(7) Derivative Instruments

6 Months Ended

Jun. 30, 2018

Notes

(7) Derivative Instruments

(7)           Derivative Instruments

The Company analyzed the conversion option for derivative accounting consideration under ASC 815, “Derivatives and Hedging,” and determined that the convertible notes should be classified as a liability since the conversion option becomes effective at issuance resulting in there being no explicit limit to the number of shares to be delivered upon settlement of the above conversion options.

The Company determined our derivative liabilities to be a Level 3 fair value measurement and used the Black-Scholes pricing model to calculate the fair value as of June 30, 2018 and December 31, 2017. The Black-Scholes model requires six basic data inputs: the exercise or strike price, time to expiration, the risk-free interest rate, the current stock price, the estimated volatility of the stock price in the future, and the dividend rate. Changes to these inputs could produce a significantly higher or lower fair value measurement. The fair value of each convertible note and warrant is estimated using the Black-Scholes valuation model. The following weighted-average assumptions were used in June 30, 2018 and December 31, 2017:

	Six Months Ended		Year Ended
	June 30, 2018		December 31, 2017
Expected term	0.11- 0.83 years			0.4 – 0.96 years-
Expected average volatility	266.7	%		313.6	%
Expected dividend yield	-			-
Risk-free interest rate	1.65 UHWXZZGV»] - 2.97«UHWXZZ4A»]	%		1.28«UHWTZY5C»] - 1.76«UKWXZYW2»]	%

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The Company valued the conversion feature using the Black-Scholes valuation model. The fair value of the derivative liability for all the notes that became convertible as of June 30, 2018 amounted to $827,154. During the six months ended June 30, 2018, $203,310«MPWUZFUS»] of the value assigned to the derivative liability was recognized as a debt discount to the convertible notes and $1,141,640«MMWYZDAA»] was recorded as loss on change in fair value of derivative liability.

	Six Months Ended June 30, 2018
	Conversion Feature
	of
	Notes Payable
	1,787,063 «MPWYZG22»]
Beginning balance, January 1
Reclassification to equity	-
Change in value of derivative liability	(899,108)«MPWYZ8PY»]
Excess derivative liability expense	(60,801)«MKWTEAZF»]
Ending balance, June 30, 2018	$                                 827,154 «MPWYZGAU»]

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