| Note 8 - Debt Instruments | Asset-Based Debt Financing On April 11, 2013, the
Company executed a non-dilutive asset-based debt financing (the "Lender Financing") with a third party (the "Lender").
The Lender Financing consists of a $250,000 line of credit, subsequently increased to $520,000, secured by all of the Company's
assets. The Company's management also executed limited recourse guarantees with the Lender. Interest is payable monthly based on
a floating interest rate determined based on a formula outlined in detail within the financing agreement. The Company anticipates
the effective monthly interest rate charged on the outstanding balance owed to the third party will be between 3.2% and 1.1%. On September 15, 2014,
the Company executed an extension to this agreement whereby the maturity date has been extended to December 31, 2015. The Lender
financing is currently capped at $520,000 which begins decreasing to $500,000 on December 31, 2014; $450,000 on March 31, 2015;
$400,000 on June 30, 2015 and $300,000 by September 30, 2015. On March 31, 2015, the
Company executed an extension to this agreement whereby the maturity date has been extended to December 31, 2015. The Lender financing
is currently capped at $545,692 which begins decreasing to $500,000 on April 30, 2015; $450,000 on June 30, 2015; and $300,000
on September 30, 2015 and the remainder on December 31, 2015. In the event the that any reduction in the Facility Amount, is not
achieved, before the dates provided or the interest for any month is not paid due the next sequential month the interest rate will
be increased by 1.5% above the current rate for the remainder of the Loan and Security Agreement. In the event that any reduction
in the Facility Amount is achieved 15 or more days prior to the dates provided, the interest rate will be decreased by 3% for the
remainder of the Loan and Security Agreement. As of May 31, 2015, the Company hasn't achieved the reductions per the agreement. Convertible Notes
Payable The Company relied on
various financings from a lender since 2010 (the "Creditor"). Each note issued by the Creditor (the "Creditor Notes")
bears interest per annum at a rate of 8%, default interest rate of 22% and is generally payable within six months from the issuance
date. In April 2014, the Creditor entered into an exchange agreement with another lender whereby they transferred their interest
in the Creditor Notes to another lender. See below for additional information. Vendor Convertible
Note On November 1, 2012, the
Company issued a convertible note for $140,000 (the "Vendor Note") to a former Vendor ("Vendor"). The Vendor
Note was executed on November 1, 2012 and was immediately convertible into the Company's common stock at a 50% discount to the
lowest bid price for the five days prior to the conversion date. The table below details the transactions with the Vendor during
the nine months ended May 31, 2015.
Vendor Note, principal balance as of August 31, 2014 $ 35,300
Conversion of Vendor Note to common stock (162,250,000 common shares issued) (35,300 )
Vendor Note, principal balance, May 31, 2015 $ - Since the number of shares
the Vendor Note was convertible into was indeterminable, the Company determined a derivative liability was embedded within the
Vendor Note. The Company measured the derivative liability using the input attributes disclosed below and recorded a derivative
liability of $190,927 as of November 1, 2012. As a result of the valuation of the derivative liability being in excess of the value
of the proceeds of the Vendor Note by $50,927, this amount was recorded within change in fair value of derivatives by the Company
on November 1, 2012. The debt discount associated with the Vendor Note was immediately expensed to interest expense as a result
of the Vendor Note being immediately convertible and due on demand. As of May 31, 2014,
the conversion price of the Vendor Note is based upon a 50% discount to lowest five days bid prices of the Company's common
stock over the five-day period prior to conversion. As a result, the lower the stock price at the time the Vendor converts
the Vendor Note, the more common shares the Vendor will receive. To the extent the Vendor converts the Vendor Note and then
sells its common stock, the common stock may decrease due to the additional shares in the market. This could allow the Vendor
to receive greater amounts of common stock upon conversion. The sale of each share of common stock further depresses the
stock price. Due to the floating conversion price of the notes, the Company does not know the exact number of shares that the
Vendor would be issued upon conversion. The shares issuable upon conversion of the Vendor Note may result in substantial
dilution to the interests of the Company's other shareholders. Creditor #2
Convertible Promissory Notes In April 2014, the Creditor
entered into an exchange agreement with another lender (the "Creditor #2") whereby the Creditor transferred the Creditor's
notes and accrued interest to Creditor #2. In April, the Company entered into i) a note agreement for $284,560 representing amounts
transferred from the Creditor; ii) two $125,000 notes in which the proceeds were received on the same date (collectively referred
to as the "Creditor #2 Notes") with Creditor #2. The Creditor #2 Notes bear interest per annum at 10.0%, payable six
months after the issuance date and are convertible on the date of issuance based upon based upon a 45% discount to lowest trading
price, for the 15 trading days prior to conversion. As a result, the lower the stock price at the time the Creditor #2 converts
the Creditor #2 Notes, the more common shares the Creditor #2 will receive. The table below details the transactions with the Creditor
#2 during the nine months ended May 31, 2015.
Creditor #2 Notes, principal balance as of August 31, 2014 $ 464,449
Conversion of Creditor #2 Notes to common stock (514,461,210 common shares issued) (73,228 )
Creditor #2 Notes, principal balance as of May 31, 2015 $ 391,221 To the extent the Creditor
#2 converts the Creditor #2 Notes and then sells its common stock, the market price of the common stock may decrease due to the
additional shares in the market. This could allow the Creditor #2 to receive greater amounts of common stock upon conversion. The
sale of each share of common stock could further depress the stock price. Due to the floating conversion price of the notes, the
Company does not know the exact number of shares that the Creditor #2 would be issued upon conversion. The shares issuable upon
conversion of the Creditor #2 Notes may result in substantial dilution to the interests of the Company's other shareholders. In
this regard, even though the investor may not hold shares amounting to more than 9.99% of the outstanding shares at one time, this
restriction does not prevent the investor from selling some of its holdings and then receiving additional shares. In this way,
the investor could sell more than the 9.99% limit while never holding more than the limit. During the nine months
ended May 31, 2015, the Company amortized the remaining discount of $62,500 to interest expense. The discount was the result of
a derivative liability recorded in connection with the Creditor #2 Notes in fiscal 2014. Creditor #3 Convertible
Promissory Note In December 2014, a convertible
promissory note holder ("Holder") entered into an exchange agreement with another lender (the "Creditor #3")
whereby the Holder transferred the Holder's notes and accrued interest to Creditor #3. In December 2014, the Company entered into
i) a note agreement for $150,000 representing the principal amount transferred from the Holder. The Creditor #3 Note bears interest
per annum at 10.0%, due on August 22, 2015 and is convertible on the date of issuance based upon based upon a 25% discount to lowest
trading price, for the 5 trading days prior to conversion. As a result, the lower the stock price at the time the Creditor #3 converts
the Creditor #3 Notes, the more common shares the Creditor #3 will receive. The table below details the transactions with the Creditor
#3 during the nine months ended May 31, 2015.
Creditor #3 Notes, principal balance as of August 31, 2014 $ -
Transfer from 3rd party 150,000
Conversion of Creditor #2 Notes to common stock (336,933,000 common shares issued) (55,250 )
Creditor #3 Notes, principal balance as of May 31, 2015 $ 94,750 To the extent the Creditor
#3 converts the Creditor #3 Note and then sells its common stock, the market price of the common stock may decrease due to the
additional shares in the market. This could allow the Creditor #3 to receive greater amounts of common stock upon conversion. The
sale of each share of common stock could further depress the stock price. Due to the floating conversion price of the notes, the
Company does not know the exact number of shares that the Creditor #3 would be issued upon conversion. The shares issuable upon
conversion of the Creditor #3 Note may result in substantial dilution to the interests of the Company's other shareholders. In
this regard, even though the investor may not hold shares amounting to more than 9.99% of the outstanding shares at one time, this
restriction does not prevent the investor from selling some of its holdings and then receiving additional shares. In this way,
the investor could sell more than the 9.99% limit while never holding more than the limit. During the nine months
ended May 31, 2015, the Company recorded a discount of $150,000 due to the derivative liability, as discussed below in Note 9,
having a fair market value in excess of the principal amount of the convertible note. During the nine months ended May 31, 2015,
the Company amortized $150,000 of the discount to interest expense. Convertible
Promissory Notes As of May 31, 2015, the
Company has outstanding 24 convertible promissory notes issued between December 2011 and May 2015. The convertible promissory notes
bear interest at either 4% or 8% per annum and are due in full, including principal and interest, two-three years from the issuance
date ranging from August 2014 to February 2018. The convertible promissory notes also include a conversion option whereby the holders
may elect at any time to convert any portion or the entire balance into the Company's common stock at conversion prices ranging
from $0.0001 to $1.25. The table below details the transactions associated with the convertible promissory notes during the nine
months ended May 31, 2015.
Convertible Promissory Notes, principal balance as of August 31, 2014 $ 745,134
Proceeds received from additional Convertible Promissory Notes - Related Party 261,750
Conversion of accrued salaries and advances to Convertible Promissory Notes - Related Party 626,864
Proceeds received from additional Convertible Promissory Notes 214,371
Accrued interest converted into Convertible Promissory Note 6,806
Convertible Promissory Note converted into 100,000,000 common stock (10,000 )
Related party notes converted into 1,300,100,000 common stock (131,000 )
Note transferred to Creditor #3 (150,000 )
Payments on Convertible Promissory Notes - Related Party (89,500 )
Convertible Promissory Notes, principal balance as of May 31, 2015 $ 1,474,425 Of the convertible promissory
notes outstanding, $928,247 are held by related parties. These related parties consist of the Company's officers, former officers,
significant shareholders or entities controlled by these individuals. As of May 31, 2015 and August 31, 2014, $175,000 of these
notes were included within the current portion of convertible promissory notes on the accompanying balance sheet as the note was
due within one year of the balance sheet. For some of the convertible
promissory notes, the conversion feature associated with the convertible promissory notes provide for a rate of conversion that
is below market value. This conversion feature is accounted for as a beneficial conversion feature. A beneficial conversion feature
was recorded and classified as a debt discount on the balance sheet at the time of issuance of each convertible promissory note
with a corresponding credit to additional paid-in capital. In addition, six of the
convertible promissory note purchasers were issued warrants to purchase shares of the Company's common stock. The valuation of
the stock warrants and the beneficial conversion feature associated with the issuance of convertible promissory notes utilized
valuation inputs and related figures provided by a professional and independent valuation firm. The Company allocated a portion
of the proceeds received from the convertible promissory notes to the warrants using the relative fair value resulting in a debt
discount to each convertible promissory note. The discounts are amortized
over the term of the convertible promissory note using the straight line method. The amortized value for each period is recorded
as an offset against the debt discount on the balance sheet, classified as interest expense - accretion in the statement of operations
and as accretion of debt discount within the statement of cash flows. During the nine months ended May 31, 2015, the Company recorded
a discount related to the recognition of a beneficial conversion feature or allocation of the proceeds to a derivative liability
of $1,134,769 in connection with the issuance of $1,159,770 in convertible notes. The increase in convertible notes payable during
the nine months ended May 31, 2015 of $1,159,770, $156,750 related to proceeds received from the Company's Chief Executive Officer,
$105,000 in proceeds from the Chief Executive Officer of StreamTrack Media, Inc., $181,459 in proceeds from third parties, $32,891
in conversions of amounts payable to a third party to a note, $56,806 related to the extension and inclusion of accrued interest
into a new convertible note payable; $316,758 in salary and advances due to our Chief Executive Officer converted to a convertible
note payable and $310,106 in salary and advances due to StreamTrack Media, Inc.'s Chief Executive Officer converted to a convertible
note payable. During the nine months ended May 31, 2015 and 2014, $427,390 and $20,537 of the discounts were amortized to interest
expense, respectively. As of May 31, 2015, $739,248 discounts remained which will be expensed in fiscal 2015 through 2018. On December 24, 2014,
the Company entered into a convertible note agreement for $114,350 with a third party. Under the terms of the agreement the third
party was to provide the Company with $81,459 in cash and relief of $48,333 in accrued consulting fees due to the third party.
In addition, the Company agreed to issue 10,000,000 share of common stock and 500 shares of Series C Preferred Stock. The convertible
note incurs interest at a rate of 4% per annum, is due December 24, 2016 and is convertible into shares of the Company's common
stock on the date of issuance based upon based upon a 10% discount to lowest trading price, for the 15 trading days prior to conversion.
As of February 28, 2015, proceeds of $40,000 had been received. On March 17, 2015, the remaining $41,459 was received. Upon receipt
of the remaining proceeds, the Company recorded 100% discount due to the value of the derivative liability being in excess of the
proceeds received. The Company recorded the
difference between the convertible note less proceeds received and accrued consulting fees plus the fair market value of the common
stock of $7,000 and Series C Preferred Stock of $75,000 as a loss on extinguishment of $66,537. The common stock valued using the
closing market price of the Company's common stock on the date of the transaction. The Series C Preferred Stock was valued based
upon each share of Series C Preferred Stock being convertible into $150 in fair market value of the Company's common stock. On April 28, 2015, the
Company entered into an amended convertible note agreement for $56,806 with a third party. The convertible note agreement included
the original $50,000 in principal and $6,806 in accrued interest. In addition, the Company agreed to issue 150 shares of Series
C Preferred Stock. The convertible note incurs interest at a rate of 8% per annum, is due April 28, 2017 and is convertible into
shares of the Company's common stock on the date of issuance based upon based upon a 15% discount to lowest trading price, for
the 5 trading days prior to conversion. The Company recorded the
difference between the convertible note and the fair market value of the Series C Preferred Stock of $22,500 plus the fair market
value of the derivative liability of $66,831 for a loss on extinguishment of $35,025. The Series C Preferred Stock was valued based
upon each share of Series C Preferred Stock being convertible into $150 in fair market value of the Company's common stock. |
