Derivative Liabilities

6 Months Ended

Jun. 30, 2019

Note 7 - Derivative Liabilities

The Company analyzed the conversion option for derivative accounting consideration under ASC 815, Derivatives and Hedging, and determined that the instrument should be classified as a liability since the conversion option becomes effective at issuance resulting in there being no explicit limit to the number of shares to be delivered upon settlement of the above conversion options.

Fair Value Assumptions Used in Accounting for Derivative Liabilities.

ASC 815 requires we assess the fair market value of derivative liability at the end of each reporting period and recognize any change in the fair market value as other income or expense item.

The Company determined our derivative liabilities to be a Level 3 fair value measurement and used the Binomial lattice model pricing model to calculate the fair value as of June 30, 2019. The Binomial lattice model model requires six basic data inputs: the exercise or strike price, time to expiration, the risk-free interest rate, the current stock price, the estimated volatility of the stock price in the future, and the dividend rate. Changes to these inputs could produce a significantly higher or lower fair value measurement. The fair value of each convertible note is estimated using the Binomial lattice model valuation model.

At June 30, 2019, the estimated fair values of the liabilities measured on a recurring basis are as follows:

			Six Months Ended
			June 30, 2019
Expected term			0.08 - 5.00 years
Expected average volatility			187% - 451%
Expected dividend yield			—
Risk-free interest rate			1.76% - 2.09%

The following table summarizes the changes in the derivative liabilities during the six months ended June 30, 2019:

Fair Value Measurements Using Significant Observable Inputs (Level 3)

Balance - December 31, 2018	$	—
Addition of new derivatives recognized as debt discounts		53,887
Addition of new derivatives recognized as loss on derivatives		123,438
Loss on change in fair value of the derivative		56,880
Balance - June 30, 2019	$	234,205

Tech Central, Inc. 10-Q