NOTE 6 – WARRANTS

During the three months ended October 31, 2018, the Company issued the following warrants:

The Company secured $40,000 from an accredited investor under a private placement and issued 80,000 shares of its common stock at a price of $0.50 per share and warrants to purchase an additional 15,000 shares of its common stock at an exercise price of $0.50 per share. We determined that the warrants issued in connection with the private placement were equity instruments and did not represent derivative instruments. The Company adopted a sequencing policy, and determined that the warrants with fixed exercise price were excluded from derivative consideration.

In October 2018, Digerati issued 200,000 warrants under an extension of payments to an existing promissory note, with a current principal balance of $75,000, the warrants vested at time of issuance. The warrants have a term of 3 years, with an exercise price of $0.10. Under a Black-Scholes valuation the relative fair market value of the warrants at time of issuance was approximately $38,000 and was recognized as a discount on the promissory note, the company will amortize the fair market value as interest expense over 3 months. The Company adopted a sequencing policy, and determined that the warrants with fixed exercise price were excluded from derivative consideration.

The fair market value of all warrants issued was determined using the Black-Scholes option pricing model which used the following assumptions:

Expected dividend yield	0.00%
Expected stock price volatility	153.99% - 237.00%
Risk-free interest rate	2.05% -2.93%
Expected term	3.0 - 5.0 years

A summary of the warrants as of October 31, 2018 and July 31, 2018 and the changes during the three months ended October 31, 2018 and July 31, 2018 are presented below:

						Weighted-average
				Weighted-average		remaining contractual term
	Warrants			exercise price		(years)

Outstanding at July 31, 2017		510,000		$	0.29		2.87
Granted		2,010,000		$	0.26		3.34
Exercised		(150,000	)	$	0.10		3.00
Forfeited and cancelled		-			-		-
Outstanding at July 31, 2018		2,370,000		$	0.28		2.90
Granted		215,000		$	0.13		3.00
Exercised		-			-		-
Forfeited and cancelled		(240,000	)	$	0.15		3.43
Outstanding at October 31, 2018		2,345,000		$	0.34		2.60
Exercisable at October 31, 2018		2,045,000		$	0.24		2.48

The aggregate intrinsic value (the difference between the Company’s closing stock price on the last trading day of the period and the exercise price, multiplied by the number of in-the-money warrants) of the 2,345,000 and 2,370,000 warrants outstanding at October 31, 2018 and July 31, 2018 was $205,000 and $607,557, respectively.

During the three months ended October 31, 2018, we cancelled 240,000 warrants with an exercise price of $0.15. Additionally, the Company issued 240,000 common shares to replace these warrants, in conjunction with two promissory notes with a principal balance of $50,000, in addition at the time of issuance we recognized a discount of $36,000.

The aggregate intrinsic value of 2,045,000 and 2,070,000 warrants exercisable at October 31, 2018 and July 31, 2018 was $205,000 and $597,927, respectively.

In December 2017, Digerati issued 100,000 warrants to a consultant for services, the warrants vested at time of issuance. The warrants have a term of 5 years, with an exercise price of $0.50. Under a Black-Scholes valuation the fair market value of the warrants at time of issuance was approximately $49,000, the company will amortize the fair market value as warrant expense over 12 months. Additionally, Digerati committed to issue 100,000 warrants if the Company’s stock price traded at $0.75 per share for 10 consecutive days, to issue 100,000 warrants if the Company’s stock price traded at $1.00 per share for 10 consecutive days, and to issue 100,000 warrants if the Company’s stock price traded at $1.25 per share for 10 consecutive days. Under a Black-Scholes valuation the fair market value of the warrants at time of issuance was approximately $143,000, the company will amortize the fair market value as warrant expense over 12 months. During the three months ended October 31, 2018 and 2017, the Company amortized $48,000 and $0, respectively in warrant expense related to these warrants. Unamortized warrant expense totaled $16,000 and $0, respectively as of October 31, 2018 and October 31, 2017.