Derivative Liabilities

6 Months Ended

Jun. 30, 2016

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Note 7 – Derivative Liabilities

Under authoritative guidance issued by the FASB, debt instruments which do not have fixed settlement provisions, are deemed to be derivative instruments. The conversion feature of the Company’s convertible notes payable and liabilities payable in shares (described in Note 5 and 6 above) did not have fixed settlement provisions because the ultimate determination of shares to be issued could exceed current available authorized shares.

In accordance with the FASB authoritative guidance, the conversion feature of the financial instruments was separated from the host contract and recognized as a derivative instrument. The conversion feature of the financial instruments had been characterized as a derivative liability and was re-measured at the end of every reporting period with the change in value reported in the statement of operations.

At December 31, 2015, the balance of the derivative liabilities was $3,037,500. During the six months ended June 30, 2016, convertible notes and accrued interest totaling $21,133 were converted into shares of common stock and the Company recorded a gain of $18,640 related to the extinguishment of the corresponding derivative liability. As of June 30, 2016, the Company re-measured the derivative liabilities and determined the fair value to be $2,292,575, and for the six months ended June 30, 2016, recorded a gain on the change in fair value of derivatives of $726,286.

The derivative liability was valued at the following dates using a probability weighted Black-Scholes-Merton model with the following assumptions:

	June 30, 2016			December 31, 2015
Conversion feature:
Risk-free interest rate		0.45	%		0.03	%
Expected volatility		98	%		290	%
Expected life (in years)		1 year			1 year
Expected dividend yield		-			-

Fair Value:
Conversion feature	$	2,292,575		$	3,037,500

The risk-free interest rate was based on rates established by the Federal Reserve Bank. The expected life of the conversion feature of the notes was based on the remaining terms of the financial instruments. The expected dividend yield was based on the fact that the Company has not customarily paid dividends to its common stockholders in the past and does not expect to pay dividends to its common stockholders in the future.

- Definition

The entire disclosure for derivative instruments and hedging activities including, but not limited to, risk management strategies, non-hedging derivative instruments, assets, liabilities, revenue and expenses, and methodologies and assumptions used in determining the amounts.

+ References

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+ Details

STL Marketing Group, Inc. 10-Q