NOTE

CONVERTIBLE DEBENTURES

During the

nine

months ended

March 31, 2018,

the Company had the following convertible debenture agreements, summarized as follows:

(a)

Power Up Lending Group, Ltd.:

●

February 9, 2017,

a total of

$55,000

(settled with cash) was received, net of

$3,000

in legal fees. The convertible debt was due

December 30, 2017;

and

●

March 9, 2017,

a total of

$35,000

(settled) was received, net of

$3,500

in legal fees. The convertible debt was due

November 20, 2017

The convertible debentures accrue interest of

12%

per annum and can be converted into common stock at the option of the holder at any time after

180

days following the date of issuance. The debenture has a conversion price equal to

63%

of the market price. Market price is defined as the average of the lowest

three

trading prices for the Company’s common stock during the

ten

-day trading period ending

one

trading day prior to the date of conversion notice with a limitation of

4.99%

of the issued and outstanding common stock at the time of conversion. Any amount of principal that is

not

paid when due bears interest at a rate of

22%

per annum.

The convertible debentures

may

be repaid by the Company as follows:

●

Outstanding principal multiplied by

115%

together with accrued interest and unpaid interest thereon if prepaid within a period of

days beginning on the date of issuance of the note;

●

Outstanding principal multiplied by

120%

together with accrued interest and unpaid interest thereon if prepaid at any time during the period beginning

days from the date of issuance of the note and ending on the date that is

days following the date of the note;

●

Outstanding principal multiplied by

125%

together with accrued interest and unpaid interest thereon if prepaid at any time during the period beginning

days from the date of issuance of the note and ending on the date that is

days following the date of the note.

●

Outstanding principal multiplied by

130%

together with accrued interest and unpaid interest thereon if prepaid at any time during the period beginning

days from the date of issuance of the note and ending on the date that is

120

days following the date of the note.

●

Outstanding principal multiplied by

135%

together with accrued interest and unpaid interest thereon if prepaid at any time during the period beginning

121

days from the date of issuance of the note and ending on the date that is

150

days following the date of the note.

●

Outstanding principal multiplied by

140%

together with accrued interest and unpaid interest thereon if prepaid at any time during the period beginning

151

days from the date of issuance of the note and ending on the date that is

180

days following the date of the note.

The embedded conversion feature of the convertible debentures were treated as derivative liabilities measured at fair value on inception and at each reporting date with the debt component being allocated the residual value of the debt and amortized using the effective interest method to its maturity value. Debt issuance costs have been recorded as a reduction to the debt.

At inception of the loans, the total net proceeds allocated to the derivative liability components were

$22,384

with the residual net proceeds of

$67,616

allocated to the debt components at inception.

August 9, 2017,

the Company paid cash of

$85,979

to settle the

February 9, 2017

convertible debt agreement with Power Up Lending Group, Ltd. The Company recognized a gain on extinguishment of

$73,450

as a result of the settlement.

(b)

Capital Inc.:

●

May 12, 2017,

a replacement note of

$469,760

(partially extinguished) was received in exchange for the convertible note with JMJ Financial (described below). This note accrues interest at

12%

per year. The new convertible debt is due

November 12, 2017;

●

May 18, 2017,

a total of

$75,000

(partially settled) was received, net of

$13,200

in legal fees and

$31,027

in Other Issue Discount (“OID”). This note accrues interest at

per year. The convertible debt is due

November 18, 2017;

●

June 8, 2017,

a total of

$25,000

(partially settled) was received, net of

$2,006

in Other Issue Discount (“OID”). This note accrues interest at

per year. The convertible debt is due

December 8, 2017;

The convertible debentures can be converted into common stock at the option of the holder at any time after

180

days following the date of issuance. The debenture has a conversion price equal to

65%

of the market price. Market price is defined as the average of the lowest

two

trading prices for the Company’s common stock during the

twenty-one

-day trading period ending

one

trading day prior to the date of conversion notice with a limitation of

9.99%

of the issued and outstanding common stock at the time of conversion. Any amount of principal that is

not

paid when due bears interest at the lessor of (i)

24%

per annum or (ii) the maximum allowed by law.

●

May 19, 2017,

the Company entered into an equity purchase agreement, whereby the lender

may

purchase up to

$5,000,000

(described below) of the Company’s common shares. As consideration for the equity agreement, the Company entered into a commitment fee convertible debt note of

$105,000.

The convertible debt is due

May 5, 2020;

The convertible debenture associated with the equity purchase agreement accrues interest of

per annum and can be converted into common stock at the option of the holder at any time after

180

days following the date of issuance. The debenture has a conversion price equal to

67.5%

of the market price. Market price is defined as the average of the lowest

two

trading prices for the Company’s common stock during the

twenty

-day trading period ending

one

trading day prior to the date of conversion notice with a limitation of

9.99%

of the issued and outstanding common stock at the time of conversion. Any amount of principal that is

not

paid when due bears interest at the lessor of (i)

24%

per annum or (ii) the maximum allowed by law.

If the Company enters into a convertible debt agreement with a conversion rate greater than the conversion price of the convertible debt above, then the conversion price shall be automatically adjusted to equal the most beneficial conversion rate.

The convertible debentures

may

be repaid by the Company as follows:

●

The

May 12,

and

June 8, 2017

convertible notes

may

be prepaid in cash equal to the outstanding principal multiplied by

125%

together with accrued interest and unpaid interest thereon up to the date that is

180

days following the date of the notes;

●

The

May 19, 2017

equity purchase agreement convertible notes

may

be prepaid in cash equal to:

●

the outstanding principal multiplied by

120%

together with accrued interest and unpaid interest thereon from inception up to the date that is

days following the date of the notes; and

●

the outstanding principal multiplied by

140%

together with accrued interest and unpaid interest thereon from inception up to the date that is

days following the date of inception and ending on the date that is

180

days from the date of inception;

The embedded conversion feature of the equity purchase agreement commission convertible debenture was treated as a derivative liability measured at fair value on inception and at each reporting date with the debt component being allocated the residual value of the debt and amortized using the effective interest method to its maturity value. Debt issuance costs have been recorded as a deferred debt discount asset to be amortized using the effective interest method to its maturity value.

At inception of the convertible debt, the total net proceeds allocated to the derivative liability components were

$576,901

with the residual net proceeds of

$97,859

allocated to the debt components at inception.

(c)

SBI Investments LLC

●

May 12, 2017,

a replacement note of

$469,760

(partially extinguished) was received in exchange for the convertible note with JMJ Financial (described below). This note accrues interest at

12%

per year. The new convertible debt was due

November 12, 2017;

●

May 18, 2017,

a total of

$75,000

(partially settled) was received, net of

$13,200

in legal fees and

$31,027

in Other Issue Discount (“OID”). This note accrues interest at

per year. The convertible debt is due

November 18, 2017;

●

June 23, 2017,

a total of

$25,000

(partially settled) was received, net of

$3,750

in Other Issue Discount (“OID”). This note accrues interest at

per year. The convertible debt is due

December 23, 2017;

The convertible debentures can be converted into common stock at the option of the holder at any time after

180

days following the date of issuance. The debenture has a conversion price equal to

65%

of the market price. Market price is defined as the average of the lowest

two

trading prices for the Company’s common stock during the

twenty-one

-day trading period ending

one

trading day prior to the date of conversion notice with a limitation of

9.99%

of the issued and outstanding common stock at the time of conversion. Any amount of principal that is

not

paid when due bears interest at the lessor of (i)

24%

per annum or (ii) the maximum allowed by law.

●

May 19, 2017,

the Company entered into an equity purchase agreement, whereby the lender

may

purchase up to

$5,000,000

(described below) of the Company’s common shares. As consideration for the equity agreement, the Company entered into a commitment fee convertible debt note of

$105,000.

The convertible debt is due

May 5, 2020;

The convertible debenture associated with the equity purchase agreement accrues interest of

per annum and can be converted into common stock at the option of the holder at any time after

180

days following the date of issuance. The debenture has a conversion price equal to

67.5%

of the market price. Market price is defined as the average of the lowest

two

trading prices for the Company’s common stock during the

twenty

-day trading period ending

one

trading day prior to the date of conversion notice with a limitation of

9.99%

of the issued and outstanding common stock at the time of conversion. Any amount of principal that is

not

paid when due bears interest at the lessor of (i)

24%

per annum or (ii) the maximum allowed by law.

In the Company enters into a convertible debt agreement with a conversion rate greater than the conversion price of the convertible debt above, then the conversion price shall be automatically adjusted to equal the most beneficial conversion rate.

The convertible debentures

may

be repaid by the Company as follows:

●

The

May 12,

and

June 23, 2017

convertible notes

may

be prepaid in cash equal to the outstanding principal multiplied by

125%

together with accrued interest and unpaid interest thereon up to the date that is

180

days following the date of the notes;

●

The

May 19, 2017

equity purchase agreement convertible notes

may

be prepaid in cash equal to:

●

the outstanding principal multiplied by

120%

together with accrued interest and unpaid interest thereon from inception up to the date that is

days following the date of the notes; and

●

the outstanding principal multiplied by

140%

together with accrued interest and unpaid interest thereon from inception up to the date that is

days following the date of inception and ending on the date that is

180

days from the date of inception;

At inception of the convertible debt, the total net proceeds allocated to the derivative liability components were

$574,840

with the residual net proceeds of

$99,920

allocated to the debt components at inception.

(f)

JMJ Financial

November 16, 2017,

the Company entered into a debt agreement with JMJ Financial. A total of

$200,000

was received. The convertible debenture is due within

180

days and becomes payable

days after the license agreement (Note

) is entered into and cash is received.

January 16, 2018,

the note was in default and became convertible under default provisions. On

January 16, 2018,

$200,000,

plus an interest penalty of

$25,000

was extinguished and recorded as convertible debt.

The conversion price is the lesser of

$0.05

50%

of the lowest trade price in the

trading days previous to the conversion. The lender is limited to holding

more than

4.99%

of the issued and outstanding common stock at the time of conversion. After the expiration of

120

days following the delivery date of any consideration, the Company will have

right of prepayment without written consent of the lender.

The embedded conversion feature of the modified convertible debenture was treated as a derivative liability measured at fair value on the date of default and at each reporting date with the debt component being allocated the residual value of the debt and amortized using the effective interest method to its maturity value. Debt issuance costs have been recorded as a reduction to the debt.

January 16, 2018,

the reaquisition price of the debt of

$225,000

was allocated to the derivative liability component with the residual proceeds of

$nil

allocated to the debt component. Pusuant to the extinguishment,

$157,229

was recognized as a loss on extinguishment of debt.

During the year ended

June 30, 2017,

the net proceeds allocated to the derivative liability component was

$234,087

with the residual net proceeds of

$65,913

allocated to the debt component at inception.

Second c

onvertible note:

May 5, 2016,

the Company entered into a

second

convertible debt agreement with JMJ Financial. A total of

$900,000

was received, net of an upfront OID

10%

fee of

$100,000.

The convertible debenture is due

May 5, 2017 (

extinguished during the year ended

June 30, 2017).

Summary of convertible debt transactions

As of

March 31, 2018,

the total amortized value of the outstanding convertible debentures were

$601,581

(

June 30, 2017 -

$162,821

), the total amortized value of the deferred finance cost was

$148,362

(

June 30, 2017 -

$201,432

), the total fair value of the outstanding derivative liabilities were

$1,011,857

(

June 30, 2017 -

$988,463

) and the total fair value of the warrant derivative was

$456,002.

During the

nine

months ended

March 31, 2018,

the Company recognized a fair value loss on warrant derivative of

$256,002

(

2017

– fair value gain of

$54,700

) and fair value loss on derivative liabilities of

$1,113,147

(

2017

– fair value gain of

$29,143

). As of

March 31, 2018,

$1,070,744

of the fair value loss on derivative liabilities relates to the conversion features associated with the outstanding debentures and a further fair value loss of

$42,403

relating to the conversion feature associated with the debenture that was settled and extinguished.

As of

March 31, 2018,

25,691,899

(

June 30, 2017 –

55,374,342

) common shares of the Company would be required to settle the remaining convertible debentures at a weighted average conversion price of

$0.03

(

June 30, 2017 -

$0.01

) per common share.

As of

March 31, 2018,

the face value of convertible debentures is

$645,789

(

June 30, 2017 -

$1,439,520

), which includes accrued interest of approximately

$50,000

(

June 30, 2017 -

$22,392

During the

nine

months ended

March 31, 2018,

debt discount amortization of

$1,053,582

(

2017

$433,945

) and deferred finance costs amortization of

$53,070

(

2017

$nil

) was recorded as interest expense.

The fair value of the derivative financial liabilities are calculated using the Black Sholes option pricing model.

The following assumptions were used in determining the fair value of the derivative liabilities at inception during the year ended:

	March 31, 2018				June 30, 2017
Share price		0.04	–	0.05		0.04	–	0.10
Conversion price		0.02	–	0.03		0.02	–	0.06
Expected life (years)		0.33	–	0.81		0.50	–	0.81
Interest rate		1.02	–	1.45%		0.80	–	1.11%
Volatility		132.98	–	188.38%		106.63	–	158.06%
Dividend yield			N/A				N/A
Estimated forfeitures			N/A				N/A

The following assumptions were used in determining the fair value of the derivative financial liabilities as of:

	March 31, 2018				June 3 0 , 2017
Share price			0.05				0.03
Conversion price		0.02	–	0.03			0.02
Expected life (years)		0.13	–	1.25		0.39	–	0.64
Interest rate		1.73	–	2.09%			1.14%
Volatility		106.01	–	212.97%		152.55	–	181.43%
Dividend yield			N/A				N/A
Estimated forfeitures			N/A				N/A

The following table summarizes the changes in the derivative liabilities:

	Derivative liability
Balance, June 30, 2017	$	988,463
Derivatives settled upon conversion of debt		(1,198,715	)
Gain on extinguishment of convertible debt		(116,038	)
Addition of new derivatives recognized as debt discounts		225,000
Loss on change in fair value of the derivative		1,113,147
Balance, March 31, 2018	$	1,011,857