Item 1.01 Entry into a Material Definitive Agreement
On January 17, 2018 we entered into a Securities Purchase Agreement
(“SPA”) with EMA Financial, LLC, a Delaware limited liability company (“Purchaser”), pursuant to which
we issued and sold to the Purchaser a convertible promissory note, dated January 17, 2018 in the principal amount of $165,000 (the
“Note”). In connection with the foregoing, we also entered into a Registration Rights Agreement with the Purchaser
dated January 17, 2018 (the “Registration Rights Agreement”).
The Note, which is due on January 17, 2019, bears interest at the
rate of 8% per annum. All principal and accrued interest on the Note is convertible into shares of our common stock at the election
of the Purchaser at any time at a conversion price equal to the lesser of (i) the trading price for our common stock on the trading
day prior to the closing date of the Note, or (ii) a 50% discount to the lowest trading or lowest closing bid price for our common
stock during the 20 trading day period immediately prior to conversion.
We have the right to prepay the Note within 90 days of the closing
date at a premium of 135% of all amounts owed to Purchaser and at a premium of 150% if prepaid more than 90 but less than 180 days
following the closing date. We have no right to prepay the Note more than 180 days after the closing date.
The Note contains customary default events which, if triggered
and not timely cured, will result in default interest and penalties. The Note also contains a right of first refusal
provision with respect to future financings by us. Pursuant to the Registration Rights Agreement, we are required to register
the shares into which the Note is converted. We must file the registration statement within 10 days of the closing date and
have it declared effective within 90 days of the closing date.
The foregoing description of the SPA, the Note, the Registration
Rights Agreement and the transactions contemplated thereby does not purport to be complete and is subject to, and qualified in
its entirety by reference to, the full text of the SPA, the Note, and the Registration Rights Agreement which are included in this
Current Report as Exhibits 10.1, 4.1 and 10.2, respectively, and are incorporated herein by reference.
We claim an exemption from the registration requirements of the
Securities Act, for the private placement of these securities pursuant to Section 4(a)(2) of the Securities Act and/or Regulation
D promulgated thereunder because, among other things, the transaction did not involve a public offering, EMA is an accredited investor,
EMA acquired the securities for investment and not resale, and we took appropriate measures to restrict the transfer of the securities.
If the Note is converted prior to us paying off such notes under
the prepayment provisions, it would lead to substantial dilution to our shareholders as a result of the conversion discounted for
the Note. There can be no assurance that there will be any funds available to pay of the Note, or if available, on terms that will
be acceptable to us or our shareholders. If we fails to obtain such additional financing on a timely basis, Purchaser may convert
the Note and sell the underlying shares, which may result in significant dilution to shareholders due to the conversion discount,
as well as a significant decrease in our stock price.
