Derivative Liabilities

12 Months Ended

Nov. 30, 2015

Notes to Financial Statements

Derivative Liabilities

5.       Derivative Liabilities

The Company evaluated their convertible note agreements pursuant to ASC 815 and due to there being no minimum or fixed conversion price resulting in an indeterminate number of shares to be issued in the future, the Company determined an embedded derivative existed and ASC 815 applied for their convertible notes. The Company valued the embedded derivatives using the Black-Scholes valuation model.  

Convertible debt with a variable conversion feature

In 2015, we estimated the fair value of the derivatives using the Black-Scholes valuation method with assumptions including: (1) term of 0 to 1.38 years; (2) a computed volatility rate of 372 to 787% (3) a discount rate of 1% and (4) zero dividends.  Upon settlement the valuation of this embedded derivative was recorded as gain/loss on derivative liability. 

In 2014, we estimated the fair value of the derivatives using the Black-Scholes valuation method with assumptions including: (1) term of 0.01 to .90 years; (2) a computed volatility rate of 171 to 339% (3) a discount rate of 1% and (4) zero dividends.  Upon settlement the valuation of this embedded derivative was recorded as gain/loss on derivative liability.

Redeemable convertible preferred stock

In 2015, we estimated the fair value of the derivatives using the Black-Scholes valuation method with assumptions including: (1) term reflecting the immediate exercisability; (2) a computed volatility rate of 372% (3) a discount rate of 1% and (4) zero dividends. No preferred stock derivatives existed in fiscal 2014

Tainted conventional convertible debt

In 2015, we estimated the fair value of the derivative using the Black-Scholes valuation method with assumptions including: (1) term of 0 to 1.0 years; (2) a computed volatility rate of 372 to 787% (3) a discount rate of 1% and (4) zero dividends.  The valuation of this embedded derivative was recorded with an offsetting gain/loss on derivative liability.

In 2014, we estimated the fair value of the derivative using the Black-Scholes valuation method with assumptions including: (1) term of 0 to 0.75 years; (2) a computed volatility rate of 171 to 339% (3) a discount rate of 1% and (4) zero dividends.  The valuation of this embedded derivative was recorded with an offsetting gain/loss on derivative liability.

 Tainted stock warrants

The Company also evaluated all outstanding warrants and options to determine whether these instruments may be tainted. All warrants outstanding were considered tainted as a result of the tainted equity environment and potential inability of the Company to settle the instruments with shares of the Company’s stock as the number of shares issuable cannot be estimated and could exceed that amount of authorized shares available to be issued by the Company. The Company valued the embedded derivatives within the stock warrants using the Black-Scholes valuation model.  

In 2015, we estimated the fair value of the derivative using the Black-Scholes valuation method with assumptions including: (1) term of 0.21 to 7.58 years; (2) a computed volatility rate of 372 to 787% (3) a discount rate of 1% and (4) zero dividends.  The valuation of this embedded derivative was recorded with an offsetting gain/loss on derivative liability.

In 2014, we estimated the fair value of the derivative using the Black-Scholes valuation method with assumptions including: (1) term of 0.01 to 8.58 years; (2) a computed volatility rate of 171 to 339% (3) a discount rate of 1% and (4) zero dividends.  The valuation of this embedded derivative was recorded with an offsetting gain/loss on derivative liability.

Activity for embedded derivative instruments during the year ended November 30, 2015 was as follows:

			Initial valuation
			of derivative
			liabilities upon		Change in
	Balance at		issuance of new		fair value of						Conversion			Balance at
	November 30,		securities during		derivative			Debt			of debt to			November 30,
	2014		the period		liabilities			Forgiveness			equity			2015
Variable convertible debt	$	527,781	$	81,792	$	2,246,080		$	(1,153,545	)	$	(1,535,614	)	$	166,494
Redeemable convertible preferred stock		—		275,000		137,500									412,500
Tainted convertible debt		106,246		118,790		(130,018	)		—			—			95,018
Tainted stock options		—		—					—			—
Tainted warrants		5,312		2,000		10,888						—			18,200
	$	639,339	$	477,582	$	2,264,450		$	(1,154,545	)	$	(1,535,614	)	$	692,212

Activity for embedded derivative instruments during the year ended November 30, 2014 was as follows:

			Initial valuation
			of derivative
			liabilities upon		Change in			Exercise of
	Balance at		issuance of new		fair value of			Stock		Conversion			Balance at
	November 30,		securities during		derivative			options/		of debt to			November 30,
	2013		the period		liabilities			Warrants		equity			2014
Variable convertible debt	$	1,467,182	$	230,837	$	(56,277	)	$	—	$	(213,961	)	$	527,781
Tainted convertible debt		139,953		155,179		(188,886	)		—		—			106,246
Tainted stock options		—		—		—			—		—			—
Tainted warrants		198,035		—		(192,,723	)		—		—			5,312
	$	1,805,170	$	386,016	$	(1,337,886	)	$	—	$	(213,961	)	$	639,339