Quarterly report pursuant to Section 13 or 15(d)

Derivative Financial Instruments

Derivative Financial Instruments
6 Months Ended
Jun. 30, 2020
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivative Financial Instruments



The Company has identified the embedded derivatives related to the convertible notes described in Notes 8 and 9. These embedded derivatives included certain conversion and reset features. The accounting treatment of derivative financial instruments requires that the Company record fair value of these derivative liabilities as of the inception date of those convertible notes and each subsequent reporting date.


The Company estimates the fair value of these derivative liabilities using the Black-Scholes valuation model. The initial value is used in the determination of a note discount with each subsequent change in fair value as a component of operations. The range of fair value assumptions used for derivative financial instruments during the six-months ended June 30, 2020, were as follows:


Dividend yield     0.0 %
Risk-free rate     0.15% - 1.43 %
Volatility     175% - 190 %
Expected term     1 year  


The expected dividend yield is zero, because the Company does not anticipate paying a dividend within the relevant timeframe. The risk-free interest rate used is based on the U.S. Treasury constant maturity rate in effect at the time of valuation for the expected term of the derivative liabilities to be valued. The expected volatility is calculated based on the historical volatility of the Company.


For the six-months ended June 30, 2020, the Company recognized total derivative liabilities and convertible note discounts based on their fair value at the convertible notes’ inception and/or adjustment dates. These derivative liabilities were subsequently revalued at $337,068 as of June 30, 2020, which resulted in a loss of $77,166 on the change in value of these derivative liabilities. During the six months ended June 30, 2020, there were derivative liabilities of $458,977 that expired upon repayment of outstanding convertible notes, which were recorded as adjustments to additional paid in capital.


The following table presents the three-level hierarchy prescribed by U.S. GAAP for derivative liabilities since it is a liability that is measured and recognized at fair value on a recurring basis as of:


    Level 1     Level 2     Level 3  
June 30, 2020   $ -     $ -     $ 337,068