Debt | 6 Months Ended |
Feb. 28, 2014 |
Debt [Abstract] | ' |
Debt | ' |
Note 5 – Debt |
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Debt consists of the following at February 28, 2014 and August 31, 2013: |
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Description | | Feb. 28, 2014 | | | Aug. 31, 2013 | | | |
A. Unsecured convertible debt – Derivative Liabilities | | $ | 1,813,516 | | | $ | 1,732,250 | | | |
Less : debt discount | | | (105,971 | ) | | | (297,153 | ) | | |
Convertible debt - net | | | 1,707,545 | | | | 1,435,097 | | | |
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B. Convertible debt – Unsecured | | | 486,207 | | | 479,097 | | | | |
Less : debt discount | | | (151,334 | ) | | | (287,615 | ) | | |
Convertible debt - net | | | 334,873 | | | | 191,482 | | | |
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C. Notes - Secured | | | 2,906,000 | | | | 3,246,902 | | | |
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D. Notes – Unsecured | | | 1,021,500 | | | | 1,127,183 | | | |
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Total debt | | $ | 5,969,918 | | | $ | 6,000,664 | | | |
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Debt in default consists of unsecured notes totaling $981,597 and $558,183 at February 28, 2014 and August 31, 2013, respectively. |
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The corresponding debts above are more fully discussed below: |
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(A) Unsecured Convertible Debt – Derivative Liabilities |
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During the six months ended February 28, 2014, the Company did not issue any unsecured convertible debt or warrants that had an embedded conversion feature; however, during the same period the Company did reclassify one of its convertible non-derivative debts to convertible derivative debt under the terms of that agreement. |
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The Company’s unsecured convertible derivative debt (recorded as a derivative liability) consists of the following terms and balances at February 28, 2014 and August 31, 2013: |
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Description | | Information | | Feb. 28, 2014 | | | Aug. 31, 2013 | |
Interest rate | | | | | 8% - 12% | | | | 8% - 12% | |
Maturity Date(s) | | | | Dec. 31, 2013 to | | | Apr. 1, 2013 to | |
31-May-14 | Aug. 28, 2013 |
Series 2 | | Fixed conversion price of $1.00 ($1.00 warrants) | | $ | 997,250 | | | $ | 265,000 | |
Series 3 | | Fixed conversion price of $0.40 ($0.75 warrants) | | $ | 735,000 | | | $ | 735,000 | |
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Below is a summary of the Company’s unsecured convertible debt (recorded as a derivative liability) at February 28, 2014 and August 31, 2013: |
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Description | | Feb. 28, 2014 | | | Aug. 31, 2013 | | | |
Carry forward balance | | $ | 1,732,250 | | | $ | 832,750 | | | |
Borrowings | | | 11,550 | | | | 1,000,000 | | | |
Repayment of convertible debt | | | - | | | | (100,500 | ) | | |
Reclassification of convertible non-derivative debt to derivative debt | | | 105,000 | | | | - | | | |
Conversion of convertible derivative debt to stock | | | (35,284 | ) | | | -0- | | | |
Ending balance | | $ | 1,813,516 | | | $ | 1,732,250 | | | |
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The Company converted $13,986 of accrued interest to stock in addition to the principal noted in the table above. |
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(B) Convertible Debt – Unsecured |
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The Company’s unsecured non-derivative convertible debt consists of the following terms and balances at February 28, 2014 and August 31, 2013: |
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Description | | Information | | | | | | | |
Interest rate | | | | | 10% - 12% | | | | | |
Default interest rate | | | | | N/A | | | | | |
Term | | | | 1 year | | | | | |
Maturity | | | | Aug. 3, 2013 to | | | | | |
Sept. 27, 2014 | | | | |
Series 4 debt | | Fixed conversion price of $0.75 | | $ | 274,097 | | | | | |
Series 5 debt | | Zero percent (0%) interest if repaid within 3 months; Convertible at the lesser of $0.47 or 65% of the lowest trade price in the then prior 25 days, but only after 180 days from the date of the loan | | $ | 105,000 | | | | | |
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In connection with its Series 5 debt, and for the six months ended February 28, 2014, the Company recorded a beneficial conversion feature of $4,468 and incurred original issue discounts of $21,260 (which was recorded as debt discount); during the same period, the Company amortized $4,174 of its debt issue costs relating to its Series 4 debt. |
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Holders of Series 4 and Series 5 debt are entitled, at their option, to convert all or part of the principal and accrued interest into shares of the Company’s common stock at the conversion prices and terms discussed above. During the six months ended February 28, 2014 holders of Series 5 debt converted $130,910 of debt and accrued interest into 531,560 shares of the Company’s common stock. |
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Below is a summary of the Company’s unsecured convertible debt (not recorded as a derivative liability) at February 28, 2014 and August 31, 2013: |
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| | Feb. 28, 2014 | | | Aug. 31, 2013 | | | |
Carry forward balance | | $ | 479,097 | | | $ | 650,000 | | | |
Borrowings | | | 112,110 | | | | 409,000 | | | |
Repayment of convertible debt | | | - | | | | (59,220 | ) | | |
Reclassification to convertible derivative debt | | | (105,000 | ) | | | (520,683 | ) | | |
Ending balance | | $ | 486,207 | | | $ | 479,097 | | | |
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(C) Notes - Secured |
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The Company’s secured debt consists of the following terms and balances at February 28, 2014: |
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Interest Rate | | | | 7% - 12.75% | | | | | | |
Maturity | Sep. 1, 2013 to Aug. 28, 2014 | | | | | | |
SKI debts | Secured by all the assets of OSM | | $ | 2,990,902 | | | | | | |
Series 6 debt | Secured by the Tetra Pack inventory and receivables, and a second position on all other assets of OSM. | | $ | 206,000 | | | | | | |
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Below is a summary of the Company’s secured debt at February 28, 2014 and August 31, 2013: |
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| | Feb. 28, 2014 | | | Aug. 31, 2013 | |
Carry forward balance | | $ | 3,246,902 | | | $ | 3,242,613 | | | |
Borrowings (Series 6) | | | - | | | | 256,000 | | | |
Repayment of debt | | | (50,000 | ) | | | - | | | |
Accrued interest | | | - | | | | - | | | |
Settlement of debt | | | (290,902 | ) | | | - | | | |
Reclassification of accrued interest on debt from debt to accrued interest | | | - | | | | (251,711 | ) | | |
Ending balance | | $ | 2,906,000 | | | $ | 3,246,902 | | | |
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The Company issued 275,000 shares of its common stock in connection with the extension of a forbearance agreement (as further described in the Company’s Annual Report filed on Form 10-K for the year ended August 31, 2013); these share have a fair value of $165,000 which was charged to other expense and was based on the quoted closing trading price of the Company’s stock on September 16, 2013 ($0.60/share). |
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On February 28, 2014 and in connection with the Company’s guarantee of certain debt, a Federal Bankruptcy Court approved a final settlement agreement in regard to the SKI bankruptcy, and as a result, the Company removed $290,902 in debt from its balance sheet. See Note 9 Litigation and Claims. |
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(D) Notes – Unsecured Demand Notes |
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The Company’s unsecured demand debt consists of the following terms and balances at February 28, 2014 and August 31, 2013: |
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Amount | | Information | | Maturity | | | | | |
$ | 974,000 | | Represents current convertible demand debt | | Aug 3, 2013 to Sept 16, 2014 | | | | | |
$ | 10,000 | | Represents an advance from a third party | | Due on demand | | | | | |
$ | 37,500 | | The Company is in litigation regarding this debt; see Note 9 Litigation, Claims and Assesments. | | In litigation | | | | | |
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Below is a summary of the Company’s unsecured demand debt at February 28, 2014 and August 31, 2013: |
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Description | | Feb. 28, 2014 | | | Aug. 31, 2013 | | | |
Carry forward balance | | $ | 1,127,183 | | | $ | 287,500 | | | |
Reclassification from derivative to demand debt | | | - | | | | 100,500 | | | |
Borrowings | | | 396,500 | | | | 422,500 | | | |
Repayments | | | (423,683 | ) | | | (204,000 | ) | | |
Reclassification from convertible to demand debt | | | - | | | | 520,683 | | | |
Amount converted into stock | | | (78,500 | ) | | | - | | | |
Ending balance | | $ | 1,021,500 | | | | 1,127,183 | | | |
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The Company converted $3,140 of accrued interest to stock in addition to the principal noted in the table above. |
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In connection with its demand debt, and for the six months ended February 28, 2014, the Company incurred original issue discounts of $22,660 (which was recorded as debt discount). |
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(E) Debt discount |
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Below is a summary of the Company’s debt discount at February 28, 2014 and August 31, 2013: |
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| | Feb. 28, 2014 | | | Aug. 31, 2013 | | | |
Total outstanding debt | | $ | 6,227,223 | | | $ | 6,585,432 | | | |
Carry forward debt discount – net | | | (584,768 | ) | | | ( 404,088 | ) | | |
Debt discount | | | ( 148,956 | ) | | | ( 994,214 | ) | | |
Amortization of debt discount | | | 476,419 | | | | 813,534 | | | |
Debt – net | | $ | 5,969,918 | | | $ | 6,000,664 | | | |
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The Company’s remaining debt discount of $257,306 will be fully amortized in fiscal year 2015. |
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The Company recorded no derivative expense for the six months ended February 28, 2014. |