| Convertible Promissory Notes Payable | Note 6 – Convertible Promissory
Notes Payable Convertible promissory notes at September
30, 2017 are as follows:
2017
Red Diamond Partners, LLC, April 25, 2017, net of derivative debt discount of $186,425 $ 83,575
RDW Capital, LLC., September 30, 2017, net of original issuance discount of $157,069 and derivative debt discount of $22,438 60,493
Convertible promissory notes payable, net $ 144,068 We evaluated the
convertible promissory notes transactions in accordance with ASC Topic 815, Derivatives and Hedging, and determined that the conversion
feature of the convertible promissory notes were not afforded the exemption for conventional convertible instruments due to their
respective variable conversion rate and price protection provision. The Company recorded a derivative liability which is adjusted
at each reporting period to its fair value (See Note 9). RDW Capital, LLC. On March 30, 2017,
we assumed a convertible note payable to RDW Capital, LLC which was dated February 16, 2017. The $4,000 note payable bears interest
at 12% per annum. The note matures on August 16, 2017 and is secured by the share reservation of 300% of the number of shares of
common stock issuable upon a conversion. The note is convertible into shares of common stock at a price equal to a variable conversion
price of fifty percent (50%) of the volume-weighted averages for the ten (10) days preceding the date of conversion and contains
price protection on the conversion rate. On August 10, 2017, the principal of $4,000, accrued interest of $225 and prepayment fees
of $634 were paid. On March 30, 2017,
we assumed a convertible note payable to RDW Capital, LLC which was dated March 15, 2017. The $2,464 note payable bears interest
at 12% per annum. The note matures on September 15, 2017 and is secured by the share reservation of 300% of the number of shares
of common stock issuable upon a conversion. The note is convertible into shares of common stock at a price equal to a variable
conversion price of fifty percent (50%) of the volume-weighted averages for the ten (10) days preceding the date of conversion
and contains price protection on the conversion rate. On August 10, 2017, the principal of $2,464, accrued interest of $116 and
prepayment fees of $387 were paid. The payoffs of the
above two convertible notes resulted in a gain on debt extinguishment of $10,169 related to the two bifurcated derivatives. The
prepayment fees of $1,021 were included as interest expense. Red Diamond Partners
LLC On April 25, 2017,
the Company entered into a Securities Purchase Agreement with RedDiamond Partners LLC (“RedDiamond”) pursuant to which
the Company would issue to RedDiamond Convertible Promissory Notes in an aggregate principal amount of up to $355,000, which includes
a purchase price of $350,000 and transaction costs of $5,000. On April 25, 2017, the Company received the initial Tranche of $95,000,
which is a loan amount of $100,000, net of the $5,000 fee, recorded as convertible note payable. The initial Tranche matures on
April 25, 2018 and each tranche will mature 1 year after the date of such funding. The second Tranche was received on June 2, 2017
for $85,000 and the third Tranche for $85,000 was received on August 8, 2017 upon filing of the Registration Statement. The fourth
Tranche will be for $85,000 and was to occur ninety (90) days after the First Closing, however, as of the date of this filing,
the fourth tranche has not yet been received. The Purchaser shall not be required to fund any Tranche subsequent to the first Tranche
if there is an event of default as described in the promissory notes. The RedDiamond Note bears interest at a rate of 12% per annum
and is convertible into shares of the Company’s common stock at RedDiamond’s option at 65% of the lowest VWAP for the
previous ten trading days preceding the conversion. In
connection with the issuance of the Convertible Promissory Note above, the Company determined that the terms of the Convertible
Promissory Note included a down-round provision under which the conversion price could be affected by future equity offerings undertaken
by the Company. Accordingly,
under the provisions of FASB ASC Topic No. 815-40, “Derivatives and Hedging – Contracts in an Entity’s Own Stock”,
the embedded conversion option contained in the convertible instruments were accounted for as derivative liabilities at the date
of issuance and shall be adjusted to fair value through earnings at each reporting date. The fair value of the embedded conversion
option derivatives were determined using the Black-Scholes valuation model. On the initial measurement dates of tranches received
prior to September 30, 2017, the fair value of the embedded conversion option derivatives of $376,841 was recorded as derivative
liabilities and was allocated as a debt discount up to the net proceeds of the Convertible Promissory Notes of $265,000 with the
remainder of $111,841 charged as initial derivative expense. On
the three initial measurement dates, the fair value of the derivative liabilities was estimated using the Black-Scholes valuation
model with the following assumptions: dividend rate 0%, expected term 1.0 year, expected volatility ranging from 319% to 526%,
risk-free interest rate ranging from 1.09% to 1.24%. The
balance of the note payable as of September 30, 2017 amounted to $83,575 comprised of principal balance of $270,000, net debt discount
relating to the bifurcated derivative of $186,425. RDW Capital, LLC. On
June 30, 2017, the Company issued RDW Capital, LLC a senior convertible note in the aggregate principal amount of $240,000, for
an aggregate purchase price of $30,000 of which $15,000 had been recorded as advance from lender as of March 31, 2017 and the remaining
$15,000 received on June 30, 2017. The principal due under the Note accrues interest at a rate of 12% per annum. All principal
and accrued interest under the Note is due six months following the issue date of the Note, and is convertible into shares of the
Company’s common stock, at a conversion price equal to fifty (50%) of the lowest volume-weighted average price for the previous
ten trading days immediately preceding the conversion. The Note includes anti-dilution protection, including a down-round provision
under which the conversion price could be affected by future equity offerings undertaken by the Company, as well as customary events
of default, including non-payment of the principal or accrued interest due on the Note. Upon an event of default, all obligations
under the Note will become immediately due and payable and the Company will be required to make certain payments to the Lender. Accordingly,
under the provisions of FASB ASC Topic No. 815-40, “Derivatives and Hedging – Contracts in an Entity’s Own Stock”,
the embedded conversion option contained in the convertible instruments were accounted for as derivative liabilities at the date
of issuance and shall be adjusted to fair value through earnings at each reporting date. The fair value of the embedded conversion
option derivatives were determined using the Black-Scholes valuation model. On the initial measurement date, the fair value of
the embedded conversion option derivatives of $527,477 was recorded as derivative liabilities and was allocated as a debt discount
up to the net proceeds of the Convertible Promissory Notes of $30,000 with the remainder of $497,477 charged as initial derivative
expense. On
June 30, 2017, initial measurement date, the fair value of the derivative liabilities was estimated using the Black-Scholes valuation
model with the following assumptions: dividend rate 0%, expected term 1.0 year, expected volatility of 404%, risk-free interest
rate of 1.24%. The
balance as of September 30, 2017 amounted to $60,493, comprised of principal balance of $240,000, and net of Original Issue Discount
(OID) of $157,069 and debt discount relating to the bifurcated derivative of $22,438. |
