Annual report pursuant to Section 13 and 15(d)

NOTE 6: DERIVATIVE LIABILITIES

v3.10.0.1
NOTE 6: DERIVATIVE LIABILITIES
12 Months Ended
Dec. 31, 2018
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivative Instruments and Hedging Activities Disclosure [Text Block]

NOTE 6: DERIVATIVE LIABILITIES


During the year ended December 31, 2017, eight convertible notes issued by the Company became convertible and qualified as derivative liabilities under Financial Accounting Standards Board (FASB) Accounting Series Codification 815, Derivatives (ASC 815). During the year ended December 31, 2017, debt holders of the convertible debt that tainted the convertible instrument pool and required all outstanding convertible debt, nonemployee common stock options and common stock warrants to be accounted for as derivative liabilities under ASC 815, converted the remaining balances, resulting in the pool no longer being tainted as all remaining convertible instruments have fixed conversion amounts.


As of and for the years ended December 31, 2018 and 2017, the aggregate fair value of the outstanding derivative liabilities was $0 and $0 and the Company recognized a net gain on the change of fair value of $0 and $4,620,866, respectively.


The Company analyzed the conversion options embedded in the convertible debt for derivative accounting consideration under ASC 815 and determined that the instruments embedded in the above referenced convertible promissory notes should be classified as liabilities and recorded at fair value due to their being no explicit limit to the number of shares to be delivered upon settlement of the conversion options.  Because the number of shares to be issued upon settlement of the above referenced convertible promissory notes could not be determined under these instruments, the Company could not determine whether it would have sufficient authorized shares at a given date to settle future share instruments. The fair values of the instruments were determined using a Black-Scholes option-pricing model.


The Company estimated the fair value of the derivative liabilities using the Black-Scholes option pricing model and the following key assumptions during the year ended December 31, 2017:


   

December 31, 2017

 

Expected dividends

    -

%

Expected term (years)

    0.25 – 5.00  

Volatility

    48% - 353

%

Risk-free rate

    0.50% - 1.93

%


The below table presents the change in the fair value of the derivative liability during the year ended December 31, 2017:


Fair value as of December 31, 2016

  $ 18,028,611  

  Fair value on the date of issuance recorded as debt discounts

    1,095,215  

  Extinguishment of liability to equity due to conversions

    (1,655,656

)

  Extinguishment of liability to equity due to release from ASC 815

    (12,847,304

)

  Gain on change in fair value of derivatives

    (4,620,866

)

Fair value as of December 31, 2017

  $ -