Issuance of Incentive Shares, Notes and Warrants Pursuant to Subsequent Closing

On February 16, 2018, 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”).  The transaction closed on February 20, 2018 (the “Closing Date”).

Terms of Notes;

The Note matures on November 16, 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 61 days prior notice (the “Beneficial Ownership Limitation”). On February 20, 2018, the Company entered into an Amendment to the Note (the “Amendment”), which changed all references to the 4.99% Beneficial Ownership Limitation to 9.99%. The Amendment is included as Exhibit 10.4 to this Form 8-K. 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 Warrants

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.