Derivative liabilities

3 Months Ended

Mar. 31, 2019

Notes to Financial Statements

Derivative liabilities

Note 9 - Derivative liabilities

As of March 31, 2019, the Company revalued the embedded conversion feature of the Convertible Notes, and warrants (see note 11). The fair values were calculated based on the Monte Carlo simulation method consistent with the terms of the related debt.

A summary of the derivative liability balance as of March 31, 2019, is as follows:

	Notes			Warrants			Total
Beginning Balance	$	1,406,209		$	155,022		$	1,561,231
Initial Derivative Liability		411,247			78,029			489,276
Fair Value Change		153,540			(119,690	)		33,850
Derivative Settlement		(356,295	)		—			(356,295	)
Ending Balance	$	1,614,701		$	113,361		$	1,728,062

The derivative expense for the three months ended March 31, 2019, of $274,235 is comprised of the initial derivative expense of $240,385 resulting from the issuances of new convertible notes and warrants in the period and the fair value change increasing the liability and expense by $33,850. For the three months ended March 31, 2018, there was a credit to derivative expense of $2,857,244, comprised of $44,111 of initial derivative expense resulting from new convertible notes issued during the three months ended March 31, 2018, and the change, decreasing the liability and expense by $2,901,355.

The fair value at the commitment date for the 2019 Convertible Notes and the re-measurement dates for the Company’s derivative liabilities were based upon the following management assumptions as of March 31, 2019:

	Commitment date		Remeasurement date
Expected dividends		-0-		-0-
Expected volatility		197%-231%		233%
Expected term		0.50 years		.5 years
Risk free interest		2.49%-2.53%		2.44%

On February 7, 2019, the Company issued a warrant to purchase 70,948 shares of common stock (see Note 8) and valued the warrant at $78,029. As of March 31, 2019, the Company evaluated all outstanding warrants to determine whether these instruments may be tainted. All warrants outstanding were considered tainted. The Company valued the embedded derivatives within the warrants using the Black-Scholes valuation model.   The fair value for Warrants as of the issue date and measurement date were based upon the following management assumptions:

	Commitment date		Remeasurement date
Expected dividends		-0-		-0-
Expected volatility		192%		178%-205%
Expected term		5 years		2.59-4.86 years
Risk free interest		2-23%		2.22%-2.25%