Note 14 – Convertible Debt and Derivative Liabilities on Other Notes

The Company has entered into Securities Purchase Agreement with Blackbridge Capital, LLC, a Delaware limited liability company [“SPA”], operating out of New York, New York (“Blackbridge”) whereby Blackbridge has agreed to purchase up to $5,000,000 worth of shares of the Company’s common stock. The Company has agreed to file a Registration Statement to register such shares for sale to Blackbridge. In addition, the Company has issued [i] a convertible promissory note to Blackbridge pursuant to the Securities Purchase Agreement equal to $150,000 as a commitment fee, that is currently charged to prepaid expenses until services are provided (the “Blackbridge Note”), [ii] and a $100,000 Convertible Note to cover the expenses to be incurred for the preparation and filing of the Registration Statement and related matters (“Expenses Note”).

On March 13, 2017, the Company and Blackbridge, entered into an Agreement, effective as of March 1, 2017, terminating the SPA. The Registration Statement on Form S-1 filed by the Company pursuant to the SPA could not be processed because of technical issues raised by the SEC and was withdrawn on February 28, 2017. In addition, the Blackbridge Note issued by the Company as a commitment fee remains, by its express terms, in full force and effect notwithstanding the termination of the SPA as does the Expenses Note.

The Company determined that the conversion feature embedded within the two Blackbridge notes is a financial derivative. The Generally Accepted Accounting Principles (GAAP) required that the Company’s embedded conversion option be accounted for at fair value. The following schedule shows the change in fair value of the derivative liabilities by December 31, 2016:

Description	Amount
Purchase price of the two convertible debentures	$	250,000
Discount on notes during 2016		(209,589	)
Balance of derivative liability net of discount on the two notes (See Consolidated Balance sheet liabilities)	$	40,411

Initial derivative valuation for the two Blackbridge notes	$	591,952
Fair value mark to market adjustment for derivatives		(194,230	)
Balance of valuation of derivative liability at December 31, 2016	$	397,722

Derivative calculations and presentations on the Statement of Operations
Loss on note issuance	$	540,634
Change in Derivative(Gain) Loss		193,160
Finance fees		272,360
Derivative valuation and expense charged to operations in 2016 (See Consolidated Statement of Operations)	$	1,006,154

The company recorded derivative loss on issuance associated with the Blackbridge notes in the amount $540,634.

The Company recorded as a liability the amount of $743,467 on the first set of six notes and $591,952 on the two Blackbridge notes. The Company recorded the debt discount to the extent of the gross proceeds raised, and expensed immediately the remaining value of the derivative as it exceeded the gross proceeds of the note. The Company recorded change in fair value of derivative liabilities as an expense associated with financing for the year ended December 31, 2016 of $193,160.

The Company recorded finance fees for the twelve months ended December 31, 2016 of $272,360 after adjustments mentioned above.

The Company measured and utilized quoted prices in active markets for identical liabilities (Level 1); significant other observable inputs (Level 2); and significant unobservable inputs (level 3) in applying valuation technology to derivative values for December 31, 2016 and throughout the year.