017	$	482,837