NOTE 2 – DERIVATIVE INSTRUMENTS

The derivative liability as of December 31, 2019, in the amount of $0 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, 2019 and 2018:

	Total
Balance, December 31, 2017		$ 363.680
Recognition of derivative liabilities upon initial valuation		92,404
Change in fair value of derivative liabilities		(171,227)
Conversions of derivative liabilities into equity instruments		-
Balance, December 31, 2018		284,857
Recognition of derivative liabilities upon initial valuation		86,328
Change in fair value of derivative liabilities		383,743
Declassification of derivative liability		(754,928)
Balance, December 31, 2019		$ -

During the year ended 2018 and 2019, 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 the 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, 2018, the Company marked to market the fair value of the derivatives and determined a fair value of $284,857. The Company recorded a gain from change in fair value of derivatives of $171,227 for the year ended December 31, 2018. 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 84.67% to 157.94%, (3) weighted average risk-free interest rate of 1.76% to 2.63%, (4) expected life of 0.21 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.

The Company filed an amendment to its Articles of Incorporation during the fourth quarter of 2019, increasing the number of shares authorized, which authorization was approved by a vote of its shareholders. The increased number of authorized shares would enable all convertible notes and stock options to be converted. Therefore the treatment of these financial instruments as derivatives is no longer required.

Liabilities measured at fair value on a recurring basis are summarized for the years ended December 31, 2019 and 2018 as follows:

2019:

Level 1

Level 2

Level 3

Total

Derivative Liabilities

Total – December 31, 2019

2018:	Level 1		Level 2		Level 3		Total
Derivative Liabilities		-		-		284,857		284,857
Total – December 31, 2018	$	-	$	-	$	284,857	$	284,857