Convertible Notes Payable | NOTE 6 – CONVERTIBLE NOTES PAYABLE During the three months ended May 31, 2017, the Company executed four Convertible Promissory Notes totaling $173,850 for proceeds of $157,000. Three of the notes bear an interest rate of 10% and one at 8% per annum and are due between January 15, 2018 and March 28, 2018. During the three months ended May31, 2017, there are $193,571 debt discount amortized into interest expense for the convertible notes below. The following table summarizes the convertible notes as of May 31, 2017: Note # Date Maturity Date Convertible Date Interest Balance of Loan Debt Discount Net Balance May 31, 2017 1 8/15/2016 8/15/2017 2/15/2017 10 % $ 21,792 $ (5,789 ) $ 16,003 2 9/28/2016 9/28/2017 3/28/2017 10 % 47,392 (24,837 ) 22,555 3 10/28/2016 7/28/2017 4/26/2017 10 % 66,299 (34,433 ) 31,866 4 2/22/2017 11/30/2017 8/15/2017 10 % 58,000 (1,954 ) 56,046 5 3/15/2017 3/15/2018 9/11/2017 10 % 37,000 (4,262 ) 32,738 6 3/28/2017 3/28/2018 9/24/2017 8 % 45,850 (4,823 ) 41,027 7 4/10/2017 1/15/2018 10/7/2017 10 % 38,000 (2,556 ) 35,444 8 5/16/2017 2/25/2018 11/12/2017 10 % 53,000 (2,876 ) 50,124 $ 367,333 $ (81,530 ) $ 285,803 These notes become convertible six months after the dates of agreement at a variable conversion price. The Company evaluates embedded conversion features within convertible debt under ASC 815 “Derivatives and Hedging” to determine whether the embedded conversion feature(s) should be bifurcated from the host instrument and accounted for as a derivative at fair value with changes in fair value recorded in earnings. If the conversion feature does not require derivative treatment under ASC 815, the instrument is evaluated under ASC 470-20 “Debt with Conversion and Other Options” for consideration of any beneficial conversion features. Convertible note holders have the option to convert the note plus accrued interest into shares of the Company’s common stock after six months, at a certain discount of the average of the lowest trading prices for the previous 20 days prior to the conversion date. The Company determined the embedded conversion feature as a derivative liability, and recorded at fair value as of May 31, 2017. A summary of the activity of the derivative liability for the period ended May 31, 2017 is as follows: Balance at February 28, 2017 $ 112,461 Addition of derivative as a debt discount 185,000 Addition of derivative as day 1 loss 318,217 Decrease due to debt conversion (431,845 ) Change in Fair Value 19,133 Balance at May 31, 2017 $ 202,966 A summary of quantitative information about significant unobservable inputs (Level 3 inputs) used in measuring the Company’s derivative liabilities that are categorized within Level 3 of the fair value hierarchy for the quarter ended May 31, 2017 is as follows: Date of valuation May 31, 2017 Inception Volatility (annual) 396% - 417% 247% - 255% Risk-free rate .92% - 1.38% .61% - .67% Years to maturity .25 –.33 .5 The carrying amount of the Company’s financial assets and liabilities, such as cash, prepaid expenses and accrued expenses approximate their fair value because of the short maturity of those instruments. The Company’s notes payable approximates the fair value of such instruments based upon management’s best estimate of interest rates that would be available to the Company for similar financial arrangements at May 31, 2017. Fair value measured at May 31, 2017 Fair value at May 31, 2017 Quoted prices in active markets (Level 1) Significant other observable inputs (Level 2) Significant unobservable inputs (Level 3) Derivative liabilities $ 202,966 $ - $ - $ 202,966 |