Derivative Liablility

12 Months Ended

Dec. 31, 2017

Notes to Financial Statements

Derivative Liablility

15. Derivative liability

The short-term convertible notes issued to Leonite Capital LLC, Labrys Fund LP and Power Up Lending Group, LTD, disclosed in note 13 above, have variable priced conversion rights with no fixed floor price and will reprice dependent on the share price performance over varying periods of time. This gives rise to a derivative financial liability, which was initially valued at inception of the convertible notes at $1,976,500, the maximum amount permissible, using a Black-Scholes valuation model.

In addition, warrants exercisable over 27,500,000 shares of common stock were issued to Leonite Investments, in terms of the Securities Purchase Agreement and the Warrant Agreement entered into. Refer note 13 above.

The following assumptions were used in the Black-Scholes valuation model:

	Year ended December 31, 2017
Calculated stock price		$0.03 to $0.08
Risk free interest rate		0.64% to 2.13%
Expected life of convertible notes		3 to 12 months
expected volatility of underlying stock		134.9% to 534.8%
Expected dividend rate		0	%

The movement in derivative liability is as follows:

	Year ended December 31, 2017
Opening balance	$	—
Derivative liability arising from convertible notes	$	1,826,500
Fair value adjustment to derivative liability		1,033,332
	$	2,859,832