DERIVATIVE LIABILITY

6 Months Ended

Jun. 30, 2019

Notes to Financial Statements

Note 10 - DERIVATIVE LIABILITY

The Company evaluates its convertible instruments, options, warrants or other contracts, to determine if those contracts or embedded components of those contracts qualify as derivatives to be separately accounted for under ASC Topic 815, “Derivatives and Hedging.” The result of this accounting treatment is that the fair value of the derivative is marked-to-market each balance sheet date and recorded as a liability. In the event that the fair value is recorded as a liability, the change in fair value is recorded in the statement of operations as other income (expense). Upon conversion or exercise of a derivative instruments, the instrument is marked to fair value at the conversion date then that fair value is reclassified to equity. Equity instruments that are initially classified as equity that become subject to reclassification under ASC Topic 815 are reclassified to liabilities at the fair value of the instrument on the reclassification date.

The following table summarizes fair value measurements by level at June 30, 2019 for assets and liabilities measured at fair value on a recurring basis:

	Total		Level 1		Level 2		Level 3
Fair value of Derivative Liability	$	344,625	$	-	$	-	$	344,625

The following table summarizes fair value measurements by level at December 31, 2018 for assets and liabilities measured at fair value on a recurring basis:

	Total		Level 1		Level 2		Level 3
Fair value of Derivative Liability	$	617,628	$	-	$	-	$	617,628

The Company has issued convertible promissory notes during 2018 and 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, dividends, interest rates and expected term. The assumptions used in valuing the derivative liability during 2019 were as follows:

Significant assumptions:
Risk-free interest rate at grant date	1.76	%
Expected stock price volatility	129.01	%
Expected dividend payout	-
Expected option life (in years)	1
Expected forfeiture rate	0

The following table presents a reconciliation of the derivative liability and contingent stock consideration measured at fair value on a recurring basis from December 31, 2018 to June 30, 2019:

	Fair value of derivative liabilities
Balance at December 31, 2018	$	617,628
Gain on change in fair value included in earnings		(273,003	)
Balance at June 30, 2019	$	344,625