Derivative Liability

9 Months Ended

Sep. 30, 2019

Notes to Financial Statements

Derivative Liability

Note 9 - Derivative Liability

Certain of the convertible notes payable discussed in Note 7 have a conversion price that can be adjusted based on the Company’s stock price which results in the conversion feature being recorded as a derivative liability.

The fair value of the derivative liability is recorded and shown separately under current liabilities. Changes in the fair value of the derivative liability is recorded in the statement of operations under other income (expense).

The Company uses a weighted average Black-Scholes-Merton option pricing model with the following assumptions to measure the fair value of derivative liability at September 30, 2019 and December 31, 2018:

	September 30,			December 31,
	2019			2018
Stock price	$	3.08		$	32.00
Risk free rate		1.75	%		2.63	%
Volatility		650	%		150	%
Conversion/ Exercise price	$	0.80	*	$	21.00 to 25.00
Dividend rate		0	%		0	%

* the conversion price used to calculate the derivative liability at September 30, 2019 is the same conversion price used at June 30, 2019 since the calculated conversion price, as specified in the convertible note agreement, would result in a negative conversion price at September 30, 2019.

The following table represents the Company’s derivative liability activity for the nine months ended September 30, 2019:

Derivative liability balance, December 31, 2018	$	3,833,506
Issuance of derivative liability during the period		5,721,939
Fair value of beneficial conversion feature of debt converted		(2,264,578	)
Change in derivative liability during the period		13,614,981
Derivative liability balance, September 30, 2019	$	20,905,848