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Notes Payable

12 Months Ended

Aug. 31, 2013

On December 20, 2012, the Company issued a $3,500 two-year convertible promissory note due December 20, 2014, to a consultant for services rendered. The note bears interest at a variable rate of 2% plus the “Base Rate” (the greater of (i) the rate in the Wall Street Journal for notes maturing in three months after issuance and (ii) the prime rate in the Wall Street Journal). The overall interest rate through July 24, 2013 (the settlement date) was 5.25%. The note is convertible into common shares of the Company at the rate of $0.033 per share. The Company evaluated the convertible note and determined that, for the embedded conversion option, there was no beneficial conversion value to record as the conversion price was the same as the fair market value of the common shares on the note issue date. On July 24, 2013, the convertible note payable was converted into 106,061 common shares (See Note 5).

On January 18, 2013, the Company’s chief executive officer (“CEO”) loaned the Company $10,000 and received a convertible promissory note due January 18, 2015. The note bears interest at a variable rate of 2% plus the “Base Rate” (the greater of (i) the rate in the Wall Street Journal for notes maturing in three months after issuance and (ii) the prime rate in the Wall Street Journal). The overall interest rate through July 24, 2013 (the settlement date) was 5.25%. The note is convertible into common shares of the Company at the rate of $0.07 per share. The Company evaluated the convertible note and determined that, for the embedded conversion option, there was no beneficial conversion value to record as the conversion price was the same as the fair market value of the common shares on the note issue date. On July 24, 2013, the convertible note payable was converted into 142,857 common shares (See Notes 5 and 7).

On January 24, 2013, the Company issued a $1,750 two-year convertible promissory note due January 24, 2015, to a consultant for services rendered. The note bears interest at a variable rate of 2% plus the “Base Rate” (the greater of (i) the rate in the Wall Street Journal for notes maturing in three months after issuance and (ii) the prime rate in the Wall Street Journal). The overall interest rate through July 24, 2013 (the settlement date) was 5.25%. The note is convertible into common shares of the Company at the rate of $0.07 per share. The Company evaluated the convertible note and determined that, for the embedded conversion option, there was no beneficial conversion value to record as the conversion price was the same as the fair market value of the common shares on the note issue date. On July 24, 2013, the convertible note payable was converted into 25,000 common shares (See Note 5).

On May 2, 2013, the Company’s chief executive officer (“CEO”) loaned the Company $4,100 and received a convertible promissory note due May 2, 2015. The note bears interest at a variable rate of 2% plus the “Base Rate” (the greater of (i) the rate in the Wall Street Journal for notes maturing in three months after issuance and (ii) the prime rate in the Wall Street Journal). The overall interest rate through July 24, 2013 (the settlement date) was 5.25%. The note is convertible into common shares of the Company at the rate of $0.07 per share. The Company evaluated the convertible note and determined that, for the embedded conversion option, there was no beneficial conversion value to record as the conversion price was the same as the fair market value of the common shares on the note issue date. On July 24, 2013, the convertible note payable was converted into 58,571 common shares (See Notes 5 and 7).

On May 15, 2013, the Company issued a $1,750 two-year convertible promissory note due May 15, 2015, to a consultant for services rendered. The note bears interest at a variable rate of 2% plus the “Base Rate” (the greater of (i) the rate in the Wall Street Journal for notes maturing in three months after issuance and (ii) the prime rate in the Wall Street Journal). The overall interest rate through July 24, 2013 (the settlement date) was 5.25%. The note is convertible into common shares of the Company at the rate of $0.08 per share. The Company evaluated the convertible note and determined that, for the embedded conversion option, there was no beneficial conversion value to record as the conversion price was the same as the fair market value of the common shares on the note issue date. On July 24, 2013, the convertible note payable was converted into 21,875 common shares (See Note 5).

On July 3, 2013, the Company issued a two-year convertible promissory note due July 3, 2015 in exchange for cash proceeds of $20,000. The note bears interest at a variable rate of 2% plus the “Base Rate” (the greater of (i) the rate in the Wall Street Journal for notes maturing in three months after issuance and (ii) the prime rate in the Wall Street Journal). The overall interest rate through July 24, 2013 (the settlement date) was 5.25%. The note is convertible into common shares of the Company at the rate of $0.045 per share. The Company evaluated the convertible note and determined that, for the embedded conversion option, there was no beneficial conversion value to record as the conversion price was the same as the fair market value of the common shares on the note issue date. On July 24, 2013, the convertible note payable was converted into 444,444 common shares (See Note 5).

On July 30, 2013, the Company issued a two-year promissory note due July 29, 2015 in exchange for cash proceeds of $6,000. The note bears interest at 3.25% and requires quarterly interest payments.

On August 29, 2013, the Company issued a two-year promissory note due August 28, 2015 in exchange for cash proceeds of $11,250. The note bears interest at 3.25% and requires quarterly interest payments.

During the year ended August 31, 2013, interest expense of $571 (of which $318 is for related parties) was recognized on the aforementioned notes payable. During the year ended August 31, 2013, $550 (of which $318 was for related parties) of accrued interest was repaid. As of August 31, 2013, accrued interest payable was $21 (of which $0 is for related parties), which is included in accounts payable and accrued expenses on the accompanying consolidated balance sheet (See Note 7).

Notes payable consisted of the following at August 31, 2013:

	August 31, 2013
Note payable - originating July 30, 2013; quarterly interest payments required; bearing interest at 3.25%; maturing at July 29, 2015	$	6,000

Note payable - originating August 29, 2013; quarterly interest payments required; bearing interest at 3.25%; maturing at August 28, 2015		11,250
Total		17,250
Less: Current maturities		-
Amount due after one year	$	17,250

Future maturities of notes payable are as follows:

Year Ending August 31,
2014	$	-
2015		17,250
	$	17,250

- Definition

The entire disclosure for information about short-term and long-term debt arrangements, which includes amounts of borrowings under each line of credit, note payable, commercial paper issue, bonds indenture, debenture issue, own-share lending arrangements and any other contractual agreement to repay funds, and about the underlying arrangements, rationale for a classification as long-term, including repayment terms, interest rates, collateral provided, restrictions on use of assets and activities, whether or not in compliance with debt covenants, and other matters important to users of the financial statements, such as the effects of refinancing and noncompliance with debt covenants.

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