NOTE 3 – DERIVATIVE INSTRUMENTS

The derivative liability as of December 31, 2017, in the amount of $363,680 has a level 3 classification.

The following table provides a summary of changes in fair value of the Company’s Level 3 financial liabilities as of December 31, 2017 and 2016:

	Total
Balance, December 31, 2015		-
Recognition of derivative liabilities upon initial valuation		40,892
Change in fair value of derivative liabilities		35,403
Conversions of derivative liabilities into equity instruments		-
Balance, December 31, 2016		76,295
Recognition of derivative liabilities upon initial valuation		226,651
Change in fair value of derivative liabilities		60,734
Conversions of derivative liabilities into equity instruments		-
Balance, December 31, 2017		363,680

During the year ended 2016 and 2017, the Company issued convertible promissory notes which are convertible into common stock. Due to the Company’s lack of authorized shares necessary to settle all convertible instruments, in accordance with ASC 815-40-25, the Company determined that the conversion features related to these notes are derivative instruments since we do not have control to increase the number of authorized shares to settle all convertible instruments The accounting treatment of derivative financial instruments requires that the Company record fair value of the derivatives as of the inception date of debenture and to fair value as of each subsequent reporting date.

At December 31, 2017, the Company marked to market the fair value of the derivatives and determined a fair value of $363,680. The Company recorded a loss from change in fair value of derivatives of $60,734 for the year ended December 31, 2017. The fair value of the embedded derivatives was determined using binomial lattice model based on the following assumptions: (1) dividend yield of 0%, (2) expected volatility of 68.68% to 141.83%, (3) weighted average risk-free interest rate of 1.53% to 1.76% (4) expected life of 0.08 to 1.00 years, and (5) the quoted market price of the Company’s common stock at each valuation date.

In accordance ASC 815-40, the Company has implemented a sequencing policy with respect to all outstanding convertible instruments. The Company evaluates its contracts based upon earliest issuance date.

Liabilities measured at fair value on a recurring basis are summarized as follows:

	Level 1		Level 2		Level 3		Total
Derivative Liabilities		-		-		363,680		363,680
Total	$	-	$	-	$	363,680	$	363,680