Item
1.01. Entry into a Material Definitive Agreement.
Effective
September 26, 2017, the Company entered into an Equity Purchase Agreement (“Purchase Agreement”) dated September 15,
2017 with Kodiak Capital Group, LLC (“Kodiak Capital”) (hereinafter referred to as “Purchaser”). Under
the Purchase Agreement, the Company may from time to time, in its discretion, sell shares of its common stock to Purchaser for
aggregate gross proceeds of up to $2,000,000. Unless terminated earlier, Purchaser’s purchase commitment will automatically
terminate on the earlier of the date on which such Purchaser shall have purchased Company shares pursuant to the Purchase Agreement
for an aggregate purchase price of $2,000,000, or September 15, 2019. The Company has no obligation to sell any shares under the
Purchase Agreement.
As
provided in the Purchase Agreement, the Company may require the Purchaser to purchase shares of common stock from time to time
by delivering a put notice (“Put Notice”) to the Purchaser specifying the total number of shares to be purchased (such
number of shares multiplied by the purchase price described below, the “Investment Amount”); provided there must be
a minimum of ten trading days between delivery of each put notice. The Company may determine the Investment Amount provided that
such amount may not be lower than $25,000. The Company’s ability to issue Put Notices to Purchaser and require Purchaser
to purchase the Company’s common stock is not contingent on the trading volume of the Company’s common stock. The
Purchaser will have no obligation to purchase shares under the applicable Purchase Agreement to the extent that such purchase
would cause such Purchaser to own more than 9.99% of the Company’s common stock (the “Beneficial Ownership Limitation”).
For
each share of the Company’s common stock purchased under the Purchase Agreement, the Purchaser will pay a purchase price
equal to 80% of the Market Price. The Market Price is defined as the VWAP on the principal trading platform for the Common Stock,
as reported by OTC Markets, during the five consecutive Trading Days immediately preceding the closing date (“Closing Date”)
associated with the applicable Put Notice (the “Valuation Period”). Purchaser’s obligation to purchase shares
is subject to customary closing conditions, including without limitation a requirement that a registration statement remain effective
registering the resale by Purchaser of the shares to be issued under the Purchase Agreement and the Warrants (the “Registration
Statement”). The Purchase Agreement is not transferable and any benefits attached thereto may not be assigned.
The
Purchase Agreement contains covenants, representations and warranties of the Company and the Purchaser that are typical for transactions
of this type. In addition, the Company and Purchaser have granted each other customary indemnification rights in connection with
the applicable Purchase Agreement.
Effective September 26,
2017 and as a commitment fee under the Purchase Agreement, the Company issued to Purchaser an unsecured Promissory Note (the “Commitment
Note”), dated September 15, 2017, for the principal amount of $100,000 with interest at the rate of 5% per annum, payable
nine months from the issue date. In the event the Registration Statement is not effective by December 31, 2017, through no fault
of the Borrower, the Commitment Note shall be deemed cancelled, null and void, and of no further force and effect. The Company
also issued to Purchaser an additional unsecured Promissory Note (the “First Note”), dated September 15, 2017 and
effective September 26, 2017, for the principal amount of $110,000 with interest at the rate of 5% per annum, payable six months
from the issue date. Upon the filing of the Registration Statement, the Company will issue to Purchaser an additional note
(the “Second Note” and together with the Commitment Note and the First Note, the “Notes”) for the principal
amount of $110,000 with interest at the rate of 5% per annum, payable six months from the issue date. The principal amount and
accrued interest under the Notes are not convertible except in the event of default. In the event of default, the conversion price
for the Notes shall be the lesser of $0.25 per share or 70% of the lowest trading price during the ten-trading-day period prior
to the conversion date. Conversion of the Notes is subject to the Beneficial Ownership Limitation.
Effective September 26,
2017 and as an additional commitment fee under the Purchase Agreement, the Company issued to Purchaser a Common Stock Purchase
Warrant (“First Warrant”), dated September 15, 2017, to purchase up to 1,000,000 shares of the Company’s Common
Stock at an initial exercise price of $0.15 per share. The Company and Purchaser have also contemplated the issuance by Company
to Purchaser of two additional Common Stock Purchase Warrants (the “Second Warrant” and the “Third Warrant”
and, together with the First Warrant, the “Warrants”). The Second Warrant, to be issued only upon the filing of the
Registration Statement, entitles Purchaser to purchase up to 1,000,000 shares of the Company’s common stock at an initial
exercise price of $0.20 per share. The Third Warrant, to be issued only upon the first Closing Date, entitles Purchaser to purchase
up to 4,000,000 shares of the Company’s common stock at an initial exercise price of $0.25 per share. The exercise
price and number of warrant shares under each of the Warrants are subject to adjustments provided for in each such Warrant and
are subject to the Beneficial Ownership Limitation.
In
connection with the Purchase Agreement, the Company also entered into a Registration Rights Agreement with Purchaser requiring
the Company to prepare and file, within 30 days, the Registration Statement registering the resale by Purchaser of shares to be
issued under the Purchase Agreement and the Warrants, to use commercially reasonable efforts to cause such registration statement
to become effective, and to keep such Registration Statement effective until (i) the date when Purchaser may sell all the shares
under Rule 144 without volume limitations, or (ii) the date Purchaser no longer owns any of the shares.
The
foregoing description of the terms of the Purchase Agreement, the Notes, the Warrants and the Registration Rights Agreement does
not purport to be complete and is subject to and qualified in its entirety by reference to the agreements/instructions themselves,
copies of which are filed with this report, and the terms of which are incorporated herein by reference. The benefits and representations
and warranties set forth in such documents (if any) are not intended to and do not constitute continuing representations and warranties
of the Company or any other party to persons not a party thereto.