Notes
to Accompanying Financial Statements
1.
Nature of Operations and Continuance of Business
Good
Gaming, Inc. (Formerly HDS International Corp.) (the “Company”) was incorporated on November 3, 2008 under the laws
of the State of Nevada. The Company is a leading tournament gaming platform and online destination targeting over 250 million
esports players and participants worldwide that want to compete at the high school or college level. A substantial portion of
the Company’s activities has involved developing a business plan and establishing contacts and visibility in the marketplace
and the Company has not generated any substantial revenue to date.
On
February 17, 2016, the Company acquired Good Gaming’s assets, including intellectual property, trademarks, software code,
equipment and others from CMG Holdings Group, Inc. (OTCQB: CMGO).
Going
Concern
These
financial statements have been prepared on a going concern basis, which implies that the Company will continue to realize its
assets and discharge its liabilities in the normal course of business. The Company has generated minimal revenues to date and
has never paid any dividends and is unlikely to pay dividends or generate significant earnings in the immediate or foreseeable
future. As of September 30, 2017, the Company had a working capital deficiency of $1,166,009 and an accumulated deficit
of $4,239,510. The continuation of the Company as a going concern is dependent upon the continued financial support from
its shareholders, the ability to raise equity or debt financing, and the attainment of profitable operations from the Company’s
future business. These factors raise substantial doubt regarding the Company’s ability to continue as a going concern. These
consolidated financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts
and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
Reverse
Stock Split
On
February 17, 2017, the Board of Directors of the Company approved a reverse split of its’ common and preferred shares on
a 1 for 1,000 basis. The Articles of Incorporation were amended decreasing the authorized common shares from 2,000,000,000 to
100,000,000 and decreasing the authorized preferred shares from 450,000,000 to 2,250,000. A special meeting of the Company’s
shareholders was not required since written consent was obtained by the stockholders who held the majority of the outstanding
shares of common stock. The Reverse Stock Split became effective on June 14, 2017.
All
references in this Quarterly Report regarding the number of preferred and common shares, price per share and weighted average
shares of common stock have been adjusted to reflect the Reverse Stock Split on a retroactive basis for all prior periods presented,
unless otherwise noted, including reclassifying an amount equal to the reduction in par value of common and preferred stock to
additional paid-in capital.
2.
Summary of Significant Accounting Policies
Basis
of Presentation: The financial statements for the periods ending September 30, 2017 and 2016 include the accounts of the Company.
The
accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting
principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly,
they do not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary
for a fair presentation have been included. For further information, refer to the audited consolidated financial statements and
footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016
Certain
reclassifications have been made to the three and nine months ended September 30, 2017 to the statement of operations and statement
of cash flows to reflect consistency with the current presentation.
Use
of Estimates
The
preparation of financial statements in conformity with generally accepted accounting principles in the United States requires
management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting
period. The Company regularly evaluates estimates and assumptions related to the fair values of convertible debentures, derivative
liability, stock-based compensation, and deferred income tax asset valuation allowances. The Company bases its estimates and assumptions
on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the
results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs
and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially
and adversely from the Company’s estimates. To the extent there are material differences between the estimates and the actual
results, future results of operations will be affected.
Cash
Equivalents
The
Company considers all highly liquid instruments with maturity of three months or less at the time of issuance to be cash equivalents.
As of September 30, 2017 and 2016, the Company had $4,237 and $143,498 respectively in cash equivalents.
Intangible
Assets
Intangible
assets are carried at the purchased cost less accumulated amortization. Amortization is computed over the estimated useful lives
of the respective assets, generally five years.
Impairment
of Long-Lived Assets
Long-lived
assets and certain identifiable intangible assets to be held and used are reviewed for impairment whenever events or changes in
circumstance indicate that the carrying amount of such assets may not be recoverable. Determination of recoverability is based
on an estimate of undiscounted future cash flows resulting from the use of the asset and its eventual disposition. Measurement
of an impairment loss for long-lived assets and certain identifiable intangible assets that management expects to hold and use
is based on the fair value of the asset. Long-lived assets and certain identifiable intangible assets to be disposed of are reported
at the lower of carrying amount or fair value less costs to sell.
Beneficial
Conversion Features
From
time to time, the Company may issue convertible notes that may contain an embedded beneficial conversion feature. A beneficial
conversion feature exists on the date a convertible note is issued when the fair value of the underlying common stock to which
the note is convertible into is in excess of the remaining unallocated proceeds of the note after first considering the allocation
of a portion of the note proceeds to the fair value of the warrants, if related warrants have been granted. The intrinsic value
of the beneficial conversion feature is recorded as a debt discount with a corresponding amount to additional paid in capital.
The debt discount is amortized to interest expense over the life of the note using the effective interest method.
Derivative
Liability
From
time to time, the Company may issue equity instruments that may contain an embedded derivative instrument which may result in
a derivative liability. A derivative liability exists on the date the equity instrument is issued when there is a contingent exercise
provision. The derivative liability is recorded at fair value calculated by using an option pricing model such as a multi-nominal
lattice model. The fair value of the derivative liability is then calculated on each balance sheet date with the corresponding
gains and losses recorded in the consolidated statement of operations.
Basic
and Diluted Net Loss Per Share
The
Company computes net loss per share in accordance with ASC 260, Earnings Per Share, which requires presentation of both basic
and diluted earnings per share (EPS) on the face of the income statement. Basic EPS is computed by dividing net loss available
to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period. Diluted
EPS gives effect to all dilutive potential common shares outstanding during the period using the treasury stock method and convertible
preferred stock using the if-converted method. In computing Diluted EPS, the average stock price for the period is used in determining
the number of shares assumed to be purchased from the exercise of stock options or warrants. Diluted EPS excludes all dilutive
potential shares if their effect is anti-dilutive.
Income
Taxes
Potential
benefits of income tax losses are not recognized in the accounts until realization is more likely than not. The Company has adopted
ASC 740, Income Taxes, as of its inception. Pursuant to ASC 740, the Company is required to compute tax asset benefits for net
operating losses carried forward. The potential benefits of net operating losses have not been recognized in these financial statements
because the Company cannot be assured it is more likely than not it will utilize the net operating losses carried forward in future
years.
Comprehensive
Loss
ASC
220, Comprehensive Income , establishes standards for the reporting and display of comprehensive loss and its components in the
financial statements. As at September 30, 2017 and 2016, the Company has no items that represent comprehensive loss and, therefore,
has not included a schedule of comprehensive loss in the financial statements.
Financial
Instruments
ASC
820, “Fair Value Measurements” and ASC 825, Financial Instruments, requires an entity to maximize the use of observable
inputs and minimize the use of unobservable inputs when measuring fair value. It establishes a fair value hierarchy based on the
level of independent, objective evidence surrounding the inputs used to measure fair value. A financial instrument’s categorization
within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. It
prioritizes the inputs into three levels that may be used to measure fair value:
Level
1
Level
1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.
Level
2
Level
2 applies to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset or liability
such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in
markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant
inputs are observable or can be derived principally from, or corroborated by, observable market data.
Level
3
Level
3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to
the measurement of the fair value of the assets or liabilities.
Assets
and liabilities measured at fair value on a recurring basis were presented on the Company’s balance sheet as at September
30, 2017 and 2016 as follows:
|
|
Fair Value Measurements at June 30, 2017 Using Fair Value Hierarchy
|
|
Description
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Derivative liability
|
|
$
|
160,437
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
160,437
|
|
Total
|
|
$
|
160,437
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
160,437
|
|
|
|
Fair Value Measurements at December 31, 2016 Using Fair Value Hierarchy
|
|
Description
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Derivative liability
|
|
$
|
228,605
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
228,605
|
|
Total
|
|
$
|
228,605
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
228,605
|
|
The
carrying values of all of our other financial instruments, which include accounts payable and accrued liabilities, and amounts
due to related parties approximate their current fair values because of their nature and respective maturity dates or durations.
Advertising
Expenses
Advertising
expenses are included in general and administrative expenses in the Statements of Operations and are expensed as incurred. The
Company incurred $89,609.06 in advertising and promotion expenses in the nine months ended September 30, 2017.
Recent
Accounting Pronouncements
The
Company has implemented all new accounting pronouncements that are in effect. These pronouncements did not have any material impact
on the financial statements unless otherwise disclosed, and the Company does not believe that there are any other new accounting
pronouncements that have been issued that might have a material impact on its financial position or results of operations.
3.
Other Assets
The
Company valued the software purchased at $1,200,000. The software has a useful life of 5 years. Amortization for the nine months
ending September 30, 2017 is calculated at $180,000.
4.
Debt
Convertible
Debentures
On
April 15, 2015, the Company entered into a $100,000 convertible debenture with a non-related party. During the quarter ended June
30, 2015, the Company received the first $50,000 payment. The remaining $50,000 payment will be made at the request of the borrower.
No additional payments have been made as of September 30, 2017. Under the terms of the debenture, the amount is unsecured and
was due on October 16, 2016. The note is currently in default and bears interest at 22% per annum. It was convertible into shares
of common stock any time after the maturity date at a conversion rate of 50% of the average of the five lowest closing bid prices
of the Company’s common stock for the thirty trading days ending one trading day prior to the date the conversion notice
is sent by the holder to the Company. HGT and the company are currently in litigation over this note.
On
April 1, 2015, we entered into a transaction with Iconic Holdings, LLC (the “Purchaser”), whereby Iconic Holdings
agreed to provide up to $600,000 through a structured convertible promissory note (the “Note”), with funds to be received
in tranches. The note bears interest of 10% and was due April 1, 2016. The initial proceeds of $40,000 was received on April 9,
2015, with $30,000 remitted and delivered to us, $4,000 retained by the Purchaser as an original issue discount, and $6,000 retained
by the Purchaser for legal expenses. On February 17, 2016 as part of a settlement between the lender and the Company, the note
along with a remaining balance of $8,300 from former JABRO-Asher notes were restructured to a principal amount of $25,000 with
a due date of June 18, 2017 and an interest rate of 0%. The lender is subject to strict lock-up and leak-out provisions. Additionally,
as part of the February 2016 settlement with the lender, the lender funded $100,000 new debentures (the “$100,000 Convertible
Promissory Note”) due August 2018 bearing 0% interest with the lender subject to strict lock-up and leak-out provisions.
On
June 27, 2017, Iconic Holdings’ $100,000 Convertible Promissory Note issued on February 18, 2016 was amended to reflect
the conversion price of .10 cents to .08 cents per common share.
On
June 29, 2017, Iconic Holdings, LLC entered into a 10% Convertible Promissory Note with the Company in the principal amount of
$27,000 (the “Note”). Upon the execution of this note the sum of $9,000 has been remitted and delivered to the Company.
On August 14, 2017, Iconic Holdings, LLC remitted and delivered to the Company another $9,000. The Company is only required to
repay the amount funded and the Company is not required to repay any unfunded portion of this Note. As of September 30, 2017,
the Company has received a total $18,000 of the $27,000 principal amount.
On
July 5, 2017, Iconic Holdings converted $15,895 of its $100,000 Convertible Promissory Note.
On
July 25, 2017, Iconic Holdings converted $18,950 of its $100,000 Convertible Promissory Note.
As
part of the asset purchase agreement between HDS International Corp. and CMG Holdings Group, Inc., SirenGPS was issued a $60,000
0% interest convertible debenture that matured in August 2017, and is currently in default. The debentures are convertible into
common stock at a conversion price equal to eighty percent (80%) of lowest trading price of the Company’s common stock during
the 20 consecutive trading days prior to the election of conversion. The debt is subject to strict lock-up and leak-out provisions.
SirenGPS intends to sell this convertible debenture to the Company or to an investor of the Company’s choice at face value.
Related
Party Transactions
On
or around April 7, 2016, Silver Linings Management, LLC funded the Company $13,439.50 in the form of convertible debentures secured
by certain high-powered gaming machines purchased from XIDAX. Such note bears interest at a rate of 10% per annum payable in cash
or kind at the option of the Company, matures on April 1, 2018, and is convertible into Series B Preferred shares at the option
of the holder at any time.
On
November 30, 2016, ViaOne Services, LLC (“ViaOne”) purchased a Secured Promissory Note equal to a maximum initial
principal amount of $150,000 (the “Note”) issued by the Company to ViaOne. As additional advances were made by ViaOne
to the Company, the principal amount of the Note was increased to $225,000 and $363,000 by amendments dated January 31, 2017 and
March 1,2017, respectively.
On
May 5, 2017, ViaOne delivered a default notice to the Company pursuant to Section 6 of the Note Purchase Agreement but has subsequently
extended the due date and has increased the funding up to One Million ($1,000,000) dollars. After giving the Company a fifteen
(15)-day notice period to cure the default under the Stock Pledge Agreement, dated November 30, 2016, entered by and among the
Company, CMG and ViaOne (“Pledge Agreement”), ViaOne took possession of the Series C Stock, which was subject of the
Pledge Agreement.
The
Note as amended, includes an unpaid amount of $363,000, but is now increased from time to time due to additional advances provided
to the Company by ViaOne in the respective amounts of $25,000 on May 2, 2017, $25,000 on May 4, 2017, $75,000 on May 31, 2017,
and $85,000 on June 30, 2017 (the “Additional Advances”). The Additional Advances increased the total unpaid balance
to $573,000 as of July 1, 2017.
Between
July 1, 2017 and September 30, 2017, ViaOne Services provided additional funding in the form of a short-term loan of $84,880 to
be repaid no later than May 1, 2018 and the loan holds interest at the rate of 12% per annum.
As
of September 30, 2017, ViaOne Services provided additional funding in accordance with the extension of the Note Purchase Agreement
on an as-needed basis and will continue to provide funding until one million dollars has been exhausted. To date, the total amount
owed to ViaOne Services is $657,880.
The
Company’s Chairman and Chief Executive Officer is the Chairman of ViaOne.
Derivative
Liabilities
The
following inputs and assumptions were used to value the convertible debentures outstanding during the period ended September 30,
2017 and December 31, 2016:
The
projected annual volatility for each valuation period was based on the historic volatility of the Company of 165% as at December
31, 2016, 127% as September 30, 2017.
An
event of default would occur 0% of the time , increasing to 1.0% per month to a maximum of 5%.
A
summary of the activity of the derivative liability is shown below:
Balance December 31, 2016
|
|
$
|
228,605
|
|
Mark to Market Adjustment at March 31, 2017
|
|
|
(74,789
|
)
|
Balance March 31, 2017
|
|
|
153,816
|
|
Mark to Market Adjustment at June 30, 2017
|
|
|
298,705
|
|
Balance June 30, 2017
|
|
$
|
452,521
|
|
Mark to Market Adjustment at September 30, 2017
|
|
|
(292,084
|
)
|
Balance September 30, 2017
|
|
$
|
160,437
|
|
5.
Capital Stock
Share
Transactions for the nine months ended September 30, 2017:
Preferred
Stock
Our
Articles of Incorporation, which were amended effective April 11, 2017, authorize us to issue up to 2,250,000 shares of preferred
stock, $0.001 par value. Of the 2,250,000 authorized shares of preferred stock, the total number of shares of Class A Preferred
Shares the Corporation shall have the authority to issue is Two Million (2,000,000), with a stated par value of $0.001 per share,
the total number of shares of Class B Preferred Shares the Corporation shall have the authority to issue is Two Hundred Forty
Nine Thousand, Nine Hundred Ninety Nine (249,999), with a stated par value of $0.001 per share, and the total number of newly
authorized Class C Preferred Shares the Corporation shall have the authority to issue is One (1), with One Million Eight Hundred
Thousand (1,800,000) Preferred Shares undesignated. Our Board of Directors is authorized, without further action by the shareholders,
to issue shares of preferred stock and to fix the designations, number, rights, preferences, privileges and restrictions thereof,
including dividend rights, conversion rights, voting rights, terms of redemption, liquidation preferences and sinking fund terms.
We believe that the Board of Directors’ power to set the terms of, and our ability to issue, preferred stock will provide
flexibility in connection with possible financing or acquisition transactions in the future. The issuance of preferred stock,
however, could adversely affect the voting power of holders of common stock and decrease the amount of any liquidation distribution
to such holders. The presence of outstanding preferred stock could also have the effect of delaying, deterring or preventing a
change in control of our company.
Series
A Preferred Stock Transactions
As
of September 30, 2017, we had 7,500 shares of our Class A Preferred Stock issued and outstanding.
The
7,500 issued and outstanding shares of Class A Preferred Stock are convertible into shares of common stock at a rate of 20 common
shares for each one Class A Preferred Share. The 164,781 issued and outstanding shares of Class B Preferred Stock are convertible
into shares of common stock at a rate of 200 common shares for each one Class B Preferred Share. The one share of Class C Preferred
Stock issued and outstanding is not convertible. If all of our Class A Preferred Stock, Class B Preferred Stock and Class C Preferred
Stock were to be converted into shares of common stock, the number of issued and outstanding shares of our common stock will increase
by 32,956,200 shares.
Series
B Preferred Stock Transactions
On
or around February 18, 2016, as part of the closing of the Company’s asset sale by CMG Holdings Group to HDS International
Corp., CMG Holdings was issued 13,350 Series B Preferred Shares. On August 16, 2016, CMG Holding received an additional 86,650
shares of Series B Preferred Shares to complete the closing of the Good Gaming asset sale.
On
or around February 18, 2016, our former CEO Vikram Grover was issued 860 Series B Preferred shares in lieu of compensation due
for services rendered to SirenGPS in 2015.
On
or around February 26, 2016, William Schultz funded monies to the Company and had a subscription receivable for 2,500 Series B
Preferred shares as consideration for an investment in the Company.
On
or around February 26, 2016, Paul Rauner was issued 800 Series B Preferred shares as consideration for the strategic change of
control transaction with CMG Holdings Group, Inc.
On
or around February 26, 2016, Galina Berkovich was issued 800 Series B Preferred shares as consideration for the strategic change
of control transaction with CMG Holdings Group, Inc.
On
or around February 26, 2016, Bernard Mangold was issued 400 Series B Preferred shares as consideration for the strategic change
of control transaction with CMG Holdings Group, Inc.
On
or around March 7, 2016, Silver Linings Management, an entity controlled by David Dorwart, our Director, funded monies to the
Company and had a subscription receivable for 15,000 Series B Preferred shares as consideration for an investment in the Company.
On
or around April 22, 2016, William Crusoe was issued 1,000 Series B Preferred shares as consideration for an investment in the
Company. The investor has since agreed to lockup his shares for a period of one year.
On
or around April 22, 2016, Francesca Dorwart was issued 1,000 Series B Preferred shares as consideration for an investment in the
Company.
On
or around August 16, 2016, Britton & Associates was issued 5,000 Series B Preferred shares as consideration for an investment
in the Company.
On
or around August 16, 2016, Independent Drug Distributor was issued 5,000 Series B Preferred shares as consideration for an investment
in the Company.
On
or around August 16, 2016, Pecan Bluff Investments was issued 2,500 Series B Preferred shares as consideration for an investment
in the Company.
On
or around August 16, 2016, SSB Trading was issued 10,000 Series B Preferred shares as consideration for an investment in the Company.
On
or around September 20, 2016, Bruce Gingrich was issued 2,500 Series B Preferred shares as consideration for an investment in
the Company.
On
January 4, 2017, HOEL converted 70,000 shares of Common Stock of the Company into 500 shares of the Company’s Class B Preferred
Stock, pursuant to that certain Stock Conversion Agreement dated December 30, 2016. As of September 30, 2017, HOEL held 2,816
shares of preferred B Stock.
On
or around August 04, 2017, Michael Tadin was issued 5,000 Series B Preferred shares as consideration for an investment in the
Company.
On
or around September 29, 2017, Andrew Albrecht was issued 750 Series B Preferred shares as consideration for an investment in the
Company.
On
September 30, 2017 all of the above preferred B shares were issued as noted above, 164,781 shares.
Series
C Preferred Stock Transactions
On
May 24, 2017, CMG Holdings Group, Inc. transferred 1 share of Series C Preferred Stock to ViaOne Services in accordance with the
term under the Stock Pledge Agreement, by and among the Company, CMG and ViaOne, dated November 30, 2016.
Common
Stock Transactions
On
July 13, 2017, a shareholder converted 1,000 Series B Preferred Shares into 200,000 common shares.
On
August 11, 2017, an investor converted 1,250 Series B Shares into 250,000 common shares.
6.
Income Taxes
The
Company has a net operating loss carried forward of $1,203,424 available to offset taxable income in future years which commence
expiring in fiscal 2037.
The
income tax benefit has been computed by applying the weighted average income tax rates of Canada (federal and provincial statutory
rates) and of the United States (federal and state rates) of 35% and 35%, respectively, to the net loss before income taxes calculated
for each jurisdiction. The tax effect of the significant temporary differences, which comprise future tax assets and liabilities,
are as follows:
|
|
2017
|
|
|
2016
|
|
Income tax recovery at statutory rate
|
|
$
|
202,294
|
|
|
$
|
235,993
|
|
|
|
|
|
|
|
|
|
|
Valuation allowance change
|
|
$
|
(202,294
|
)
|
|
$
|
(235,993
|
)
|
|
|
|
|
|
|
|
|
|
Provision for income taxes
|
|
$
|
-
|
|
|
$
|
-
|
|
The
Significant components of deferred income tax assets and liabilities at September 30, 2017 and December 31, 2016 are as follows:
Net operating loss carried forward
|
|
$
|
778,052
|
|
|
$
|
674,266
|
|
|
|
|
|
|
|
|
|
|
Valuation allowance
|
|
$
|
(778,052
|
)
|
|
$
|
(674,266
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred income tax asset
|
|
$
|
-
|
|
|
$
|
-
|
|
Due
to the change in ownership provisions of the Tax Reform Act of 1986, net operating loss carryforwards for Federal income tax reporting
purposes are subject to annual limitations. When a change in ownership occurs, net operating loss carryforwards may be limited.
7.
Consulting Agreements
On
or around April 14, 2016, the Company formed an advisory Board and engaged Syndicate Studios, LLC for consulting services and
issuing the Syndicate Studios 100,000 warrants with two-year expiration and a strike price of $0.0002. The warrants are subject
to mutually agreed to performance criteria.
On
July 25, 2016, the Company engaged Kevin Harrington Enterprises (KBHJJ LLC) to provide consulting services, including introductions
to potential investors and sponsors for esports tournaments, among other things. Mr. Harrington subsequently resigned with no
compensation.
On
February 6, 2017, David Petite was appointed to the advisory board.
8.
Subsequent Events
On
or around October 6, 2017 RedDiamond Partners, LLC (the “Purchaser”) was issued 35 Series D Preferred shares as consideration
for a $35,000 investment in the Company. The Purchaser agrees to purchase from the Company and the Company agrees to sell to the
Purchaser an aggregate of $250,000 of Preferred Shares at a purchase price equal to ninety-five percent of the stated value per
share. The purchase and sale of the preferred shares shall occur in multiple closings and at each closing, the Purchaser shall
purchase no less than $35,000 of preferred shares. The Securities Purchase Agreement provides for funding of $35,000 per month
until an aggregate of $250,000 has been funded. The Series D Preferred Shares are redeemable by the Company as provided in the
Certificate of Designation, Preferences and Rights of the Series D Convertible Preferred Stock. Each Series D Preferred Share
shall be convertible into validly issued, fully paid and nonassessable shares of Common Stock in accordance with the terms of
the Securities Purchase Agreement and Certificate of Designation, Preferences and Rights of the Series D Convertible Preferred
Stock.