| NOTES PAYABLE AND DERIVATIVE LIABILITY | NOTE 6 –
NOTES PAYABLE AND DERIVATIVE LIABILITY Notes
Payable At
fiscal year ended December 31, 2019 and December 31, 2018, the Company had third party notes payable and accrued interest in the
amount of $476,659 compared to $404,291, respectively. The notes included notes to eleven unaffiliated parties at interest rates
of between 6% and 10% per year. The notes expire between 2015 and 2019 fiscal years and are not secured by collateral of the Company.
Several of these notes are in default and the Company is in communication with the holders to resolve these outstanding issues.
The notes are convertible into common stock, at the election of the holder, at discounts of between 40% and 50%. Two additional
notes, totaling $11,250 are convertible into common stock of the Company at $0.001. Additionally, the Company is carrying $225,200
in notes payable contingent liability representing three prior notes that are either in dispute or the Company is unable to substantiate. Derivative
Liability The
Company entered into an agreement which has been accounted for as a derivative. The Company has recorded a loss contingency
associated with this agreement because it is both probable that a liability had been incurred and the amount of the loss can reasonably
be estimated. The main factors that will affect the fair value of the derivative are the number of the Company’s
shares outstanding post acquisition or post offering and the resulting market capitalization. ASC
Topic 815 (“ASC 815”) requires that all derivative financial instruments be recorded on the balance sheet at fair
value. Fair values for exchange traded securities and derivatives are based on quoted market prices. Where market prices are not
readily available, fair values are determined using market-based pricing models incorporating readily observable market data and
requiring judgment and estimates. The
Company issued warrants and has evaluated the terms and conditions of the conversion features contained in the warrants to determine
whether they represent embedded or freestanding derivative instruments under the provisions of ASC 815. The Company determined
that the conversion features contained in the warrants represent freestanding derivative instruments that meet the requirements
for liability classification under ASC 815. As a result, the fair value of the derivative financial instruments in the warrants
is reflected in the Company’s balance sheet as a liability. The fair value of the derivative financial instruments of the
warrants was measured at the inception date of the warrants and each subsequent balance sheet date. Any changes in the fair value
of the derivative financial instruments are recorded as non-operating, non-cash income or expense at each balance sheet date. The
Company valued the conversion features in its warrants using the Black-Scholes model. The Black-Scholes model values the embedded
derivatives based on a risk-free rate of return of 0.0131%, grant dates at December 31, 2017 and December 31, 2018, the term of
the warrant extending 3 years from the date of a “reverse merger”, conversion of warrant shares is equal to 0.005%
of the then outstanding common stock of the company, the conversion price is $0.001, current stock prices on the measurement date
ranging from $0.0044 to $0.0255, and the computed measure of the Company’s stock volatility, ranging from 220% to 382%. Included
in the December 31, 2019 and 2018 financial statements is a derivative liability in the amount of $5,941 and $7,254, respectively,
to account for this transaction. It is revalued quarterly henceforth and adjusted as a gain or loss to the consolidated statements
of operations depending on its value at that time. Included
in our Consolidated Statements of Operations for the years ended December 31, 2019 and 2018 are $1,313 and $(412) in change of
fair value of derivative in non-cash charges pertaining to the derivative liability as it pertains to the gain (loss) on derivative
liability and debt discount, respectively. Derivative
Liability
December
31, 2019 December
31, 2018
Estimated
number of underlying shares 1,427,780 1,101,060
Estimated
market price per share $ 0.00 $ 0.00
Exercise
price per share $ 0.00 $ 0.00
Expected
volatility 382 % 417 %
Expected
dividends 0 % 0 %
Expected
term (in years) 3.00 3.00 The
following presents the Company’s fair value hierarchy for assets and liabilities measured at fair value on a recurring
basis on December 31, 2019. These items are included in “derivative liability” on the consolidated balance
sheet.
Fair Value
Measurements on a Recurring Basis
Level
1 Level
2 Level
3 Total
December
31, 2018
Liabilities:
Derivative
liability $ — $ — $ 7,254 $ 7,254
Total
liabilities at fair value $ — $ — $ 7,254 $ 7,254
December
31, 2019
Liabilities:
Derivative
liability $ — $ — $ 5,941 $ 5,941
Total
liabilities at fair value $ — $ — $ 5,941 $ 5,941 The
main factors that will affect the fair value of the derivative are the number of shares outstanding post acquisition or post offering
and the resulting market capitalization. In order to estimate a range for the potential contingent liability, the Company estimated
the future number of surviving shares and resulting market cap from a reverse merger based on a sample of reverse mergers completed
by OTCBB companies during 2019 and 2018. The
following is a reconciliation of the beginning and ending balances for assets and liabilities measured at fair value on a recurring
basis using significant unobservable inputs (Level 3) during the years ended December 31, 2019 and 2018:
2019 2018
Beginning
balance, January 1, $ (7,254 ) $ (6,842 )
Total
gains (losses) included in earnings 1,313 (412 )
Ending balance,
December 31, $ (5,941 ) $ (7,254 ) |
