Derivative Liablility

9 Months Ended

Sep. 30, 2018

Notes to Financial Statements

Derivative Liablility

12. Derivative liability

The short-term convertible notes, together with certain warrants issued to Leonite Capital LLC, and the short term convertible notes issued to Power Up Lending Group, LTD, disclosed in note 10 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 $1,085,837 using a Black-Scholes valuation model.

In addition, warrants exercisable over 5,500,000 shares of common stock were issued to Leonite Investments, in terms of the Securities Purchase Agreement and the Warrant Agreement entered into. Refer note 10 above.

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

	Nine months ended September 30, 2018
Calculated stock price		$0.024 to $0.10
Risk free interest rate		1.6% to 2.91%
Expected life of convertible notes		1 month to 1 year
expected volatility of underlying stock		15.4% to 495.3%
Expected dividend rate		0%

The movement in derivative liability is as follows: 

	Nine months ended September 30, 2018		Year ended December 31, 2017
Opening balance	$	2,859,832	$	—
Derivative liability arising from convertible notes	$	1,349,748	$	1,826,500
Fair value adjustment to derivative liability		771,000		1,033,332
Closing balance	$	4,980,580	$	2,859,832