As discussed in Note 6 – Convertible Notes Payable, the Company analyzed the conversion feature of the agreement for derivative accounting consideration under ASC 815-15 “Derivatives and Hedging” and determined that the embedded conversion features should be classified as a derivative because the exercise price of these convertible notes are subject to a variable conversion rate. The Company has determined that the conversion feature is not considered to be solely indexed to the Company’s own stock and is therefore not afforded equity treatment. As a result of the variable conversion feature on this note, the related party notes 5a through 5e disclosed in Note 6 – Convertible Notes Payable were considered tainted. In accordance with AC 815, the Company has bifurcated the conversion feature of the note and recorded a derivative liability.

The embedded derivative for the note is carried on the Company’s balance sheet at fair value. The derivative liability is marked- to-market each measurement period and any unrealized change in fair value is recorded as a component of the income statement and the associated fair value carrying amount on the balance sheet is adjusted by the change. The Company fair values the embedded derivative using the Black-Scholes option pricing model.

The fair value of the embedded derivatives for the note was determined using the Black-Scholes option pricing model based on the following assumptions during the nine months ended October 31, 2018: (1) dividend yield of 0%, (2) expected volatility ranging from 147% - 310%, (3) risk- free interest rate ranging from 1.67 – 2.49%, (4) expected life ranging from 0.03 – 0.51 of a year, and (5) estimated fair value of the Company’s common stock ranging from $0.0039 - $.0135 per share. The instrument was fair valued on the date it became convertible, each conversion date and the period end date of October 31, 2018.

The table below presents the change in the fair value of the derivative liability during the nine months ending October 31, 2018:


Fair value as of January 31, 2018	$	-
Fair value on the date of issuance recorded as a debt discount		166,130
Fair value on the date of issuance recorded as a loss on derivatives		541,483
Settlement of derivative liability		(263,564)
Gain on change in fair value of derivatives		(117,508)
Fair value as of October 31, 2018	$	326,541