EQUITY | 5. EQUITY Common Stock The Company has authorized capital of 800,000,000 shares of common stock with a par value of $0.001, and 50,000,000 shares of preferred stock with a par value of $0.001. On April 11, 2017, the Company issued 2,700,000 shares of common stock in connection with the issuance of a convertible note with a principal amount of $540,000 (see Note 4). The relative fair value of the stock of $157,509 was recognized as a discount to the note that is being amortized to interest expense over the life of the note. During the year ended August 31, 2017, the Company issued an aggregate of 40,000,000 common shares pursuant to exercise of options and warrants for proceeds of $5,000. During the year ended August 31, 2017 20,000,000 shares were cancelled and returned to the Company along with the return of the $2,000 exercise price. On September 18, 2017, the Company issued 900,000 shares of common stock in connection with the issuance of a convertible note with a principal amount of $180,000. The relative fair value of the stock of $51,503 was recognized as a discount to the note that is being amortized to interest expense over the life of the note. On September 22, 2017, the company issued 900,000 shares of common stock and 300,000 warrants pursuant to a stock purchase agreement for cash of $60,300. On November 10, 2017, the Company issued an aggregate of 1,400,000 shares of common stock to the holder of a related party 7% convertible promissory note, to convert principal amount of $11,200. On November 27, 2017, the Company issued an aggregate of 1,450,000 shares of common stock to the holder of a related party 7% convertible promissory note, to convert principal amount of $11,600. On December 28, 2017, the Company issued an aggregate of 1,550,000 shares of common stock to the holder of a 7% convertible promissory note, dated November 14, 2016 to convert principal amount of $12,400. On December 13, 2017, the Company issued an aggregate of 200,000 shares of common stock with a relative fair value of $27,946 to the holder of a $120,000 convertible debenture with an original issue discount of $20,000. The debenture has a 0% interest rate and a term of one year. On March 5, 2018, the Company entered into a securities purchase agreement with an investor which following such investment was a related party. Pursuant to the purchase agreement, upon closing on March 7, 2018, the Company issued and sold to the investor, 3,000,000 shares of common stock for an aggregate purchase price of $300,000. The Company agreed to issue additional shares of common stock (the “Make-Good Shares”) to the investor for no additional consideration, in the event that, during the six month period commencing on the closing date, the Company sells common stock at a purchase price lower than $0.10 (the “Subsequent Financing Price”), such that the total number of shares of common stock received by the investor under the purchase agreement (including the Make-Good Shares and the initial shares) will be equal to the total purchase price of $300,000 divided by such lower Subsequent Financing Price. In addition the Company agreed not to pay cash compensation over $100,000 to any Officer of Director. On March 9, 2018, the Company issued an aggregate of 1,780,000 shares of common stock to the holder of a 7% convertible promissory note, dated November 14, 2016 to convert principal amount of $14,240. On March 9, 2018, he Company entered into and closed an asset purchase agreement with VMI Acquisitions, LLC (“VMI”), pursuant to which the Company sold to VMI the Company’s proprietary Machine-to-Machine communications solution and certain other intellectual property for a purchase price of $180,000. $135,000 of the purchase price was paid by members of VMI in cash and had previously been deposited with the Company. The remaining $45,000 of the purchase price was paid in the form of a reduction in outstanding debt and reimbursements of expenses owed to a member of VMI. Certain members of VMI are noteholders and/or shareholders of the Company. At the time of the sale the intellectual property had a book value of $0. As the parties were considered significant shareholders and related parties, the consideration of $180,000 was recorded as a capital contribution. On May 15, 2018 the Company issued 500,000 shares of common stock to an investor for a purchase price of $50,000, and on May 29, 2018, the Company issued 1,870,000 shares of common stock upon conversion of a convertible note in the amount of $14,960. The Company agreed to issue additional shares of common stock (the “Make-Good Shares”) to the investor for no additional consideration, in the event that, during the six month period commencing on the closing date, the Company sells common stock at a purchase price lower than $0.10 (the “Subsequent Financing Price”), such that the total number of shares of common stock received by the investor under the purchase agreement (including the Make-Good Shares and the initial shares) will be equal to the total purchase price of $50,000 divided by such lower Subsequent Financing Price. In addition the Company agreed not to pay cash compensation over $100,000 to any Officer of Director. On June 11, 2018, the Company issued an aggregate of 2,000,000 shares of common stock to the holder of a 7% Convertible Promissory Note, dated November 14, 2016 to convert principal amount and accrued interest of $16,000. On June 15, 2018, the Company issued 500,000 shares of common stock pursuant to a stock purchase agreement for cash of $50,000. On August 29, 2018 the Company issued 30,000 shares of common stock for services valued at $44,400. Warrants During the year ended August 31, 2017, warrant activity includes the following: On March 14, 2017, the Company entered into an employment agreement with Barry Tenzer to continue as CEO of the Company. In connection with the employment agreement the Company issued Mr. Tenzer a warrant to purchase up to 20,000,000 share of common stock at a per share price of $0.0001. The warrant was exercised in full on March 28, 2017. On May 22, 2017, Barry Tenzer resigned as President and Chief Executive Officer. In connection with the resignation of Mr. Tenzer, the 20,000,000 shares of stock issued upon the exercise of the warrants was returned to the company and cancelled and the exercise proceeds of $2,000 were returned to Mr. Tenzer. The fair value of the warrants was determined to be $4,998,021 which was recognized as compensation expense during the year ended August 31, 2017. During the year ended August 31, 2018, warrant activity included the following: On September 18, 2017, the Company executed an $180,000 convertible debenture with an original issue discount of $60,000. In connection with the debenture, the Company issued the lender 300,000 common stock purchase warrants with a term of 3 years and an exercise price of $1.00. The relative fair value of the warrants of $16,996 was recognized as a discount to the debenture. On December 13, 2017, the Company issued 100,000 warrants to McGlothin Holdings Ltd. The relative fair value of the warrants of $4,984 was recognized as a discount to the debenture. On May 22, 2017, the Company entered into an employment agreement with Marc Yahr to serve as President and Chief Executive Officer of the Company for a term of three years, unless earlier terminated pursuant to the terms of the employment agreement. Pursuant to the terms of the employment agreement, Mr. Yahr received a warrant to purchase up to 20,000,000 shares of the Company’s common stock at an exercise price of $0.0001 per share. The warrants were exercised in full on May 31, 2017; however, the 20,000,000 shares of the Company’s common stock were not issued to Mr. Yahr until June 10, 2017. The shares received upon the exercise of the warrants were subject to forfeiture over a service period of three years. The fair value of the award was determined to be $10,998,105 which will be recognized as compensation expense over the three year service period. Warrant expense under this award for the year ended August 31, 2018 totaled $3,633,532; the warrant expense under this award for the year ended August 31, 2017 totaled $1,014,489. As of August 31, 2018, $6,359,316 remains to be expensed over the remaining vesting period. Effective October 30, 2018, Marc Yahr resigned from all positions with the Company including as President and Chief Executive Officer of the Company (except as director, which he resigned as on November 25, 2018). On January 22, 2018, the Company entered into a sales representation agreement for a term of six months. Pursuant to the agreement the Company agreed to issue the nonemployee sales representative warrants to purchase 10,000 shares of common stock per month (an aggregate of 60,000 warrants) with an exercise price of $0.50, with a term of three years. The warrants shall be exercisable at any time on or after the six (6) month anniversary of each issuance date, at his election, in whole or in part, by means of a “cashless exercise”. The fair value of this award was determined to be $58,816 of which $51,635 was recognized during the year ended August 31, 2018. On February 22, 2018, the Company entered into a consulting agreement for a term of one year. Pursuant to the agreement the Company agreed to issue the nonemployee consultant warrants to purchase 10,000 shares of common stock per month (an aggregate of 120,000 warrants) with an exercise price of $0.40, exercisable for cash only for a period of three years commencing six months form the issuance date. The fair value of this award was determined to be $106,663 of which $65,005 was recognized during the year ended August 31, 2018. On March 2, 2018 the Company entered into a management agreement with Global Corporate Management, LLC. Pursuant to this agreement, the Company agreed to pay $4,000 and to issue 150,000 common stock purchase warrants with an exercise price of $0.50, exercisable commencing six months after issuance for a period of 5 years. The fair value of this award was determined to be $3,419,925 of which $1,457,561 was recognized during the year ended August 31, 2018. On March 20, 2018 the Company entered into a 12 month consulting agreement with Patagonia Global Trading, LLC. Upon execution of this agreement and upon the consultant signing their first customer, acceptable by the Company, and for services rendered, the Company will immediately issue 50,000 common stock purchase warrants to purchase common stock at an exercise price of $.30 per share. As of August 31, 2018, Patagonia Global Trading, LLC, had not signed any customers and had not earned any warrants. The Company agreed to pay a total commission rate of 10% of the gross sale amount to be paid in the form of cash and or warrants to purchase shares of common stock of the Company. On April 16, 2018 The Company entered into a consulting agreement with Dr. David Hellman for marketing and promotion services. The term is 1 year with payment of 50,000 warrants each month to purchase common stock with an exercise price of $0.60. However, if the Consultant generates more than $10,000 in monthly sales, the Warrants will have an exercise price of $.30, and if the Consultant generates more than $20,000 in monthly sales, the Warrants may be exchanged in “cashless exercise”. Additionally, the Company shall pay 10% of retail sales and 5% of wholesale sales. On July 11, 2018 the Company terminated the agreement. On August 1, 2018 the Company entered into a new consulting agreement with Dr. Hellman. The term is 1 year with payment of 60,000 warrants each month to purchase common stock with an exercise price of $0.60. The warrants may be exercised on a cashless basis. A total of $256,038 warrant expense in relation to this award was recognized during the year ended August 31, 2018. On April 11, 2017, the Company executed a $540,000 convertible debenture with an original issue discount of $180,000. In connection with the note, the Company issued the lender 900,000 warrants with a term of 3 years and an exercise price of $1.00. The relative fair value of the warrants $44,981 was recognized as a discount to the note. The following table summarizes the warrant activities during the year ended August 31, 2018, and 2017, respectively: Number of Weighted- Outstanding at August 31, 2016 - $ - Granted 40,900,000 0.02 Canceled or expired (40,000,000 ) - Exercised - - Outstanding at August 31, 2017 900,000 $ 1.00 Granted 1,930,000 0.69 Canceled or expired - - Exercised - - Outstanding at August 31, 2018 2,830,000 $ 0.79 Exercisable at August 31, 2018 1,610,000 $ 1.00 Intrinsic value at August 31, 2018 $ 538,500 The fair value of the warrants was estimated using the Black-Scholes option pricing model and the following range of assumptions: Grant Date For the year ended August 31, 2018 Risk-free interest rate at grant date 1.52% -2.70% Expected stock price volatility 183% - 362% Expected dividend payout - Expected option in life-years 2.5 - 6.5 years Grant Date For the year ended August 31, 2017 Risk-free interest rate at grant date 1.06% - 1.44% Expected stock price volatility 117% - 362% Expected dividend payout - Expected option in life-years 1 - 3 years OPTIONS On July 26, 2017 the Company granted a nonemployee options to purchase 2,200,000 shares of common stock. The options have a three year term. 1,000,000 options are immediately exercisable on the date of issuance with an exercise price of $0.001 and the remaining 1,200,000 options vest over a period of three years at an exercise price of $1.00. On July 26, 2017, 1,000,000 shares were exercised. The aggregate fair value of the award as of August 31, 2018 was determined to be $1,112,547 and for the year ended August 31, 2018 option expense recognized totaled $1,000,820. The aggregate fair value of the award as of August 31, 2017 was determined to be $485,248 and for the year ended August 31, 2017 option expense recognized totaled $273,185. Number of Options Weighted- Outstanding at August 31, 2016 - Granted 2,200,000 .55 Exercised 1,000,000 .001 Canceled or expired - - Addition due to ratchet trigger - - Outstanding at August 31, 2017 1,200,000 $ 1.00 Granted - - Canceled or expired - - Exercised - - Outstanding at August 31, 2018 1,200,000 $ 1.00 Exercisable at August 31, 2018 600,000 1.00 Intrinsic value at August 31, 2018 $ - |