Capital Stock | 9 Months Ended |
31-May-14 |
Equity [Abstract] | ' |
Capital Stock | ' |
Note 12 - Capital Stock |
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Preferred Stock |
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As security for the Crisnic Note (see Note 7) due to an uncured event of default, the Company contracted to issue 650,001 Preferred Shares. Each Preferred Share would, among other things as provided in the Certificate of Designations relating to the Series A Preferred Stock: (i) carry voting rights 100 times of the Company’s common stock, (ii) carry no dividends, (iii) carry liquidation preference two times the sum available for distribution to common stock holders, (iv) automatically convert after at such time as the Company has filed a certificate of amendment with the State of Nevada to increase the authorized shares of common stock of the Company to a minimum of 500,000,000 into 100 shares of common stock, and (v) not be subject to reverse stock splits and other changes to the common stock capital of the Company. As discussed in Note 7, the Company has not issued the Preferred Shares. |
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Common Stock |
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Common Stock Issued for Employee Compensation and Services |
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During the nine months ended May 31, 2014, the Company issued a total of 70,400,000 shares of Common Stock to its officers as stipulated in the executive employment agreements with certain executive officers of the Company at an average price of $0.052 or $3,643,000 in the aggregate and was valued at the market price on the respective dates of issuance. |
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Common Stock Issued for Outside Services |
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During the nine months ended May 31, 2014, the Company issued a total of 1,466,967 shares of Common Stock at an average conversion price of $0.05 or $74,913 in the aggregate, for various legal, marketing and investor relations services. The Company recorded the expense of $74,913 which is included in general and administrative expenses in the Consolidated Statements of Operations for the three and nine months ended May 31, 2014. |
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Common Stock Issued on Exercise of Warrants |
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During the nine months ended May 31, 2014, the Company issued a total of 5,000,000 shares of Common Stock on the exercise of warrants from outside parties. The warrants were issued on a cashless basis without any additional consideration received (see Warrants below) |
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Common Stock Issued for Partial Repayment of Senior Secured Convertible Notes |
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During the nine months ended May 31, 2014, the Company issued a total of 14,421,000 shares of Common Stock at an average conversion price of $0.001 or $14,421 in the aggregate, as partial repayment of outstanding indebtedness, as discussed in Note 6 above. |
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Common Stock Issued for Partial Repayment of Convertible Notes |
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During the nine months ended May 31, 2014, the Company issued a total of 17,130,493 shares of Common Stock at an average conversion price of $0.01 or $162,046 in the aggregate, as partial repayment of outstanding indebtedness, as discussed in Note 8 above. |
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Common Stock Issued for Partial Repayment of Promissory Notes |
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During the nine months ended May 31, 2014, the Company issued a total of 1,191,040 shares of Common Stock at an average conversion price of $0.04 or $44,664 in the aggregate, as partial repayment of outstanding indebtedness, as discussed in Note 9 above. |
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Common Stock Issued for Settlement of Accounts Payables |
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During the nine months ended May 31, 2014, the Company issued a total of 775,000 shares of Common Stock at an average price of $0.076 or $58,900 in the aggregate, for payment of existing outstanding trade accounts payable balances. |
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Common Stock Issued for Cash |
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During the nine months ended May 31, 2014, the Company issued a total of 1,512,800 shares of Common Stock at an average price of $0.04 or $60,000 in the aggregate, for shares purchased by private investors. Along with the issuance of shares to one investor, the Company also issued warrants to purchase 80,000 shares of Common Stock. Under ASC 815-15 “Derivative and Hedging”, the warrant were tainted by the convertible notes, and the Company determined the fair value of the warrants to be $4,032 as derivative liability upon issuance. For the nine months ended May 31, 2014, $4,880 was recorded as a loss on derivative liability resulted from the issuance of the warrant and change in fair value of the conversion features. The derivative liability as of May 31, 2014 was determined to be $4,880. See footnote 11 for impact of this derivative liability. |
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Project Collaboration and Profit Sharing Agreement |
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On October 2, 2013 the Company entered into a Project Collaboration and Profit Sharing Agreement (“Collaboration Agreement”) with Kevin Mulhearn (“Mulhearn”). The purpose of the Collaboration Agreement was to provide the Company with finance, development and marketing services for the launch of its Shop4Equality marketing program. The Investor contributed $550,000, of which $450,000 was received during the year ended August 31, 2013 (See Notes 8 and 9) and $100,000 was received during the nine months ended May 31, 2014. The Investor agreed to cancel $557,000 of the promissory notes with accrued interest owed by the Company. On March 5, 2014, the Company entered into a Second Amendment to the October 2, 2013 Project Collaboration and Profit Sharing Agreement. The Second Amendment resulted in a reduction in the amount of profit sharing for Mr. Mulhearn in exchange for reinstating the balance owed of $150,000, at an interest rate of $0 and due on January 31, 2019. The Company reinstated the balance owed of $150,000 by reversing the reclassified from additional paid in capital to long term promissory notes on the Consolidated Balance Sheets. Additionally, the Company issued 500,000 shares of its common stock, at par value, as partial consideration for the Investor to enter into the Agreement. The Investor also acquired 5,100,000 shares of the Company’s common stock from a third party in a separate transaction as of the date of the agreement. |
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The profit sharing arrangement related to the Shop4Equality project is as follows: |
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| 1 | The Investor will receive 100% of the first $550,000 in losses, 45% of the first $500,000 in gains, 10% thereafter unless reduced pro-rata by the other Investor’s interests until November 15, 2013; | | | | | | | | | | | | | | | | | | | | |
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| 2 | The Company will receive 0% of the first $550,000 in losses, 45% of the first $500,000 in gains, and 80% thereafter until November 15, 2013. | | | | | | | | | | | | | | | | | | | | |
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| 3 | After November 15, 2013, 100% of the Shop4Equality gains or losses shall be the Company’s. | | | | | | | | | | | | | | | | | | | | |
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| 4 | On January 30, 2014, the Company shall issue to the Investor shares valued as of January 15, 2014, at an amount equal to $1,000,000 less gains distributed to Investor. | | | | | | | | | | | | | | | | | | | | |
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The obligations of the Company are guaranteed and secured by the assets of the Company including the name Shop4Equality and the related URL, all URLs owned by the Company, all software owned by the Company, all contracts between the Company and partner organizations, and all cash and receivables of the Company. |
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During the nine months ended May 31, 2014, the Company reclassified the $400,000, plus interest of $7,000 received from convertible and promissory notes to additional paid in capital. |
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Common Stock Issued as Consideration for Issuance of Promissory Note |
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During the nine months ended May 31, 2014, the Company issued 488,692 shares of Common Stock as consideration of promissory notes at an average price of $0.08 or $40,610 in the aggregate. See discussion in Note 9 above. |
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Cancellation of Common Stock |
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During the nine months ended May 31, 2014, the Company cancelled 1,100,000 shares of Common Stock issued in prior years to employees. The cancellation of shares was recorded at par value of $1,100. |
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Stock Options |
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Summary of Stock Options |
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A summary of stock option activity for the nine months ended May 31, 2014 is as follows: |
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| | | | | Weighted | | | | | | | | | | | | | | | |
| | Number | | | Average | | | | | | | | | | | | | | | |
| | of | | | Exercise | | | | | | | | | | | | | | | |
| | Options | | | Price | | | | | | | | | | | | | | | |
Balance outstanding, August 30, 2013 | | | - | | | $ | - | | | | | | | | | | | | | | | |
Options granted | | | 35,000,000 | | | | 0 | | | | | | | | | | | | | | | |
Options exercised | | | - | | | | - | | | | | | | | | | | | | | | |
Options expired or forfeited | | | - | | | | - | | | | | | | | | | | | | | | |
Balance outstanding, May 31, 2014 | | | 35,000,000 | | | $ | 0 | | | | | | | | | | | | | | | |
Balance exercisable, May 31, 2014 | | | 35,000,000 | | | $ | 0 | | | | | | | | | | | | | | | |
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Information relating to outstanding stock options at May 31, 2014, summarized by exercise price, is as follows: |
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| | Outstanding | | | Exercisable | | |
| | | | | | | | Weighted | | | | | | Weighted | | |
| | | | | Life | | | Average | | | | | | Average | | |
Exercise Price Per Share | | Shares | | | (Years) | | | Exercise Price | | | Shares | | | Exercise Price | | |
$ | 0 | | | 35,000,000 | | | | 1.8 | | | $ | 0 | | | | 35,000,000 | | | $ | 0 | | |
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Stock Options Issued to Executives |
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The Executive Agreements |
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On March 5, 2014, the Company entered into an Executive Agreement with Eric Kotch, Eli Feder, Bob Rothenberg and Steven Gormley (Executives). In exchange for all rights to past due employment compensation, equity, debt, and conversion rights, totaling in aggregate $1,357,300; the Company agreed to provide the Executives in aggregate 35,000,000 stock options to purchase common stock, full indemnification protection from the Company, and release of any claims or liabilities through the date of the Executive Agreement. The Executives also agreed: |
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a) to forgive the full balance currently owed as set forth above; |
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b) to terminate all employment agreements and rights thereunder effective on the date of the Executive Agreement; |
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c) that any employment or compensation agreements with any of the Executives entered into within a date 18 months from the Executive Agreement, will require an approval by 75% of the board of directors; |
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d) the Executives will enter into leakout agreements on a pro rata basis and to be determined terms; |
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e) the Executives will be subject to a one year non-competition agreement beginning the later of the termination of such directors employment with the Company or resignation or removal from the board of directors. |
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The 35,000,000 stock options, which vest immediately, have a two year life and are exercisable with no further consideration. The Company valued these stock options at $2,065,000, and after offsetting this expense against the $1,357,300 discussed above, recorded a loss on executive agreement of $707,700 which was classified in other income (expense) in the Consolidated Statements of Operations for the three and nine months ended May 31, 2014. |
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Warrants |
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Summary of Warrants |
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A summary of warrant activity for the nine months ended May 31, 2014 is as follows: |
| | | | | Weighted | | | | | | | | | | | | | | | |
| | Number | | | Average | | | | | | | | | | | | | | | |
| | of | | | Exercise | | | | | | | | | | | | | | | |
| | Warrants | | | Price | | | | | | | | | | | | | | | |
Balance outstanding, August 30, 2013 | | | - | | | $ | - | | | | | | | | | | | | | | | |
Warrants granted | | | 10,093,333 | | | | 0 | | | | | | | | | | | | | | | |
Warrants exercised | | | (5,000,000 | ) | | | 0 | | | | | | | | | | | | | | | |
Warrants expired or forfeited | | | - | | | | - | | | | | | | | | | | | | | | |
Balance outstanding, May 31, 2014 | | | 5,093,333 | | | $ | 0 | | | | | | | | | | | | | | | |
Balance exercisable, May 31, 2014 | | | 5,093,333 | | | $ | 0 | | | | | | | | | | | | | | | |
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Information relating to outstanding warrants at May 31, 2014, summarized by exercise price, is as follows: |
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| | | Outstanding | | | Exercisable | |
| | | | | | | | | Weighted | | | | | | Weighted | |
| | | | | | Life | | | Average | | | | | | Average | |
| Exercise Price Per Share | | | | Shares | | | | (Years) | | | | Exercise Price | | | | Shares | | | | Exercise Price | |
$ | 0 | | | | 5,093,333 | | | | 1.8 | | | $ | 0 | | | | 5,093,333 | | | $ | 0 | |
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Warrants Issued to Outside Parties |
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During the nine months ended May 31, 2014, the Company issued 10,093,333 warrants as additional consideration for investors’ purchase of shares of common stock for cash, for entering into certain notes payable transaction (See Note 9), and as additional consideration for debt conversions (See Note 9). The 10,093,333 warrants vest immediately, have a two year life and are exercisable with no further consideration. 5,000,000 warrants were exercised during the nine months ended May 31, 2014. The warrants have the following exercise terms: |
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| a. | 80,000 warrants are exercisable on the earlier of 1) 6 months after issue or 2) average Volume Weighted Average Price (VWAP) for 3 days equals or exceeds $0.5 per share. | | | | | | | | | | | | | | | | | | | | |
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| b. | 480,000 warrants are exercisable on the earlier of 1) 6 months after issue or 2) average VWAP for 3 days equals or exceeds $0.25 per share. | | | | | | | | | | | | | | | | | | | | |
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| c. | 3,700,000 warrants are exercisable beginning on the date when the stock price reaches a closing market price of $0.50 per share. | | | | | | | | | | | | | | | | | | | | |
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| d. | 833,333 warrants are exercisable beginning on the date when the stock price reaches a closing market price of $0.25 per share. | | | | | | | | | | | | | | | | | | | | |