Note 10 – Convertible Debt and Derivative Liability

During the six months ended January 31, 2016, the lenders converted $334,155 of the principal balance of the notes in exchange for 22,130,634 shares of Common Stock, which also resulted in the de-recognition of $399,552 of the balance of the derivative liability. Gain of $159,939 was a result from the conversion and adjusted to additional paid in capital. As of January 31, 2016, the Company determined the fair value of the derivative liability was $635,943 and accordingly recorded the change in fair value of $57,498 as other expense in the statements of operations for the six months ended January 31, 2016.

On February 20, 2015, the Company entered into 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.

The agreement provides that 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 Binomial Lattice model on February 20, 2015 and remeasured at each reporting period. The Company recorded a debt discount for the fair value of the derivative liability of $50,000 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 2 years and recorded as interest expense in the statements of operations. As of January 31, 2016, the Company determined there is no fair value of the derivative liability or the change in fair value. The note was fully converted into common stock.

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

The agreement provides that the holder may convert the notes into common stock at 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 Binomial Lattice model on March 4, 2015 and remeasured at each reporting period. 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 January 31, 2016, the Company determined there is no fair value of the derivative liability for this note. The note was fully converted into common stock.

On April 24, 2015, the Company entered into 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.

The agreement provides that 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 Binomial Lattice model on April 24, 2015 and remeasured at each reporting period. The Company recorded a debt discount for the fair value of the derivative liability of $80,000 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 January 31, 2016, the Company determined the fair value has increased to $99,531 and accordingly recorded the change in fair value of $32,293 as other expense in the statements of operations.

On April 24, 2015, the Company entered into 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.

The agreement provides that 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 Binomial Lattice model on April 24, 2015 and remeasured at each reporting period. 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 8 months and recorded as interest expense in the statements of operations. As of January 31, 2016, the Company determined the fair value has increased to $26,679 and accordingly recorded the change in fair value of $10,582 as other expense in the statements of operations. On December 31, 2015 the note matured. The remaining principal of $37,500 and accrued interest become due and payable. This event may be considered as an event of default under holder’s further instruction. Upon an event of default, interest shall be accrued at rate of 25% per annum or at the highest rated of interest permitted by law.

On May 21, 2015, the Company entered into a convertible promissory note with an investor for a total principal balance of $43,000 of with a term of nine months.

The agreement provides that 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 Binomial Lattice model on May 21, 2015 and remeasured at each reporting period. The Company recorded a debt discount for the fair value of the derivative liability of $29,204 on the issuance date. The debt discount attributed to the derivative liability is being amortized over the term of the note of nine months and recorded as interest expense in the statements of operations. As of January 31, 2016, the Company determined the fair value has increased to $5,536 and accordingly recorded the change in fair value of $832 as other expense in the statements of operations.

On June 11, 2015, the Company entered into a convertible promissory note with an investor for a total principal balance of $27,778 of with a term of 2 years.

The agreement provides that the holder may convert the note into common stock at the lesser of 0.125 or 65% of the lowest trading prices in a 25 day trading window proceeding to the conversion. The note accrues interest at a rate of 10% 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 Binomial Lattice model on June 11, 2015 and remeasured at each reporting period. The Company recorded a debt discount for the fair value of the derivative liability of $25,000 on the issuance date. The debt discount attributed to 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 January 31, 2016, the Company determined the fair value has decreased to $4,977 and accordingly recorded the change in fair value of $478 as other income in the statements of operations.

On June 15, 2015, the Company entered into a convertible promissory note with an investor for a total principal balance of $55,000 of with a term of 1 year.

The agreement provides that the holder may convert the note into common stock at 60% of the lowest trading prices in a 25 day trading window prior to the conversion or the effective date of the Note. The note accrues interest at a rate of 10% 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 Binomial Lattice model on June 15, 2015 and remeasured at each reporting period. The Company recorded a debt discount for the fair value of the derivative liability of $55,000 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 January 31, 2016, the Company determined the fair value has increased to $40,965 and accordingly recorded the change in fair value of $11,292 as other expense in the statements of operations.

On July 9, 2015, the Company entered into a convertible promissory note with an investor for a total principal balance of $65,750 of with a term of 9 months.

The agreement provides that the holder may convert the note into common stock at 63% of the lowest trading prices in a 25 day trading window prior to the conversion or the effective date of the Note 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 Binomial Lattice model on July 9, 2015 and remeasured at each reporting period. 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 9 months and recorded as interest expense in the statements of operations. As of January 31, 2016, the Company determined the fair value has increased to $55,592 and accordingly recorded the change in fair value of $14,361 as other expense in the statements of operations.

On July 10, 2015, the Company entered into a convertible promissory note with an investor for a total principal balance of $75,000 of with a term of 1 year.

The agreement provides that the holder may convert the note into common stock at 35% of the lowest trading prices in a 10 day trading window prior to the conversion or the effective date of the Note after 180 days. The note accrues interest at a rate of 10% 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 Binomial Lattice model on July 10, 2015 and remeasured at each reporting period. The Company recorded a debt discount for the fair value of the derivative liability of $71,250 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 January 31, 2016, the Company determined the fair value has increased to $164,755 and accordingly recorded the change in fair value of $0 as other expense in the statements of operations.

On July 27, 2015, the Company entered into a convertible promissory note with an investor for a total principal balance of $43,000 of with a term of 9 months.

The agreement provides that 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 Binomial Lattice model on July 27, 2015 and remeasured at each reporting period. The Company recorded a debt discount for the fair value of the derivative liability of $29,084 on the issuance date. The debt discount attributed to the derivative liability is being amortized over the term of the note of 9 month and recorded as interest expense in the statements of operations. As of January 31, 2016, the Company determined the fair value has increased to $33,619 and accordingly recorded the change in fair value of $5,066 as other expense in the statements of operations.

On August 13, 2015, the Company entered into a convertible promissory note with an investor for a total principal balance of $25,000 of with a term of 1 year.

The agreement provides that the holder may convert the note into common stock at 60% of the lowest trading prices in a 20 day trading window prior to the conversion after 180 days. The note accrues interest at a rate of 12% 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 Binomial Lattice model on August 13, 2015 and remeasured at January 31, 2016. The Company recorded a debt discount for the fair value of the derivative liability of $ 18,592 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 January 31, 2016, the Company determined the fair value has increased to $24,655 and accordingly recorded the change in fair value of $6,458 as other expense in the statements of operations.

On August 13, 2015, the Company entered into a convertible promissory note with an investor for a total principal balance of $25,000 of with a term of 1 year.

The agreement provides that the holder may convert the note into common stock at 60% of the lowest trading prices in a 20 day trading window prior to the conversion after 180 days. The note accrues interest at a rate of 12% 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 Binomial Lattice model on August 13, 2015 and remeasured at January 31, 2016. The Company recorded a debt discount for the fair value of the derivative liability of $18,592 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 January 31, 2016, the Company determined the fair value has increased to $24,673 and accordingly recorded the change in fair value of $6,476 as other expense in the statements of operations.

On September 4, 2015, the Company entered into two convertible promissory notes with an investor for a total principal balance of $69,000 of with a term of 6 months.

The agreement provides that the holder may convert the note into common stock at 55% of the lowest trading prices in a 20 day trading window prior to the conversion after 180 days. The note accrues interest at a rate of 10% 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 Binomial Lattice model on September 4, 2015 and remeasured at January 31, 2016. The Company recorded a debt discount for the fair value of the derivative liability of $ 58,372 on the issuance date. The debt discount attributed to the derivative liability is being amortized over the term of the note of 6 months and recorded as interest expense in the statements of operations. As of January 31, 2016, the Company determined the fair value has increased to $77,340 and accordingly recorded the change in fair value of $0 as other expense in the statements of operations.

On September 21, 2015, the Company entered into a convertible promissory note with an investor for a total principal balance of $92,000 of with a term of 9 months.

The agreement provides that the holder may convert the note into common stock at 50% of the lowest 3 trading prices in a 20 day trading window prior to the conversion after 180 days. The note accrues interest at a rate of 10% 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 Binomial Lattice model on September 21, 2015 and remeasured at January 31, 2016. The Company recorded a debt discount for the fair value of the derivative liability of $92,000 on the issuance date. The debt discount attributed to the derivative liability is being amortized over the term of the note of 9 months and recorded as interest expense in the statements of operations. As of January 31, 2016, the Company determined the fair value has increased to $120,666 and accordingly recorded the change in fair value of $0 as other expense in the statements of operations.

As of January 31, 2016, amounts outstanding under the Company’s convertible debt payable were as follows:

Principal balance	$	621,039
Debt discount		(190,818)
Net carrying value of debt		430,221
Less current portion		(407,073)
Long term net carrying value of debt		23,148