| CONVERTIBLE NOTE PAYABLE | 7. CONVERTIBLE NOTES
PAYABLE
May
31, 2016 November
30, 2015
Adar
Bays, LLC Note (a):
Principal
value $ 115,000 $ 115,000
Fair
value of bifurcated put option of Adar Bays, LLC Note 186,694 207,659
Debt
discount - (40,411 )
Carrying
amount of Adar Bays, LLC Note 301,694 282,248
Union
Capital, LLC Note (a):
Principal value 115,000 115,000
Fair
value of bifurcated put option of Union Capital, LLC Note 186,611 207,536
Debt
discount - (40,096 )
Carrying
amount of Union Capital, LLC Note 301,611 282,440
Typenex
Co-Investement, LLC Note (b):
Principal value 87,500 87,500
Fair
value of bifurcated put option of Typenex Co-Investement, LLC Note 373,733 380,858
Debt
discount (153 ) (28,130 )
Carrying
amount of Typenex Co-Investement, LLC Note 461,080 440,228
May
31, 2016 November
30, 201
Gary
Gelbfish Note (c):
Principal
value 100,000 100,000
Fair
value of bifurcated put option of Gary Gelbfish Note 203,030 118,391
Debt
discount - -
Carrying
amount of Gary Gelbfish Note 303,030 218,391
JMJ
Financial Note (d):
Principal value 60,500 60,500
Fair
value of bifurcated put option of JMJ Financial Note 212,973 155,017
Debt
discount (30,160 ) (44,576 )
Carrying
amount of JMJ Financial Note 243,313 170,941
Black
Mountain Equities, Inc. Note (e):
Principal value 42,670 55,000
Fair
value of bifurcated put option of Black Mountain Equities, Inc. Note 57,516 81,951
Debt
discount (453 ) (28,028 )
Carrying
amount of Black Mountain Equities, Inc. Note 99,733 108,923
LG
Capital Funding, LLC Note (f):
Principal value 50,000 50,000
Fair
value of bifurcated put option of LG Capital Funding, LLC Note 76,462 94,905
Debt
discount - -
Carrying
amount of LG Capital Funding, LLC Note 126,462 144,905
GCEF
Opportunitity Fund, LLC Note (g):
Principal value 27,500 27,500
Fair
value of bifurcated put option of GCEF Opportunity Fund, LLC Note 39,809 50,532
Debt
discount (2,185 ) (15,973 )
Carrying
amount of GCEF Opportunitity Fund, LLC Note 65,124 62,059
Lord
Abstract, LLC Note (h):
Principal value 8,800 8,800
Fair
value of bifurcated put option of Lord Abstract, LLC Note 18,186 16,163
Debt
discount (699 ) (5,111 )
Carrying
amount of Lord Abstract LLC Note 26,287 19,852
JLA
Realty Notes (i):
Principal value 160,600 -
Fair
value of bifurcated conversion option of JLA Realty Notes 166,930 -
Debt
discount (156,451 ) -
Carrying
amount of JLA Realty Notes 171,079 -
Other
convertible notes payable (j):
Principal value 11,000 -
Fair
value of bifurcated put option of other convertible notes payable 33,206 -
Debt
discount (9,232 ) -
Carrying
amount of other convertible notes payable 34,974 -
Total
carrying amount of convertible notes $ 2,134,387 $ 1,729,987
Total
short-term carrying amount of convertible notes $ 1,928,334 $ -
Total
long-term carrying amount of convertible notes $ 206,053 $ -
May
31, 2016 November
30, 2015
Total
convertible notes payable:
Principal
value $ 778,570 $ 619,300
Fair
value of bifurcated put option of other convertible notes payable 1,555,150 1,313,012
Debt
discount (199,333 ) (202,325 )
Carrying
amount of other convertible notes payable $ 2,134,387 $ 1,729,987 Accounting
for Redemption Feature- Put Option Management
determined that the variable share settlement feature as a “conversion feature” as defined above represented, in substance,
a put option (redemption feature) designed to provide the investor with a fixed monetary amount, settleable in shares. Management
determined that this put option should be separated and accounted for as a derivative and classified as a liability primarily
because the put option met the net settlement criterion and the settlement provisions were not consistent with a fixed-for-fixed
equity instrument. The
put option, with a fair value of approximately $1.2 million at inception, was initially recorded as a derivative liability on
the accompanying balance sheet and a corresponding discount to the note. The Company accreted the discount to interest expense
on the statement of operations over the term of the note using the effective interest rate method. During
the three months ended May 31, 2016 and 2015, the Company recognized interest expense of $75,891 and $84,178, respectively, resulting
from amortization of the debt discount for the above convertible promissory notes. During the six months ended May 31, 2016 and
2015, the Company recognized interest expense of $170,441 and $84,178, respectively, resulting from amortization of the debt discount
for the above convertible promissory notes. The difference between the estimated fair value of the conversion feature and
the debt discount was reflected as a loss on issuance of convertible debt and during the three and six months ended March 31,
2016, the loss on issuance amounted to $68,522 and $71,061, respectively. In January 2016, the Company issued 457,619 shares of
common stock in payment of principal and accrued interest on three of its convertible notes. The shares were valued based on the
closing price of the Company’s common stock on the date of issuance, $183,048, resulting in a loss on conversion of $154,694.
The accrued interest associated with the convertible notes was $130,419 as of May 31, 2016. All long-term notes are due in fiscal
year 2019.
(a) The
Adar Bays, LLC and Union Capital, LLC convertible notes payable were due and payable
12 months after issuance date of May 11, 2015 and bore interest at 8% per annum. At the
election of the holder, outstanding principal and accrued but unpaid interest under the
notes were convertible into shares of the Company’s common stock at any time prior
to maturity at a conversion price per share equal to a forty percent (40%) discount
to the lowest trading price for the twenty (20) consecutive trading days immediately
preceding the notice of conversion. If these notes were not paid at maturity, the
outstanding principal due under these notes shall increase by 10%. In January 2016, the
notes were amended to decrease the conversion price per share equal to a forty-five percent
(45%) discount to the lowest trading price for the twenty-five (25) consecutive trading
days immediately preceding the notice of conversion, and the pre-payment penalty was
increased to 150%. The amendments did not result in a material change to the fair value
of the notes. The notes were not repaid on the maturity date of May 12, 2016 and as such
were in default as of May 31, 2016. The Company recorded in interest expense, including
penalties, on the condensed statements of operations a one-time default penalty of $23,000
representing 10% of the outstanding principal balance of the Notes. As of May 31, 2016,
there were 1,916,667 shares issuable upon conversion for each note. On
January 23, 2018, the Company, Adar Bays, LLC and Union Capital, LLC entered into Note Settlement and Termination Agreements.
Pursuant to the terms of the settlement agreements, the Company agreed to satisfy each of the outstanding notes for $200,000 and
100,000 shares of common stock. The payments were made on January 26, 2018. The closing price of the Company's common stock on
January 23, 2018 was $1.40 per share resulting in an aggregate value of $340,000 per note.
(b) The
Typenex Co-Investment, LLC convertible note payable is due and payable 13 months after issuance date of May 29, 2015 and bears
interest at 10% per annum. At the election of the holder, outstanding principal and accrued but unpaid interest under the
note are convertible into shares of the Company’s common stock at any time prior to maturity at a conversion price per
share equal to $1.30. However, in the event the Company’s market capitalization falls below $3.0 million at any time,
the conversion price per share shall be equal to the lower of $1.30 or the market price at the date of conversion. The
note was not repaid on the maturity date of June 29, 2016 and was also in default of certain conditions of the note as of
May 31, 2016. The Company recorded in interest expense, including penalties, on the condensed statements of operations a one-time
default penalty of approximately $18,200. As of May 31, 2016, there were 2,966,548 shares issuable upon conversion of this
note. On
or around April 19, 2016, the Company received from counsel for Typenex, a written demand to accelerate and demand payment of
the entire outstanding balance of the Typenex note entered into between the Company and Typenex on May 29, 2015. On June 7, 2016,
Typenex filed suit in the State of Utah, the Third Judicial District Court, County of Salt Lake, for repayment of all principal,
default effects, late fee and accrued interest. According to the complaint, Typenex asserted an aggregate amount due, as of June
6, 2016, of $149,054. On April 4, 2017, the Company and Typenex agreed to settle the lawsuit for payment of $90,000, which was
paid in April 2017. On May 9, 2017, an order of dismissal with prejudice was entered by the Third Judicial District Court.
(c) The
Gary Gelbfish convertible note payable was due and payable six months after the issuance
date of March 27, 2015 and bore interest at 10% per annum. If this note was not paid
at maturity, at the election of the holder, outstanding principal and accrued but unpaid
interest under the note was convertible into shares of the Company’s common stock
at a conversion price per share equal to lesser of: (i) fifty percent (50%)
discount to the average closing price for the twenty (20) consecutive trading days immediately
preceding the maturity date or (ii) $0.50 per share. The note was not repaid on the maturity
date of September 23, 2015 and as such was in default as of May 31, 2016 and remains
in default as of the date of this report. As of May 31, 2016, there were 767,754 shares
issuable upon conversion of this note.
(d) The JMJ Financial
convertible note payable is due and payable 24 months after issuance date of April 29, 2015 and bears interest at 12% per
annum. At the election of the holder, outstanding principal and accrued but unpaid interest under the notes are convertible
into shares of the Company’s common stock at any time prior to maturity at a conversion price per share equal to
a forty percent (40%) discount to the lowest trading price for the twenty-five (25) consecutive trading days immediately preceding
the notice of conversion. As of May 31, 2016, there were 875,000 shares issuable upon conversion of this note. Between May
2018 and July 2018, the Company made payments of $35,000 on this note and the remaining principal balance of $25,500 remains
in default as of the date of this report.
(e) The Black Mountain
Equities, Inc. convertible note payable is due and payable 12 months after issuance date of June 4, 2015 and bears interest
at 10% per annum. At the election of the holder, outstanding principal and accrued but unpaid interest under the note is convertible
into shares of the Company’s common stock at any time prior to maturity at a conversion price per share equal to
the lesser of: (i) forty percent (40%) discount to the lowest trading price for the twenty-five (25) consecutive trading days
immediately preceding the notice of conversion or (ii) $1.06 per share. As of May 31, 2016, there were 627,024 shares issuable
upon conversion of this note. The Note was not repaid on the maturity date of June 4, 2016 and remains in default as of the
date of this report.
(f) The LG Capital Funding,
LLC convertible note payable was due and payable 13 months after issuance date of November 3, 2014 and bore interest at 8%
per annum. At the election of the holder, outstanding principal and accrued but unpaid interest under the note were convertible
into shares of the Company’s common stock, at any time after 180 days from the date of issuance, at a conversion price per
share equal to a forty percent (40%) discount to the lowest trading price for the twenty (20) consecutive trading days immediately
preceding the notice of conversion. In January, 2016, the note was amended to grant LG Capital 75,000 warrants with an
exercise price of $0.30 per share, and to permit the Company to re-pay the LG Capital Note with a pre-payment penalty of 120%.
The amendment did not result in a material change to the fair value of the note. The fair value of the warrants was $26,250,
which was expensed at the time of issuance due to the short-term nature of the note. The note was not repaid on the maturity
date and as such is in default as of May 31, 2016 and as of the date of this report. Upon default, the note accrues interest
at 24% per annum. As of May 31, 2016, there were 694,444 shares issuable upon conversion of this note.
(g) The
GCEF Opportunity Fund, LLC convertible note payable is due and payable 12 months after issuance date of June 30, 2015 and
bears interest at 10% per annum. At the election of the holder, outstanding principal and accrued but unpaid interest under
the note are convertible into shares of the Company’s common stock, at any time after 30 days from the date of issuance,
at a conversion price per share equal to the lower of: (i) a forty percent (40%) discount to the lowest closing price
for the twenty (20) consecutive trading days immediately preceding the notice of conversion or (ii) $1.00. If this note
is not paid at maturity, then the interest rate shall increase to 24% thereafter. As of May 31, 2016, there were 381,944 shares
issuable upon conversion of this note. On March 9, 2017, the Company issued an aggregate of 216,946 shares of its common stock
as full repayment of the principal and accrued interest on the note.
(h) The Lord Abstract,
LLC convertible note payable is due and payable 12 months after issuance date of June 30, 2015 and bears interest at 10% per
annum. At the election of the holder, outstanding principal and accrued but unpaid interest under the note are convertible
into shares of the Company’s common stock, at any time after 30 days from the date of issuance, at a conversion price per
share equal to a forty percent (40%) discount to the lowest closing price for the twenty (20) consecutive trading days immediately
preceding the notice of conversion. If this note is not paid at maturity, then the interest rate shall increase to 24%
thereafter. As of May 31, 2016, there were 122,222 shares issuable upon conversion of this note. Between June 2016 and August
2016, the Company made payments of $7,500 on this note and the remaining principal balance of $1,300 remains in default as
of the date of this report.
(i) The JLA Realty convertible
note payable is due and payable 36 months after proceeds have been received by the Company, which occurred between April 25,
2016 and May 4, 2016 and bears interest at 12% per annum. At the election of the holder, outstanding principal and accrued
but unpaid interest under the note is convertible into shares of the Company’s common stock at any time prior to maturity
at a fixed price per share equal to $0.15. In connection with the issuance of the JLA Realty note described above, the Company
recognized a debt discount of $146,000 and a loss on issuance of $68,522 during the three months ended May 31, 2016,
which represents the excess of the fair value of the bifurcated conversion feature at initial issuance of approximately $215,000
over the principal amount of convertible debt issued. The fair value of the bifurcated conversion feature is separately
measured at fair value, with changes in fair value recognized in operations. During the three and six months ended
May 31, 2016, the Company recognized interest expense of $4,151 resulting from amortization of the debt discount for the JLA
Realty note. As of May 31, 2016, the bifurcated conversion option has a fair value of $166,930 and is presented on a combined
basis with the related loan host in the Company’s Condensed Consolidated Balance Sheet at May 31, 2016. As of May
31, 2016, there were 1,070,607 shares issuable upon conversion of this note.
(j) The
other convertible notes payable are due and payable 36 months after issuance and bear interest at 10% per annum. At the election
of the holder, outstanding principal and accrued but unpaid interest under the note are convertible into shares of the Company’s
common stock, at any time after six months from the date of issuance, at a conversion price per share equal the lesser
of: (i) fifty percent (50%) discount to the volume weighted average price over the twenty (20) consecutive trading days immediately
preceding the notice of conversion. As of May 31, 2016, there were 110,609 shares issuable upon conversion of these notes. |
