Note 8 Derivative Liabilities

6 Months Ended

Jun. 30, 2016

Note 8 Derivative Liabilities

The Company recognized that the conversion feature embedded within its convertible debts is a financial derivative. The Generally Accepted Accounting Principles (GAAP) required that the Company’s embedded conversion option be accounted for at fair value. The following schedule shows the change in fair value of the derivative liabilities by June 30, 2016:

Description	Amount
Derivative liabilities - December 31, 2015	$	-
Add fair value at the commitment date for convertible notes issued during the current year		743,467
Fair value mark to market adjustment for derivatives from the first quarter		(65,741	)
Derivative liabilities - June 30, 2016		677,726
Less: current portion		590,471
Long-term derivative liabilities	$	87,255

The Company recorded the debt discount to the extent of the gross proceeds raised, and expensed immediately the remaining value of the derivative as it exceeded the gross proceeds of the notes. The Company recorded derivative interest expenses for the six months ended June 30, 2016 of $271,859, amortization of debt discount interest expense of $52,573 and the total derivative discount expense of 234,777. The total of these derivative calculations is recorded on the income statement as Derivative amortization expense of $559,209. The actual interest accrual on the convertible notes for the quarter ended June 30 2016 was $7,931.

The Company recorded as a liability the amount of $677,726 and the debt discount to the extent of the gross proceeds raised, and expensed immediately the remaining value of the derivative as it exceeded the gross proceeds of the note. The Company recorded change in fair value of derivative liabilities as an expense associated with financing for the three and six month periods ended June 30, 2016 of $456,921 and $559,209, respectively.

Derivative liabilities incurred during the period ended June 30, 2016 were valued based upon the following assumptions and key inputs:

	Commitment			Re-measurement
Assumption	Date			Date
Expected dividends:		0	%		0	%
Expected volatility:		679%-783	%		398%-640	%
Expected term (years):	1-2 years			0.6-1.72 years
Risk free interest rate:		0.51%-0.87	%		0.36%-0.73	%