Note 10 – Stockholders’ Equity

Preferred Stock

The Company is authorized to issue 20,000,000 shares of $0.001 par value preferred stock as of February 28, 2019 and August 31, 2018.  

Series A Preferred Stock

On February 20, 2019, the Company filed a Certificate of Amendment to Certificate of Designation (the “Amendment to COD”) for the Company’s Series A Preferred Stock (the “Series A”) permitting the Board to convert all outstanding shares of Series A into shares of the Company’s common stock at the Board’s discretion. On February 22, 2019, the Company issued 115 shares of common stock in exchange for all outstanding 1,000 shares of Series A, and cancelled the Series A. The Company has issued and outstanding 0 and 1,000 shares of Series A as of February 28, 2019 and August 31, 2018, respectively. 

Series B Convertible Preferred Stock

On May 30, 2018, the Company authorized 805,000 shares of Series B Convertible Preferred Stock. The Series B Convertible Preferred Stock is convertible at a rate of $0.78 per share, has a stated value of $0.99 per share, and accrues dividends at the rate of 10% per annum on the stated value. The Series B Convertible Preferred Stock has voting rights equal to those of the underlying common stock. Under certain default condition, the Series B Convertible Preferred Stock is subject to mandatory redemption at 125%, and the conversion price resets to 75% of the market price of the Company’s common stock. On May 31, 2018, the Company issued 803,969.73 shares of Series B Convertible Preferred Stock for the conversion of debt. The Company began to accrue dividends on the Series B Convertible Preferred Stock on June 1, 2018. From June 1, 2018 through August 31, 2018, the Company accrued dividends in the amount of $20,280 on the Series B Convertible Preferred Stock; from September 1, 2018 through October 22, 2018, the Company accrued dividends in the amount of $11,339 on the Series B Convertible Preferred Stock. On October 22, 2018, all 803,969.73 outstanding shares of the Series B Convertible Preferred Stock and accrued dividends in the amount of $31,619 were exchanged for shares of the Company’s Series E Convertible Preferred Stock. On February 12, 2019, the Company filed a Certificate of Withdrawal of Certificate of Designation for the Company’s Series B Preferred Stock (the “Series B”). There were 0 and 803,969.73 shares of the Series B outstanding at February 28, 2019 and August 31, 2018, respectively.

Series E Convertible Preferred Stock

On October 22, 2018, the Company authorized 2,900,000 shares of its Series E Convertible Preferred Stock. The Series E Convertible Preferred Stock is convertible at a rate of $0.78 per share, has a stated value of $0.99 per share, and accrues dividends at the rate of 10% per annum on the stated value. The Series E Convertible Preferred Stock has voting rights equal to those of the underlying common stock. Under certain default condition, the Series E Convertible Preferred Stock is subject to mandatory redemption at 125%, and the conversion price resets to 75% of the market price of the Company’s common stock.

On October 22, 2018, the Company entered into an Exchange Agreement whereby the following were exchanged for 2,846,355.54 shares of Series E Convertible Preferred Stock: (i) Convertible debt and accrued interest in the amounts of $1,027,202 and $66,299, respectively; (ii) 803,969.73 shares of Series B Convertible Preferred Stock; (iii) accrued dividends in the amount $31,619 on the Series B Convertible Preferred Stock; and (iv) outstanding warrants to purchase 463,631 shares of the Company’s common stock. A derivative liability in the amount of $2,003,390 related to the convertible debt and was also settled pursuant to the Exchange Agreement. The Company valued the 2,846,355.14 shares of Series E Convertible Preferred Stock at $2,022,766, and recorded a gain in the amount of $472,267 on the Exchange Agreement during the three months ended November 30, 2018.

During the three months ended February 28, 2019, holders of the Series E Convertible Preferred Stock converted the following:

The Company has issued and outstanding 2,693,678 and 0 of the Series E Preferred Stock at February 28, 2019 and August 31, 2018, respectively

Common Stock

The Company is authorized to issue 580,000,000 shares of $0.001 par value common stock as of February 28, 2019 and August 31, 2018.  On March 14, 2019, the Company filed a certificate of amendment of Certificate of Incorporation with the Delaware Secretary of State to effect a one-for-26 reverse split of common stock effective March 15, 2019. All of the common stock amounts and per share amounts in these financial statements and footnotes have been retroactively adjusted to reflect the effect of this reverse split. The Company had 72,202,907 shares of common stock outstanding immediately before the reverse stock split, and 2,699,502 shares of common stock outstanding immediately after the reverse stock split. The Company had 2,699,502 and 3,064,763 shares of common stock issued and outstanding as of February 28, 2019 and August 31, 2018, respectively.

Six Months Ended February 28, 2019

On November 28, 2018, the Company repurchased 1,048,904 shares of the Company’s common stock from two shareholders in a series of private transactions. The shares were repurchased by the Company for the par value of the pre-reverse split Shares or a total of $27,271.

On December 12, 2018, the Company closed a private placement offering (the “December Offering”) of 1,425,641 units (the “Units”), each unit consisting of (i) one share of the Company’s common stock, par value $0.001 per share and (ii) a warrant to purchase one half of a share of Common Stock. The Units were offered at a fixed price of $1.95 per Unit for gross proceeds of $2,779,840. Costs associated with the December Offering were $122,741, and net proceeds were $2,657,099. The Warrants are exercisable over a two-year period at the initial exercise price of $3.90 per share. The Company entered into a Securities Purchase Agreement, dated as of the Closing Date (the “SPA”) with each investor in the December Offering.

In connection with the December Offering, the Company also entered into a Registration Rights Agreement, dated as of the Closing Date (the “Registration Rights Agreement”) with each investor in the Offering. Pursuant to the Registration Rights Agreement, the Company agreed to use commercially reasonable efforts to file with the Securities and Exchange Commission a registration statement on Form S-1 (or other applicable form) within 60 days following the Closing Date to register the resale of the shares of Common Stock sold in the Offering and shares of Common Stock issuable upon exercise of the Warrants.

On January 4, 2019, the Company repurchased 935,897 shares of the Company’s common stock from David Lelong, the Company’s former Chief Executive Officer, in a private transaction. The Shares were repurchased by the Company for the par value of the pre-reverse split shares of $0.001 per share or a total of $24,333. Prior to the repurchase the shares represented approximately 38% of the Company’s outstanding common stock.

On January 18, 2019, the Company issued 62,389 shares of common stock for the conversion of 49,155.36 shares of the Company’s Series E Preferred stock; on February 6, 2019, the Company issued 62,856 shares of common stock for the conversion of 49,523 shares of the Company’s Series E Preferred stock; and on February 11, 2019, the Company issued 68,538 shares of common stock for the conversion of 54,000 shares of the Company’s Series E Preferred stock

On February 22, 2019, the Company issued 115 shares of common stock in exchange for 1,000 shares of Series A.

Six Months Ended February 28, 2018

On September 28, 2017, the Company issued 8,013 shares of common stock, for the conversion of $16,347 of principal and $8,653 of accrued interest of convertible notes payable.

On November 16, 2017, the Company issued 9,615 shares of common stock, for the conversion of $17,518 of principal and $12,482 of accrued interest of convertible notes payable. 

On January 28, 2018, the Company issued 38,405 shares of common stock, for the conversion of $28,148 of principal and $1,808 of accrued interest of convertible notes payable. 

Warrants

On October 22, 2018, the Company exchanged 463,631 warrants along with certain additional securities for shares of Series E Convertible Preferred Stock.

On December 12, 2018, the Company closed the December Offering which included the issuance of 712,820 warrants (the “December 2018 Warrants”) with an exercise price of $3.90 per share. The holders of the December Warrants have an option to settle in cash in the event of a change of control of the Company. The Company considers the December 2018 warrants to be derivative liabilities, and calculated the fair value of the December 2018 warrants by utilizing a lattice model that values the warrant based upon a probability weighted discounted cash flow model.

The following table summarizes the significant terms of warrants outstanding at February 28, 2019:

Aggregate intrinsic value of warrants outstanding and exercisable at February 28, 2019 was $0. Aggregate intrinsic value represents the difference between the Company’s closing stock price on the last trading day of the fiscal period, which was $2.76 as of February 28, 2019, and the exercise price multiplied by the number of warrants outstanding.

Transactions involving warrants are summarized as follows:

Stock Options

On December 21, 2018, the Company issued 19,231 options to each of Michael Young, the Company’s chairman, and to David Lelong, the Company’s President, Chief Financial Officer, and Secretary (an aggregate of 38,462 options). These options have a five-year term, an exercise price of $6.76, and vest quarterly over a one-year period beginning January 1, 2019. The fair value of each grant of 19,231 options was $154,983. During the three months ended February 28, 2019, the Company recorded the amount of $51,660 representing the pro-rata value of options vested during the period.

The following table summarizes the significant terms of options outstanding at February 28, 2019:

Aggregate intrinsic value of options outstanding and exercisable at February 28, 2019 was $0. Aggregate intrinsic value represents the difference between the Company’s closing stock price on the last trading day of the fiscal period, which was $2.76 as of February 28, 2019, and the exercise price multiplied by the number of options outstanding.

Transactions involving options are summarized as follows: