Note 5. Stockholders' Equity

6 Months Ended

Feb. 28, 2014

Stockholders' Equity Note [Abstract]

Stockholders' Equity Note Disclosure [Text Block]

Note 5.  Stockholders’ Equity

Preferred Stock - We are authorized to issue up to 5,000,000 shares of $0.001 par value preferred stock, including 2,000,000 shares of Series A preferred stock that would be entitled to ten votes per share, 2,000,000 shares of Series B preferred stock that would be entitled to two votes per share, and 1,000,000 shares of Series C preferred stock with no voting rights.  Our Board of Directors has the authority to fix and determine the relative economic rights and preferences of preferred shares, as well as the authority to issue such shares without further stockholder approval.  As a result, our Board of Directors could authorize the issuance of a series of preferred stock that would grant to holders preferred rights to our assets upon liquidation, the right to receive dividends before dividends are declared to holders of our common stock, and the right to the redemption of such preferred shares, together with a premium, prior to the redemption of the common stock.  In addition, shares of preferred stock could be issued with terms designed to delay or prevent a change in control or make removal of management more difficult. 

In May 2013, we issued 2,000,000 shares of Series A preferred stock to our Founder for services.  There were no additional or incremental terms or provisions authorized with respect to shares of Series A preferred stock, other than those shares have voting rights and carry a voting weight equal to ten common shares.  Each Series A preferred share may be converted into ten common shares upon approval by our Board of Directors.  

Common Stock – We are authorized to issue up to 195,000,000 shares of our $0.001 par value Class A common stock.

Common Shares Issued Previously Issuable - During the six months ended February 28, 2014, we issued 4,410,000 shares of our common stock previously recorded as issuable at August 31, 2013 in the amount of $132,000.

Common Shares Issued Upon Conversion of Notes Payable - During the three months ended February 28, 2014, we issued 2,600,000 shares of our common stock upon conversion, at holders’ elections, of notes payable of $130,000.

Common Stock Issued and Issuable in connection with Equity Offering – During the three months ended February 28, 2014, we issued 5,900,000 shares of our common stock in connection with our equity offering of common stock at $0.05 per share.  In addition, we agreed to issue 12,052,000 shares of our common stock in connection with our equity offering.  We received proceeds, net of offering costs and amounts paid directly to our creditors, of approximately $330,000 during the three months ended February 28, 2014.

Common Stock Issued for Line of Credit Facility and Guarantees - During the three months ended February 28, 2014, we issued 1,300,000 shares of our common stock to the lender in connection with the line of credit facility, and issued 3,000,000 shares of our common stock in connection with personal guarantees of line of credit borrowing facilities.  We recorded financing expense of $344,000 based on the closing stock price at dates of issuance.

Common Stock Issuable with Notes Payable – During the three months ended February 28, 2014, we agreed to issue 669,000 shares of our common stock in connection with issuances of Convertible Notes Payable.

Common Stock Issuable for Services – During the six months ended February 28, 2014, we issued 5,600,000 shares of our common stock to employees for services and recorded expense of $236,000 based on closing market prices of our common stock on the dates shares were issuable.  Additionally, we entered into a strategic advisory services agreement effective November 1, 2013 with an affiliate of the holder of the Forbearance Note, pursuant to which, among other things, we agreed to issue 2,000,000 shares of our common stock.  We recorded $42,000 during the three months ended November 30, 2013 for shares issuable based on the closing price of our common stock.  We also agreed to issue 250,000 shares of our common stock to a professional service provider in connection with our pending acquisition.  During the three months ended November 30, 2013, we recorded approximately $13,000 for shares issuable based on the closing price of our common stock.

Warrants to Purchase Common Stock Issuable to Placement Agent – During the three months ended November 30, 2013, we recorded debt issue costs of approximately $6,000 for warrants issuable for the purchase of 206,250 shares of our common stock at $0.05 per share for financing transactions during the period.  The estimated fair value of warrants issuable was determined using the Black-Scholes-Merton option pricing model.  During the three months ended February 28, 2014, we recorded stock issue costs of approximately $82,000 for warrants issuable for the purchase of 2,070,267 shares of our common stock at $0.05 per share for financing transactions during the period.  The estimated fair value of warrants issuable was determined using the Black-Scholes-Merton option pricing model.  Stock issue costs are recorded as a decrease in additional paid-in capital.

Warrants to Purchase Common Stock – In connection with offerings of our common stock and notes payable, we have issued warrants to purchase shares of our common stock, and have also issued warrants to purchase shares of our common stock to service providers.  At February 28, 2014, there were warrants outstanding and issuable for the purchase of 20,800,924 shares having a weighted average exercise price of $0.07 per share.