Note 10 – Convertible Debt and Derivative Liability

On December 18, 2014, the Company effectuated a convertible Note Agreement with an investor for the purchase and sale of up to $285,000 of the Company’s original issue discount convertible debentures with a term of 3 years. The first debenture, in the principal amount of $160,000, was issued on December 18, 2014.

In connection with the agreement, the Company provided the lender with 200,000 shares of common stock. The Company used the trading price of its common stock on December 18, 2014 to determine the value of the common stock. The Company recorded a debt discount of $42,000 attributed to the issuance of the common stock.

Per the agreement, the holder may convert the notes into common stock at 70% of the lowest trading price in a 20 day trading window prior to the conversion. The Company has determined that the right to convert the notes at a discount represents an embedded derivative liability that met the criteria for bifurcation under ASC 815 “Derivative and Hedging” which generally provides three criteria that, if met, require companies to bifurcate conversion options from their host instruments and account for them as free standing derivative financial instruments. The fair value of the derivative liability was calculated using a Black Scholes model on December 18, 2014 and remeasured at April 30, 2015. The Company recorded a debt discount for the fair value of the derivative liability of $102,000 on the issuance date. The debt discount attributed to the convertible note, the issuance of the common stock, and the derivative liability is being amortized over the term of the note of 3 years and recorded as interest expense in the statements of operations. As of April 30, 2015, the Company determined the fair value of the derivative liability has increased to $191,122 and accordingly recorded $89,122 to capture the change in fair value as other expense in the statements of operations.

On February 20, 2015, the Company effectuated a convertible Note Agreement with an investor for the purchase and sale of up to $66,667 of the Company’s original issue discount convertible notes with a term of 2 years.

Per the agreement, the holder may convert the notes into common stock at the lesser of $0.15 per share or 60% of the lowest trading price in a 25 day trading window prior to the conversion. The note does not bear interest if repaid within 90 day of the borrowing date while a 12% one-time interest fee will be charged on the 91^st day if the note is still outstanding. The Company has determined that the right to convert the notes at a discount represents an embedded derivative liability that met the criteria for bifurcation under ASC 815 “Derivative and Hedging” which generally provides three criteria that, if met, require companies to bifurcate conversion options from their host instruments and account for them as free standing derivative financial instruments. The fair value of the derivative liability was calculated using a Black Scholes model on February 20, 2015 and remeasured at April 30, 2015. The Company recorded a debt discount for the fair value of the derivative liability of $60,667 on the issuance date. The debt discount attributed to the convertible note, and the derivative liability is being amortized over the term of the note of 2 years and recorded as interest expense in the statements of operations. As of April 30, 2015, the Company determined the fair value of the derivative liability has increased to $80,355 and accordingly recorded $20,355 to capture the change in fair value as other expense in the statements of operations.

On March 4, 2015, the Company effectuated a convertible Note Agreement with an investor for a principal balance of $100,000 of convertible note with a term of 1 year.

Per the agreement, the holder may convert the notes into common stock at the 60% of the lowest trading price in a 15 day trading window prior to the conversion. The debt accrues interest at a rate of 8% per annum, payable in common stock at the conversion rate. The Company has determined that the right to convert the notes at a discount represents an embedded derivative liability that met the criteria for bifurcation under ASC 815 “Derivative and Hedging” which generally provides three criteria that, if met, require companies to bifurcate conversion options from their host instruments and account for them as free standing derivative financial instruments. The fair value of the derivative liability was calculated using a Black Scholes model on March 4, 2015 and remeasured at April 30, 2015. The Company recorded a debt discount for the fair value of the derivative liability of $89,672 on the issuance date. The debt discount attributed to the derivative liability is being amortized over the term of the note of 1 year and recorded as interest expense in the statements of operations. As of April 30, 2015, the Company determined the fair value of the derivative liability has declined to $86,562 and accordingly recorded $3,110 to capture the change in fair value as other income in the statements of operations.

On April 1, 2015, the Company effectuated a convertible promissory note with an investor for a total principal balance of $64,000 of with a term of 1 year.

Per the agreement, the holder may convert the note into common stock at 61% of the lowest 3 trading prices in a 10 day trading window prior to the conversion after 180 days. The note accrues interest at a rate of 8% per annum. The Company has determined that the right to convert the note at a discount represents an embedded derivative liability that met the criteria for bifurcation under ASC 815 “Derivative and Hedging” which generally provides three criteria that, if met, require companies to bifurcate conversion options from their host instruments and account for them as free standing derivative financial instruments. The fair value of the derivative liability was calculated using a Black Scholes model on April 1, 2015 and remeasured at April 30, 2015. The Company recorded a debt discount for the fair value of the derivative liability of $60,000 on the issuance date. The debt discount attributed to the derivative liability is being amortized over the term of the note of 1 year and recorded as interest expense in the statements of operations. As of April 30, 2015, the Company determined the fair value has declined to $54,619 and accordingly recorded $1,339 to capture the change in fair value as other income in the statements of operations.

On April 24, 2015, the Company effectuated a convertible Note Agreement with an investor for a total principal of up to $115,000 with a term of 1 year. The debenture, in the principal amount of $115,000, was issued on April 24, 2015.

Per the agreement, the holder may convert the note into common stock at the lesser of $0.10 or 65% of the lowest trading price in a 30 day trading window preceding the date of conversion. The note accrues interest at a rate of 15% per annum. The Company has determined that the right to convert the note at a discount represents an embedded derivative liability that met the criteria for bifurcation under ASC 815 “Derivative and Hedging” which generally provides three criteria that, if met, require companies to bifurcate conversion options from their host instruments and account for them as free standing derivative financial instruments. The fair value of the derivative liability was calculated using a Black Scholes model on April 24, 2015 and remeasured at April 30, 2015. The Company recorded a debt discount for the fair value of the derivative liability of $100,000 on the issuance date. The debt discount attributed to the convertible note and the derivative liability is being amortized over the term of the note of 1 year and recorded as interest expense in the statements of operations. As of April 30, 2015, the Company determined the fair value has increased to $135,388 and accordingly recorded $35,388 to capture the change in fair value as other expense in the statements of operations.

On April 24, 2015, the Company effectuated a convertible note agreement with an investor for the purchase and sale of $50,000 of the Company’s original issue discount convertible note with a term of 8 months.

Per the agreement, the holder may convert the notes into common stock at 70% of the lowest trading price in a 30 day trading window prior to the conversion. The note accrues an interest of 1% per annum. The Company has determined that the right to convert the notes at a discount represents an embedded derivative liability that met the criteria for bifurcation under ASC 815 “Derivative and Hedging” which generally provides three criteria that, if met, require companies to bifurcate conversion options from their host instruments and account for them as free standing derivative financial instruments. The fair value of the derivative liability was calculated using a Black Scholes model on April 24, 2015 and remeasured at April 30, 2015. The Company recorded a debt discount for the fair value of the derivative liability of $31,572 on the issuance date. The debt discount attributed to the convertible note, and the derivative liability is being amortized over the term of the note of 7 months and recorded as interest expense in the statements of operations. As of April 30, 2015, the Company determined the fair value of the derivative liability has declined to $30,975 and accordingly recorded $597 to capture the change in fair value as other income in the statements of operations.

As of April 30, 2015, amounts outstanding under the Company’s debentures were as follows:

Principal balance	$	555,667
Debt discount		(473,705)
Net carrying value of debt	$	81,962
Less current portion		56,406
Long-term net carrying value of debt	$	25,556