Derivative Liability

12 Months Ended

Dec. 31, 2018

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Liability

9. Derivative Liability

The Company adopted ASC 815 which defines the determination of whether an instrument (or embedded feature) is solely indexed to an entity’s own stock. During the period ended December 31, 2017, the Company issued convertible promissory notes payable, as described in note 8, which contain features that entitled the holder to convert any outstanding amounts payable under the convertible promissory note into common stock, the number of which is dependent on several factors. As such, ASC 815 determines the convertible promissory note to be a hybrid financial instrument that includes an embedded derivative that required separation from the main financial instrument and recognition at fair value. The Company measured fair value using the Black-Scholes option valuation mode. The Company computed the fair value of the derivative liability at each reporting period and the change in the fair value was recorded as a non-cash expense or non-cash income.

At origination, the Company valued the conversion feature of the convertible promissory note described in note 8(a) and determined that at origination, the fair value of the derivative liability related to the conversion feature was $938,001. Of this amount $65,000 was allocated to a discount on the convertible loan with the remaining $873,001 expensed.

On September 15, 2017, in conjunction with the modification of the convertible promissory note, the Company revalued the conversion feature and determined the value of the derivative liability decreased to $101,766. The corresponding gain of $836,235 has been recognized during the year ended December 31, 2017 and had the effect of decreasing the original loss recorded at the time of origination. As part of the loan modification, the $101,766 derivative liability was written off and included as part the gain on loan modification.

During 2017, in conjunction with the settlement of the convertible promissory notes, the Company revalued the derivative liability and determined the value increased to $1,190,068. The corresponding increase of $485,201 has the effect of increasing the loss on derivative. As part of the conversion of the convertible promissory notes the $1,190,068 derivative liability was removed and included as part of additional paid-in capital.

The assumptions used by the Company during 2018 and 2017 range as follows:

	2018-12-31	2017-12-31
Expected term	NA	0.06 to 1.0 years
Share price	NA	$0.01 to $0.05
Expected volatility	NA	87% to 515%
Expected dividends	None	None
Risk-free interest rate	NA	0.47% to 1.17%
Forfeitures	NA	None

The assumptions used in determining fair value represent management’s best estimates, but these estimates involve inherent uncertainties and the application of management’s judgment. As a result, if factors change the Company’s fair value estimates could be materially different in the future.