11. Subsequent Events

Effective January 3, 2018, the Company entered into an Exchange Agreement (the “Exchange”) with investors in the Company’s previous private placements (the “Investors”) pursuant to which the Company issued 303,714 shares of the Company’s new Convertible Series E Preferred Stock (the “Series E”) in exchange for the cancellation of the following securities:

• 133,333.69 shares of Series A Convertible Preferred Stock (extinguishing such series);
• 14,923.30 shares of Series A-1 Convertible Preferred Stock (extinguishing such series);
• 501.54 shares of Series C Convertible Preferred Stock (extinguishing such series);
• $650,000 of Senior Convertible Notes issued March 3, 2017;
• $63,158 of Senior Convertible Notes issued August 21, 2017; and
• Warrants to purchase 4,963,401.90 shares of our common stock

Each share of Series E has a stated value of $1,000 and is convertible into shares of our common stock at a conversion price of $1.00 per share (as adjusted for stock splits, stock dividends, stock combinations, recapitalizations and similar events). The Series E does not have any price protection from future issuances of securities by the Company at price below the conversion price then in effect.

On January 3, 2018, the Company entered into a Membership Interest Purchase Agreement (the “Agreement”) by and between the Company and Mitchell Saltz (“Saltz”). Pursuant to the terms of the Agreement, Saltz acquired all the membership interests of the Company’s subsidiary, Timefire LLC, an Arizona limited liability company (“TLLC”).

In consideration for entering in the Agreement, the Company received: (i) $100,000 in cash and (ii) a secured promissory note in the principal amount of $120,000 bearing 6% annual interest that matures in nine months. Additionally, Saltz or TLLC assumed certain of the Company’s liabilities including a sublease agreement entered into by the Company, loans made by Saltz to the Company, a certain $100,000 senior convertible note of the Company dated March 3, 2017, a certain services agreement entered into by the Company, certain past compensation owed to the Company’s former executive officers, and certain credit card debts owed by the Company.

Effective January 3, 2018, the Company entered into an oral employment agreement (the “Read Agreement”) with the Company’s Chief Executive Officer (the “CEO”) Mr. Jonathan Read (“Read”). Under the terms of the Read Agreement the Company will pay Read an annual salary of $240,000 subject to his continued employment with the Company. Additionally, the Company paid Read compensation for his services as the Company’s CEO from October 20, 2017, to December 31, 2017, calculated as a pro-rata portion of an annual salary of $150,000. Additionally, on January 3, 2018 (the “Grant Date”) the Company’s board of directors (the “Board”) granted Read 15,000,000 stock options of which 5,000,000 vested on the Grant Date, 5,000,000 will vest one-year from the Grant Date, and 5,000,000 will vest two years from the Grant Date subject to continued employment with the Company.

On January 3, 2018, the Board amended the Company’s 2016 Equity Incentive Plan by increasing the authorized number of shares available under the plan by 30,000,000.

Effective January 3, 2018, the Company agreed to compensate Gary Smith for his service as a non-employee director by paying him $2,500 per calendar quarter effective as of July 10, 2017.

On January 3, 2018, the Company purchased $100,000 of ether, the cryptocurrency offered by the Ethereum network. This purchase is the Company’s first material cryptocurrency purchase and signifies the start of the Company’s entry into the cryptocurrency business.

On January 18, 2018, the Company entered into an agreement for corporate communications counsel. The agreement is for an initial period of six months with a monthly fee of $5,000. Should the Company raise $2 million or more, the monthly fee increases to $7,500 per month. The Company will issue 1,000,000 shares of common stock per this agreement. They have not yet been issued as of the date of this report.

On January 22, 2018, the Company granted board member Gary Smith 1,000,000 stock options under the 2016 Equity Incentive Plan, exercisable at $.03 per share, vesting quarterly over one year beginning in three months subject to continued service as a director on each applicable vesting date.

On March 6, 2018 (the “Effective Date”), the Company closed on a private placement offering (the “Offering”) with institutional investors (the “Investors”) pursuant to which the Company issued and sold Senior Secured Convertible Notes (the “2018 Notes”) to the Investors in the aggregate principal amount of $1,052,632 with an original issue discount of 5%, and received gross proceeds of $1,000,000. The 2018 Notes mature on April 15, 2019 (the “Maturity Date”) and bear interest at 8% per annum. The 2018 Notes are secured by a first lien on all of the assets of the Company.

On the Maturity Date, the Company must repay an amount equal to 120% of the outstanding principal and accrued interest. Beginning on the six-month anniversary of the Effective Date, the Investors may elect to convert the 2018 Notes into common stock of the Company at $0.03 per share, subject to adjustment (the “Conversion Price”). In addition, the 2018 Notes are redeemable by the Company up to 90 days following issuance at an amount equal to 110% of outstanding principal and accrued interest, and thereafter at an amount equal to 120% of outstanding principal and accrued interest, subject in either case to upward adjustment to the extent the closing price of the Company’s common stock on the OTCQB exceeds the Conversion Price. As additional consideration, the Company issued the Investors a total of 35,087,720 five-year warrants (the “Warrants”) to purchase the Company’s common stock, which are exercisable on or after the six-month anniversary of the Effective Date at $0.06 per share. In addition, the Investors agreed to extend the due date of certain Notes described in Note 5 held by the Investors (which were past due), in the principal amount of approximately $770,000, to April 15, 2019.

Between January 5 and April 2, 2018, the Company issued 108,332,000 shares of common stock for the conversion of 108,332 shares of Series E Preferred.

On March 16, 2018, the Company entered into an Advisor Agreement (the “Agreement”) with a third party (the “Advisor”) and David Drake (“Drake”), a well-known consultant to the cryptocurrency industry. Under the terms of the Agreement, Drake was appointed to the Company’s Advisory Board and Drake and the Advisor agreed to assist the Company in the implementation and execution of its cryptocurrency business model, including initiation of its mining business and recommending to the Company potential acquisitions and joint ventures in this sector. Drake is required to devote at least three business days per month to assisting the Company. The Company agreed to issue the Advisor 6,666,666 shares of common stock valued at $0.03 per share, which shares shall vest quarterly over a 12-month period subject to the Agreement not having been terminated as of each applicable vesting date. The Company also agreed to issue the Advisor 6,666,666 3-year warrants exercisable at $0.05 per share vesting quarterly over a one-year period with the same vesting contingency. The Company agreed to pay the Advisor a royalty from revenues received from its mining of cryptocurrency with the royalties decreasing over a five-year period. Finally, the Company agreed to reimburse the Advisor $5,000 a month for the services of an engineer to operate the Company’s cryptocurrency mining business.