Item
1.01. Entry into a Material Definitive Agreement.
Issuance
of Incentive Shares, Notes and Warrants Pursuant to Subsequent Closing
On
December 26, 2017, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with respect
to the sale and issuance of (i) 416,666 shares of the Company’s Common Stock (the “Commitment Shares”); (ii)
1,500,000 redeemable shares (the “Redeemable Shares”), (iii) $147,000 aggregate principal amount of a convertible
promissory note (the “Convertible Note”) and (iv) Common Stock Purchase Warrants to purchase up to an aggregate of
980,000 shares of the Company’s Common Stock (the “Warrants”). On January 3, 2018, the Company and the
holder agreed to amend the Purchase Agreement and Note to have an effective date of January 3, 2018. The transaction closed on
January 3, 2018 (the “Closing Date”).
Terms
of Note;
The
Note matures on October 3, 2018, nine (9) months after the Issue Date, and provides for interest to accrue at an interest rate
equal to 18% per annum or the maximum rate permitted under applicable law after the occurrence of any event of default as provided
in the Note. At any time after 180 days from the Issue Date, the holder, at its option, may convert the outstanding principal
balance and accrued interest into shares of Common Stock of the Company. The initial conversion price for the principal and interest
in connection with voluntary conversions by a holder of a Note is $0.08 per share, subject to adjustment as provided therein.
The Note, for example, is subject to adjustment upon certain events such as stock splits and if the Company issues any securities
with more favorable terms than are described in the Note, the holder may, at the holder’s option, become a part of the more
favorable transaction documents. The Note also contains a prepayment penalty of a maximum of 130% of the amount outstanding under
the Note. The holder of the Note does not have the right to convert any portion of their Note if it (together with its affiliates)
would beneficially own in excess of 4.99% of the number of shares of Common Stock outstanding immediately after giving effect
to the exercise, with the exception that the limitation may be increased up to 9.99% with s61 days prior notice (the “Beneficial
Ownership Limitation”). The Note includes customary events of default, including, among other things, payment defaults,
covenant breaches, certain representations and warranties, certain events of bankruptcy, liquidation and suspension of the Company’s
Common Stock from trading. If such an event of default occurs, the holder of the Note may be entitled to take various actions,
which may include the acceleration of amounts due under the Notes and accrual of interest as described above. The foregoing description
is qualified in its entirety by reference to the full text of the form of Note filed as Exhibit 10.2 hereto, which is incorporated
by reference into this Item 1.01.
If
the Note is prepaid on or prior to the Maturity Date, all of the Redeemable Shares shall be returned to the treasury shares of
the Company, without any payment by the Company for the Redeemable Shares. Further, if the Company prepays a portion of the Note,
but not the entire Note, on or before the Maturity Date, a pro rata portion of the Redeemable Shares shall be returned to the
Company’s treasury in proportion to the prepayment amount as it relates to the entire Note balance.
Terms
of Warrant
As
described above, holder of the Note received Warrants to purchase up to 980,000 shares of Common Stock. The exercise price for
the Warrants is $0.15, subject to adjustment, and the Warrants are exercisable for five years after the date of the Warrant. The
Warrants are exercisable for shares of Common Stock upon the payment in cash of the exercise price and they are also exercisable
on a cashless basis at any time if the market price of one share of common stock is greater than the Exercise Price, and there
is no effective registration statement registering the shares of Common Stock underlying the Warrants. The exercise price of the
Warrants is subject to adjustment in the event of any distributions of assets, including cash, stock or other property to the
Company’s stockholders. In the event of a fundamental transaction, as described in the Warrants and generally including
any reorganization, recapitalization or reclassification of the Common Stock, the sale, transfer or other disposition of all or
substantially all of the Company’s properties or assets, the Company’s consolidation or merger with or into another
person, the acquisition of more than 50% of the outstanding Common Stock, or any person or group becoming the beneficial owner
of 50% of the voting power represented by the outstanding Common Stock, the holders of the Warrants will be entitled to receive
upon exercise of the Warrants the kind and amount of securities, cash or other property that the holders would have received had
they exercised the Warrants immediately prior to such fundamental transaction. The holder of Warrants will not have the right
to exercise any portion of the Warrant if the holder (together with its affiliates) would beneficially own in excess of 4.99%
of the number of shares of Common Stock outstanding immediately after giving effect to the exercise, as such percentage ownership
is determined in accordance with the terms of the Warrants, with the exception that the limitation may be waived with 61 days
prior notice. The foregoing description is qualified in its entirety by reference to the full text of the form of Warrant filed
as Exhibit 10.3 hereto, which is incorporated by reference to this Item 1.01.
Additional
Purchaser Rights and Company Obligations
The
Purchase Agreement includes additional purchaser rights and Company obligations including obligations on the Company to satisfy
the current public information requirements under SEC Rule 144(c), to reserve a sufficient amount of shares underlying the Note
and Warrant, and other customary representations and warranties. Reference should be made to the full text of the Purchase Agreement
filed as Exhibit 10.1 hereto, which is incorporated by reference to this Item 1.01.