NOTE 4 – DEBT

$100,000 Loan

On April 13, 2017, the Company received a loan from an accredited investor in the amount of $100,000, for which $90,000 in proceeds were received. The loan is evidenced by a promissory note dated April 13, 2017, which bears interest at 12% and which matures on October 13, 2017. In addition, at maturity the Company must pay 125% of principal and interest at maturity. The promissory note is secured by 400,000 shares of common stock held by the lender. The Company is amortizing the on issuance discount of $35,000 to interest expense using the straight-line method over the term of the loan. During the three and six month periods ended June 30, 2017 the Company amortized $14,918 to interest expense. As of June 30, 2017, a discount of $20,082 remained.

$400,000 Convertible Debenture

On May 2, 2017, the Company entered into a convertible debenture agreement with a third party for an aggregate principal amount of up to $400,000, for which up to $360,000 in proceeds is to be received. On May 2, 2017, the Company received the first tranche of proceeds of $85,000 for which the Company issued a convertible debenture in the face amount of $100,000. Under the terms of the agreement, the convertible debenture incurs interest at 0% per annum with an effective interest rate at 5% per annum and has a maturity date of three years from the date of funding, which represents May 2, 2020 for the first tranche of proceeds received. Additionally, the Company issued to the holder 50,000 shares of common stock. The convertible note was fully discounted upon issuance due to an on issuance discount of $10,000, legal processing fees of $5,000 and the remaining discount of $85,000 due to the recording of a derivative liability as discussed in Note 5. The Company is amortizing the total discount of $100,000 to interest expense using the straight-line method over the term of the loan. During the three and six month periods ended June 30, 2017 the Company amortized $6,069 to interest expense. As of June 30, 2017, a discount of $93,931 remained.

The debenture is convertible under the following terms: 1) any time from issuance until 180 days at a fixed rate of $0.25 per share; 2) any time during the period beginning on the date which is 180 days following the date of the issuance at the lower of $0.25 or a conversion price equal to 65% (adjusted to 60% based upon the conversion rate of the $115,000 convertible note discussed below) of the second lowest closing trade price of the Company’s common stock for the 15 trading days immediately preceding the conversion date. The Company is required at all times to reserve shares of the Company’s common stock equal to 700% of the number of shares the convertible debenture is convertible into.

The conversion price is subject to adjustment in the case of stock splits, stock dividends, combinations of shares and similar recapitalization transactions and any issuances of securities below the conversion price of the convertible debenture. On the date of issuance, the Company accounted for the conversion feature as a derivative liability, See Note 5. Derivative accounting applies as there are various terms in which the conversion price is variable and does not have a floor as to the number of common shares in which could be converted. Thus, if the convertible debenture is not repaid prior to the debenture being convertible, significant pressure may be put on the Company’s stock price and additional dilution of current shareholders may take place.

In the event of default, the holder has the right to require the Company to repay in cash all or a portion of the convertible debenture at a price equal to 110% of the aggregate principal amount of the convertible debenture plus all accrued and unpaid interest on the principal amount. In addition, the default interest rate would increase to the greater of 18% or the maximum amount allowable under the applicable law.

The Company has the option to redeem the convertible debentures within 90 days from the date of issuance at 105% of the principal and interest; between 91 and to 120 days from the date of issuance at 115% of the principal and interest; between 121 days and 150 days from the date of issuance at 120% of the principal and interest; between 151 days and to 180 days from the date of issuance at 130% of the principal and interest; and after 180 days from the date of issuance at 140% of the principal and interest.

$115,000 Convertible Note

On April 10, 2017, the Company entered into a convertible note agreement with a third party for an aggregate principal amount of $115,000, for which $103,250 in proceeds were received on May 5, 2017. Under the terms of the agreement, the convertible note incurs interest at 10% per annum and has a maturity date of January 10, 2018. The convertible note is convertible upon issuance into shares of the Company’s common stock at a conversion price equal to 60% of the two lowest trading prices of the Company’s common stock during the previous 25 trading days preceding the conversion date. The Company is required at all times to reserve shares of the Company’s common stock equal to 10 times the number of common shares the convertible note is convertible into. The Company is amortizing the on issuance discount of $10,000 and legal processing fees of $1,750 and the remaining discount of $103,250 due to the recording of a derivative liability as discussed in Note 5. The Company is amortizing the total discount of $115,000 to interest expense using the straight-line method over the term of the loan. During the three and six month periods ended June 30, 2017, the Company amortized $25,760 to interest expense. As of June 30, 2017, a discount of $89,240 remained.

The conversion price is subject to adjustment in the case of stock splits, stock dividends, combinations of shares and similar recapitalization transactions and any issuances of securities below the conversion price of the convertible note. On the date of issuance, the Company accounted for the conversion feature as a derivative liability, see Note 5. Derivative accounting applies as the conversion price is variable and does not have a floor as to the number of common shares in which could be converted. Thus, if the convertible note is not repaid prior to the note being converted significant pressure maybe put on the Company’s stock price and additional dilution of current shareholders may take place.

In the event of default, the holder has the right to require the Company to repay in cash all or a portion of the convertible note at a price equal to 150% of the aggregate principal amount of the convertible note plus all accrued and unpaid interest on the principal amount. In addition, the default interest rate would increase to the greater of 24% or the maximum amount allowable under the applicable law.

The Company has the option to redeem the convertible notes within 90 days from the date of issuance at 125% of the principal and interest; between 91 and to 179 days from the date of issuance at 140% of the principal and interest; and after 180 days the right of prepayment expires.

$55,000 Convertible Note

On April 24, 2017, the Company entered into a convertible note agreement with a third party for an aggregate principal amount of $55,000, for which $47,500 in proceeds were received on May 8, 2017. Under the terms of the agreement, the convertible note incurs interest at 10% per annum and has a maturity date of April 24, 2018. The convertible note is convertible upon issuance and convertible into shares of the Company’s stock at a conversion price equal to 60% of the lowest trading price of the Company’s common stock during the previous 20 trading days preceding the conversion date. The Company is required at all times to reserve shares of the Company’s common stock equal to three times the number of common shares the convertible note is convertible into. In conjunction with the issuance of the note, the Company issued 200,000 five-year warrants to purchase common stock at $0.25 per share to the note issuer. The Company is amortizing the on issuance discount of $5,000 and legal processing fees of $2,500 and the remaining discount of $47,500 due to the recording of a derivative liability as discussed in Note 5. The Company is amortizing the total discount of $55,000 to interest expense using the straight-line method over the term of the loan. During the three and six month periods ended June 30, 2017 the Company amortized $8,305 to interest expense. As of June 30, 2017, a discount of $46,695 remained.

The conversion price is subject to adjustment in the case of stock splits, stock dividends, combinations of shares and similar recapitalization transactions and any issuances of securities below the conversion price of the convertible note. On the date of issuance, the Company accounted for the conversion feature and the warrants as derivative liabilities, see Note 5. Derivative accounting applies as the conversion price is variable and does not have a floor as to the number of common shares in which could be converted. Thus, if the convertible note is not repaid prior to the note being converted significant pressure maybe put on the Company’s stock price and additional dilution of current shareholders may take place. The warrants were considered derivative liabilities as there are various reset provisions to the exercise price based upon additional issuances of common stock and equivalents.

In the event of default, the holder has the right to require the Company to repay in cash all or a portion of the convertible note at a price equal to 150% of the aggregate principal amount of the convertible note plus all accrued and unpaid interest on the principal amount. In addition, the default interest rate would increase to the greater of 22% or the maximum amount allowable under the applicable law.

The Company has the option to redeem the convertible notes within 30 days from the date of issuance at 115% of the principal and interest; between 31 and to 60 days from the date of issuance at 120% of the principal and interest; between 61 days and 90 days from the date of issuance at 125% of the principal and interest; between 91days and to 120 days from the date of issuance at 130% of the principal and interest; between 121 days and to 180 days from the date of issuance at 135% of the principal and interest; and after 180 days the right of prepayment expires.

$50,000 Secured Convertible Note

On June 26, 2017, the Company entered into a convertible note agreement with a third party for an aggregate principal amount of $50,000, for which $50,000 in proceeds were received on June 26, 2017. Under the terms of the agreement, the convertible note incurs interest at 12% per annum and has a maturity date of December 26, 2017. The convertible note is convertible upon issuance and convertible into shares of the Company’s stock at a conversion price equal to or greater than $0.25 or a conversion price equal to 60% of the average closing trading price of the Company’s common stock during the previous 20 trading days preceding the conversion date. The Company has pledged 200,000 shares of common stock as security on the note. The Company recorded a discount of $40,681 due to the recording of a derivative liability as discussed in Note 5. The Company is amortizing the total discount of $40,681 to interest expense using the straight-line method over the term of the loan. During the three and six month periods ended June 30, 2017, the Company amortized $889 to interest expense. As of June 30, 2017, a discount of $39,792 remained.

The conversion price is subject to adjustment in the case of stock splits, stock dividends, combinations of shares and similar recapitalization transactions and any issuances of securities below the conversion price of the convertible note. On the date of issuance, the Company accounted for the conversion feature as a derivative liability, see Note 5. Derivative accounting applies as the conversion price is variable and does not have a floor as to the number of common shares in which could be converted. Thus, if the convertible note is not repaid prior to the note being converted significant pressure maybe put on the Company’s stock price and additional dilution of current shareholders may take place.

In the event of default, the holder has the right to exercise the Stock Power granted and have the stock certificate representing the pledged stock transferred into the holder or its broker’s name.

The Company has the option to redeem the convertible notes within 10 days from the date of maturity at 120% of the principal and interest.