Note 8 Convertible Notes Payable | 9 Months Ended |
Aug. 31, 2013 |
Notes | |
Note 8 Convertible Notes Payable | Note 8 Convertible Notes Payable |
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| 31-Aug-13 | 30-Nov-12 |
Promissory Note #6 | 20,000 | 20,000 |
Promissory Note #7 | 20,000 | 20,000 |
Promissory Note #8 | 20,000 | 20,000 |
Promissory Note #10 | 30,000 | 30,000 |
Promissory Note #11 | - | 42,500 |
Promissory Note #12 | - | 42,500 |
Promissory Note #13 | 75,000 | 75,000 |
Promissory Note #14 | - | 50,000 |
Promissory Note #15 | 88,000 | - |
Promissory Note #16 | 11,000 | - |
Promissory Note #17 | 11,000 | - |
Promissory Note #18 | 50,000 | - |
| 325,000 | 300,000 |
Debt Discount | (25,415) | - |
Accrued Interest | 20,891 | 15,518 |
Total | $ 320,476 | $ 315,518 |
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As at August 31, 2013 and November 30, 2012, convertible notes payable are recorded net of unamortized debt discount of $25,415 and $nil respectively. |
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Promissory Note #6 |
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On February 15, 2012, the Company received $20,000 cash and the Company issued a convertible promissory note in the amount of $20,000. The promissory note is unsecured, interest free and repayable upon demand. |
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Promissory Note #7 |
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On February 15, 2012, the Company received $20,000 cash and the Company issued a convertible promissory note in the amount of $20,000. The promissory note is unsecured, interest free and repayable upon demand. |
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Note 8 Convertible Notes Payable - (cont’d) |
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Promissory Note #8 |
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On February 15, 2012, the Company received $20,000 cash and the Company issued a convertible promissory note in the amount of $20,000. The promissory note is unsecured, interest free and repayable upon demand. |
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Promissory Note #10 |
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On March 20, 2012, the Company received $30,000 cash and the Company issued a convertible promissory note in the amount of $30,000. The promissory note is unsecured, interest free and repayable upon demand. |
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The note may be converted at the option of the holder into common stock of the Company. The fixed conversion price is $0.01 per share. Accordingly, the note may be converted into 3,000,000 common shares of the Company. The note also contains a provision whereby should the Company perform a stock split or reverse stock split, the conversion price of the note reverts to the lesser of 40% of market value at the time of conversion, or $0.01 per share. Accordingly, subsequent to the period end on June 14, 2013, this conversion provision was triggered. |
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Promissory Note #11 |
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On June 12, 2012, the Company received $42,500 cash and the Company issued a convertible promissory note in the amount of $42,500. The promissory note is unsecured, bears interest at 8% per annum, and matures on March 14, 2013. During the nine month period ended August 31, 2013, the Company accrued $107 (nine month period ended August 31, 2012 - $nil) in interest expense. |
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After 180 days the note may be converted at the option of the holder into common stock of the Company. The conversion price is defined as “55% multiplied by market price where market price is determined as the average bid price for the shares as quoted on the OTCBB where the shares are traded for the three consecutive business days prior to the date of conversion”. The Company determined that the embedded conversion feature would be a derivative liability based upon its variable conversion terms once the holders conversion rights were triggered. |
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In December 2012, upon the holders option to convert becoming active, the Company recorded debt discount and a derivative liability of $38,600 being the fair value of the conversion feature, which was determined using the Black-Scholes valuation model. The debt discount is accreted to the statement of operations using the effective interest rate method over the term on the note or to the date of conversion. The derivative liability is revalued at each reporting date to fair value. Any change in fair value is credited or charged to the statement of operations in the period. |
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During the nine month period ended August 31, 2013, the Company recorded a loss of $3,700 (nine month period ended August 31, 2012 – $nil) due to the change in value of the derivative liability during the period, and debt discount of $28,468 (nine month period ended May 31, 2012 - $nil) was accreted to the statement of operations. |
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During the nine month period ended August 31, 2013, the Company issued 192,576 common shares upon the conversion of $42,500 of the principal balance plus $1,700 accrued interest into common stock, and $42,300 of the derivative liability was re-classified as additional paid in capital upon conversion. |
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As at August 31, 2013, accrued interest of $nil (November 30, 2012 - $1,593), debt discount of $nil (November 30, 2012 - $nil) and a derivative liability of $nil (November 30, 2012 - $nil) was recorded. |
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Note 8 Convertible Notes Payable - (cont’d) |
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Promissory Note #12 |
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On August 17, 2012, the Company received $42,500 cash and the Company issued a convertible promissory note in the amount of $42,500. The promissory note is unsecured, bears interest at 8% per annum, and matures on May 21, 2013. During the nine month period ended August 31, 2013 the Company accrued $11,754 (nine month period ended August 31, 2012 - $nil) in interest expense. |
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After 180 days the note may be converted at the option of the holder into Common stock of the Company. The conversion price is defined as “48% multiplied by market price where market price is determined as the average bid price for the shares as quoted on the OTCBB where the shares are traded for the three consecutive business days prior to the date of conversion”. The Company determined that the embedded conversion feature would be a derivative liability based upon its variable conversion terms once the holders conversion rights were triggered. |
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In February 2013, upon the holders option to convert becoming active, the Company recorded debt discount and a derivative liability of $43,600 being the fair value of the conversion feature, which was determined using the Black-Scholes valuation model. The debt discount is accreted to the statement of operations using the effective interest rate method over the term on the note or to the date of conversion. The derivative liability is revalued at each reporting date to fair value. Any change in fair value is credited or charged to the statement of operations in the period. |
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During the nine month period ended August 31, 2013, the Company recorded a loss of $59,151 (nine month period ended August 31, 2012 – $nil) due to the change in value of the derivative liability during the period, and debt discount of $43,600 (nine month period ended August 31, 2012 - $nil) was accreted to the statement of operations. The Company also issued 425,781 common shares upon the conversion of $42,500of the principal balance and $900 of accrued interest into common stock, and $78,751 of the derivative liability was re-classified as additional paid in capital upon conversion. |
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As at August 31, 2013, accrued interest of $1,853 (November 30, 2012 - $978), debt discount of $nil (November 30, 2012 - $nil) and a derivative liability of $nil (November 30, 2012 - $nil) was recorded. |
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Promissory Note #13 |
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On September 12, 2012, the Company received $75,000 cash and the Company issued a convertible promissory note in the amount of $75,000. The promissory note is unsecured, bears interest at 8% per annum, and matures on June 14, 2013. During the nine month period ended August 31, 2013, the Company accrued $4,504 (nine month period ended August 31, 2012 - $nil) in interest expense. |
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After 180 days the note may be converted at the option of the holder into Common stock of the Company. The conversion price is defined as “50% multiplied by market price where market price is determined as the average of the lowest three bid prices during the ten trading days prior to the date of conversion”. The Company determined that the embedded conversion feature would be a derivative liability based upon its variable conversion terms once the holders conversion rights were triggered. |
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In March 2013, upon the holders option to convert becoming active, the Company recorded debt discount of $75,000, charged $1,800 to interest expense and also recorded a derivative liability of $76,800 being the fair value of the conversion feature which was determined using the Black-Scholes valuation model. The debt discount is accreted to the statement of operations using the effective interest rate method over the term on the note or to the date of conversion. The derivative liability is revalued at each reporting date to fair value. Any change in fair value is credited or charged to the statement of operations in the period. |
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During the nine month period ended August 31, 2013, the Company recorded a loss of $57,811 (nine month period ended August 31, 2012 – $nil) due to the change in value of the derivative liability during the period, and debt discount of $49,585 (nine month period ended August 31, 2012 - $nil) was accreted to the statement of operations. |
Note 8 Convertible Notes Payable - (cont’d) |
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Promissory Note #13 (cont’d) |
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As at August 31, 2013, accrued interest of $5,803 (November 30, 2012 - $1,299) debt discount of $25,415 (November 30, 2012 - $nil) and a derivative liability of $136,211 (November 30, 2012 - $nil) was recorded. |
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Promissory Note #14 |
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On October 24, 2012, Notes 5 and 9 were amalgamated and a new amended note was created, in the amount of $50,000. The promissory note is unsecured, bears interest at 10% per annum, and is due upon demand. During the nine month period ended August 31, 2013 the Company accrued $1,587 (nine month period ended August 31, 2012 - $nil) in interest expense. |
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The note may be converted at the option of the holder at any time into Common stock of the Company. The conversion price is defined as “50% multiplied by the market price, where market price is determined as the lowest 3 closing bid prices during the ten trading day period ending the day prior to conversion. The Company determined that the embedded conversion feature would be a derivative liability based upon its variable conversion terms. |
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Upon inception the Company recorded a debt discount and a derivative liability of $48,200 being the fair value of the conversion feature, which was determined using the Black-Scholes valuation model. The debt discount has been charged immediately to the statement of operations as the note is due upon demand. The derivative liability is revalued at each reporting date to fair value. Any change in fair value is credited or charged to the statement of operations in the period. |
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During the nine month period ended August 31, 2013, the Company recorded a loss of $6,300 (nine month period ended August 31, 2012 - $nil) due to the change in value of the derivative liability during the period. |
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During the nine month period ended August 31, 2013, the Company issued 245,867 common shares upon the conversion of $50,000 of the principal balance of the note into common stock, and $50,200 of the derivative liability was reclassified as additional paid in capital upon conversion. |
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As at August 31, 2013, accrued interest of $2,095 (November 30, 2012 - $507), debt discount of $nil (November 30, 2012 - $nil) and a derivative liability of $nil (November 30, 2012 - $45,200) was recorded. |
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The Company determined that Promissory notes # 6, 7, 8, and 10 should be accounted for in accordance with FASB ASC 470-20, which addresses “Accounting for Convertible Securities with Beneficial Conversion Features". The intrinsic value of the conversion feature is calculated as the difference between the conversion price $0.01 and the fair value of the common stock into which the debt is convertible at the commitment date (being $0.05 for notes # 6, 7 and 8 and $0.02 for note 10), multiplied by the number of shares into which the debt is convertible. The valuation of the beneficial conversion feature is calculated as pro rata portion of the proceeds from issuance of the convertible debt, being equal to proceeds received multiplied by intrinsic value divided by the total value received (ie. the aggregate of proceeds and intrinsic value). This beneficial conversion feature is allocated to debt discount and additional paid in capital. Because the debt is convertible at the date of issuance, the valuation of the beneficial conversion feature is charged to interest expense at the date of issuance. |
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During the nine month period ended August 31, 2013 interest expense relating to the beneficial conversion feature of convertible notes of $nil (ninemonths endedAugusts 31, 2012 - $97,000) was recorded in the financial statements, with a corresponding increase to additional paid in capital. |
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Note 8 Convertible Notes Payable - (cont’d) |
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Promissory Note #15 |
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On June 1, 2013 the Company entered into a Convertible Promissory Note with Direct Capital in the sum of $88,000. The promissory note is unsecured, bears interest at 8% per annum, and matures on December 1, 2013. The Conversion Price shall mean par .001 multiplied by the number of Common Stock converted at the time. The transaction was handled as a private sale exempt from registration under Section 4(2) of the Securities Act of 1933. |
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Promissory Note #16 |
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On July 1, 2013 the Company entered into a Convertible Promissory Note with Direct Capital in the sum of $11,000. The promissory note is unsecured, bears interest at 8% per annum, and matures on January 1, 2014. The Conversion Price shall mean par .001 multiplied by the number of Common Stock converted at the time. The transaction was handled as a private sale exempt from registration under Section 4(2) of the Securities Act of 1933. |
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Promissory Note #17 |
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On August 1, 2013 the Company entered into a Convertible Promissory Note with Direct Capital in the sum of $11,000. The promissory note is unsecured, bears interest at 8% per annum, and matures on February 1, 2014. The Conversion Price shall mean par .001 multiplied by the number of Common Stock converted at the time. The transaction was handled as a private sale exempt from registration under Section 4(2) of the Securities Act of 1933. |
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Promissory Note #18 |
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On August 7, 2013 the Company entered into a Convertible Promissory Note with Syndication Capital in the sum of $50,000. The promissory note is unsecured, bears interest at 8% per annum, and matures on February 7, 2014. The Conversion Price shall mean par .001 multiplied by the number of Common Stock converted at the time. The transaction was handled as a private sale exempt from registration under Section 4(2) of the Securities Act of 1933. |
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Note 9 Derivative Liabilities |
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The Company issued financial instruments in the form of convertible notes with embedded conversion features. Many of the convertible notes payable have conversion rates, which are indexed to the market value of the Company’s stock price. |
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During the nine month period ended August 31, 2013, the Company recorded derivative liabilities for embedded conversion features related to convertible notes payable of face value $159,000 (year ended November 30, 2012 - $120,000). During the nine month period ended August 31, 2013, $137,600 (year ended November 30, 2012, $172,800) of convertible notes payable and accrued interest was converted into common stock of the Company. For the nine month period ended August 31, 2013, the Company performed a final mark-to-market adjustment for the derivative liability related to the convertible notes of and the carrying amount of the derivative liability related to the conversion feature of $214,451 (year ended November 30, 2012 - $228,500) was reclassed to additional paid in capital on the date of conversion in the statement of shareholders’ deficit. During the nine month period ended August 31, 2013, the Company recognized a loss of $133,462 (year ended November 2012 - $40,600) based on the change in fair value (mark-to market adjustment) of the derivative liability associated with the embedded conversion features in the accompanying statement of operations. |
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These derivative liabilities have been measured in accordance with fair value measurements, as defined by GAAP ASC 815. The valuation assumptions are determined by Level 3 inputs. The following table represents the Company’s derivative liability activity for the embedded conversion features discussed above: |
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| 31-Aug-13 | 30-Nov-12 |
Balance, beginning of year | $ 58,200 | $ 129,000 |
Initial recognition of derivative liability | 159,000 | 117,100 |
Fair value change in derivative liability | 133,462 | 40,600 |
Conversion of derivative liability to APIC | (214,451) | (228,500) |
Balance as of August 31, 2013 | $ 136,211 | $ 58,200 |
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