Item 1.01 Entry into a Material Definitive Agreement
On May 10, 2018, we entered into a Securities Purchase Agreement
(the “SPA”), under which we agreed to sell a 12% convertible promissory note in an aggregate principal amount of $165,000.00
(the “Note”) to Auctus Fund, LLC (“Auctus”). The Note will bear interest at a rate of 12% per annum and
will mature on February 10, 2018. The net proceeds of the sale of the Note, after deducting the expenses payable by us, are expected
to be $162,250.
At any time after the 180th calendar day after the issue date of
the Note, Auctus has the option to convert all or any part of the outstanding and unpaid principal amount and accrued and unpaid
interest of the Note into shares of our common stock at the Conversion Price. The “Conversion Price” will be the lesser
of (i) the lowest trading price of our common stock during the twenty-five-day trading period prior to the issue date of the Note
and (ii) 50% of the lowest trading price of our common stock during the twenty-five-day trading period prior to the conversion.
The Conversion Price is subject to further reduction upon certain events specified in the Note.
We have the right to prepay the Note at any time until the 180th
calendar day after the issue date of the Note, in an amount equal to 150% (or 135% if we prepay the Note on or before the date
that is 90 days after the issue date of the Note) of the outstanding balance of the Note (including principal and accrued and unpaid
interest). We may not prepay the Note after the 180th calendar day after the issue date of the Note. We will be subject to a liquidated
damages charge of 25% of the outstanding principal amount of the Note if we effect certain exchange transactions in accordance
with, based upon or related or pursuant to certain exemptions, including Section 3(a)(10) of the Securities Act. In addition, the
Note grants Auctus the right to update the terms of the SPA and the Note to incorporate the terms of any future transaction document
related to a security issuance by us to a third party that are more favorable to the third party than the terms of the SPA and
the Note.
Any amounts due and payable to Auctus under the terms of the Note,
including any payment on an event of default, default interest, or agreed upon liquidated damages may, at the Auctus's option,
be converted into shares of our common stock at the Conversion Price.
Pursuant to a Registration Rights Agreement, we are required to
register the shares into which the Note is converted. We must file the registration statement within 90 days of the closing date
and have it declared effective within 150 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, Auctus is an accredited
investor, Auctus 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 fail to obtain such additional financing on a timely basis, Auctus 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.
