NOTE 5 – DERIVATIVE LIABILITIES

Derivative Liabilities

In connection with convertible notes payable, the Company records derivative liabilities for the conversion feature. In addition, the Company has warrants for which the exercise prices reset upon future events. These warrants are also considered to be derivative liabilities. The derivative liabilities are valued on the date the convertible note payable become convertible and revalued at each reporting period. The warrants are valued on the date of issuance and revalued at each reporting period. During the three months ended March 31, 2018, the Company recorded initial derivative liabilities of $752,230 based upon the following Black-Scholes option pricing model average assumptions: an exercise price of $0.00126 to $0.00564 our stock price on the date of grant of $0.0029 to $0.0097, expected dividend yield of 0%, expected volatility of 86% to 191%, risk free interest rate of 2.03% and expected terms ranging from 1.0 to 5.0 years. Upon initial valuation, the derivative liability exceeded the face value certain of the convertible note payables by approximately $502,000, which was recorded as a day one loss on derivative liability.

On March 31, 2018, the derivative liabilities were revalued at $7,045,971 resulting in a loss of $6,505,216 related to the change in fair market value of the derivative liabilities. The derivative liabilities were revalued using the Black-Scholes option pricing model with the following average assumptions: an exercise price of $0.0008 to $0.0023, our stock price on the date of valuation ($0.0097), expected dividend yield of 0%, expected volatility of 83% to 87%, risk-free interest rate of 2.03%, and an expected terms ranging from 0.5 to 2.1 years.

In connection with convertible notes converted, as disclosed in Note 5, the Company reclassed derivative liabilities with a fair of $1,669,207 to additional paid-in capital. The Company revalued the derivative liabilities at each conversion date recording the pro-rata portion of the derivative liability as compared to the portion of the convertible note converted to the pre-conversion carrying value to additional paid-in capital

Future Potential Dilution

Most of the Company’s convertible notes payable contain adjustable conversion terms with significant discounts to market. As of March 31, 2018 the Company’s convertible notes payable are potentially convertible into an aggregate of approximately 479 million shares of common stock. In addition, due to the variable conversion prices on some of the Company’s convertible notes, the number of common shares issuable is dependent upon the traded price of the Company’s common stock.