On March 1, 2019, the Company borrowed $29,000 under a convertible promissory note agreement from an unrelated party that is due upon demand from the investor. The note bears interest at a rate of 10% per annum and is convertible into the Company’s common shares at a variable conversion price based on a 50% discount of the market price at an undetermined future date. The Company analyzed the conversion features of the note agreement for derivative accounting consideration under ASU 2017-11 (ASC 815-15 Derivatives and Hedging), and determined the embedded conversion features should be classified as a derivative because the exercise price of the convertible note is subject to a variable conversion rate and should be therefore accounted for at fair value under ASC 820, Fair Value Measurements and Disclosures and ASC 825, Financial Instruments. In accordance with ASC 815-15, 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 statement of operations and the associated fair value carrying amount on the balance sheet is adjusted by the change. The Company fair values the embedded derivative using a Monte Carlo simulation model based on the following assumptions: (1) expected volatility of 300%, (2) risk-free interest rate of 2.40%, and (3) expected life of 1 year. On March 1, 2019, the date of the note, the fair value of the embedded derivative was $28,000. The note embedded conversion feature of $28,000 that is recorded as a discount on the balance sheet will be amortized over the life of the note. Interest amortization expense of the embedded conversion feature was $2,333 during the three month period ended March 31, 2019. The fair value of the derivative is $28,800 and is recorded on the balance sheet as a derivative liability at March 31, 2019. The note was not converted during the three month period March 31, 2019. Utilizing level 3 inputs, the Company recorded fair market value adjustments of $800 and none during the three month period March 31, 2019 and 2018, respectively.

A summary of the activity of the derivative liability is shown below: