Derivative Instrument

3 Months Ended

Mar. 31, 2019

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Instrument

13. DERIVATIVE INSTRUMENT

The Company has notes payable with elements that qualify as a derivative instrument. The note payables had a variable conversion feature that similarly prevented the calculation of the number of shares into which they were convertible. The note bear interest at 12% and are convertible at variable prices based upon discounts of 42% to 50% of the lowest trading price during the previous 15 to 25 days ending on the last trading day prior to notice These variable conversion feature requires bifurcation from the convertible debenture and measurement at fair value.

The derivative liability, as it relates to the instrument, is shown in the following table:

Beginning balance, January 1, 2019	$	244,004
Additional issuance		-
Exercised/converted		-
Reclassification to equity		-
Change in value of derivative liability		(75,152	)
Fair value, March 31, 2019	$	168,852

All of the convertible notes were analyzed at the time of their issuance for derivative accounting consideration. In some instances, the Company concluded that a derivative liability existed. The derivative liabilities were measured using the commitment-date stock price. As of March 31, 2019, the Company determined that the fair value of these derivative liabilities totaled $168,852

The value of the derivative liabilities was determined using the following Black-Scholes methodology:

Expected dividend yield (1) 0.00%	For the Years Ended
Risk-free interest rate (2) 2.0%	December 31, 2017			December 31, 2016
Expected volatility (3) 246%
Expected life (in years) 0.75		0.00	%		0.00	%

(1)	The Company has no history or expectation of paying cash dividends on its common stock.
(2)	The risk-free interest rate is based on the U.S. Treasury yield for a term consistent with the expected life of the promissory notes in effect at the time of issuance.
(3)	The volatility of the Company’s common stock is based on trading activity for the previous contractual term ended at each promissory note issuance date.

During the quarter ended March 31, 2019, the Company converted, upon receiving formal notices from its noteholders, $8,011 in note principal, plus accrued interest totaling $8,254, into common stock.

The Company has adopted the guidance under ASC Topic 820 for financial instruments measured on a fair value on a recurring basis. ASC Topic 820 establishes a fair value hierarchy, giving the highest priority to quoted prices in active markets and the lowest priority to unobservable data and requires disclosures for assets and liabilities measured at fair value based on their level in the hierarchy. Further authoritative accounting guidance (ASU No. 2009-05) under ASC Topic 820, provides clarification that in circumstances in which a quoted price in an active market for the identical liabilities is not available, a reporting entity is required to measure fair value using one or more of the techniques provided for in this update.

The standard describes a fair value hierarchy based on three levels of input, of which the first two are considered observable and the last unobservable, that may be used to measure fair value, which are the following:

Level 1 – Quoted prices in active markets for identical assets and liabilities.

Level 2 – Input other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets of liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the asset or liabilities.

Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability.

The Company analyzes all financial instruments with features of both liabilities and equity under ASC 480, “Distinguishing Liabilities from Equity” and ASC 815, “Derivatives and Hedging”. Derivative liabilities are adjusted to reflect fair value at each period end, with any increase or decrease in the fair value being recorded in results of operations as adjustments to fair value of derivatives. The effects of interactions between embedded derivatives are calculated and accounted for in arriving at the over- all fair value of the financial instruments. In addition, the fair value of free-standing derivative instruments such as warrant, and option derivatives are valued using the Black-Scholes modes.

The Company uses Level 3 inputs for its valuation methodology for the embedded conversion option liabilities as their fair value were determined by using the Black Scholes option-pricing model based on various assumptions. The Company’s derivative liabilities are adjusted to reflect fair value at each period end, with any increase or decrease in the fair value being recorded in results of operations as adjustments to fair value of derivatives.

Assets and liabilities measured at fair value on a recurring basis were presented on the Company’s consolidated balance sheet as at March 31, 2019 as follows:

Description	Fair Value Measurements at March 31, 2019 Using Fair Value Hierarchy
	Total		Level 1		Level 2		Level 3
Derivative liability	$	168,852	$	-	$	-	$	168,852
Total	$	168,852	$	-	$	-	$	168,852