EQUITY | 5. EQUITY Common Stock and Preferred Stock As of August 31, 2020, the Company had 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 October 2, 2020, the Company filed a certificate of amendment to the Company’s articles of incorporation with the Secretary of State of Nevada, pursuant to which the Company increased its authorized shares of common stock from 800,000,000 to 3,000,000,000. 1,000 shares of preferred stock are designated as Series A Convertible Preferred Stock. No shares of Series A Preferred Stock are issued and outstanding as of August 31, 2020 and August 31, 2019, respectively. The Company’s Certificate of Designation of Series B Preferred Stock was withdrawn by the Company on June 30, 2020. 1 share of preferred stock is designated Series C Preferred Stock. 1 share and 0 shares of Series C Preferred Stock are issued and outstanding as of August 31, 2020 and August 31, 2019, respectively. The Series C Preferred Stock has a stated value of $24,000 and entitles the holder to 51% of the total voting power of the Company’s stockholders. The Company may, in its sole discretion, redeem the Series C Preferred Stock at any time for a redemption price equal to the stated value. Upon payment of the redemption price by the Company, the Series C Preferred Stock will revert to the status of authorized but unissued preferred stock. On October 30, 2018, the Company entered into an employment agreement with Niquana Noel pursuant to which Ms. Noel would serve as the Company’s Chief Executive Officer and president for a term of four years, unless earlier terminated pursuant to the terms of the employment agreement. Pursuant to the terms of the employment agreement, Ms. Noel’s annual salary was $96,000 and she 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. Ms. Noel exercised the warrant for $2,000 and was issued the 20,000,000 shares on October 31, 2018. The shares received upon the exercise of the warrants were subject to forfeiture over a service period of four years. See “Warrants” below. Pursuant to a securities purchase agreement entered into on June 6, 2018 the Company was obligated to issue additional shares of common stock if the Company sold common stock at a price lower than $0.10 per share (or common stock equivalents with an exercise price less than $0.10 per share) during the six month period following the closing of the purchase agreement, in which event the Company was required to issue additional shares to the purchaser for no additional consideration, such that the total number of common stock received by the purchaser will be equal to $50,000 divided by lower financing price. As of August 31, 2020, the Company was obligated to issue 500,000 shares of common stock valued at $76,000. On October 3, 2019, the Company entered into a letter agreement with Niquana Noel, the Company’s then-chief executive officer. Pursuant to the agreement, Ms. Noel exchanged $24,000 in accrued but unpaid compensation owed to her by the Company for one share of newly created Series B Preferred Stock of the Company. Ms. Noel subsequently exchanged this one share of Series B Preferred for 1 one share of newly created Series C Preferred Stock. See Note 6. In connection with the letter agreement, on October 3, 2019, the Company filed a Certificate of Designation of Series B Preferred Stock with the Secretary of State of Nevada. Pursuant to the Certificate of Designation, the Company designated one share of its preferred stock as Series B Preferred Stock. On October 14, 2019, the Company entered into and closed a securities purchase agreement with an accredited investor pursuant to which the Company issued and sold to the investor 20,833,333 shares of common stock for a purchase price of $125,000. In November 2019, 3,000,000 shares of common stock were returned to the Company for cancellation and the Company paid $27,500 in connection with a settlement agreement. On November 6, 2019, the Company entered into and closed a securities purchase agreement with an accredited investor, pursuant to which, the Company issued and sold to the investor an original issue discount convertible debenture (which was amended and restated on November 11, 2019) in the principal amount of $200,000, for a purchase price of $100,000, resulting in an original issue discount of $100,000. The Company also issued to the investor 4,900,000 shares of common stock valued at $63,700, ($0.013 per share). See Note 3. Effective November 11, 2019, the Company issued 4,500,000 shares of common stock pursuant to a consulting agreement valued at $40,500 ($0.009 per share). On December 24, 2019, the Company entered into and closed a securities purchase agreement with an accredited investor, pursuant to which, the Company issued and sold to the investor an original issue discount convertible debenture in the principal amount of $500,000, for a purchase price of $300,000. The Company also issued to the investor 5,000,000 shares of common stock valued at $55,000 ($0.005 per share). On March 25, 2020, Company entered into a letter agreement with Niquana Noel, the Company’s then-chief executive officer. Pursuant to the agreement, Ms. Noel exchanged 1 share of Series B Preferred Stock of the Company for one share of newly created Series C Preferred Stock of the Company. In connection with the letter agreement, on March 25, 2020, the Company filed a Certificate of Designation of Series C Preferred Stock with the Secretary of State of Nevada. Pursuant to the Certificate of Designation, the Company designated one share of its preferred stock as Series C Preferred Stock. The Series C Preferred Stock has a stated value of $24,000 and entitles the holder to 51% of the total voting power of the Company’s stockholders. The Company may, in its sole discretion, redeem the Series C Preferred Stock at any time for a redemption price equal to the stated value. The Series C Preferred Stock has a liquidation preference equal to the stated value, does not provide the holder with any dividend rights and is not convertible to common stock. On April 16, 2020, Niquana Noel sold 1 outstanding share of Series C Preferred Stock of the Company to Danil Pollack for $24,000 in a private transaction. The Series C Preferred Stock entitles the holder to 51% of the voting power of the Company’s stockholders, and the stock sale thus resulted in a change in control of the Company. On June 30, 2020, the Company filed a Certificate of Withdrawal of Certificate of Designation with the Secretary of State of Nevada, pursuant to which the Company withdrew its Series B Preferred Stock. During the year ended August 31, 2020, the Company issued 84,000,000 shares of common stock, for the exercise of options with an exercise price of $0.001 per share to Danil Pollack, the Company’s chief executive officer, for aggregate gross proceeds of $84,000. Warrants 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 would be recognized as compensation expense over the three year service 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). Pursuant to the agreement, Mr. Yahr agreed to return 80% of the warrant shares to the Company if he served as CEO of the Company pursuant to the employment agreement for a period of more than 12 months but less than 18 months. Therefore, 16,000,000 shares of common stock were forfeited to the Company, and the Company recognized a gain on the forfeited common shares of ($2,440,768) net of $1,600 paid by the Company during the year ended August 31, 2019. As of August 31, 2019, $0 remains to be expensed over the remaining vesting period. 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. During the years ended August 31, 2020 and 2019 the Company recognized a gain of ($3,378) and ($1,332,332), respectively due to a remeasurement of this nonemployee award. On March 2, 2019 the agreement was terminated. On April 16, 2018, the Company entered into a consulting agreement with Dr. David Hellman for marketing and promotion services. The term was 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 would have an exercise price of $.30, and if the consultant generates more than $20,000 in monthly sales, the warrants could be exercised on a cashless basis. Additionally, the Company agreed to 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 was 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. During the years ended August 31, 2020 the Company recognized a gain of ($1,905) due to a remeasurement of this nonemployee award. The warrants may be exercised on a cashless basis. During the year ended August 31, 2020 and 2019 the Company recognized a gain of ($1,905) and ($217,402), respectively due to a remeasurement of this nonemployee award. On October 30, 2018, the Company entered into an employment agreement with Niquana Noel pursuant to which Ms. Noel would serve as the Company’s Chief Executive Officer and president for a term of four years, unless earlier terminated pursuant to the terms of the employment agreement. Pursuant to the terms of the employment agreement, Ms. Noel’s annual salary was $96,000 and she 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. Ms. Noel exercised the warrant and was issued the 20,000,000 shares on October 31, 2018. The fair value of this award was determined to be $2,598,138 of which $2,055,748 and $542,390 were recognized during the years ended August 31, 2020 and 2019, respectively. Unamortized expense at August 31, 2020 and 2019 is $0 and $2,055,748, respectively On April 20, 2020, the Company entered into a letter agreement with Niquana Noel, the Company’s then-chief executive officer. Pursuant to the letter agreement, Ms. Noel waived $45,333 of accrued but unpaid compensation owed to her in exchange for the right to retain all 20,000,000 shares of common stock of the Company Ms. Noel had acquired upon exercise of warrants, notwithstanding provisions of the warrant agreement that would have required her to return certain shares to the Company in the event of her resignation. The following table summarizes the warrant activities during the years ended August 31, 2019 and 2020: Number of Weighted- Weighted- Outstanding at August 31, 2018 2,830,000 $ 0.79 2.9 years Granted 21,800,000 0.04 Cancelled or expired (1,300,000 ) 1.00 Exercised (20,000,000 ) 0.00 Outstanding at August 31, 2019 3,330,000 $ 0.56 3.8 years Granted 120,000 0.60 Canceled or expired - - Exercised / Exchanged - - Outstanding at August 31, 2020 3,450,000 $ 0.56 2.8 years Exercisable at August 31, 2020 3,450,000 $ 0.56 2.8 years Intrinsic value at August 31, 2020 $ - 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 years ended August 31, 2020 Risk-free interest rate at grant date 1.30% - 1.62% Expected stock price volatility 314% - 394% Expected dividend payout - Expected life (in years) 2.50 – 4.50 Grant Date and Re-measurement Date For the year ended August 31, 2019 Risk-free interest rate at grant date 1.45% - 2.99% Expected stock price volatility 330% - 788% Expected dividend payout - Expected life in years 2.5 - 6.0 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 were 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 four (4) semiannual installments or every six (6) months until July 26, 2019 at an exercise price of $1.00. As of August 31, 2020 all the options were expired. During the year ended August 31, 2019 the Company recognized a gain of $(310,119) due to the re-measurement of this non employee award. Number of Weighted- Weighted- Outstanding at August 31, 2018 1,200,000 $ 1.00 1.9 years Granted - - Canceled or expired - - Exercised - - Outstanding at August 31, 2019 1,200,000 $ 1.00 0.9 years Granted 100,000,000 .001 Canceled or expired (1,200,000 ) 1.000 Exercised (84,000,000 ) .001 Outstanding at August 31, 2020 16,000,000 $ .001 0.4 years Exercisable at August 31, 2020 16,000,000 $ .001 0.4 years Intrinsic value at August 31, 2020 $ 240,000 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, 2020 Risk-free interest rate at grant date .15% Expected stock price volatility 262% Expected dividend payout - Expected life (in years) .25 Grant Date and Re-measurement Date For the year ended August 31, 2019 Risk-free interest rate at grant date 1.45% - 2.99% Expected stock price volatility 330% - 788% Expected dividend payout - Expected life in years 2.5 - 6.0 years |