CONVERTIBLE NOTES | NOTE 6 - CONVERTIBLE NOTES On July 9, 2018, the Company issued a Convertible Promissory Note in favor of Power Up Lending Group LTD (“Power Up”). The principal amount of the Note is $45,000 with an original issue discount of $3,000 and carries an interest rate of 12% per annum. It becomes due and payable with accrued interest on July 9, 2019. Power Up has the option to convert the Note plus accrued interest into common shares of the Company, after 180 days. The conversion rate is a 39% discount to the average of the lowest two trading price for twenty days prior to the date of conversion. The company bifurcated the conversion feature and accounted for it as a derivative liability. The Company recorded the derivative liability at its fair value of $89,020 based on the Black Scholes Merton pricing model and a corresponding debt discount of $42,000 to be amortized utilizing the interest method of accretion over the term of the note. As of March 31, 2019, the Company fair valued the derivative at $116,978. In addition, $29,671 of the debt discount has been amortized to interest expense. The Company noted that calculations using the Black Scholes model are materially consistent with those of the Binomial model. On August 30, 2018, the Company issued a Convertible Promissory Note in favor of LG Capital Funding LLC (“LG”). The principal amount of the Note is $32,000 with an original issue discount of $2,000 and carries an interest rate of 10% per annum. It becomes due and payable with accrued interest on August 30, 2019. During the first six months LG has the option to convert the Note plus accrued interest at a fixed price of $0.10 per share. After the 6-month anniversary, the Conversion Price shall be equal to 60% of the lowest closing bid price for the eighteen prior trading days including the day of conversion. The Company accounted for the initial conversion feature as a beneficial conversion feature. A beneficial conversion feature arises when the conversion price of a convertible instrument is below the per share fair value of the underlying stock into which it is convertible. If LG were to convert at the price of $0.10 they could convert the full $32,000 into 320,000 shares of common stock. Using the stock price on the date the note was issued of $.185 and the conversion price of $.10, the Company valued each share at $.085 for an additional expense of $27,200. The Company has accounted for the $27,200 has debt discount with a credit to additional paid in capital. The discount was fully amortized as of March 31, 2019. After the 6-month anniversary, the Company bifurcated the conversion feature and accounted for it as a derivative liability. The Company recorded the derivative liability at its fair value of $36,331 based on the Black Scholes Merton pricing model. As of March 31, 2019, the Company fair valued the derivative at $98,138. The Company noted that calculations using the Black Scholes model are materially consistent with those of the Binomial model. On January 23, 2019, the Company issued a Convertible Promissory Note in favor of ONE44 Capital LLC (“One44”). The principal amount of the Note is $100,000 and carries an interest rate of 12% per annum. It becomes due and payable with accrued interest on January 23, 2020. One44 has the option to convert the Note plus accrued interest into common shares of the Company, at any time. The conversion rate is a 55% discount to the lowest trading price for twenty days prior to the date of conversion. The company bifurcated the conversion feature and accounted for it as a derivative liability. The Company recorded the derivative liability at its fair value of $189,378 based on the Black Scholes Merton pricing model and a corresponding debt discount of $100,000 to be amortized utilizing the interest method of accretion over the term of the note. As of March 31, 2019, the Company fair valued the derivative at $433,316. In addition, $23,356 of the debt discount has been amortized to interest expense. The Company noted that calculations using the Black Scholes model are materially consistent with those of the Binomial model. A summary of the activity of the derivative liability for the notes above is as follows: Balance at December 31, 2017 $ - Increase to derivative due to new issuances 89,020 Derivative loss due to mark to market adjustment 7,090 Balance at December 31, 2018 96,110 Increase to derivative due to new issuances 225,709 Decrease to derivative due to conversion (35,100 ) Derivative loss due to mark to market adjustment 361,714 Balance at March 31, 2019 $ 648,433 A summary of quantitative information about significant unobservable inputs (Level 3 inputs) used in measuring the Company’s derivative liability that are categorized within Level 3 of the fair value hierarchy for the three months ended March 31, 2019 is as follows: Inputs March 31, Initial Valuation Stock price $ .0245 $ .55 - .032 Conversion price $ .006 $ .244 - .0055 Volatility (annual) 207.28 – 373.79% 261.04% - 353.43 Risk-free rate 2.4 % 2.34% - 2.58 Years to maturity .27 - .82 1 The development and determination of the unobservable inputs for Level 3 fair value measurements and fair value calculations are the responsibility of the Company’s management |