OSL HOLDINGS INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
(FORMERLY RED ROCK PICTURES HOLDINGS, INC. AND SUBSIDIARIES)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
THREE AND NINE MONTHS ENDED MAY 31, 2012 AND FROM INCEPTION (SEPTEMBER 16, 2010)
TO MAY 31, 2011 AND MAY 31, 2012
Note 1- Organization, Nature of Business and Basis of Presentation
Organization and Nature of Business
Red Rock Pictures, Inc. was incorporated on August 18, 2006 under the laws of the State of Nevada and was engaged in the business of developing, financing, producing and licensing feature-length motion pictures and direct response infomercials. On June 6, 2008, the Company entered into a stock for stock exchange agreement with Studio Store Direct, Inc. (“SSD”). Pursuant to the stock for stock exchange agreement, the Company acquired 100% of the assets of SSD by issuing 11,000,000 restricted common shares in exchange for all the issued and outstanding shares of SSD. With the addition of SSD, the Company also operated as a traditional infomercial production and distribution company.
On October 10, 2011, the Company completed a Share Exchange Agreement (the “Share Exchange”) with Office Supply Line, Inc. (“OSL”), a company incorporated in the State of Nevada on September 16, 2010, whereby OSL exchanged all of the issued and outstanding shares of OSL in exchange for 50,000,000 shares of the Company’s common stock. As part of the Share Exchange, the Company entered into a Share Cancellation Agreement and Release (the "Share Cancellation Agreement") with Crisnic and OSL. Pursuant to the Share Cancellation Agreement, Crisnic cancelled 14,130,000 shares in exchange for $10,000 cash and a Secured Promissory Note in the principal amount of $240,000 (the "Promissory Note"). As security for this Promissory Note, the Company issued Crisnic 650,001 shares of Series A Preferred Stock (the "Preferred Shares") which were placed into escrow, and will be released based on the terms in an Escrow Agreement. The Preferred Shares have 100:1 voting rights. Upon payment of the principal amount due under the Promissory Note the Preferred Shares will be cancelled. In the event that the Demand Date, as defined in the Promissory Note, has passed and Crisnic has not been paid in full, as provided in the Promissory Note, the Preferred Shares will be released to Crisnic.
Immediately prior to the Share Exchange, the Company entered into an Asset Assignment Agreement (the "Asset Assignment Agreement") by and among Reno Rolle ("Rolle"), Todd Wiseman ("Wiseman"), former principals of the Company, and Red Rock Direct (an entity managed by Rolle and Wiseman), pursuant to which the Company assigned certain of its assets to Red Rock Direct in consideration of the cancelation of shares of the Company of Rolle (143,809 shares that had not yet been issued) and Wiseman (5 million shares due under an employment agreement), pursuant to Share Cancellation Agreements and Releases entered into among each of Rolle (and Lynn Rolle, the wife of Rolle) and Wiseman, the Company and OSL; and the assumption of certain indebtedness of the Company by Red Rock Direct (the "Spin-Off"). The Company assets assigned to Red Rock Direct included (i) the Company's current direct response television commercial (hosted by Suzanne Somers) (the "Infomercial"), (ii) the book currently entitled The Anti-Aging Miracle by Dr. James William Forsythe, M.D., and any and all proceeds derived therefrom, including any health supplements sold as described in the Infomercial, (iii) the feature length film entitled "Endless Bummer", (iv) the book currently entitled Sleep and Grow Young by Dr. James William Forsythe, M.D, and (v) a management agreement with Mike Flynt (collectively, the "Assigned Assets").
For financial statement reporting purposes, the Share Exchange was treated as a reverse acquisition, with OSL deemed the accounting acquirer and the Company deemed the legal acquirer. The accompanying consolidated financial statements of OSL Holdings, Inc. and subsidiaries reflect the historical activity of OSL, and the historical stockholders’ equity of OSL has been retroactively restated for the equivalent number of shares received in the exchange after giving effect to the differences in par value offset to additional paid-in capital. In connection with the Share Exchange Agreement, OSL is deemed to have issued an additional 1,068,255 shares of common stock to our stockholders existing prior to the Share Exchange. Reverse merger costs of approximately $649,000 include net liabilities of $408,000 assumed upon the reverse merger and the $250,000 cost of the Share Cancellation Agreement.
On October 17, 2011, the Company changed the name to OSL Holdings Inc, by filing a Certificate of Amendment to Articles of Incorporation with the State of Nevada to more accurately reflect the new business operations. The Company became a holding company, which, through OSL, markets and distributes "Products for the Office."
Basis of Presentation
The interim unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Securities and Exchange Commission, or SEC, Form 10-Q and Article 8 of SEC Regulation S-X. They do not include all of the information and footnotes required by generally accepted accounting principles, or GAAP, for complete financial statements. In the opinion of management, all adjustments and reclassifications considered necessary for a fair and comparable presentation have been included and are of a normal recurring nature. The unaudited condensed consolidated financial statements should be read in conjunction with the audited financial statements and notes thereto of OSL Holdings, Inc. for the year ended July 31, 2011 included in our Current Report on Form 8-K filed on October 19, 2011. Operating results for the three and nine months ended May 31, 2012 are not necessarily indicative of the results that may be expected for future quarters or the year ending August 31, 2012.
Note 2 – Going Concern
The Company's consolidated financial statements are presented on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The Company has experienced losses from operations since inception, does not have significant sources of revenue and has working capital deficiencies that raise substantial doubt as to its ability to continue as a going concern. The Company's existence is dependent upon management's ability to develop profitable operations and resolve its liquidity problems. The consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the possible inability of the Company to continue as a going concern.
We have no present agreements or commitments with respect to any material acquisitions of other businesses, products, product rights or technologies or any other material capital expenditures. However, we will continue to evaluate acquisitions of and/or investments in products, technologies, capital equipment or improvements or companies that complement our business and may make such acquisitions and/or investments in the future. The Company will require additional capital, either through debt or private placements, in order to execute its business plan to finance any such acquisitions and/or investments. Such additional financing may not become available on acceptable terms and there can be no assurance that any additional financing that we do obtain will be sufficient to meet our needs in the long term. Even if we are able to obtain additional financing, it may contain undue restrictions on our operations, in the case of debt financing, or cause substantial dilution for our stockholders, in the case of equity financing.
Note 3 – Summary of Significant Accounting Policies
Development Stage Company
The Company’s consolidated financial statements are presented as those of a development stage enterprise. Activities during the developmental stage primarily include equity based financing and further implementation of the Company’s business plan. The Company has not generated any revenues since inception.
Principles of Consolidation
The accompanying consolidated financial statements of the Company include the accounts of OSL Holdings, Inc. and its wholly owned subsidiaries, OSL, OSL Diversity Marketplace, Inc., OSL Rewards Corporation, Red Rock Pictures Inc. and Studio Store Direct Inc. Inter-company balances and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Examples include estimates of the useful life of equipment and intangibles, the impairment of long-lived assets, intangibles and goodwill, the value of stock compensation and the estimates of revenue and costs related to film production. These estimates are reviewed periodically, and, as adjustments become necessary, they are reported in earnings in the period in which they become known.
Internal Website Development Costs
Under Accounting Standards Codification (“ASC”) 350-50 – Intangibles – Goodwill and Other – Website Development Costs, costs and expenses incurred during the planning and operating stages of the Company's web site development are expensed as incurred. Costs incurred in the web site application and infrastructure development stages are capitalized by the Company and amortized to expense over the web site's estimated useful life or period of benefit. In May 2012 the Company determined that the website under development was not going to be utilized and recorded a charge of $185,800 categorized as “Loss on Impairment of Website Development Costs” in the Condensed Consolidated Statement of Operations for the three and nine months ended May 31, 2012. Prior to this charge, no amortization has been recorded as the website currently remains in development and has not been placed into service.
Fair Value of Financial Instruments
The Company measures its financial assets and liabilities in accordance with the requirements of ASC 820, Fair Value Measurements and Disclosures. ASC 820 clarifies the definition of fair value, prescribes methods for measuring fair value, and establishes a fair value hierarchy to classify the inputs used in measuring fair value as follows:
Level 1-Inputs are unadjusted quoted prices in active markets for identical assets or liabilities available at the measurement date.
Level 2-Inputs are unadjusted quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, inputs other than quoted prices that are observable, and inputs derived from or corroborated by observable market data.
Level 3-Inputs are unobservable inputs which reflect the reporting entity’s own assumptions on what assumptions the market participants would use in pricing the asset or liability based on the best available information.
The carrying value of the Company's cash, accounts payable and accrued liabilities, advances from stockholder, senior secured convertible debt, secured note payable and advances from related parties approximates fair value because of the short-term maturity of these instruments.
Vendor Concentration
As of May 31, 2012 and August 31, 2011, one vendor represented 30% and 100% of the accounts payable and accrued liabilities balance, respectively.
Income Taxes
The Company accounts for income taxes pursuant to ASC 740, Income Taxes. Deferred tax assets and liabilities are recorded for differences between the financial statement and tax basis of the assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Income tax expense is recorded for the amount of income tax payable or refundable for the period increased or decreased by the change in deferred tax assets and liabilities during the period.
Earnings or Loss per Share
The Company accounts for earnings per share pursuant to ASC 260, Earnings per Share, which requires disclosure on the financial statements of "basic" and "diluted" earnings (loss) per share. Basic earnings (loss) per share are computed by dividing net income (loss) by the weighted average number of common shares outstanding for the year. Diluted earnings (loss) per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding plus common stock equivalents (if dilutive) related to stock options and warrants for each year. There were no dilutive financial instruments as of May 31, 2012 or August 31, 2011.
Weighted average number of shares outstanding has been retroactively restated for the equivalent number of shares received by the accounting acquirer as a result of the reverse merger as if these shares had been outstanding as of the beginning of the earliest period presented. The 1,068,255 shares issued to the legal acquirer are included in the weighted average share calculation from October 10, 2011, the date of the exchange agreement.
Stock-Based Compensation
The Company accounts for Stock-Based Compensation in accordance with ASC 718, Compensation – Stock Compensation. ASC 718 establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services. It also addresses transactions in which an entity incurs liabilities in exchange for goods or services that are based on the fair value of the entity’s equity instruments or that may be settled by the issuance of those equity instruments. ASC 718 focuses primarily on accounting for transactions in which an entity obtains employee services in share-based payment transactions. ASC 718 requires that the compensation cost relating to share-based payment transactions be recognized in the consolidated financial statements. That cost is measured based on the fair value of the equity or liability instruments issued.
Recent Accounting Pronouncements
In May 2011, FASB issued Accounting Standards Update (“ASU”) No. 2011-04, “Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs”. ASU No. 2011-04 does not require additional fair value measurements and is not intended to establish valuation standards or affect valuation practices outside of financial reporting. The ASU is effective for interim and annual periods beginning after December 15, 2011. The Company will adopt the ASU as required. The ASU will affect the Company’s fair value disclosures, but will not affect the Company’s results of operations, financial condition or liquidity.
In June 2011, the FASB issued ASU No. 2011-05, “Presentation of Comprehensive Income”. The ASU eliminates the option to present the components of other comprehensive income as part of the statement of changes in shareholders’ equity, and instead requires consecutive presentation of the statement of net income and other comprehensive income either in a continuous statement of comprehensive income or in two separate but consecutive statements. ASU No. 2011-05 is effective for interim and annual periods beginning after December 15, 2011. The Company will adopt the ASU as required. It will have no effect on the Company’s results of operations, financial condition or liquidity.
In September 2011, the FASB issued ASU 2011-08, “Testing Goodwill for Impairment”, an update to existing guidance on the assessment of goodwill impairment. This update simplifies the assessment of goodwill for impairment by allowing companies to consider qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount before performing the two-step impairment review process. It also amends the examples of events or circumstances that would be considered in a goodwill impairment evaluation. The amendments are effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. Early adoption is permitted. The Company is currently evaluating the effect that the adoption of ASU 2011-08 may have on its goodwill impairment testing.
Other recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force), the American Institute of Certified Public Accountants, and the Securities Exchange Commission (the “SEC”) did not or are not believed by management to have a material impact on the Company's present or future consolidated financial statements.
Note 4 – Rescinded Acquisition
On December 15, 2011, the Company acquired a 48% equity interest in Corporate Diversity Solutions, Inc., a New Jersey Corporation (“CDS”) and issued 200,000 shares of common stock valued at $10,000 in December 2011 to the shareholders of CDS to purchase this interest. The Company also entered into an employment agreement with an employee of CDS and issued 500,000 shares valued at $25,000 in accordance with this agreement. The shares issued were valued at $.05 per share, the trading price of the common stock on the date of the agreement. As part of the agreement, family members of the majority shareholders of the Company also acquired a 2% equity interest in CDS. For financial reporting purposes, the Company initially believed its 48% ownership and the ownership of the 2% interest of related individuals gave the Company effective control of CDS.
Pursuant to the terms of the Agreement, all the departing shareholders of CDS (the “Departing Shareholders”) cancelled their shares of CDS. In consideration for the cancelation of shares, CDS indemnified and relieved the Departing Shareholders from any liabilities incurred by CDS. Additionally, OSL requested that United Stationers Inc., (“United Stationers”) a supplier of CDS, release all Departing Shareholders from any liability and OSL and CDS indemnify all Departing Shareholders until such release is obtained. United Stationers also requested that each of Eric Kotch, our CFO, Eli Feder, our President and CEO, and Office Supply Line, Inc., our wholly-owned subsidiary, guarantee the debt owed by CDS to United Stationers (the “Guarantee”).
On April 5, 2012, the Company announced that it was unable to complete a two year audit (the “Audit”) of CDS as required by the rules of the Securities and Exchange Commission and was therefore actively seeking to divest its ownership in CDS. The unrelated CDS shareholders returned $20,000 in cash advanced to CDS and 500,000 shares of OSLH previously issued to CDS employee Ken Scarpa have already been returned. On June 5, 2012, United Stationers cancelled the personal guarantee of OSL, Eric Kotch and Eli Feder. For financial reporting purposes at May 31, 2012, the Company has determined that it never had effective control of the CDS, and the costs of the acquisition totaling $17,297, comprising the issuance of its common shares (aggregate value of $10,000) and cash advances of $7,297 made to CDS, have been reflected as a cost of abandoned acquisition on the accompanying statement of operations for the nine months ended May 31, 2012. The recovery of costs for the three month period ended May 31, 2012 represents the reversal of the fair value of $25,000 of 500,000 shares issued that were subsequently returned and the refund of $20,000 in cash provided to CDS as operating loans prior to the date the acquisition was rescinded.
Note 5 – Advances from Related Parties
The Company has received funding from certain related parties to help fund the operating needs of the Company. The balance outstanding as of May 31, 2012 and August 31, 2011 was $0 and $4,508, respectively. The loans are non-interest bearing, unsecured and due on demand.
Note 6 – Senior Secured Convertible Note
On September 19, 2011, The Exchange LLC (the “Exchange LLC”), an unrelated company, was assigned a $100,000 Senior Secured Convertible Note and accrued interest (the “Senior Secured Convertible Note”) initially issued to Emerald Asset Advisors, LLC (“Emerald”) in 2008. On October 12, 2011, the Company and the Exchange LLC entered into Amendment No. 1 (the “Amendment”) to the Senior Secured Convertible Note and Additional Debt. Pursuant to the Amendment, the maturity date of the Senior Secured Convertible Note was extended to October 5, 2012 the conversion price of the Senior Secured Convertible Note was set at $0.001. Any conversion of debt owed to the Exchange LLC under the Senior Secured Convertible Note must be approved by the Board of Directors of the Company and in the event that the Board of Directors does not approve such conversion request, the corresponding principal amount shall be due. There is no material relationship between the Company or its affiliates and the Exchange LLC, other than with respect to the Amendment.
During the nine months ended May 31, 2012, the Company issued a total of 16,000,000 shares of common stock at the conversion price of $0.001 or $16,000 as partial repayment the Senior Secured Convertible Note. As of May 31, 2012, the total remaining balance outstanding to Exchange LLC is $132,800, including accrued interest of $48,800.
Note 7 – Secured Promissory Note
As part of the Share Exchange, the Company entered into a Share Cancellation Agreement and Release (the "Share Cancellation Agreement") with Crisnic and OSL. Pursuant to the Share Cancellation Agreement, Crisnic cancelled 14,130,000 shares in exchange for $10,000 cash and a Secured Promissory Note in the principal amount of $240,000 (the "Promissory Note"). Under the terms of the Promissory Note, OSL would pay Crisnic $50,000 on November 8, 2011, then $25,000 every subsequent week until December 27, 2011, and then one final payment of $15,000 on January 3, 2012. As security for this Promissory Note, the Company issued Crisnic 650,001 shares of Series A Preferred Stock (the "Preferred Shares") which were placed into escrow, and will be released based on the terms in an Escrow Agreement. The Preferred Shares have 100:1 voting rights. Upon payment of the principal amount due under the Promissory Note the Preferred Shares will be cancelled. In the event that the Demand Date, as defined in the Promissory Note, has passed and Crisnic has not been paid in full, as provided in the Promissory Note, the Preferred Shares will be released to Crisnic. The Promissory Note is non-interest bearing.
Due to delays in raising financing, the Company was unable to meet the original repayment terms of the Promissory Note. The Company has made intermittent payments and the current balance is $170,000 as of May 31, 2012. The Company has not received any written demand for repayment and the preferred shares have not been released from escrow.
Note 8 – Convertible Notes
Asher Enterprises
On November 15, 2011, the Company issued a twelve month $37,500 unsecured Convertible Note (the “Convertible Note”) to Asher Enterprises (“Asher”). The Convertible Note is due on August 17, 2012 bearing interest at 8% per annum where interest accrues and is payable in cash upon maturity provided that the elected conversion to common shares does not occur. Any amount of principal or interest on this Convertible Note which is not paid when due shall bear interest at the rate of twenty two percent (22%) per annum from the due date until the past due amount is paid. At any time or times after 180 days from November 15, 2011 and until the maturity date of August 17, 2012, Asher is entitled to convert any portion of the outstanding and unpaid amount into fully paid and non-assessable shares of common stock. The conversion price will be based on a 49% discount to the average of the three lowest closing bid prices for the Company's common stock during the ten trading days immediately preceding a conversion date.
On January 20, 2012, the Company issued a twelve month $32,500 unsecured Convertible Note (the “Convertible Note”) to Asher Enterprises (“Asher”). The Convertible Note is due on October 23, 2012 bearing interest at 8% per annum where interest accrues and is payable in cash upon maturity provided that the elected conversion to common shares does not occur. Any amount of principal or interest on this Convertible Note which is not paid when due shall bear interest at the rate of twenty two percent (22%) per annum from the due date until the past due amount is paid. At any time or times after 180 days from January 20, 2012 and until the maturity date of October 23, 2012, Asher is entitled to convert any portion of the outstanding and unpaid amount into fully paid and non-assessable shares of common stock. The conversion price will be based on a 49% discount to the average of the three lowest closing bid prices for the Company's common stock during the ten trading days immediately preceding a conversion date.
As of May 31, 2012, the total remaining balance outstanding to Asher is $72,500, including accrued interest of $2,500. On June 15, 2012, the Company issued a total of 705,882 shares of common stock at the conversion price of $0.017 or $12,000 as partial repayment on the Senior Secured Convertible Note.
Panache Capital, LLC
On March 5, 2012, the Company issued a convertible promissory note (the "Note") to Panache Capital, LLC (the "Payee") for the principal sum of $125,000, together with 10% annum interest. The Note will be due on March 5, 2013. All past-due principal of the Note shall bear interest at 15%. There is a 25% prepayment fee. The Payee has the right to convert the Note, in its entirety or in part, into common stock of the Company. The conversion price will be based on a 25% discount to the average of the three lowest closing bid prices for the Company's common stock during the ten trading days immediately preceding a conversion date. Besides the Note, there is no material relationship between the Company or its affiliates and the Payee.
On April 10, 2012, the Company issued a convertible promissory note (the "Note") to Panache Capital, LLC (the "Payee") for the principal sum of $50,000, together with 10% annum interest. The Note will be due on April 10, 2013. All past-due principal of the Note shall bear interest at 15%. There is a 25% prepayment fee. The Payee has the right to convert the Note, in its entirety or in part, into common stock of the Company. The conversion price will be based on a 25% discount to the average of the three lowest closing bid prices for the Company's common stock during the ten trading days immediately preceding a conversion date. Besides the Note, there is no material relationship between the Company or its affiliates and the Payee.
On April 19, 2012, the Company issued a convertible promissory note (the "Note") to Panache Capital, LLC (the "Payee") for the principal sum of $50,000, together with 10% annum interest. The Note will be due on April 19, 2013. All past-due principal of the Note shall bear interest at 15%. There is a 25% prepayment fee. The Payee has the right to convert the Note, in its entirety or in part, into common stock of the Company. The conversion price will be based on a 25% discount to the average of the three lowest closing bid prices for the Company's common stock during the ten trading days immediately preceding a conversion date. Besides the Note, there is no material relationship between the Company or its affiliates and the Payee.
On April 26, 2012, the Company issued a convertible promissory note (the "Note") to Panache Capital, LLC (the "Payee") for the principal sum of $25,000, together with 10% annum interest. The Note will be due on April 26, 2013. All past-due principal of the Note shall bear interest at 15%. There is a 25% prepayment fee. The Payee has the right to convert the Note, in its entirety or in part, into common stock of the Company. The conversion price will be based on a 25% discount to the average of the three lowest closing bid prices for the Company's common stock during the ten trading days immediately preceding a conversion date. Besides the Note, there is no material relationship between the Company or its affiliates and the Payee.
As of May 31, 2012, the total remaining balance outstanding to Panache is $254,400, including accrued interest of $4,400.
Note 9 – Promissory Notes
On August 8, 2011, the Company issued a $24,000 unsecured Promissory Note (the “Note”) to a private investor (“Investor”). The Note is due on demand bearing interest at 8% per annum where interest accrues and is payable in cash upon demand. As of May 31, 2012, the total remaining balance outstanding to Investor is $25,500, including accrued interest of $1,500.
On February 20, 2012, the Company issued a $67,365 unsecured Promissory Note (the “Note”) to Profectus, LLCs (“Profectus”). The Note is due on demand bearing interest at 8% per annum where interest accrues and is payable in cash upon demand. As of May 31, 2012, the total remaining balance outstanding to Profectus is $69,065, including accrued interest of $1,700.
Note 10 – Capital Stock
Preferred Stock
Our articles of incorporation also provide that the Company is authorized to issue up to 5,000,000 shares of preferred stock with a par value of $.001 per share. Our Board of Directors has the authority, without further action by the shareholders, to issue from time to time the preferred stock in one or more series for such consideration and with such relative rights, privileges, preferences and restrictions that the Board may determine. The preferences, powers, rights and restrictions of different series of preferred stock may differ with respect to dividend rates, amounts payable on liquidation, voting rights, conversion rights, redemption provisions, sinking fund provisions and purchase funds and other matters. The issuance of preferred stock could adversely affect the voting power or other rights of the holders of common stock.
Our Series A Convertible Preferred class of stock consisting of 700,000 shares whereby each share of Series A Convertible Preferred would: (i) carry voting rights 100 times the number of common stock votes, (ii) carry no dividends, (iii) carry liquidation preference two times the sum available for distribution to common stock holders, (iv) automatically convert after at such time as the Company has filed a certificate of amendment with the State of Nevada to increase the authorized shares of common stock of the Company to a minimum of 500,000,000 into One Hundred (100) common shares, and (v) not be subject to reverse stock splits and other changes to the common stock capital of the Company. The Company has placed 650,001 of these shares in escrow as a requirement of the exchange transaction, and such shares have not been reflected as outstanding as of May 31, 2012. These shares will be considered outstanding if released from escrow.
Common Stock
During the nine months ended May 31, 2012, the Company issued a total of 16,000,000 shares of common stock at the conversion price of $0.001 or $16,000 representing partial repayment of the Senior Secured Convertible Note, as discussed in Note 6 above.
During the nine months ended May 31, 2012, the Company issued a total of 500,000 shares of common stock at the market price on date of issuance of $0.05 per common share for services rendered. During the three and nine months ended May 31, 2012, the Company recorded $25,000 in stock based compensation expense related to the issuance.
Common Shares Issuable
On December 30, 2011, the Company entered into a private agreement to sell 29,412 shares of the Company’s common stock at $0.17 per share, or $5,000. The Company has not issued the shares as of May 31, 2012. The amount is classified as common shares issuable in the Balance Sheet at May 31, 2012. These shares were issued in June 2012 (see Note 14).
On January 6, 2012, the Company entered into a private agreement to sell 500,000 shares of the Company’s common stock at $0.10 per share, or $50,000. The Company has not issued the shares as of May 31, 2012. The amount is classified as common shares issuable in the Balance Sheet at May 31, 2012.
On April 4, 2012, the Company entered into an agreement for professionally inventor relations services. The agreement obligated the Company to issue 5,000,000 shares of the Company’s common stock which were issued in June 2012. The shares were valued at the closing market price on the date of the agreement for a total expense of $200,000. These shares were issued in June 2012 (See Note 12). The amount is classified as common shares issuable in the Balance Sheet at May 31, 2012.
On May 31, 2012, the Company entered into a private agreement to sell 1,000,000 shares of the Company’s common stock at $0.05 per share, or $50,000. The Company has not issued the shares as of May 31, 2012. The amount is classified as common shares issuable in the Balance Sheet at May 31, 2012. These shares were issued in June 2012 (See Note 12).
Note 11 – Income Taxes
As at May 31, 2012 and August 31, 2011, there were no differences between financial reporting and tax bases of assets and liabilities. The Company will have tax losses available to be applied against future years' income as result of the losses incurred. However, due to the losses incurred in the period and expected future operating results, management determined that it is more likely than not that the deferred tax asset resulting from the tax losses available for carry forward will not be realized through the reduction of future income tax payments. Accordingly a 100% valuation allowance has been recorded for deferred income tax assets.
Note 12 – Subsequent Events
On June 5, 2012, United Stationers cancelled the personal guarantee of OSL, Eric Kotch and Eli Feder. This completed the divestment of our interest from CDS.
On June 20, 2012, the Company issued a total of 7,833,332 shares of common stock. 7,333,332 shares were issued to certain employees to settle previously accrued compensation of $170,000; 200,000 shares due on the CDS transaction; and 300,000 shares valued at $15,000 for consulting services.
In addition, the Company issued 29,412 shares of common stock previously reflected as common shares issuable on the accompanying balance sheet.
On June 13, 2012 and June 25, 2012, the Company issued 2,500,000 shares of common stock valued at the closing market price on date of issuance for payment of investor relations services valued at $200,000. The amount is classified as common shares issuable in the Balance Sheet at May 31, 2012
On June 15, 2012, the Company issued a total of 705,882 shares of common stock at the conversion price of $0.017 or $12,000 as partial repayment on the Convertible Notes (See Note 8).
On July 5, 2012, the Company issued a total of 1,315,789 shares of common stock at the conversion price of $0.0114 or $15,000 as partial repayment on the Convertible Notes (See Note 8).
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Overview
OSL Holdings Inc. is a holding company that will develop or acquire business units with the purpose of collecting and transmitting real-time consumer and business sales data that facilitates the ability to sell data, manage electronic marketplaces, operate real-time loyalty rewards and transact with buyers in multiple channels. We plan to sell data to manufactures for designated markets, such as urban retail, convenience and/or liquor stores. We plan to facilitate developing electronic marketplaces with real time buy-side and sell side capabilities for multiple private & public markets. We plan to operate a real-time loyalty rewards platform that can facilitate the earning and redemption of our currency at the point of the transaction (online, mobile, at retail) as well as on future transactions. The Company plans on leveraging these business units to connect buyers, sellers as well as channels that will clearly differentiate itself from the competitive landscape so that each venture can scale revenues and their respective offerings to their specific market(s) or across markets. When the Company has sufficient financial resources, it plans on bringing onboard additional management talent with broad experience in technology, distribution, interactive and affinity marketing as well as the diversity markets to further our corporate strategy of entering our other lines of business.
An initial focus has been on building the foundations for the business units as well as focused on finalizing the development of our rewards technology platform by the end of the first quarter of calendar 2012 that will initially leverage current and developing business relationships within the diversity and affinity marketplaces that have substantial membership bases. The intent of the rewards program is to design, develop, operate and market a loyalty program that is based on “reward currency” and is available for its members to earn and redeem in online ecommerce sites, brick and mortar retail stores, mobile and through other service providers. The offering is a combination of the loyalty program and the technology platform and marketplace. The benefits of the offering include a platform that can enable millions of members of the “loyalty program” to earn and redeem “reward currency” regardless of the payment method used when making a purchase (i.e. Visa, Amex, MasterCard, or cash) and to redeem the points both in retail stores, or when shopping online regardless of the payment method used to gain discounts on purchases. The program will allow retail merchants and online ecommerce site operators with a package of products and services for better business efficiency and for boosting sales and profitability.
We are also in substantive discussions with several potential acquisitions and strategic partnerships that will expand our reach into Fortune 1000 corporations in retail, telecommunications, publishing, and finance as well as reach into local, state and federal government. The purpose of these discussions is to further secure major corporate contracts, access to additional membership bases, and expand our technology as well as retain the talent needed to execute our plan.
Collectivity these business units will create a transactional network that brings together brands, distributors, wholesalers, retailers (both online commerce and brick and mortar [land based] stores) and consumer’s audiences to accelerate commerce and value. The goal is to take advantage of these cross platform (the ability to purchase products online, through mobile device, or at retail stores), cross channel (the different channels that purchases occur in such as business to business (“B2C”), business to consumer (“B2B”), and public sector such as govt.) and cross vertical (the motivation behind the purchase such as a diversity purchase, purchase to benefit a non-profit, or sustainability purchase of green products) commerce companies to enhance the overall offering of each.
Recent Developments
Share Exchange with OSL
On October 10, 2011, we completed a Share Exchange with OSL whereby OSL exchanged all of the issued and outstanding equity interests of OSL in exchange for 50,000,000 shares of our common stock, par value $0.001 per share. As a result of the Share Exchange, OSL became ourwholly owned subsidiary.
As part of the Share Exchange, the Company entered into a Share Cancellation Agreement and Release (the "Share Cancellation Agreement") with Crisnic and OSL. Pursuant to the Share Cancellation Agreement, Crisnic agreed to cancel 14,130,000 shares in exchange for $10,000 and a Secured Promissory Note in the principal amount of $240,000 (the "Promissory Note"). Under the terms of the Promissory Note, OSL would pay Crisnic $50,000 on November 8, 2011, then $25,000 every subsequent week until December 27, 2011, and then one final payment of $15,000 on January 3, 2012. As a security for this Promissory Note, the Company issued Crisnic 650,001 shares of Series A Preferred Stock (the "Preferred Shares") which were placed into escrow, and will be released based on the terms in an Escrow Agreement (the "Escrow Agreement") by and among the Company, OSL, Crisnic and Sichenzia Ross Friedman Ference Anslow LLP, as escrow agent. The Preferred Shares have 100:1 voting rights. Upon payment of the principal amount due under the Promissory Note the Preferred Shares will be cancelled. In the event that the Demand Date, as defined in the Promissory Note, has passed and Crisnic has not been paid in full, as provided in the Promissory Note, the Preferred Shares will be released to Crisnic. The Promissory note is non-interest bearing.
Due to delays in raising financing, the Company was unable to meet the original repayment terms of the Promissory Note. The Company has made intermittent payments and the current balance is $170,000 as of May 31, 2012. The Company has not received any written notice of default and the preferred shares have not been released from escrow.
In conjunction with the Share Exchange, the Company entered into an Asset Assignment Agreement (the "Asset Assignment Agreement") by and among Reno Rolle ("Rolle"), Todd Wiseman ("Wiseman"), former principals of the Company, and Red Rock Direct (an entity managed by Rolle and Wiseman), pursuant to which the Company assigned certain of its assets to Red Rock Direct in consideration of the cancelation of shares of the Company of Rolle (143,809 shares) and Wiseman (5 million shares due under an employment agreement), pursuant to Share Cancellation Agreements and Releases entered into among each of Rolle (and Lynn Rolle, the wife of Rolle) and Wiseman, the Company and OSL; and the assumption of certain indebtedness of the Company by Red Rock Direct (the "Spin-Off"). The Company assets to be assigned to Red Rock Direct include (i) the Company's current direct response television commercial (hosted by Suzanne Somers) (the "Infomercial"), (ii) the book currently entitled The Anti-Aging Miracle by Dr. James William Forsythe, M.D., and any and all proceeds derived therefrom, including any health supplements sold as described in the Infomercial, (iii) the feature length film entitled "Endless Bummer", (iv) the book currently entitled Sleep and Grow Young by Dr. James William Forsythe, M.D, and (v) a management agreement with Mike Flynt (collectively, the "Assigned Assets").
Pursuant to an agreement dated September 19, 2011, by and between Emerald and the Exchange LLC (“Exchange LLC”), Emerald assigned the Senior Secured Convertible Note and the Additional Debt to the Exchange LLC. On October 12, 2011, the Company and the Exchange LLC entered into Amendment No. 1 (the “Amendment”) to the Senior Secured Convertible Note and Additional Debt. Pursuant to the Amendment, the Additional Debt was forgiven by the Exchange LLC and the maturity date of the Senior Secured Convertible Note was extended to October 5, 2012. In consideration of the forgiveness by the Exchange LLC of the Additional Debt and extending the maturity date of the Senior Secured Convertible Note to October 5, 2012, the Company agreed to amend the conversion price of the Senior Secured Convertible Note to $0.001. Any conversion of debt owed to the Exchange LLC under the Senior Secured Convertible Note must be approved by the Board of Directors of the Company and in the event that the Board of Directors does not approve such conversion request, the corresponding principal amount shall be due by the maturity date. There is no material relationship between the Company or its affiliates and the Exchange LLC, other than with respect to the Amendment.
Corporate Diversity Solutions, Inc.
On December 15, 2011, the Company acquired a 48% equity interest in Corporate Diversity Solutions, Inc., a New Jersey Corporation (“CDS”) and issued 200,000 shares of common stock valued at $10,000 in December 2011 to the shareholders of CDS to purchase this interest. The Company also entered into an employment agreement with an employee of CDS and issued 500,000 shares valued at $25,000 in accordance with this agreement. The shares issued were valued at $0.05 per share, the trading price of the common stock on the date of the agreement. As part of the agreement, family members of the majority shareholders of the Company also acquired a 2% equity interest in CDS. For financial reporting purposes, the Company initially believed its 48% ownership and the ownership of the 2% interest of related individuals gave the Company effective control of CDS.
Pursuant to the terms of the agreement with CDS, all the departing shareholders of CDS (the “Departing Shareholders”) cancelled their shares of CDS. In consideration for the cancelation of shares, CDS indemnified and relieved the Departing Shareholders from any liabilities incurred by CDS. Additionally, OSL requested that United Stationers Inc. (“United Stationers”), a supplier of CDS, release all Departing Shareholders from any liability, and OSL and CDS indemnify all Departing Shareholders until such release is obtained. United Stationers also requested that each of Eric Kotch, our CFO, Eli Feder, our President and CEO, and Office Supply Line, Inc., our wholly-owned subsidiary, guarantee the debt owed by CDS to United Stationers (the “Guarantee”).
On April 5, 2012, the Company announced that it was unable to complete a two year audit (the “Audit”) of CDS as required by the rules of the Securities and Exchange Commission and was therefore actively seeking to divest its ownership in CDS. The unrelated CDS shareholders returned $20,000 in cash advanced to CDS and 500,000 shares of OSLH previously issued to CDS employee Ken Scarpa have already been returned. On June 5, 2012, United Stationers cancelled the personal guarantee of OSL, Eric Kotch and Eli Feder. For financial reporting purposes at May 31, 2012, the Company has determined that it never had effective control of the CDS, and the costs of the acquisition totaling $62,797, comprising the issuance of its common shares (aggregate value of $35,000) and cash advances of $7,297 made to CDS, have been reflected as a cost of abandoned acquisition on the accompanying statement of operations for the nine months ended May 31, 2012.
Financings
On March 5, 2012, the Company issued a convertible promissory note (the "Note") to Panache Capital, LLC ("Panache") for the principal sum of $125,000, together with 10% annum interest. The Note will be due on March 5, 2013. All past-due principal of the Note shall bear interest at 15%. There is a 25% prepayment fee. Panache has the right to convert the Note, in its entirety or in part, into common stock of the Company. The conversion price will be based on a 25% discount to the average of the three lowest closing bid prices for the Company's common stock during the ten trading days immediately preceding a conversion date.
On April 10, 2012, the Company issued a convertible promissory note (the "Note") to Panache for the principal sum of $50,000, together with 10% annum interest. The Note will be due on April 10, 2013. All past-due principal of the Note shall bear interest at 15%. There is a 25% prepayment fee. Panache has the right to convert the Note, in its entirety or in part, into common stock of the Company. The conversion price will be based on a 25% discount to the average of the three lowest closing bid prices for the Company's common stock during the ten trading days immediately preceding a conversion date.
On April 19, 2012, the Company issued a convertible promissory note (the "Note") to Panache for the principal sum of $50,000, together with 10% annum interest. The Note will be due on April 19, 2013. All past-due principal of the Note shall bear interest at 15%. There is a 25% prepayment fee. Panache has the right to convert the Note, in its entirety or in part, into common stock of the Company. The conversion price will be based on a 25% discount to the average of the three lowest closing bid prices for the Company's common stock during the ten trading days immediately preceding a conversion date.
On April 26, 2012, the Company issued a convertible promissory note (the "Note") to Panache for the principal sum of $25,000, together with 10% annum interest. The Note will be due on April 26, 2013. All past-due principal of the Note shall bear interest at 15%. There is a 25% prepayment fee. Panache has the right to convert the Note, in its entirety or in part, into common stock of the Company. The conversion price will be based on a 25% discount to the average of the three lowest closing bid prices for the Company's common stock during the ten trading days immediately preceding a conversion date.
Besides the Notes disclosed here, there is no material relationship between the Company or its affiliates and Panache.
Results of Operations
Comparison of the Three Months Ended May 31, 2012 and 2011
Revenue
The Company had no revenues for the three months ended May 31, 2012 and 2011, respectively.
General and Administrative
General and administrative expenses were $669,939 and $80 for the three months ended May 31, 2012 and 2011, respectively. The increase in expenses was related to the Company executing its business plan including the recent Share Exchange agreement. Expenses during the three months ended May 31, 2012 consisted primarily of professional service expenses and accrued compensation expense. Expenses for the three months ended May 31, 2011consisted primarily of bank fees.
Loss on Impairment of Website Development Costs
During the three months ended May 31, 2012, the Company determined that the website under development was not going to be utilized and recorded a charge of $185,800. No similar expense existed in the prior year.
Cost of Rescinded Acquisition
Recovery of costs on acquisition was $45,000 and $0 for the three months ended May 31, 2012 and 2011, respectively. On April 5, 2012, the Company announced that it was unable to complete a two year audit and was therefore actively seeking to divest its ownership in CDS. During the three months ended May 31, 2012, the Company received reimbursement of $20,000 in expenses from CDS and the cancellation of 500,000 shares issued to CDS which was originally recorded as an expense of $25,000. No similar expense existed in the prior year.
Interest Expense
Interest expense was $10,000 and $0 for the three months ended May 31, 2012 and 2011, respectively. The increase in expenses was related to the increase in debt as compared to the same period of the prior year.
Comparison of the Nine Months Ended May 31, 2012 and from September 16, 2010 (inception) to May 31, 2011
Revenue
The Company had no revenues for the nine months ended May 31, 2012 and from September 16, 2010 (inception) to May 31, 2011, respectively.
General and Administrative
General and administrative expenses were $995,530 for the nine months ended May 31, 2012 as compared to $48,080 from September 16, 2010 (inception) to May 31, 2011. The increase in expenses was related to the Company executing its business plan including the recent Share Exchange agreement. Expenses during the nine months ended May 31, 2012 consisted primarily of professional service expenses and accrued compensation expense. Expenses from inception to May 31, 2011 consisted of primarily of bank fees.
Loss on Impairment of Software Development Costs
During the nine months ended May 31, 2012, the Company determined that the website under development was not going to be utilized and recorded a charge of $185,800. No similar expense existed in the prior year.
Cost of Reverse Merger
Cost of reverse merger was $647,880 for the nine months ended May 31, 2012 as compared to $0 from September 16, 2010 (inception) to May 31, 2012. During the On October 10, 2011, the Company completed a Share Exchange Agreement (the “Share Exchange”) with Office Supply Line, Inc. (“OSL”), a company incorporated in the State of Nevada on September 16, 2010, whereby OSL exchanged all of the issued and outstanding shares of OSL in exchange for 50,000,000 shares of the Company’s common stock. The Company assumed certain obligations totaling $647,880.
Cost of Rescinded Acquisition
Loss on acquisition was $17,297 for the nine months ended May 31, 2012 as compared to $0 from September 16, 2010 (inception) to May 31, 2012. On April 5, 2012, the Company announced that it was unable to complete a two year audit and was therefore actively seeking to divest its ownership in CDS. During the nine months ended May 31, 2012, the Company incurred approximately $17,297 in expenses related to the acquisition. No similar expense existed in the prior year.
Interest Expense
Interest expense was $26,400 for the nine months ended May 31, 2012 as compared to $0 from September 16, 2010 (inception) to May31, 2011. The increase in expenses was related to the increase in debt as compared to the same period of the prior year and $10,000 paid as part of a share cancellation agreement as discussed in Note 6 of the attached condensed consolidated financial statements.
Liquidity and Capital Resources
As of May 31, 2012 we had $26,448 in cash and a working capital deficiency of $1,647,361. A substantial amount of cash will be required in order to continue operations over the next twelve months. Based upon our current cash and working capital deficiency, we will not be able to meet our current operating expenses and will require additional capital. We expect to obtain additional capital in order to execute our business plan. We intend to raise up to $500,000 through private placements in the next several months. Our business plan involves adding qualified executives and rolling out various business units. Our initial capital needs exceed our current capital, but should be satisfied by a small private funding. We believe that substantial contracts will be signed before larger public financing is required.
Cash used in operating activities was $(392,556) and ($0) for the nine months ended May 31, 2012 and from September 16, 2010 (inception) to May 31, 2011, respectively. Cash was primarily used to fund our net losses from operations.
Cash provided from financing activities was $417,857, $100 and $444,365 for the nine month months ended May 31, 2012 and 2011 and from September 16, 2010 (inception) to May 31, 2011, respectively. During the nine months ended May 31, 2012, we received cash of $387,365 from the issuance of promissory notes and we received $105,000 in cash related to common shares to be issued. The Company used $70,000 as repayment of a secured note and the Company paid down, net of receipts, $4,508 of operating loans from related parties.
We believe our current working capital position together with our expected future cash flows from operations will be insufficient to fund our operations in the ordinary course of business, anticipated capital expenditures, debt payment requirements and other contractual obligations for at least the next twelve months.
Assuming a successful divestiture of CDS, we anticipate that we will require $125,000 per month to cover our operating expenses. We anticipate additional annual website and technology development costs of between $300,000 and $500,000. We have been and expect to continue to fund these activities with debt and equity financing.
We have no present agreements or commitments with respect to any material acquisitions of other businesses, products, product rights or technologies or any other material capital expenditures. However, we will continue to evaluate acquisitions of and/or investments in products, technologies, capital equipment or improvements or companies that complement our business and may make such acquisitions and/or investments in the future. Accordingly, we may need to obtain additional sources of capital in the future to finance any such acquisitions and/or investments.
Subsequent Events
On June 5, 2012, United Stationers cancelled the personal guarantee of OSL, Eric Kotch and Eli Feder. This completed the divestment of our interest from CDS.
Off Balance Sheet Arrangements
None.
Going Concern
The Company’s independent certified public accountants have stated in their audit report for the year ended August 31, 2011, that the Company has no current source of revenue and, without realization of additional capital, it would be unlikely for the Company to continue as a going concern. If the Company is not successful in raising the necessary capital, then the Company believes that its independent certified public accountants would issue an opinion with a similar going concern modification regarding the Company’s financial condition.
Critical Accounting Policies
The Company’s consolidated financial statements and related public financial information are based on the application of accounting principles generally accepted in the United States (“GAAP”). GAAP requires the use of estimates; assumptions, judgments and subjective interpretations of accounting principles that have an impact on the assets, liabilities, revenues and expense amounts reported. These estimates can also affect supplemental information contained in our external disclosures including information regarding contingencies, risk and financial condition. We believe our use if estimates and underlying accounting assumptions adhere to GAAP and are consistently and conservatively applied. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ materially from these estimates under different assumptions or conditions. We continue to monitor significant estimates made during the preparation of our consolidated financial statements.
Our significant accounting policies are summarized in Note 3 of our annual consolidated financial statements filed on Form 10-K and dated December 12, 2011. While all these significant accounting policies impact its financial condition and results of operations, the Company views certain of these policies as critical. Policies determined to be critical are those policies that have the most significant impact on the Company’s consolidated financial statements and require management to use a greater degree of judgment and estimates. Actual results may differ from those estimates. Our management believes that given current facts and circumstances, it is unlikely that applying any other reasonable judgments or estimate methodologies would cause effect on our consolidated results of operations, financial position or liquidity for the periods presented in this report.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We are a Smaller Reporting Company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.
Item 4. Controls and Procedures
Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our Principal Executive Officer and Principal Financial Officer, we conducted an evaluation of the effectiveness of our disclosure controls and procedures, (as defined under Rule 13a-15(e) and Rule 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended (Exchange Act)) as of the period ended August 31, 2011. Based on this evaluation, our Principal Executive Officer and Principal Financial Officer concluded that our disclosure controls and procedures are ineffective to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including the Company’s CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.
We are in the continuous process of improving our internal control over financial reporting in an effort to eliminate these material weaknesses through improved supervision and training of our staff, but additional effort is needed to fully remedy these deficiencies. Management has engaged a Certified Public Accountant as a consultant to assist with the financial reporting process in an effort to mitigate some of the identified weaknesses. The Company intends on hiring the necessary staff to address the weaknesses once additional capital is obtained which will allow full operations to commence.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.
We have taken numerous steps to address the underlying causes of the internal control deficiencies, primarily through the development and implementation of policies, improved processes and documented procedures, the retention of third-party experts and contractors, and the hiring of additional accounting personnel with technical accounting and inventory accounting experience.
Changes in internal control over financial reporting
There were no changes in the Company’s internal control over financial reporting that occurred during the last fiscal quarter covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
We are not currently involved in any litigation that we believe could have a material adverse effect on our financial condition or results of operations. There is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the executive officers of our company or any of our subsidiaries, threatened against or affecting our company, our common stock, any of our subsidiaries or of our companies or our subsidiaries’ officers or directors in their capacities as such, in which an adverse decision could have a material adverse effect.
Item 1A. Risk Factors
We are a Smaller Reporting Company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
On April 10, 2012, the Company issued a convertible promissory note (the "Note") to Panache Capital, LLC (the "Payee") for the principal sum of $50,000, together with 10% annum interest. The Note will be due on April 10, 2013. All past-due principal of the Note shall bear interest at 15%. There is a 25% prepayment fee. The Payee has the right to convert the Note, in its entirety or in part, into common stock of the Company. The conversion price will be based on a 25% discount to the average of the three lowest closing bid prices for the Company's common stock during the ten trading days immediately preceding a conversion date.
The issuance of the Note was exempt from registration, pursuant to Section 4(2) of the Securities Act of 1934, as amended (the “Securities Act”). The security qualified for exemption under Section 4(2) of the Securities Act since the issuance of the security by us did not involve a public offering. The offering was not a “public offering” as defined in Section 4(2) due to the insubstantial number of persons involved in the deal, size of the offering, manner of the offering and number of securities offered. We did not undertake an offering in which we sold a high number of securities to a high number of investors. In addition, the shareholder had the necessary investment intent as required by Section 4(2). Based on an analysis of the above factors, we have met the requirements to qualify for exemption under Section 4(2) of the Securities Act for this transaction.
On May 31, 2012, the Company entered into a private agreement to sell 1,000,000 shares of the Company’s common stock at $0.05 per share, or $50,000. The issuance of these shares was exempt from registration, pursuant to Section 4(2) of the Securities Act of 1934, as amended (the “Securities Act”). These securities qualified for exemption under Section 4(2) of the Securities Act since the issuance of the securities by us did not involve a public offering. The offering was not a “public offering” as defined in Section 4(2) due to the insubstantial number of persons involved in the deal, size of the offering, manner of the offering and number of securities offered. We did not undertake an offering in which we sold a high number of securities to a high number of investors. In addition, these shareholders had the necessary investment intent as required by Section 4(2) since they agreed to and received share certificates bearing a legend stating that such securities are restricted pursuant to Rule 144 of the Securities Act. This restriction ensures that these securities would not be immediately redistributed into the market and therefore not be part of a “public offering.” Based on an analysis of the above factors, we have met the requirements to qualify for exemption under Section 4(2) of the Securities Act for this transaction.
Item 3. Defaults Upon Senior Securities
None
Item 4. Mine Safety Disclosures
None
Item 5. Other Information
On April 10, 2012, the Company issued a convertible promissory note (the "Note") to Panache Capital, LLC (the "Payee") for the principal sum of $50,000, together with 10% annum interest. The Note will be due on April 10, 2013. All past-due principal of the Note shall bear interest at 15%. There is a 25% prepayment fee. The Payee has the right to convert the Note, in its entirety or in part, into common stock of the Company. The conversion price will be based on a 25% discount to the average of the three lowest closing bid prices for the Company's common stock during the ten trading days immediately preceding a conversion date. Besides the Note, there is no material relationship between the Company or its affiliates and the Payee.
On May 31, 2012, the Company entered into a private agreement to sell 1,000,000 shares of the Company’s common stock at $0.05 per share, or $50,000.
Item 6. Exhibits
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Certification of Principal Executive Officer, pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
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Certification of Principal Financial Officer, pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
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Certification of Principal Executive Officer, pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
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Certification of Principal Financial Officer, pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
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101.INS *
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XBRL Instance Document
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101.SCH *
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XBRL Taxonomy Schema
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101.CAL *
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XBRL Taxonomy Calculation Linkbase
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101.DEF *
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XBRL Taxonomy Definition Linkbase
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101.LAB *
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XBRL Taxonomy Label Linkbase
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101.PRE *
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XBRL Taxonomy Presentation Linkbase
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In accordance with SEC Release 33-8238, Exhibit 32.1 and 32.2 are being furnished and not filed.
* Furnished herewith. XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Dated: July 13, 2012
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OSL HOLDINGS INC.
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By:
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/s/ Eli Feder
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Eli Feder
Chief Executive Officer
(Duly Authorized Officer and Principal Executive Officer)
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By:
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/s/ Eric Kotch
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Eric Kotch
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Chief Financial Officer, Treasurer and Secretary
(Duly Authorized Officer and Principal Financial Officer)
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