Convertible Promissory Note	9 Months Ended
May 31, 2014
Notes to Financial Statements
Note - 5 Convertible Promissory Note	On March 21, 2014, the Company entered into a securities purchase agreement (the “Securities Purchase Agreement”) with accredited investors (the “Investors”), pursuant to which the Company agreed to issue and sell secured convertible promissory notes (the “Notes”) in the aggregate principal amount of $1,000,000 (the “Private Placement”). The Notes will be secured by a senior security interest in all of the assets of the Company and its subsidiaries. The Notes will be convertible into common stock of the Company at an adjusted exercise price of $0.15 per share, subject to adjustment in the event of stock splits, stock dividends, or in the event of certain subsequent issuances by the Company of common stock or securities convertible into common stock at a lower price. The Notes will mature two years from the date of issuance. The Notes bear interest at the rate of 8% per annum due and payable in cash on each March 31, June 30, September 30 and December 31 commencing on the second such date after the date of closing and upon maturity. If an event of default has not occurred, the Company may elect to make any interest payments in shares of its common stock at a discount of 10% to the VWAP (volume weighted average price) for the Company’s common stock for the ten final trading days directly preceding such quarterly interest payment date. In the event (i) the Company is prohibited from issuing shares issuable upon conversion of a note, (ii) upon the occurrence of any other event of default, that continues beyond any applicable cure period, (iii) a change in control occurs, or (iv) upon the liquidation, dissolution or winding up of the Company or any subsidiary, then at the noteholder’s option, the Company must pay to each noteholder, a sum of money determined by multiplying up to the outstanding principal amount of the note designated by each such noteholder by, at the noteholder’s election, the greater of (x) 115%, or (y) a fraction the numerator of which is the highest closing price of the Company’s common stock for the thirty days preceding the date demand is made by the noteholder and the denominator of which is the lowest applicable conversion price during such thirty (30) day period, plus accrued but unpaid interest and any other amounts due. Pursuant to the Private Placement, the Company also agreed to issue to the Investors warrants (collectively, the “Warrants”) to purchase common stock in an amount equal to the principal amount of each Note divided by $0.18. The Warrants will have a six-year term, may be exercised on a cashless basis (commencing twelve months after the closing date of the Private Placement only if the common stock underlying the Warrants is not included for public resale in an effective registration statement), and have an exercise price of $0.22, subject to adjustment in the event of stock splits, stock dividends, or in the event of certain subsequent issuances of the Company of common stock or securities convertible into common stock at a lower price. The Notes may not be converted, and the Warrants may not be exercised, to the extent such conversion or exercise would cause the holder, together with its affiliates, to beneficially own a number of shares of common stock which would exceed 9.99% of the Company’s then outstanding shares of common stock following such conversion or exercise. Pursuant to the Subscription Agreement, the Investors shall have demand and piggyback registration rights. The Company’s obligations under the Notes are guaranteed by the Company and secured by a second mortgage on the real estate owned by the Company in British Columbia, Canada. The closing of the Private Placement is subject to certain conditions including the closing of the Exchange Agreement and the filing of this Current Report on Form 8-K. On May 21, 2014, the Company borrowed an additional $150,000 based on a post-split conversion price of $.18. The Company issued an additional 833,333 post-split warrants were issued at a post-split conversion price of $.22. The conversion price of this note would later change to $.15 but would not change the conversion price of the warrants. During the period from the issuance of the Note to May 31, 2014 the terms of the Note were modified to accommodate additional advances totaling $150,000 to increase the aggregate face value of the Note to $1,150,000. As of May 31, 2014, the carrying value of the convertible notes was $111,849 which is net of a debt discount was $1,038,151.

Convertible Promissory Note

9 Months Ended

May 31, 2014

On March 21, 2014, the Company entered into a securities purchase agreement (the “Securities Purchase Agreement”) with accredited investors (the “Investors”), pursuant to which the Company agreed to issue and sell secured convertible promissory notes (the “Notes”) in the aggregate principal amount of $1,000,000 (the “Private Placement”). The Notes will be secured by a senior security interest in all of the assets of the Company and its subsidiaries. The Notes will be convertible into common stock of the Company at an adjusted exercise price of $0.15 per share, subject to adjustment in the event of stock splits, stock dividends, or in the event of certain subsequent issuances by the Company of common stock or securities convertible into common stock at a lower price. The Notes will mature two years from the date of issuance. The Notes bear interest at the rate of 8% per annum due and payable in cash on each March 31, June 30, September 30 and December 31 commencing on the second such date after the date of closing and upon maturity. If an event of default has not occurred, the Company may elect to make any interest payments in shares of its common stock at a discount of 10% to the VWAP (volume weighted average price) for the Company’s common stock for the ten final trading days directly preceding such quarterly interest payment date. In the event (i) the Company is prohibited from issuing shares issuable upon conversion of a note, (ii) upon the occurrence of any other event of default, that continues beyond any applicable cure period, (iii) a change in control occurs, or (iv) upon the liquidation, dissolution or winding up of the Company or any subsidiary, then at the noteholder’s option, the Company must pay to each noteholder, a sum of money determined by multiplying up to the outstanding principal amount of the note designated by each such noteholder by, at the noteholder’s election, the greater of (x) 115%, or (y) a fraction the numerator of which is the highest closing price of the Company’s common stock for the thirty days preceding the date demand is made by the noteholder and the denominator of which is the lowest applicable conversion price during such thirty (30) day period, plus accrued but unpaid interest and any other amounts due. Pursuant to the Private Placement, the Company also agreed to issue to the Investors warrants (collectively, the “Warrants”) to purchase common stock in an amount equal to the principal amount of each Note divided by $0.18. The Warrants will have a six-year term, may be exercised on a cashless basis (commencing twelve months after the closing date of the Private Placement only if the common stock underlying the Warrants is not included for public resale in an effective registration statement), and have an exercise price of $0.22, subject to adjustment in the event of stock splits, stock dividends, or in the event of certain subsequent issuances of the Company of common stock or securities convertible into common stock at a lower price. The Notes may not be converted, and the Warrants may not be exercised, to the extent such conversion or exercise would cause the holder, together with its affiliates, to beneficially own a number of shares of common stock which would exceed 9.99% of the Company’s then outstanding shares of common stock following such conversion or exercise. Pursuant to the Subscription Agreement, the Investors shall have demand and piggyback registration rights. The Company’s obligations under the Notes are guaranteed by the Company and secured by a second mortgage on the real estate owned by the Company in British Columbia, Canada. The closing of the Private Placement is subject to certain conditions including the closing of the Exchange Agreement and the filing of this Current Report on Form 8-K.

On May 21, 2014, the Company borrowed an additional $150,000 based on a post-split conversion price of $.18. The Company issued an additional 833,333 post-split warrants were issued at a post-split conversion price of $.22. The conversion price of this note would later change to $.15 but would not change the conversion price of the warrants.

During the period from the issuance of the Note to May 31, 2014 the terms of the Note were modified to accommodate additional advances totaling $150,000 to increase the aggregate face value of the Note to $1,150,000. As of May 31, 2014, the carrying value of the convertible notes was $111,849 which is net of a debt discount was $1,038,151.