Convertible Notes | 6 Months Ended |
Feb. 28, 2015 |
Debt Disclosure [Abstract] | |
Convertible Notes | Note 8 – Convertible Notes |
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Convertible notes consisted of the following: |
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| | | Successor | | | Predecessor | | | | | | | | | | | | |
| | | 28-Feb-15 | | | 31-Aug-14 | | | | | | | | | | | | |
Convertible notes - Panache | (A) | | $ | 10,000 | | | $ | - | | | | | | | | | | | | |
Convertible notes - Adar Bays | (B) | | | 5,067 | | | | - | | | | | | | | | | | | |
Convertible notes - LG Capital Fund | (C) | | | 4,000 | | | | - | | | | | | | | | | | | |
Convertible notes - Union Capital | (D) | | | 67,493 | | | | - | | | | | | | | | | | | |
Convertible notes - Typenex Co. | (E) | | | 96,750 | | | | - | | | | | | | | | | | | |
Convertible notes - JSJ Investments | (F) | | | 100,000 | | | | - | | | | | | | | | | | | |
Less: note discounts | | | | (112,247 | ) | | | | | | | | | | | | | | | |
Convertible notes, net of discounts | | | | 171,063 | | | | - | | | | | | | | | | | | |
Less: current portion | | | | (171,063 | ) | | | - | | | | | | | | | | | | |
Convertible notes, net of discounts - non-current | | $ | - | | | $ | - | | | | | | | | | | | | |
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(A) - Panache Capital, LLC |
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The Panache Notes were issued during the period from March 5, 2012 to April 26, 2012. The Panache Notes bear interest at 15%. The Panache Notes are convertible at the option of the holder, in their entirety or in part, into common stock of the Company. The conversion price is based on a 49% discount to the average of the three lowest closing bid prices for the Company’s common stock during the ten trading days immediately preceding a conversion date. |
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The Panache Notes include an anti-dilution provision that allows for the automatic reset of the conversion or exercise price upon any future sale of common stock instruments at or below the current exercise price. The Company considered the current FASB guidance of “Determining Whether an Instrument Indexed to an Entity’s Own Stock” which indicates that any adjustment to the fixed amount (either conversion price or number of shares) of the instrument regardless of the probability or whether or not within the issuers’ control, means the instrument is not indexed to the issuers own stock. Accordingly, the Company determined that the conversion price of the Panache Notes is not a fixed amount because it is subject to fluctuation based on the occurrence of future offerings or events. As a result, the Company determined that the conversion features are not considered indexed to the Company’s own stock and characterized the fair value of the conversion features as derivative liabilities upon issuance and at the end of each reporting period or termination of the instrument with the change in fair value recorded to earnings. |
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The following table presents the activity related to the notes: |
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| | Shares | | | Average | | | | | | | | | | |
| | Issued for | | | Conversion | | | | | | Debt | | | Principal, Net | |
| | Conversions | | | Price | | | Principal | | | Discounts | | | of Discounts | |
Balance - October 21, 2014 | | | | | | | | | | $ | 120,217 | | | $ | - | | | $ | 120,217 | |
Conversions | | | 22,261,727 | | | $ | 0.004 | | | | (93,550 | ) | | | - | | | | (93,550 | ) |
Repayments | | | | | | | | | | | (16,667 | ) | | | - | | | | (16,667 | ) |
Amortization | | | | | | | | | | | - | | | | - | | | | - | |
Balance - February 28, 2015 | | | | | | | | | | $ | 10,000 | | | $ | - | | | $ | 10,000 | |
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The following table presents the activity related to the conversion feature derivative liability: |
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Derivative liabilities as of October 21, 2014 - Successor | | $ | 206,771 | | | | | | | | | | | | | | | | | |
Change in the fair value of derivative liabilities | | | 182,480 | | | | | | | | | | | | | | | | | |
Reclassification to APIC due to conversion of related notes | | | (327,017 | ) | | | | | | | | | | | | | | | | |
Gain on settlement of derivative liability due to repayment of related notes | | | (38,170 | ) | | | | | | | | | | | | | | | | |
Derivative liabilities as of February 28, 2015 - Successor | | $ | 24,064 | | | | | | | | | | | | | | | | | |
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(B) - Adar Bays, LLC |
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On May 12, 2014, the Company issued an unsecured convertible promissory note to Adar Bays, LLC (an accredited investor) in the principal amount of $55,125. The note was issued at a discount of 5%, in exchange for $52,500 cash consideration and bears interest at 8% per annum. The note matures on May 13, 2015. The note became convertible 180 days from the issuance date. |
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The conversion price was based on a 35% discount to the lowest closing bid price for the ten prior trading days including the day upon which the notice of conversion is received by the Company. |
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The following table presents the activity related to the notes: |
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| | Shares | | | Average | | | | | | | | | | |
| | Issued for | | | Conversion | | | | | | Debt | | | Principal, Net | |
| | Conversions | | | Price | | | Principal | | | Discounts | | | of Discounts | |
Balance - October 21, 2014 | | | | | | | | | | $ | 55,125 | | | $ | - | | | $ | 55,125 | |
Discounts originated | | | | | | | | | | $ | - | | | $ | (55,125 | ) | | | (55,125 | ) |
Conversions | | | 4,013,559 | | | $ | 0.014 | | | | (55,125 | ) | | | - | | | | (55,125 | ) |
Amortization | | | | | | | | | | | - | | | | 55,125 | | | | 55,125 | |
Balance - February 28, 2015 | | | | | | | | | | $ | - | | | $ | - | | | $ | - | |
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Under ASC 815-15 - “Derivatives and Hedging”, the Company determined that the convertible feature of the note should be classified as a derivative liability with a corresponding amount recorded as a debt discount. The Company determined the initial fair value of the embedded conversion feature for the Adar Bays Note to be $113,077. The Company recorded a corresponding debt discount of $55,125 and loss on derivatives of $57,952. |
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The following table presents the activity related to the conversion feature derivative liability: |
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Derivative liabilities as of October 21, 2014 - Successor | | $ | - | | | | | | | | | | | | | | | | | |
Debt discounts originated during the period | | | 55,125 | | | | | | | | | | | | | | | | | |
Change in the fair value of derivative liabilities | | | 31,864 | | | | | | | | | | | | | | | | | |
Reclassification to APIC due to conversion of related notes | | | (86,989 | ) | | | | | | | | | | | | | | | | |
Derivative liabilities as of February 28, 2015 - Successor | | $ | - | | | | | | | | | | | | | | | | | |
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On June 16, 2014, the Company issued an unsecured convertible promissory note to Adar Bays, LLC in the principal amount of $50,000. The note bears interest at 8% per annum. The note matures on June 15, 2015. At any time or times after 180 days from the date of the note and until the maturity dates, the note holder is entitled to convert any portion of the outstanding and unpaid amount into fully paid and non-assessable shares of common stock. The conversion price will be based on a 35% discount to the lowest closing bid price for the ten prior trading days including the day upon which the notice of conversion is received by the Company. |
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The following table presents the activity related to the notes: |
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| | Shares | | | Average | | | | | | | | | | |
| | Issued for | | | Conversion | | | | | | Debt | | | Principal, Net | |
| | Conversions | | | Price | | | Principal | | | Discounts | | | of Discounts | |
Balance - October 21, 2014 | | | | | | | | | | $ | 50,000 | | | $ | - | | | $ | 50,000 | |
Discounts originated | | | | | | | | | | | - | | | | (50,000 | ) | | | (50,000 | ) |
Conversions | | | 12,895,806 | | | $ | 0.003 | | | | (44,933 | ) | | | - | | | | (44,933 | ) |
Amortization | | | | | | | | | | | - | | | | 47,042 | | | | 47,042 | |
Balance - February 28, 2015 | | | | | | | | | | $ | 5,067 | | | $ | (2,958 | ) | | $ | 2,109 | |
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Under ASC 815-15 - “Derivatives and Hedging”, the Company determined that the convertible feature of the note should be classified as a derivative liability with a corresponding amount recorded as a debt discount. The Company determined the initial fair value of the embedded conversion feature for the Adar Bays Note to be $74,433. The Company recorded a corresponding debt discount of $50,000 and loss on derivatives of $24,433. |
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The following table presents the activity related to the conversion feature derivative liability: |
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Derivative liabilities as of October 21, 2014 - Successor | | $ | - | | | | | | | | | | | | | | | | | |
Debt discounts originated during the period | | | 50,000 | | | | | | | | | | | | | | | | | |
Change in the fair value of derivative liabilities | | | 51,411 | | | | | | | | | | | | | | | | | |
Reclassification to APIC due to conversion of related notes | | | (91,734 | ) | | | | | | | | | | | | | | | | |
Derivative liabilities as of February 28, 2015 - Successor | | $ | 9,677 | | | | | | | | | | | | | | | | | |
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(C) – LG Capital Fund |
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On May 12, 2014, the Company issued an unsecured convertible promissory note to LG Capital Fund (an accredited investor) in the principal amount of $55,125. The note was issued at a discount of 5%, in exchange for $52,500 cash consideration and bears interest at 8% per annum. The note matures on May 13, 2015. At any time or times after 180 days from the date of the note and until the maturity dates, the note holder is entitled to convert any portion of the outstanding and unpaid amount into fully paid and non-assessable shares of common stock. The conversion price will be based on a 35% discount to the lowest closing bid price for the ten prior trading days including the day upon which the notice of conversion is received by the Company. |
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The following table presents the activity related to the notes: |
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| | Shares | | | Average | | | | | | | | | | |
| | Issued for | | | Conversion | | | | | | Debt | | | Principal, Net | |
| | Conversions | | | Price | | | Principal | | | Discounts | | | of Discounts | |
Balance - October 21, 2014 | | | | | | | | | | $ | 55,125 | | | $ | - | | | $ | 55,125 | |
Discounts originated | | | | | | | | | | | - | | | | (55,125 | ) | | | (55,125 | ) |
Conversions | | | 4,918,194 | | | $ | 0.01 | | | | (51,125 | ) | | | - | | | | (51,125 | ) |
Amortization | | | | | | | | | | | - | | | | 53,281 | | | | 53,281 | |
Balance - February 28, 2015 | | | | | | | | | | $ | 4,000 | | | $ | (1,844 | ) | | $ | 2,156 | |
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Under ASC 815-15 - “Derivatives and Hedging”, the Company determined that the convertible feature of the note should be classified as a derivative liability with a corresponding amount recorded as a debt discount. The Company determined the initial fair value of the embedded conversion feature for the LG Note to be $113,077. The Company recorded a corresponding debt discount of $55,125 and loss on derivatives of $57,952. |
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The following table presents the activity related to the conversion feature derivative liability: |
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Derivative liabilities as of October 21, 2014 - Successor | | $ | - | | | | | | | | | | | | | | | | | |
Debt discounts originated during the period | | | 55,125 | | | | | | | | | | | | | | | | | |
Change in the fair value of derivative liabilities | | | 34,568 | | | | | | | | | | | | | | | | | |
Reclassification to APIC due to conversion of related notes | | | (82,054 | ) | | | | | | | | | | | | | | | | |
Derivative liabilities as of February 28, 2015 - Successor | | $ | 7,639 | | | | | | | | | | | | | | | | | |
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(D) – Union Capital |
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On June 16, 2014 the Company issued an unsecured convertible promissory note to Union Capital (an accredited investor) in the principal amount of $55,219. The note bears interest at 8% per annum. The note matures on June 16, 2015. |
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At any time or times after 180 days from the date of the note and until the maturity dates, the note holder is entitled to convert any portion of the outstanding and unpaid amount into fully paid and non-assessable shares of common stock. The conversion price will be based on a 35% discount to the lowest closing bid price for the ten prior trading days including the day upon which the notice of conversion is received by the Company. |
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Under ASC 815-15 - “Derivatives and Hedging”, the Company determined that the convertible feature of the note should be classified as a derivative liability with a corresponding amount recorded as a debt discount. |
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In connection with preparing its financial statements for the three months ended February 28, 2015, the Company discovered an error related to an overstatement of its convertible notes. During the year ended August 31, 2014, the Company overstated its convertible debt and understated its additional paid-in capital by $54,219. |
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The Company corrected this error during the three months ended February 28, 2015, rather than in the period in which it originated, because the amount of the error, individually and in the aggregate, was not material to the Company’s financial statements for the affected periods. |
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The following table presents the activity related to the notes: |
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| | | Shares | | | | Average | | | | | | | | | | | | | |
| | | Issued for | | | | Conversion | | | | | | | | Debt | | | | Principal, Net | |
| | | Conversions | | | | Price | | | | Principal | | | | Discounts | | | | of Discounts | |
Balance - October 21, 2014 | | | | | | | | | | $ | 54,219 | | | $ | - | | | $ | 54,219 | |
Reclassification to APIC | | | | | | | | | | | (54,219 | ) | | | - | | | | (54,219 | ) |
Balance - February 28, 2015 | | | | | | | | | | $ | - | | | $ | - | | | $ | - | |
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On June 16, 2014, the Company issued a second unsecured convertible promissory note to Union Capital in the principal amount of $50,000. The note bears interest at 8% per annum. The note matures on June 16, 2015. At any time or times after 180 days from the date of the note and until the maturity dates, the note holder is entitled to convert any portion of the outstanding and unpaid amount into fully paid and non-assessable shares of common stock. The conversion price will be based on a 35% discount to the lowest closing bid price for the ten prior trading days including the day upon which the notice of conversion is received by the Company. |
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Pursuant to the terms of the note, the Company initially reserved 8,000,000 shares of its common stock for conversions under this note (the “Share Reserve”). The Share Reserve is to be replenished as needed. Union Capital will initially submit a conversion notice/request for a tranche of shares to be issued with an agreed to conversion price equal to $1000 (an “Initial Tranche Request”). The shares that are the subject to the Initial Tranche Request may be subsequently reconverted and repriced as follows: (i) Union Capital shall immediately reduce the outstanding balance of the Note by $1,000 and simultaneously send to the Company a live” or “repriced” conversion notice for the $1,000 priced using the conversion formula set forth above (ii) As the balance of the shares in the Initial Tranche Request are converted via the delivery of the “live” or “repriced” conversion notice, the balance of the note shall be reduced using the repriced conversion value. Upon full conversion of this note, any shares remaining in the share reserve shall be cancelled. As of February 28, 2015, there were 5,687,623 shares remaining in the Share Reserve. |
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The following table presents the activity related to the notes: |
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| | Shares | | | Average | | | | | | | | | | |
| | Issued for | | | Conversion | | | | | | Debt | | | Principal, Net | |
| | Conversions | | | Price | | | Principal | | | Discounts | | | of Discounts | |
Balance - October 21, 2014 | | | | | | | | | | $ | 50,000 | | | $ | - | | | $ | 50,000 | |
Discounts originated | | | | | | | | | | | - | | | | (50,000 | ) | | | (50,000 | ) |
Conversions | | | 6,312,377 | | | $ | 0.005 | | | | (32,507 | ) | | | - | | | | (32,507 | ) |
Amortization | | | | | | | | | | | - | | | | 39,788 | | | | 39,788 | |
Balance - February 28, 2015 | | | | | | | | | | $ | 17,493 | | | $ | (10,212 | ) | | $ | 7,281 | |
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Under ASC 815-15 - “Derivatives and Hedging”, the Company determined that the convertible feature of the note should be classified as a derivative liability with a corresponding amount recorded as a debt discount. The Company determined the initial fair value of the embedded conversion feature for the Union Capital Note to be $74,433. The Company recorded a corresponding debt discount of $50,000 and loss on derivatives of $24,433. |
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The following table presents the activity related to the conversion feature derivative liability: |
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Derivative liabilities as of October 21, 2014 - Successor | | $ | - | | | | | | | | | | | | | | | | | |
Debt discounts originated during the period | | | 50,000 | | | | | | | | | | | | | | | | | |
Change in the fair value of derivative liabilities | | | 33,951 | | | | | | | | | | | | | | | | | |
Reclassification to APIC due to conversion of related notes | | | (50,542 | ) | | | | | | | | | | | | | | | | |
Derivative liabilities as of February 28, 2015 - Successor | | $ | 33,409 | | | | | | | | | | | | | | | | | |
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On February 17, 2015, the Company issued a third unsecured convertible promissory note to Union Capital in the principal amount of $50,000. The note bears interest at 8% per annum. The note matures on June 16, 2015. From the date of issuance until the maturity date, the note holder is entitled to convert any portion of the outstanding and unpaid amount into fully paid and non-assessable shares of common stock. The conversion price will be based on a 35% discount to the lowest closing bid price for the ten prior trading days including the day upon which the notice of conversion is received by the Company. The Company received net proceeds from the note of $47,500 after the payment of $2,500 in legal fees. These legal fees were recorded as a debt discount. |
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Pursuant to the terms of the note, the Company initially reserved 8,000,000 shares of its common stock for conversions under this note (the “Share Reserve”). The Share Reserve is to be replenished as needed. Union Capital will initially submit a conversion notice/request for a tranche of shares to be issued with an agreed to conversion price equal to $1000 (an “Initial Tranche Request”). The shares that are the subject to the Initial Tranche Request may be subsequently reconverted and repriced as follows: (i) Union Capital shall immediately reduce the outstanding balance of the Note by $1,000 and simultaneously send to the Company a live” or “repriced” conversion notice for the $1,000 priced using the conversion formula set forth above (ii) As the balance of the shares in the Initial Tranche Request are converted via the delivery of the “live” or “repriced” conversion notice, the balance of the note shall be reduced using the repriced conversion value. Upon full conversion of this note, any shares remaining in the share reserve shall be cancelled. |
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The following table presents the activity related to the notes: |
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| | Shares | | | Average | | | | | | | | | | |
| | Issued for | | | Conversion | | | | | | Debt | | | Principal, Net | |
| | Conversions | | | Price | | | Principal | | | Discounts | | | of Discounts | |
Balance - October 21, 2014 | | | | | | | | | | $ | - | | | $ | - | | | $ | - | |
Borrowed | | | | | | | | | | | 50,000 | | | | - | | | | 50,000 | |
Discounts originated | | | | | | | | | | | - | | | | (50,000 | ) | | | (50,000 | ) |
Amortization | | | | | | | | | | | - | | | | 4,750 | | | | 4,750 | |
Balance - February 28, 2015 | | | | | | | | | | $ | 50,000 | | | $ | (45,250 | ) | | $ | 4,750 | |
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Under ASC 815-15 - “Derivatives and Hedging”, the Company determined that the convertible feature of the note should be classified as a derivative liability with a corresponding amount recorded as a debt discount. The Company determined the initial fair value of the embedded conversion feature for the Union Capital Note to be $92,308. The Company recorded a corresponding debt discount of $47,500 and loss on derivatives of $44,808. |
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The following table presents the activity related to the conversion feature derivative liability: |
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Derivative liabilities as of October 21, 2014 - Successor | | $ | - | | | | | | | | | | | | | | | | | |
Debt discounts originated during the period | | | 47,500 | | | | | | | | | | | | | | | | | |
Change in the fair value of derivative liabilities | | | 47,991 | | | | | | | | | | | | | | | | | |
Derivative liabilities as of February 28, 2015 - Successor | | $ | 95,491 | | | | | | | | | | | | | | | | | |
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(E) – Typenex Co. |
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On July 1, 2014, the Company entered into a securities purchase agreement with Typenex Co-Investment, LLC, (“Typenex”) for the sale and issuance of a secured convertible promissory note in the principal amount of $535,000 (the “Typenex Note”) and warrants to purchase shares of the Company’s common stock for an aggregate of $267,503 (the “Typenex Warrants”). The Typenex Note matures on September 30, 2015 and carried an Original Issue Discount (“OID”) of $30,000. In addition, the Company agreed to pay $5,000 to Typenex to cover Typenex’s legal fees, accounting costs, due diligence, monitoring and other transaction costs incurred in connection with the Typenex Note. Interest is payable on the Typenex Note at 10% per annum. The Typenex Note is exercisable in seven (7) tranches (each, a “Tranche”), consisting of (i) an initial Tranche in an amount equal to $137,500 and any interest, costs, fees or charges accrued thereon or added thereto under the terms of the Typenex Note and the other transaction documents (“Tranche #1”), which was funded by way of a $125,000 initial cash payment to the Company on July 1, 2014, $7,500 of OID and $5,000 in transaction costs, and (ii) six (6) additional Tranches by way of a promissory note issued by Typenex in favor of the Company (each, an “Investor Note”) in the amount of $66,250, plus any interest, costs, fees or charges accrued thereon or added thereto under the terms of the Typenex Note. The conversion price for each Tranche conversion into shares of the Company’s common stock shall be the lesser of (i) the Lender Conversion Price of $.07, and (ii) 70% of the average of the three (3) lowest VWAPs (volume weighed average price) in the twenty (20) trading days immediately preceding the applicable conversion (the “Market Price”), provided that if at any time the average of the three (3) lowest VWAPs in the twenty (20) trading days immediately preceding any date of measurement is below $0.01, then in such event the then-current conversion factor shall be reduced by 5% for all future conversions (e.g., 70% to 65%). On the date that is twenty trading days (a “True-Up Date”) from each date the Company delivers installment conversion shares to Typenex, there shall be a true-up where OSL shall deliver to Typenex additional shares (“True-Up Shares”) if the conversion price as of the True-Up Date is less than the conversion price used in the applicable initial Tranche conversion. |
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The Company granted Typenex a security interest in those certain Tranches or “Investor Notes” issued by Typenex in favor of the Company on July 1, 2014, in the initial principal amounts of $62,500 each, and any and all claims, rights and interests in any of the above and all substitutions for, additions and accessions to and proceeds thereof. The Investor Notes bear interest at the rate of 8% per annum and mature on September 30, 2015 (15 months after the date they are issued). The Company granted a security interest in the general assets of the Company to Typenex. |
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In connection with the Typenex Note, the Company entered into a membership interest pledge agreement with Typenex (“Typenex Membership Interest Pledge Agreement”) whereby Typenex pledged its 40% membership interest in Typenex Medical, LLC to the Company to secure Typenex’s performance of its obligations under two promissory notes, issued to the Company by Typenex, each in the principal amount of $62,500. |
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Under and concurrently with the securities purchase agreement with Typenex, the Company also issued to Typenex warrants to purchase, in the aggregate, a number of shares equal to $267,503 divided by the Market Price as defined in the Typenex Note. The Typenex Warrants may also be exercised by cashless exercise. |
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Neither the Typenex Note nor warrants are exercisable, however, if the number of shares to be issued to the holder upon such exercise, together with all other shares then owned by the holder and its affiliates, would result in the holder beneficially owning more than 4.99% of our outstanding common stock. This ownership limitation can be increased or decreased to any percentage not exceeding 9.99% by the holder upon 61 days’ notice to us. |
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The conversion price under the Typenex Note and the exercise price of the Typenex Warrants are subject to proportional adjustment in the event of stock splits, stock dividends and similar corporate events. In addition, the conversion price and exercise price is subject to adjustment if we issue or sell shares of our common stock for a consideration per share less than the conversion or exercise price then in effect, or issue options, warrants or other securities convertible or exchange for shares of our common stock at a conversion or exercise price less than the conversion price under the Typenex Notes or exercise price of the Typenex Warrants then in effect. If any of these events should occur, the conversion or exercise price is reduced to the lowest price at which the Company’s common stock was issued or is exercisable. |
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In conjunction with the funding of Tranche #1 and #2 of the Typenex Note, the Company issued warrants to Typenex and recorded an initial discount on the note in the same amount. |
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The following table presents the activity related to the notes: |
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| | Shares | | | Average | | | | | | | | | | |
| | Issued for | | | Conversion | | | | | | Debt | | | Principal, Net | |
| | Conversions | | | Price | | | Principal | | | Discounts | | | of Discounts | |
Balance - October 21, 2014 | | | | | | | | | | $ | 203,750 | | | $ | (162,520 | ) | | $ | 41,230 | |
Conversions | | | 21,736,840 | | | $ | 0.005 | | | | (107,000 | ) | | | - | | | | (107,000 | ) |
Amortization | | | | | | | | | | | - | | | | 111,084 | | | | 111,084 | |
Balance - February 28, 2015 | | | | | | | | | | $ | 96,750 | | | $ | (51,436 | ) | | $ | 45,314 | |
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Under ASC 815-15 - “Derivatives and Hedging”, the Company determined that the warrants and convertible feature of the note should be classified as derivative liabilities with a corresponding amount recorded as a debt discount. |
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The following table presents the activity related to the warrants and conversion feature derivative liabilities: |
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| | | | | Conversion | | | | | | | | | | | | |
| | Warrants | | | Feature | | | Total | | | | | | | | | |
Derivative liabilities as of October 21, 2014 - Successor | | $ | 100,313 | | | $ | 255,326 | | | $ | 355,639 | | | | | | | | | |
Change in the fair value of derivative liabilities | | | - | | | | 446,862 | | | | 446,862 | | | | | | | | | |
Reclassification to APIC due to conversion of related notes | | | - | | | | (231,003 | ) | | | (231,003 | ) | | | | | | | | |
Derivative liabilities as of February 28, 2015 - Successor | | $ | 100,313 | | | $ | 471,185 | | | $ | 571,498 | | | | | | | | | |
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(F) – JSJ Investments |
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On September 3, 2014, the Company issued an unsecured convertible promissory note to an accredited investor in the principal amount of $100,000. The note bears interest at 12% per annum. The note matures on March 1, 2015. At any time or times from the issuance date of the note and until the maturity dates, the note holder is entitled to convert any portion of the outstanding and unpaid amount into fully paid and non-assessable shares of common stock. The conversion price will be based on a 45% discount to the lowest daily trading prices for the ten previous trading days to the date of conversion. |
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The following table presents the activity related to the notes: |
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| | | Shares | | | Average | | | | | | | | | | |
| | | Issued for | | | Conversion | | | | | | Debt | | | Principal, Net | |
| | | Conversions | | | Price | | | Principal | | | Discounts | | | of Discounts | |
Balance - October 21, 2014 | | | | | | | | | | $ | 100,000 | | | $ | (72,268 | ) | | $ | 27,732 | |
Amortization | | | | | | | | | | | - | | | | 71,721 | | | | 71,721 | |
Balance - February 28, 2015 | | | | | | | | | | $ | 100,000 | | | $ | (547 | ) | | $ | 99,453 | |
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Under ASC 815-15 - “Derivatives and Hedging”, the Company determined that the convertible feature of the note should be classified as a derivative liability with a corresponding amount recorded as a debt discount. |
|
The following table presents the activity related to the conversion feature derivative liability: |
|
Derivative liabilities as of October 21, 2014 - Successor | | $ | 135,190 | | | | | | | | | | | | | | | | | |
Change in the fair value of derivative liabilities | | | 13,412 | | | | | | | | | | | | | | | | | |
Derivative liabilities as of February 28, 2015 - Successor | | $ | 148,602 | | | | | | | | | | | | | | | | | |
|
(G) – Mulhearn Assigned Note |
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In connection with preparing its financial statements for the three months ended February 28, 2015, the Company discovered an error related to an understatement of its convertible notes. During the year ended August 31, 2014, the Company understated its convertible debt and overstated its additional paid-in capital by $50,000. |
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The Company corrected this error during the three months ended February 28, 2015 rather than in the period in which it originated, because the amount of the error, individually and in the aggregate, was not material to the Company’s financial statements for the affected periods. |
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On June 21, 2013, the Company issued an unsecured convertible promissory note to Kevin Mulhearn (“Mulhearn Note”) in the principal amount of $200,000, bearing 10% interest per annum. The note was due on December 21, 2013. The note was convertible, in its entirety or in part, into common stock of the Company. The conversion price was the average of the three trading days prior to conversion. On July 18, 2014, $50,000 of the note was assigned to Knightsbridge Law Co Ltd (“Knightsbridge”). On December 2, 2014, Knightsbridge assigned the note to Craig Fischer. |
The following table presents the activity related to the notes: |
|
| | Shares | | | Average | | | | | | | | | | |
| | Issued for | | | Conversion | | | | | | Debt | | | Principal, Net | |
| | Conversions | | | Price | | | Principal | | | Discounts | | | of Discounts | |
Balance - October 21, 2014 | | | | | | | | | | $ | - | | | $ | - | | | $ | - | |
Reclassification from APIC | | | | | | | | | | | 50,000 | | | | - | | | | | |
Discounts originated | | | | | | | | | | | - | | | | (50,000 | ) | | | | |
Conversions | | | 6,000,000 | | | $ | 0.008 | | | | (50,000 | ) | | | - | | | | (50,000 | ) |
Amortization | | | | | | | | | | | - | | | | 50,000 | | | | 50,000 | |
Balance - February 28, 2015 | | | | | | | | | | $ | - | | | $ | - | | | $ | - | |
|
The following table presents the activity related to the conversion feature derivative liability: |
|
Derivative liabilities as of October 21, 2014 - Successor | | $ | - | | | | | | | | | | | | | | | | | |
Debt discounts originated during the period | | | 50,000 | | | | | | | | | | | | | | | | | |
Change in the fair value of derivative liabilities | | | 39,681 | | | | | | | | | | | | | | | | | |
Reclassification to APIC due to conversion of related notes | | | (89,681 | ) | | | | | | | | | | | | | | | | |
Derivative liabilities as of February 28, 2015 - Successor | | $ | - | | | | | | | | | | | | | | | | | |