NOTE 6 - DERIVATIVE LIABILITIES

LKA analyzed the conversion options embedded in the convertible notes payable and convertible notes payable related party (Convertible Notes) for derivative accounting consideration under ASC 815 and determined that the instruments embedded in the above referenced Convertible Notes should be classified as liabilities and recorded at fair value due to the potentially variable conversion prices.

The fair value of the conversion options was determined to be $358,006 as of the issuance date using a Black-Scholes option-pricing model. Upon the date of issuance of the Convertible Notes, $300,000 was recorded as debt discount and $58,006 was recorded as day one loss on derivative liability. During the year ended December 31, 2015, $101,728 was recorded as a net gain on mark-to-market of the conversion options.

The following table summarizes the derivative liabilities included in the balance sheet at December 31, 2015:

Balance, December 31, 2014	$	-
Day one loss due to convertible debt		58,006
Debt discount		300,000
Gains on change in fair value		(101,728	)
Balance, December 31, 2015	$	256,278

The following table summarizes the loss on derivative liabilities included in the income statement for the period ended December 31, 2015:

Day one loss due to convertible debt	$	(58,006	)
Gains on change in fair value		101,728
Gain on derivative liabilities	$	43,722

The Company valued its derivatives liabilities using the Black-Scholes option-pricing model. Assumptions used during the year ended December 31, 2015 include (1) risk-free interest rates of 0.99%, (2) lives of between 2.79 and 3.04 years, (3) expected volatility of between 379% to 411%, (4) zero expected dividends, (5) conversion prices as set forth in the related instruments, and (6) the common stock price of the underlying share on the valuation dates.