DERIVATIVE LIABILITIES

9 Months Ended

Sep. 30, 2021

Derivative Liabilities

DERIVATIVE LIABILITIES

NOTE 9 DERIVATIVE LIABILITIES

Effective January 1, 2019, an equity-linked financial instrument with a down round feature that otherwise is not required to be classified as a liability under the guidance in Topic 480 is evaluated under the guidance in Topic 815, Derivatives and Hedging, to determine whether it meets the definition of a derivative. If it meets that definition, the instrument (or embedded feature) is evaluated to determine whether it is indexed to an entity’s own stock as part of the analysis of whether it qualifies for a scope exception from derivative accounting. Generally, for warrants and conversion options embedded in financial instruments that are deemed to have a debt host (assuming the underlying shares are readily convertible to cash or the contract provides for net settlement such that the embedded conversion option meets the definition of a derivative), the existence of a down round feature results in an instrument not being considered indexed to an entity’s own stock. This results in a reporting entity being required to classify the freestanding financial instrument or the bifurcated conversion option as a liability, which the entity must measure at fair value initially and at each subsequent reporting date.

However, due to a recognition of tainting, due to variable conversion price on some of the convertible notes, all convertible notes are considered to have a derivative liability, therefore the Company accounted for these Notes under ASC Topic 815-15 “Embedded Derivative.”  The derivative component of the obligation is initially valued and classified as a derivative liability with an offset to discounts on convertible debt. Discounts are amortized to interest expense over the respective term of the related note. In determining the indicated value of the convertible note issued, the Company used the Binomial Options Pricing Model with a risk-free interest rate of ranging from 0.05% to 2.63%, volatility ranging from 84.63% to 243.22%, trading prices ranging from $0.42 per share to $6.15 per share and a conversion price ranging from $0.15 per post- reverse split share to $0.38 per share. 

As a result of the application of ASC No. 815, the fair value of the ratchet feature related to convertible debt and warrants is summarized as follow: 

Balance as of December 31, 2020	$	17,328,904
Initial		882,080
Change in Derivative Values		(9,825,029)
Conversion of debt-reclass to APIC		(283,326)
Balance as of September 30, 2021	$	8,102,629

The Company recorded the debt discount to the extent of the gross proceeds raised and expensed immediately the remaining fair value of the derivative liability, as it exceeded the gross proceeds of the note.  

The Company recoded initial derivative liabilities of $882,080 and $584,485 for the new notes issued for nine months ended September 30, 2021 and 2020, respectively.

The Company recorded derivative liability expense of $566,080 and $319,484 for the nine months ended September 30, 2021 and 2020, respectively.

The Company recorded a change in the value of embedded derivative liabilities expense of $9,825,029 and $13,232,597 for the nine months ended September 30, 2021 and 2020, respectively.

The Company recorded a reclassification of derivatives liabilities to additional paid in capital due to conversion of date of $283,326 during the nine months ended September 30, 2021.