| Schedule of convertible notes payable | 6. CONVERTIBLE NOTES
PAYABLE
August
31, 2016 November
30, 2015
Adar
Bays, LLC Note (a):
Principal $ 115,000 $ 115,000
Fair
value of bifurcated put option 190,589 207,659
Debt
discount - (40,411 )
Carrying
amount 305,589 282,248
Union
Capital, LLC Note (a):
Principal 115,000 115,000
Fair
value of bifurcated put option 190,589 207,536
Debt
discount - (40,096 )
Carrying
amount 305,589 282,440
Typenex
Co-Investement, LLC Note (b):
Principal 87,500 87,500
Fair
value of bifurcated put option 315,692 380,858
Debt
discount - (28,130 )
Carrying
amount 403,192 440,228
August
31, 2016 November
30, 2015
Gary
Gelbfish Note (c):
Principal 87,808 100,000
Fair
value of bifurcated put option 136,921 118,391
Debt
discount - -
Carrying
amount 224,729 218,391
JMJ
Financial Note (d):
Principal 60,500 60,500
Fair
value of bifurcated put option 80,293 155,017
Debt
discount (22,915 ) (44,576 )
Carrying
amount 117,878 170,941
Black
Mountain Equities, Inc. Note (e):
Principal 42,670 55,000
Fair
value of bifurcated put option 37,471 81,951
Debt
discount - (28,028 )
Carrying
amount 80,141 108,923
LG
Capital Funding, LLC Note (f):
Principal 42,500 50,000
Fair
value of bifurcated put option 71,102 94,905
Debt
discount - -
Carrying
amount 113,602 144,905
GCEF
Opportunity Fund, LLC Note (g):
Principal 27,500 27,500
Fair
value of bifurcated put option 30,346 50,532
Debt
discount - (15,973 )
Carrying
amount 57,846 62,059
Lord
Abstract, LLC Note (h):
Principal 1,300 8,800
Fair
value of bifurcated put option 2,438 16,163
Debt
discount - (5,111 )
Carrying
amount 3,738 19,852
JLA
Realty Notes (i):
Principal 325,600 -
Fair
value of bifurcated conversion option 143,874 -
Debt
discount (243,235 ) -
Carrying
amount 226,239 -
Other
convertible notes payable (j):
Principal 11,000 -
Fair
value of bifurcated put option 17,218 -
Debt
discount (8,307 ) -
Carrying
amount 19,911 -
Total
carrying amount of convertible notes 1,858,454 1,729,987
Less
current portion of carrying amount of convertible notes 1,612,304 -
Non-current
portion of carrying amount of convertible notes $ 246,150 $ -
August
31, 2016 November
30, 2015
Total
convertible notes payable:
Principal $ 916,378 $ 619,300
Fair
value of bifurcated put option 1,216,533 1,313,012
Debt
discount (274,457 ) (202,325 )
Carrying
amount $ 1,858,454 $ 1,729,987 Accounting
for Redemption Feature - Put Option Management
determined that the variable share settlement feature as a “conversion feature” as defined above represents, in substance,
a put option (redemption feature) because the value of the variable share settlement feature does not depend on the issuer’s
stock price and does not vary with the value of the shares. Management determined that this put option should be bifurcated from
the notes and accounted for as a separate derivative liability primarily because the number of shares issuable upon net share
settlement is indeterminate. The Company does not have a sufficient quantity of authorized but unissued shares and, therefore,
the put option does not meet conditions necessary for it to be classified in stockholders’ equity. The
put option, with a fair value of approximately $1.2 million at inception, was recorded as a derivative liability on the accompanying
condensed consolidated balance sheet with a corresponding discount to the note. The Company accreted the discount to interest
expense in the accompanying condensed consolidated statements of operations over the term of the note using the effective interest
method. During the three months ended August 31, 2016 and 2015, the Company recognized aggregate interest expense of $77,401 and
$164,685, respectively, resulting from accreting the discount for the above convertible promissory notes. During the nine months
ended August 31, 2016 and 2015, the Company recognized interest expense of $336,269 and $248,863, respectively, resulting from
accreting the discount for the above convertible promissory notes. The issuance date fair value in excess of the principal amount
of the notes is reflected as excess interest on issuance of convertible debt. During the three and nine months ended August 31,
2016, excess interest on issuance amounted to $7,614 and $78,675, 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 extinguishment
of $154,694. The accrued interest associated with the convertible notes was $147,899 as of August 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 with 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 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 notes were not repaid on the maturity date of May 12, 2016 and as such were in default
as of August 31, 2016. The Company recorded a default penalty charge of $11,500 for each note, representing 10% of the outstanding
principal balance of these notes, as a component of interest expense in the accompanying condensed consolidated statements
of operations. As of August 31, 2016, there were 1,900,826 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 in
cash 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 settlement amount of $340,000 for each note.
(b) The Typenex Co-Investment, LLC convertible note
payable was due and payable 13 months after its issuance date of May 29, 2015 with 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 as such was in default as of August 31, 2016. The Company recorded a default penalty of $18,200 in the accompanying
condensed consolidated statements of operations. As of August 31, 2016, there were 2,272,727 shares issuable upon conversion
of this note. On
or about April 19, 2016, the Company received from counsel for Typenex, a written demand to accelerate payment of the entire outstanding
balance of the Typenex note. 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 made 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 its issuance date of March 27, 2015 with 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 August 31, 2016 and remains in default as of the date of this report. As of August 31, 2016, there were 1,000,663
shares issuable upon conversion of this note.
(d) The JMJ Financial convertible note payable is
due and payable 24 months after its issuance date of April 29, 2015 with 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 August 31, 2016, there were 1,008,333 shares issuable upon conversion of this note. Between May 2018 and July 2018,
the Company made principal payments of $35,000 on this note and the remaining principal balance of $25,500 is 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 its issuance date of June 4, 2015 with 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 August 31, 2016, there were 494,381 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 its issuance date of November 3, 2014 with 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 fair value
of the warrants amounted to $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 August 31, 2016 and as of the date of this report.
Upon default, the note accrues interest at 24% per annum. As of August 31, 2016, there were 643,939 shares issuable upon conversion
of this note.
(g) The GCEF Opportunity Fund, LLC convertible note
payable is due and payable 12 months after its issuance date of June 30, 2015 with 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 August 31, 2016, there were 416,667 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 its issuance date of June 30, 2015 with 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 August
31, 2016, there were 19,697 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 August 8,
2016 with 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 $89,087 and an excess interest of $7,614 during the three months ended August 31, 2016, which represents
the excess of the fair value of the bifurcated conversion option of approximately $58,000 over the principal amount of convertible
debt issued. The fair value of the conversion feature is separately measured at fair value, with changes in fair
value recognized in operations. During the three and nine months ended August 31, 2016, the Company recognized
interest expense of $20,599 and $24,750, respectively, resulting from amortization of the debt discount for the JLA Realty
note. As of August 31, 2016, the conversion option has a fair value of $247,527 and is presented on a combined basis with
the related loan host in the Company’s Condensed Consolidated Balance Sheet at August 31, 2016. As of August 31,
2016, there were 2,170,667 shares issuable upon conversion of this note.
(j) The other convertible notes payable are due
and payable 36 months after issuance with 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 August 31, 2016, there were 158,845 shares issuable upon conversion of these notes. |
