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EXCEL - IDEA: XBRL DOCUMENT - OSL HOLDINGS, INC.Financial_Report.xls
EX-3.1 - CERTIFICATE OF AMENDMENT TO ARTICLES OF INCORPORATION - OSL HOLDINGS, INC.f10q1112ex3i_oslholdings.htm
EX-32.1 - CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER, PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002. - OSL HOLDINGS, INC.f10q1112ex32i_oslholdings.htm
EX-31.1 - CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER, PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002. - OSL HOLDINGS, INC.f10q1112ex31i_oslholdings.htm
EX-10.1 - EMPLOYMENT AGREEMENT WITH ERIC KOCH - OSL HOLDINGS, INC.f10q1112ex10i_oslholdings.htm
EX-10.2 - EMPLOYMENT AGREEMENT WITH ELI FEDER - OSL HOLDINGS, INC.f10q1112ex10ii_oslholdings.htm
EX-31.2 - CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER, PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002. - OSL HOLDINGS, INC.f10q1112ex31ii_oslholdings.htm
EX-10.4 - EMPLOYMENT AGREEMENT WITH BOB ROTHENBERG - OSL HOLDINGS, INC.f10q1112ex10iv_oslholdings.htm
EX-10.3 - EMPLOYMENT AGREEMENT WITH STEVEN GORMLEY - OSL HOLDINGS, INC.f10q1112ex10iii_oslholdings.htm


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

S QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarter ended: November 30, 2012

o    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___________ to ___________

Commission File Number: 333-108690

OSL HOLDINGS INC.
(Exact name of registrant as specified in its charter)

Nevada
 
98-0441032
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
     
60 Dutch Hill Road, Suite 15
Orangeburg, NY
 
10962
(Address of principal executive offices)
 
(Zip Code)
 
(845) 363-6776
(Registrant’s telephone number, including area code)

N/A
(Former name, former address and former fiscal year, if changed since last report)

Indicate by checkmark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company filer. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer o
Accelerated Filer o
Non-Accelerated Filer o
(Do not check if a smaller reporting company)
Smaller Reporting Company x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

Indicate the number of shares outstanding of each of the issuer’s classes of common equity, as of January 9, 2013: 123,871 shares of common stock, including a total of 1,750 shares issuable under contractual commitments.
 
 
 

 
 
OSL HOLDINGS INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
(FORMERLY RED ROCK PICTURES HOLDINGS, INC. AND SUBSIDIARIES)

FORM 10-Q
___________________

TABLE OF CONTENTS
___________________
 
   
Page
     
PART I - FINANCIAL INFORMATION
     
Item 1.
Financial Statements (unaudited)
 
 
Condensed Consolidated Balance Sheets
4
 
Condensed Consolidated Statements of Operations
5
 
Condensed Consolidated Statements of Stockholders' Deficit
6
 
Condensed Consolidated Statements of Cash Flows
7
 
Notes to Condensed Consolidated Financial Statements
8
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
16
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
18
Item 4.
Controls and Procedures
18
 
PART II -- OTHER INFORMATION
     
Item 1.
Legal Proceedings
19
Item 1A.
Risk Factors
19
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
19
Item 3.
Defaults Upon Senior Securities
19
Item 4.
Mine Safety Disclosures
19
Item 5
Other Information
19
Item 6.
Exhibits
21
 
SIGNATURES
22
 
 
 

 
 
 USE OF CERTAIN DEFINED TERMS

Except as otherwise indicated by the context, references in this report to “we,” “us,” “our,” “our Company,” or “the Company” are to the combined business of OSL Holdings Inc. and its consolidated subsidiaries.

In addition, unless the context otherwise requires and for the purposes of this report only:
 
“Commission” refers to the Securities and Exchange Commission;
“Crisnic” refers to Crisnic Fund, S.A., a Costa Rican corporation;
“Exchange Act” refers to the Securities Exchange Act of 1934, as amended;
“OSL” refers to Office Supply Line, Inc., a Nevada corporation and a wholly-owned subsidiary of the Company;
“Red Rock” refers to the Company while named Red Rock Pictures Holdings, Inc.; and
“Securities Act” refers to the Securities Act of 1933, as amended.

CAUTIONARY STATEMENT RELATED TO FORWARD LOOKING STATEMENTS
 
This Quarterly Report on Form 10-Q includes certain forward-looking statements as defined within Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, relating to revenue, revenue composition, earnings, projected plans, performance, contract procurement, demand trends, future expense levels, trends in average headcount and gross margins, and the level of expected capital expenditures. Such forward-looking statements are based on the beliefs of, estimates made by, and information currently available to OSL Holdings Inc. management and are subject to certain risks, uncertainties and assumptions. Any statements contained herein (including without limitation statements to the effect that the Company or management "estimates," "expects," "anticipates," "plans," "believes," "projects," "continues," "may," "will," "could," or "would" or statements concerning "potential" or "opportunity" or variations thereof or comparable terminology or the negative thereof) that are not statements of historical fact should be construed as forward-looking statements. The actual results of OSL Holdings Inc. may vary materially from those expected or anticipated in these forward-looking statements. The realization of such forward-looking statements may be impacted by certain important unanticipated factors including those discussed in "Management's Discussion and Analysis of Financial Condition and Results of Operations." Because of these and other factors that may affect OSL Holdings Inc.’s operating results, past performance should not be considered as an indicator of future performance, and investors should not use historical results to anticipate results or trends in future periods. The Company undertakes no obligation to publicly release the results of any revisions to these forward-looking statements that may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. Readers should carefully review the risk factors described in this and other documents that OSL Holdings Inc. files from time to time with the Securities and Exchange Commission ("SEC"), including subsequent Current Reports on Form 8-K, Quarterly Reports on Form 10-Q and Annual Reports on Form 10-K.
 
 
 

 
 
PART I – FINANCIAL INFORMATION
 
Item 1. 
Financial Statements

OSL HOLDINGS INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED BALANCE SHEETS
 
   
As of
November 30,
   
As of
August 31,
 
   
2012
   
2012
 
   
(Unaudited)
       
Assets
 
Current assets:
           
Cash
 
$
232
   
$
202
 
Prepaid and other assets
   
2,000
     
2,000
 
Total current assets
   
2,232
     
2,202
 
                 
Total assets
 
$
2,232
   
$
2,202
 
                 
Liabilities and Stockholders’ Deficit
 
Current liabilities:
               
Accounts payable and accrued liabilities
 
$
699,742
   
$
659,001
 
Accrued officers compensation
   
420,000
     
270,000
 
Advances from related parties
   
41,577
     
14,727
 
Senior secured convertible note, including accrued interest of $53,300
   
137,300
     
135,300
 
Secured promissory note
   
170,000
     
170,000
 
Convertible notes, including accrued interest of $25,370
   
213,453
     
318,142
 
Promissory notes, including accrued interest of $2,500
   
26,500
     
26,000
 
Derivative liability
   
311,463
     
250,970
 
Total current liabilities
   
2,020,035
     
1,844,140
 
                 
Stockholders’ deficit:
               
Common Stock, $.001 par value; 450,000,000 shares authorized; 117,121 and 86,694 shares issued and outstanding at November 30, 2012 and August 31, 2012, respectively
   
117
     
87
 
Additional paid-in capital
   
1,132,940
     
858,597
 
Common shares issuable (1,750 and 1,625 shares, respectively)
   
103,333
     
102,083
 
Deficit accumulated during the development stage
   
(3,254,193
)
   
(2,802,705
)
Total stockholders’ deficit
   
(2,017,803
)
   
(1,841,938
)
Total liabilities and stockholders’ deficit
 
$
2,232
   
$
2,202
 

See accompanying notes to the condensed consolidated financial statements.
 
 
4

 
 
OSL HOLDINGS INC. AND SUBSIDIARIES
 (A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
 
   
Three Months
Ended
November 30, 2012
   
Three Months Ended
November 30, 2011
   
September 15, 2010
(Inception) to
November 30, 2012
 
   
(Unaudited)
   
(Unaudited)
   
(Unaudited)
 
Revenues
 
$
-
   
$
-
         
Operating expenses:
                       
General and administrative expenses
   
271,310
     
96,636
     
1,896,557
 
Impairment of website development costs
   
-
       
-
   
185,800
 
Operating loss
   
(271,310
)
   
(96,636
)
   
(2,082,357)
 
Other:
                       
Loss on debt modification
   
(43,066)
       
-
   
(43,066)
 
Interest expense
   
(129,119)
     
(2,500)
     
(307,630)
 
Cost of offering
   
(44,172)
             
(189,682)
 
Change in value of derivative liability
   
36,179
             
43,719
 
Reverse merger costs
   
-
     
100,000
     
(647,880)
 
Costs of rescinded acquisition
   
-
     
-
     
(27,297)
 
Other expense, net
   
(180,178
)
   
97,500
     
(1,171,836)
 
Net income (loss)
 
$
(451,488
)
 
$
864
     
(3,254,193)
 
Net income (loss) per common share
                       
Net income (loss) per common share – basic and diluted
 
$
(4.32
)
 
$
0.02
         
Weighted average common shares outstanding – basic and diluted
   
104,536
     
52,149
         
 
See accompanying notes to the condensed consolidated financial statements.
 
 
5

 
 
OSL HOLDINGS INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ DEFICIT
THREE MONTHS ENDED NOVEMBER 30, 2012
(UNAUDITED)
 
   
Common Stock
   
Additional
Paid in
   
Common
Shares
         
Stockholders’
 
   
Shares
   
Amount
   
Capital
   
Issuable
   
Deficit
   
Deficit
 
Balance, August 31, 2012
   
86,694
   
$
87
   
$
858,597
   
$
102,083
   
$
(2,802,705
)  
$
(1,841,938
)
                                                 
Common stock to be issued for employee compensation
                           
1,250
             
1,250
 
                                                 
Shares issued upon conversion of Convertible Notes
   
30,424
     
30
     
34,147
     
-
     
-
     
34,177
 
                                                 
Fair value of beneficial conversion feature of Convertible Notes upon debt modification
                   
240,196
                     
240,196
 
                                                 
Net loss
   
-
     
-
     
-
     
-
     
(451,488
)
   
(451,488
)
                                                 
Balance, November 30, 2012 (Unaudited)
   
117,121
   
$
117
   
$
1,132,940
   
$
103,333
   
$
(3,254,193
)
 
$
(2,017,803
)
 
See accompanying notes to the condensed consolidated financial statements.
 
 
6

 
 
OSL HOLDINGS INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
 
   
Three Months 
Ended 
November 30, 2012
   
Three Months
Ended
November 30, 2011
   
September 16, 2010
(Inception) to
November 30, 2012
 
   
(Unaudited)
   
(Unaudited)
   
(Unaudited)
 
Cash flows from operating activities:
                 
Net income (loss):
 
$
(451,488
 
$
864
   
$
(3,254,193
)
Adjustments to reconcile net loss to cash (used in) provided by operating activities:
                       
Cost of reverse merger
   
-
     
(100,000
)    
647,880
 
Impairment of website development costs
   
-
             
185,800
 
Fair value of stock issued upon rescinded acquisition
   
-
     
-
     
20,000
 
Fair value of stock issued for services
   
-
     
-
     
240,000
 
Stock issued to employees for compensation and services
   
1,250
     
-
     
147,583
 
Cost of offering
   
44,172
     
-
     
189,682
 
Loss on modification of debt
   
43,066
     
-
     
43,066
 
Change in fair value of derivative liability
   
(36,179
   
-
     
(43,719
)
Amortization of note discount
   
75,664
     
-
     
145,474
 
Accrued interest
   
13,187
     
2,500
     
42,787
 
Non cash interest expense on note conversions
   
40,267
     
-
     
109,368
 
(Increase) decrease in:
                       
Prepaid and other assets
   
-
     
12,500
     
10,500
 
Accrued compensation
   
150,000
     
-
     
640,000
 
Accounts payable and accrued liabilities
   
40,741
     
84,883
     
260,062
 
Net cash (used in) provided by operating activities
   
(79,320
)    
747
     
(615,710
)
                         
Cash flows from financing activities:
                       
Advances from related parties
   
26,850
     
9,000
     
41,577
 
Payment of senior secured convertible note
   
-
     
(10,000
)    
(70,000
)
Payment of promissory note
   
-
     
-
     
(3,000
)
Cash received on issuance of convertible promissory notes
   
52,500
     
-
     
453,000
 
Cash received on issuance of  a promissory note
   
-
     
-
     
67,365
 
Cash received on shares to be issued
   
-
     
-
     
100,000
 
Cash received on issuance of common stock
   
-
     
-
     
27,000
 
Net cash provided by (used in) financing activities
   
79,350
     
(1,000
)    
615,942
 
                         
Change in cash:
                       
Net (decrease) increase
   
30
     
(214
)    
232
 
Balance at beginning of period
   
202
     
1,147
     
-
 
Balance at end of period
 
$
232
   
$
933
   
$
232
 
                         
Supplemental disclosures of cash flow information:
                       
                         
Cash paid for:
                       
Income taxes
 
$
-
   
$
-
   
$
   
Interest
 
$
-
   
$
-
   
$
   
                         
Non cash financing activities
                       
Fair value of common shares issued upon conversion of senior secured promissory note
 
$
34,177
   
$
8,300
   
$
50,177
 
Fair value of common shares issued upon conversion of convertible notes
 
-
   
$
     
$
39,000
 
Accounts payable assumed on reverse acquisition
 
$
-
   
$
257,919
   
$
265,380
 
Acquisition of website for accounts payable
 
$
-
   
$
-
   
$
185,800
 
Promissory notes assumed on reverse acquisition
 
$
-
   
$
-
   
$
142,500
 
Issuance of note payable on reverse merger
 
$
-
   
$
240,000
   
$
240,000
 
Fair value of common shares issued upon conversion of accrued compensation
 
$
-
   
$
  -
   
$
220,000
 
Fair value of beneficial conversion feature of convertible notes
 
$
336,868
   
$
     
$
678,711
 
 
See accompanying notes to the condensed consolidated financial statements.
 
 
7

 
 
 OSL HOLDINGS INC. AND SUBSIDIARIES
 
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 
THREE MONTHS ENDED NOVEMBER 30, 2012 AND 2011 AND FROM INCEPTION (SEPTEMBER 16, 2010)
TO NOVEMBER 30, 2012

Note 1- Organization, Nature of Business and Basis of Presentation
 
Organization and Nature of Business

OSL Holdings, Inc. (the “Company”) was incorporated under the name Red Rock Pictures, Inc. on August 18, 2006 under the laws of the State of Nevada and was engaged in the business of developing, financing, producing and licensing feature-length motion pictures and direct response infomercials. On June 6, 2008, the Company entered into a stock for stock exchange agreement with Studio Store Direct, Inc. (“SSD”). Pursuant to the stock for stock exchange agreement, the Company acquired 100% of the assets of SSD by issuing 11,000 restricted common shares in exchange for all the issued and outstanding shares of SSD. With the addition of SSD, the Company also operated as a traditional infomercial production and distribution company.

On October 10, 2011, the Company completed a Share Exchange Agreement (the “Share Exchange”) with Office Supply Line, Inc. (“OSL”), a company incorporated in the State of Nevada on September 16, 2010, whereby OSL exchanged all of the issued and outstanding shares of OSL in exchange for 50,000 shares of the Company’s common stock. As part of the Share Exchange, the Company entered into a Share Cancellation Agreement and Release (the "Share Cancellation Agreement") with Crisnic Fund S.A., a Costa Rican corporation (“Crisnic”), and OSL, pursuant to which Crisnic cancelled 14,130 shares of the Company in exchange for $10,000 cash and a Secured Promissory Note of OSL in the principal amount of $240,000 (the "Promissory Note"). As security for the repayment of the Promissory Note, the Company agreed to issue into escrow 650,001 shares of Series A Preferred Stock (the "Preferred Shares"), to have been released based on the escrow and default terms of the Promissory Note. The Company recently discovered that the Preferred Shares were never issued. Due to delays in raising financing, OSL was unable to meet the original repayment terms of the Promissory Note. OSL has made intermittent payments and the current balance of $170,000 as of December 1, 2012 is currently due and payable. The Company and OSL recently received a written notice of default in accordance with the terms of the Promissory Note and the Company is obligated to issue the 650,001 Preferred Shares to Crisnic. The Preferred Shares have 100:1 voting rights. Further examination of the Company’s Articles of Incorporation, as amended, has revealed that the Company’s Articles of Incorporation do not authorize any shares of preferred stock.  Accordingly, the Company does not believe that it is legally able to issue the preferred shares required by the Crisnic loan agreement at this time.

Immediately prior to the Share Exchange, the Company entered into an Asset Assignment Agreement (the "Asset Assignment Agreement") by and among Reno Rolle ("Rolle"), Todd Wiseman ("Wiseman"), former principals of the Company, and Red Rock Direct (an entity managed by Rolle and Wiseman), pursuant to which the Company assigned certain of its assets to Red Rock Direct in consideration of the cancelation of shares of the Company of Rolle (144 shares that had not yet been issued) and Wiseman (5,000  shares due under an employment agreement), pursuant to Share Cancellation Agreements and Releases entered into among each of Rolle (and Lynn Rolle, the wife of Rolle) and Wiseman, the Company and OSL; and the assumption of certain indebtedness of the Company by Red Rock Direct.
 
For financial statement reporting purposes, the Share Exchange was treated as a reverse acquisition, with OSL deemed the accounting acquirer and the Company deemed the legal acquirer. These financial statements reflect the historical activity of OSL, and the historical stockholders’ equity of OSL has been retroactively restated for the equivalent number of shares received in the Share Exchange after giving effect to the differences in par value offset to additional paid-in capital. In connection with the Share Exchange, OSL is deemed to have issued an additional 1,068 shares of common stock to its stockholders existing prior to the Share Exchange. Reverse merger costs of approximately $649,000 include net liabilities of $408,000 assumed upon the reverse merger and the $250,000 cost of the Share Cancellation Agreement.

On October 17, 2011, the Company changed its name to OSL Holdings Inc., and became a holding company for its operating subsidiaries.
 
On November 16, 2012, the Board of Directors of the Company unanimously adopted a resolution approving an amendment to the Company’s Articles of Incorporation to effect a one-for-one thousand reverse split of the Company’s outstanding shares of Common Stock.  As a result of the reverse stock split, every one thousand shares of the common stock of the Company were combined into one share of common stock and outstanding shares and per share data have been retroactively adjusted to effect the reverse split as if it occurred at the beginning of the earliest period presented.  Immediately after the January 9, 2013 effective date, the Company had approximately 121,121 shares issued and outstanding.
 
 
8

 
 
On December 4, 2012, the Company amended its Articles of Incorporation to increase the number of authorized shares available for issuance from 120,000,000 to 450,000,000.

Note 2 – Going Concern

The Company's consolidated financial statements are presented on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The Company has experienced losses from operations since inception, does not have significant sources of revenue and has working capital and stockholders’ deficiencies that raise substantial doubt as to its ability to continue as a going concern. The Company has less than $1,000 cash on hand which will is not sufficient to fund ongoing operations. The Company expects a burn rate of at least $125,000 per month and will need to raise at least $500,000 by the end of the second quarter of 2013 to remain in business, of which we can give no assurance of success. In addition, the Company is currently in default on its Senior Secured Convertible note and Secured Promissory Notes.  As a result, the Company’s independent registered public accounting firm, in its report on the Company’s August 31, 2012 consolidated financial statements, has raised substantial doubt about the Company’s ability to continue as a going concern.  The Company's existence is dependent upon management's ability to develop profitable operations and resolve its liquidity problems. The consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the possible inability of the Company to continue as a going concern.

The Company has no present agreements or commitments with respect to any material acquisitions of other businesses, products, product rights or technologies or any other material capital expenditures. However, it will continue to evaluate acquisitions of and/or investments in products, technologies, capital equipment or improvements or companies that complement its current or planned business and may make such acquisitions and/or investments in the future. The Company will require additional capital, either through debt or private placements, in order to execute its business plan to finance any such acquisitions and/or investments. Such additional financing may not become available on acceptable terms and there can be no assurance that any additional financing that the Company does obtain will be sufficient to meet its needs in the long term. Even if the Company is able to obtain additional financing, it may contain undue restrictions on our operations, in the case of debt financing, or cause substantial dilution for our stockholders, in the case of equity financing.

Note 3 – Summary of Significant Accounting Policies

Development Stage Company

The Company’s consolidated financial statements are presented as those of a development stage enterprise. Activities during the developmental stage primarily include equity based financing and further implementation of the Company’s business plan. The Company has not generated any revenues since inception.

Principles of Consolidation

The accompanying consolidated financial statements of the Company include the accounts of OSL Holdings, Inc. and its wholly owned subsidiaries, OSL, OSL Diversity Marketplace, Inc., OSL Rewards Corporation, Red Rock Pictures Inc. and Studio Store Direct Inc. Inter-company balances and transactions have been eliminated in consolidation.
 
Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Examples include estimates and assumptions used in valuing derivative liabilities and the value of stock compensation. These estimates are reviewed periodically, and, as adjustments become necessary, they are reported in earnings in the period in which they become known.

Fair Value of Financial Instruments

The Company measures its financial assets and liabilities in accordance with the requirements of ASC 820, Fair Value Measurements and Disclosures. ASC 820 clarifies the definition of fair value, prescribes methods for measuring fair value, and establishes a fair value hierarchy to classify the inputs used in measuring fair value as follows:
 
Level 1-Inputs are unadjusted quoted prices in active markets for identical assets or liabilities available at the measurement date.
 
 
9

 

Level 2-Inputs are unadjusted quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, inputs other than quoted prices that are observable, and inputs derived from or corroborated by observable market data.

Level 3-Inputs are unobservable inputs which reflect the reporting entity’s own assumptions on what assumptions the market participants would use in pricing the asset or liability based on the best available information.
 
The carrying value of the Company's cash, accounts payable and accrued liabilities, advances from stockholder, senior secured convertible debt, secured note payable and advances from related parties approximates fair value because of the short-term maturity of these instruments.
 
The following table presents certain investments and liabilities of the Company’s financial assets measured and recorded at fair value on the Company’s balance sheets on a recurring basis and their level within the fair value hierarchy as of November 30, 2012.

   
Level 1
   
Level 2
   
Level 3
   
Total
 
Fair value of Derivative Liability
 
$
   
$
   
$
311,463
   
$
311,463
 

Vendor Concentration

As of November 30, 2012 and August 31, 2012, one vendor represented 30% and 32% of the accounts payable and accrued liabilities balance, respectively.

Income Taxes

The Company accounts for income taxes pursuant to ASC 740, Income Taxes. Deferred tax assets and liabilities are recorded for differences between the financial statement and tax basis of the assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Income tax expense is recorded for the amount of income tax payable or refundable for the period increased or decreased by the change in deferred tax assets and liabilities during the period.

Earnings or Loss per Share

The Company accounts for earnings per share pursuant to ASC 260, Earnings per Share, which requires disclosure on the financial statements of "basic" and "diluted" earnings (loss) per share. Basic earnings (loss) per share are computed by dividing net income (loss) by the weighted average number of common shares outstanding for the year. Diluted earnings (loss) per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding plus common stock equivalents (if dilutive) related to stock options and warrants for each year. There were no dilutive financial instruments as of November 30, 2012 or August 31, 2012.

Weighted average number of shares outstanding has been retroactively restated for the equivalent number of shares received by the accounting acquirer as a result of the reverse merger as if these shares had been outstanding as of the beginning of the earliest period presented. The 1,068 shares issued to the legal acquirer are included in the weighted average share calculation from October 10, 2011, the date of the exchange agreement.

Stock-Based Compensation

The Company periodically issues stock options and warrants to officers, directors and consultants for services rendered. Options vest and expire according to terms established at the grant date.  The Company accounts for share-based payments to officers and directors by measuring the cost of services received in exchange for equity awards based on the grant date fair value of the awards, with the cost recognized as compensation expense in the Company’s financial statements over the vesting period of the awards.  The Company accounts for share-based payments to consultants by determining the value of the stock compensation based upon the measurement date at either (a) the date at which a performance commitment is reached or (b) at the date at which the necessary performance to earn the equity instruments is complete.

Derivative Financial Instruments

The Company evaluates its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported in the statements of operations. For stock-based derivative financial instruments, the Company uses a weighted average Black Scholes Merton option pricing model to value the derivative instruments at inception and on subsequent valuation dates. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument could be required within 12 months of the balance sheet date.
 
 
10

 

Recent Accounting Pronouncements
 
In December 2011, the Financial Accounting Standard Board (FASB) issued Accounting Standards Update (ASU) No. 2011-11, “Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities.” This ASU requires an entity to disclose information about offsetting and related arrangements to enable users of its financial statements to understand the effect of those arrangements on its financial position. ASU No. 2011-11 will be applied retrospectively and is effective for annual and interim reporting periods beginning on or after January 1, 2013. The Company does not expect adoption of this standard to have a material impact on its consolidated financial statement disclosures.
 
In July 2012, the FASB issued ASU No. 2012-02, Intangibles-Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment (ASU 2012-02), allowing entities the option to first assess qualitative factors to determine whether it is necessary to perform the quantitative impairment test. If the qualitative assessment indicates it is more-likely-than-not that the fair value of an indefinite-lived intangible asset is less than its carrying amount, the quantitative impairment test is required. Otherwise, no testing is required. ASU 2012-02 is effective for the Company in the period beginning January 1, 2013. The Company does not expect the adoption of this update to have a material effect on the consolidated financial statements.
 
Other recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force), the American Institute of Certified Public Accountants, and the Securities Exchange Commission (the “SEC”) did not or are not believed by management to have a material impact on the Company's present or future consolidated financial statements.

Note 4 – Advances from Related Parties

The Company has received funding from certain related parties to help fund the operating needs of the Company. The balance outstanding as of November 30, 2012 and August 31, 2012 was $41,577 and $14,727, respectively. The loans are non-interest bearing, unsecured and due on demand.

Note 5 – Senior Secured Convertible Note

The Company assumed a $100,000 senior secured convertible note due to The Exchange LLC (the “Exchange LLC”), an unrelated company, upon the consummation of the reverse merger. On October 12, 2011, the Company and the Exchange LLC entered into Amendment No. 1 (the “Amendment”) to the Senior Secured Convertible Note and Additional Debt. Pursuant to the Amendment, the maturity date of the Senior Secured Convertible Note was extended to October 5, 2012 the conversion price of the Senior Secured Convertible Note was set at $0.001.  Any conversion of debt owed to the Exchange LLC under the Senior Secured Convertible Note must be approved by the Board of Directors of the Company and in the event that the Board of Directors does not approve such conversion request, the corresponding principal amount shall be due. The Company entered into amendment number 2 to the note on December 12, 2012, pursuant to which the maturity date was extended to October 5, 2013, and further provided that the conversion of the note shall not be affected by any reverse split of the Company’s common stock. There is no material relationship between the Company or its affiliates and the Exchange LLC.
 
As of November 30, 2012, the total remaining balance outstanding to Exchange LLC is $137,300, including accrued interest of $53,300.

Note 6 – Secured Promissory Note

As part of the Share Exchange, the Company entered into the Share Cancellation Agreement with Crisnic and OSL. Pursuant to the Share Cancellation Agreement, Crisnic agreed to cancel 14,130 shares in exchange for $10,000 and the Promissory Note in the principal amount of $240,000. Under the terms of the Promissory Note, OSL was required to pay Crisnic $50,000 on November 8, 2011, then $25,000 every subsequent week until December 27, 2011, and one final payment of $15,000 on January 3, 2012. The Promissory note is non-interest bearing. As security for the Promissory Note, the Company was obligated to issue into escrow 650,001 Preferred Shares, to be released either to the Company upon full satisfaction of the Crisnic Note or released to Crisnic upon an uncured event of default. The Preferred Shares have 100:1 voting rights. The Company recently discovered that the Preferred Shares were never issued into escrow. Further examination of the Company’s Articles of Incorporation, as amended, has revealed that the Company’s Articles of Incorporation do not authorize any shares of preferred stock.  Accordingly, the Company does not believe that it is legally able to issue the preferred shares required by the Crisnic loan agreement at this time.

Due to delays in raising financing, OSL was unable to meet the original repayment terms of the Promissory Note. OSL has made intermittent payments and the current balance of $170,000 as of  November 30, 2012 is currently due and payable. The Company and OSL recently received a written notice of default in accordance with the terms of the Promissory Note and the Company is obligated to issue the 650,001 Preferred Shares to Crisnic.
 
 
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Note 7 – Convertible Notes

Convertible notes payable consist of the following as of November 30, 2012 and August 31, 2012:
 
   
November 30, 2012
   
August 31,
2012
 
Convertible notes payable, interest at 8% per annum (A)
  $ 135,070     $ 116,600  
Convertible notes payable, interest at 10% per annum (B)
    293,563       260,600  
Convertible notes payable, interest at 8% per annum, due June 30, 2013 (C)
    45,042       67,465  
Convertible notes payable
    473,675       444,665  
Less: note discount
    (260,222 )     (126,523 )
Convertible notes payable, net of discount
  $ 213,453     $ 318,142  
 
(A) Asher Enterprises
 
During the period November 15, 2011 to November 30, 2012, the Company issued four unsecured Convertible Notes (the “Convertible Notes”) to Asher Enterprises (“Asher”) in the aggregate amount of $135,500. The Convertible Notes are due after one year and bear interest at 8% per annum where interest accrues and is payable in cash upon maturity provided that the elected conversion to common shares does not occur. Any amount of principal or interest on these Convertible Notes which is not paid when due shall bear interest at the rate of twenty two percent (22%) per annum from the due date until the past due amount is paid. At any time or times after 180 days from the date of the Notes and until the maturity dates, Asher is entitled to convert any portion of the outstanding and unpaid amount into fully paid and non-assessable shares of common stock. The conversion price will be based on a 49% discount to the average of the three lowest closing bid prices for the Company's common stock during the ten trading days immediately preceding a conversion date.
 
Each of the Convertible Notes include an anti-dilution provision that allows for the automatic reset of the conversion or exercise price upon any future sale of common stock instruments at or below the current exercise price. The Company considered the current FASB guidance of “Determining Whether an Instrument Indexed to an Entity’s Own Stock” which indicates that any adjustment to the fixed amount (either conversion price or number of shares) of the instrument regardless of the probability or whether or not within the issuers’ control, means the instrument is not indexed to the issuers own stock. Accordingly, the Company determined that the conversion price of the Convertible Notes is not a fixed amount because they are subject to fluctuation based on the occurrence of future offerings or events. As a result, the Company determined that the conversion features are not considered indexed to the Company’s own stock and characterized the fair value of the conversion features as derivative liabilities upon issuance.

The Company determined the initial fair value of the embedded conversion feature of the Debentures to be $299,941. This amount was determined by management using a weighted-average Black-Scholes Merton option pricing model. In accordance with current accounting guidelines, the excess of $145,510 of derivative liability created over the face amount of the Debentures was considered to be a cost of offering during the year ended August 31, 2012 and $18,931 during the three months ended November 30, 2012. As such, the Company recorded an $135,500 valuation discount upon issuance.  During the three months ended November 30, 2012, the Company amortized $29,529 of the discount and as of November 30, 2012, the total discount of $71,663 is offset against the balance of the notes for financial statement presentation.
 
During the three months ended November 30, 2012, the Company issued a total of 8,207 shares of common stock at an average conversion price of $0.78 or $6,400 as partial repayment to the Convertible Notes. As of November 30, 2012, the total remaining balance outstanding to Asher is $135,070, including accrued interest of $5,970.

(B) Panache Capital, LLC
 
During the period March 5, 2012 to April 26, 2012, the Company issued four convertible promissory notes (the "Panache Notes") to Panache Capital, LLC (the "Payee") for an aggregate amount of $250,000, with 10% annum interest. The Panache Notes are each due after the one year anniversary thereof. All past-due principal of the Panache Notes bear interest at 15%. There is a 25% prepayment fee. The Payee has the right to convert the Panache Notes, in its entirety or in part, into common stock of the Company. The conversion price is based on a 25% discount to the average of the three lowest closing bid prices for the Company's common stock during the ten trading days immediately preceding a conversion date. The Company determined the initial fair value of the beneficial conversion feature was approximately $83,333 and was recorded by the Company as a loan discount, which is being amortized as interest expense over the life of the notes. As of August 31, 2012, the unamortized balance of the Panache Notes discount was $47,861.
 
 
12

 
 
On September 21, 2012, the Company entered into an amendment agreement (the “Amendment”) with Panache, which amends the Panache Notes. Pursuant to the Amendment, the Company shall have the option, for 90 days after September 21, 2012 (the “Outside Date”), to redeem the Panache Notes for 100% of their outstanding principal and interest. Additionally, Panache shall not, until the Outside Date and absent an event of default, convert any of the Panache Notes into Company common stock. Each of the Panache Notes were further amended to permit Panache to convert the Panache Notes valued at a price not to fall below a 49% discount to the average of the three lowest closing bid prices for the Company common stock during the ten trading days immediately preceding a conversion date. The Company analyzed the current accounting guidance and determined that the modifications constituted a substantial modification of debt terms, and thus, has considered the old loan to be extinguished and a new loan to be incurred. As such, the balance of the valuation discount of $40,267 on September 21, 2012 before modification was written off and recorded as loss on the extinguishment of debt.

The Company determined, based on the change in the conversion price discussed above, that the fair value of the beneficial conversion feature after modification was approximately $240,196 and was recorded by the Company as a loan discount, which is being amortized as interest expense over the life of the notes.  As of November 30, 2012, the unamortized balance of the Panache Notes discount was $164,116.

On September 21, 2012, the Company issued one convertible promissory notes (the "Panache Notes") to Panache Capital, LLC (the "Payee") for an aggregate amount of $30,000, with 10% annum interest. The Panache Notes are each due after the one year anniversary thereof. All past-due principal of the Panache Notes bear interest at 15%. There is a 25% prepayment fee. The Payee has the right to convert the Panache Notes, in its entirety or in part, into common stock of the Company. The original conversion price was based on a 49% discount to the average of the three lowest closing bid prices for the Company's common stock during the ten trading days immediately preceding a conversion date.

The September 21 note includes an anti-dilution provision that allows for the automatic reset of the conversion or exercise price upon any future sale of common stock instruments at or below the current exercise price. The Company considered the current FASB guidance of “Determining Whether an Instrument Indexed to an Entity’s Own Stock” which indicates that any adjustment to the fixed amount (either conversion price or number of shares) of the instrument regardless of the probability or whether or not within the issuers’ control, means the instrument is not indexed to the issuers own stock. Accordingly, the Company determined that the conversion price of the Convertible Note is not a fixed amount because they are subject to fluctuation based on the occurrence of future offerings or events. As a result, the Company determined that the conversion features are not considered indexed to the Company’s own stock and characterized the fair value of the conversion features as derivative liabilities upon issuance.

The Company determined the initial fair value of the embedded conversion feature of the Note to be $55,241. This amount was determined by management using a weighted-average Black-Scholes Merton option pricing model. In accordance with current accounting guidelines, the excess of $25,241 of derivative liability created over the face amount of the Note was considered to be a cost of offering during the three months ended November 30, 2012. As such, the Company recorded an $30,000 valuation discount upon issuance.  During the three months ended November 30, 2012, the Company amortized $5,528 of the discount and as of November 30, 2012, the total discount of $24,472 is offset against the balance of the notes for financial statement presentation.
 
During the three months ended November 30, 2012, the Company issued a total of 4,018 shares of common stock at an average conversion price of $1.00 or $4,018 as partial repayment to the Convertible Notes. As of  November 30, 2012, the total remaining balance outstanding to Panache is $293,563, including accrued interest of $17,581.

(C) Continental Equities, LLC
 
On February 20, 2012, the Company issued a $67,365 unsecured promissory note (the “Profectus Note”) to Profectus, LLC (“Profectus”). The Profectus Note is due on demand bearing interest at 8% per annum where interest accrues. On August 13, 2012, Profectus transferred and assigned the Profectus Note to Continental Equities, LLC (“Continental”). Pursuant to the terms of such transfer and assignment, the Company canceled the Profectus Note and issued a new convertible promissory note to Continental in the principal amount of $67,000 (the “New Note”) with a maturity date of June 30, 2013. The interest rate of the New Note is 8% per annum through the maturity date. The New Note is convertible into shares of the Company’s common stock commencing on a date that is 30 days after the issue date of the New Note, at a price equal to the average of the lowest two intraday trading prices for the common stock during the five trading days period ending one trading day prior to the date the conversion notice is sent by Continental to the Company. The New Note is subject to customary anti-dilution and default provisions. In the event the Company shall default in the payment of the New Note, the interest rate shall be increased to 18% per annum.

During the three months ended November 30, 2012, the Company issued a total of 18,202 shares of common stock at an average conversion price of $0.77 or $23,759 as partial repayment to the Convertible Notes. As of  November 30, 2012, the total remaining balance outstanding to Continental is $45,042, including accrued interest of $1,801.
 
 
13

 
 
Note 8 – Promissory Notes

On August 8, 2011, the Company issued a $24,000 unsecured Promissory Note to a private investor.  The note is due on demand bearing interest at 8% per annum where interest accrues and is payable in cash upon demand.  

As of November 30, 2012, the total remaining balance outstanding under the note is $26,500, including accrued interest of $2,500.

Note 9 – Derivative Liability

In June 2008, the FASB issued authoritative guidance on determining whether an instrument (or embedded feature) is indexed to an entity’s own stock. Under the authoritative guidance, effective January 1, 2009, instruments which do not have fixed settlement provisions are deemed to be derivative instruments. The conversion feature of certain of the Company’s Convertible Notes (described in Note 8), does not have fixed settlement provisions because their conversion will be lowered if the Company issues securities at lower prices in the future. The Company was required to include the reset provisions in order to protect the holders of the Convertible Notes from the potential dilution associated with future financings.  In accordance with the FASB authoritative guidance, the conversion feature of the Convertible Notes was separated from the host contract and recognized as a derivative instrument. The conversion feature of the Convertible Notes have been characterized as derivative liabilities to be re-measured at the end of every reporting period with the change in value reported in the statement of operations.

At the date of issuance and as of November 30, 2012 and August 31, 2012, the derivative liabilities were valued using a probability weighted average Black-Scholes pricing model with the following assumptions:
 
Conversion feature :
 
At November 30, 2012
   
At Date of Issuance
   
At August 31, 2012
 
Risk-free interest rate
    0.25 %     0.25 %     0.25 %
Expected volatility
    215 %     215 %     215 %
Expected life (in years)
 
.6 years
   
1 year
   
.67 years
 
Expected dividend yield
    0 %     0 %     0 %
Fair Value :
                       
Conversion feature
  $ 311,463     $ 96,672     $ 250,970  
 
The risk-free interest rate was based on rates established by the Federal Reserve Bank. The expected volatility was based on the Company’s historical volatility for its common stock. The expected life of the conversion feature of the Debentures was based on the term of the Debentures. The expected dividend yield was based on the fact that the Company has not paid dividends to its common stockholders in the past and does not expect to pay dividends to its common stockholders in the future

The fair value of derivative liabilities arising upon the issuance of convertible notes during the period ended November 30, 2012 was $96,672, of which $52,500 was recorded as a note discount, and $44,172 was recorded as a cost of the offering.  The Company determined the fair value of the derivative liabilities to be $311,463 as of  November 30, 2012, and the Company recorded a gain for the change in fair value of derivative liabilities of $36,179 in the accompanying statement of operations for the three months ended November 30, 2012.
 
Note 10 – Capital Stock
 
Preferred Stock
 
As security for the Crisnic Promissory Note due to an uncured event of default, the Company is obligated to issue 650,001 shares of Series A Preferred Stock. Each share of the Series A Convertible Preferred Stock would, among other things as provided in the Certificate of Designations relating to the Series A Preferred Stock: (i) carry voting rights 100 times of the Company’s common stock, (ii) carry no dividends, (iii) carry liquidation preference two times the sum available for distribution to common stock holders, (iv) automatically convert after at such time as the Company has filed a certificate of amendment with the State of Nevada to increase the authorized shares of common stock of the Company to a minimum of 500,000,000 into 100 shares of common stock, and (v) not be subject to reverse stock splits and other changes to the common stock capital of the Company. An examination of the Company’s Articles of Incorporation, as amended, has revealed that the Company’s Articles of Incorporation do not authorize any shares of preferred stock.  Accordingly, the Company does not believe that it is legally able to issue the preferred shares required by the Crisnic loan agreement at this time.
 
 
14

 
 
Common Stock

Common Stock Issued for Partial Repayment of Secured Convertible Notes

During the three months ended November 30, 2012, the Company issued a total of 30,247 shares of common stock at an average conversion price of $0.89 or $34,177 in the aggregate, as partial repayment of outstanding indebtedness, as discussed in Note 8 above.   
  
Note 11 – Subsequent Events

On December 4, 2012, the Company amended its Articles of Incorporation to increase the number of authorized shares available for issuance from 120,000,000 to 450,000,000.

On December 14, 2012, the Company issued an aggregate of 5,000 shares of its common stock at the conversion price of $0.56, or $2,800 as partial repayment of outstanding indebtedness due Asher (See Note 7).

Subsequent to the reporting period, and effective January 10, 2013, our Board of Directors approved employment agreements with four of our executive officers and key employees.  These are as follows:

Eric Kotch – Under his new employment agreement, our CFO, Eric Kotch, will receive a monthly cash salary of $15,000. In addition, Mr. Kotch will be issued 100,000 shares of common stock per month.  As additional compensation under the agreement, Mr. Kotch was also issued 21,000,000 shares of common stock on or about January 10, 2012.  At any time during his employ, Mr. Kotch may convert any amounts owed to him under the agreement into shares of common stock at conversion price which is a 70% discount from the average closing price of our common stock during the five trading days preceding the conversion.  If Mr. Kotch is terminated without cause, he will be entitled to 24 months salary and six months of medical benefits as a severance.  As part of the agreement, Mr. Kotch agreed to a one year national non-competition covenant.

Eli Feder – Under his new employment agreement, our CEO, Eli Feder, will receive a monthly cash salary of $15,000. In addition, Mr. Feder will be issued 100,000 shares of common stock per month.  As additional compensation under the agreement, Mr. Feder was also issued 21,000,000 shares of common stock on or about January 10, 2012.  At any time during his employ, Mr. Feder may convert any amounts owed to him under the agreement into shares of common stock at conversion price which is a 70% discount from the average closing price of our common stock during the five trading days preceding the conversion.  If Mr. Feder is terminated without cause, he will be entitled to 24 months salary and six months of medical benefits as a severance.  As part of the agreement, Mr. Feder agreed to a one year national non-competition covenant.

Steven Gormley – Under his new employment agreement, the President of our planned Data Division, Steven Gormley, will receive a monthly cash salary of $20,000.  As additional compensation under the agreement, Mr. Gormley was also issued 10,000,000 shares of common stock on or about January 10, 2012.  These shares were issued in five stock certificates of 2,000,000 shares each, and will be distributed to Mr. Gormley at a rate of 2,000,000 shares per month commencing February 1, 2013. At any time during his employ, Mr. Gormley may convert any amounts owed to him under the agreement into shares of common stock at conversion price which is a 70% discount from the average closing price of our common stock during the five trading days preceding the conversion.  If Mr. Gormley is terminated without cause, he will be entitled to 12 months salary and six months of medical benefits as a severance.  As part of the agreement, Mr. Gormley agreed to a one year national non-competition covenant.

Bob Rothenberg – Under his new employment agreement, our President, Bob Rothenberg, will receive a monthly cash salary of $20,000.  As additional compensation under the agreement, Mr. Rothenberg was also issued 15,000,000 shares of common stock on or about January 10, 2012.  Of these shares, 7,500,000 were delivered to Mr. Rothenberg immediately.  The remaining 7,500,000 shares were issued in six stock certificates of 1,500,000 shares each, and will be distributed to Mr. Rothenberg at a rate of 1,500,000 shares per month commencing February 1, 2013. At any time during his employ, Mr. Rothenberg may convert any amounts owed to him under the agreement into shares of common stock at conversion price which is a 70% discount from the average closing price of our common stock during the five trading days preceding the conversion.  If Mr. Rothenberg is terminated without cause, he will be entitled to 12 months salary and six months of medical benefits as a severance.  As part of the agreement, Mr. Rothenberg agreed to a one year national non-competition covenant.

The foregoing is a summary of the material terms of the listed employment agreements, and not a complete listing of their provisions.  The full text of these agreements should be consulted for additional information.

 
15

 

Item 2. 
Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

OSL Holdings Inc. is a holding company that will develop or acquire business units with the purpose of collecting and transmitting real-time consumer and business sales data that facilitates the ability to sell data, manage electronic marketplaces, operate real-time loyalty rewards and transact with buyers in multiple channels.  We plan to sell data to manufactures for designated markets, such as urban retail, convenience and/or liquor stores.  We plan to facilitate developing electronic marketplaces with real time buy-side and sell side capabilities for multiple private & public markets.  We plan to operate a real-time loyalty rewards platform that can facilitate the earning and redemption of our currency at the point of the transaction (online, mobile, at retail) as well as on future transactions.  The Company plans on leveraging these business units to connect buyers, sellers as well as channels that will clearly differentiate itself from the competitive landscape so that each venture can scale revenues and their respective offerings to their specific market(s) or across markets.   When the Company has sufficient financial resources, it plans on bringing onboard additional management talent with broad experience in technology, distribution, interactive and affinity marketing as well as the diversity markets to further our corporate strategy of entering our other lines of business.   
 
An initial focus has been on building the foundations for the business units as well as focused on finalizing the development of our rewards technology platform by the end of the first quarter of calendar 2013 that will initially leverage current and developing business relationships within the diversity and affinity marketplaces that have substantial membership bases.  The intent of the rewards program is to design, develop, operate and market a loyalty program that is based on “reward currency” and is available for its members to earn and redeem in online ecommerce sites, brick and mortar retail stores, mobile and through other service providers. The offering is a combination of the loyalty program and the technology platform and marketplace.  The benefits of the offering include a platform that can enable millions of members of the “loyalty program” to earn and redeem “reward currency” regardless of the payment method used when making a purchase (i.e. Visa, Amex, MasterCard, or cash) and to redeem the points both in retail stores, or when shopping online regardless of the payment method used to gain discounts on purchases. The program will allow retail merchants and online ecommerce site operators with a package of products and services for better business efficiency and for boosting sales and profitability.

We are also in substantive discussions with several potential acquisitions and strategic partnerships that will expand our reach into Fortune 1000 corporations in retail, telecommunications, publishing, and finance as well as reach into local, state and federal government.  The purpose of these discussions is to further secure major corporate contracts, access to additional membership bases, and expand our technology as well as retain the talent needed to execute our plan.

Collectivity these business units will create a transactional network that brings together brands, distributors, wholesalers, retailers (both online commerce and brick and mortar [land based] stores) and consumer’s audiences to accelerate commerce and value.  The goal is to take advantage of these cross platform (the ability to purchase products online, through mobile device, or at retail stores), cross channel (the different channels that purchases occur in such as business to business (“B2C”), business to consumer (“B2B”), and public sector such as govt.) and cross vertical (the motivation behind the purchase such as a diversity purchase, purchase to benefit a non-profit, or sustainability purchase of green products) commerce companies to enhance the overall offering of each.  
 
Results of Operations

Comparison of the Three Months Ended November 31, 2012 and 2011

Revenue

The Company had no revenues for the three months ended November 30, 2012 and 2011, respectively.

General and Administrative

General and administrative expenses were $271,310 and $96,636 for the three months ended November 30, 2012 and 2011, respectively.  The increase in expenses was related to the Company executing its business plan including the recent Share Exchange agreement.  Expenses consisted primarily of professional service expenses and compensation expense.
 
 
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Loss on debt extinguishment

Loss on debt extinguishment was $43,066 and $0 for the three months ended November 30, 2012 and 2011, respectively.  The increase in expenses during the three months ended November 30, 2011 was related to term changes on debt conversion features as discuss in Note 7 of the attached condensed consolidated financial statements.

Interest Expense

Interest expense was $129,119 and $2,500 for the three months ended November 30, 2012 and 2011, respectively.  The increase in expenses was related to amortization of note discount amounting to $75,664 as discussed in Note 8 of the attached consolidated financial statements. Additionally, the Company recorded an expense of $13,187 and $2,500 for the three months ended November 30, 2012 and 2011, respectively, which reflects accrued interest on existing debt.

Cost of Offering

Private placement costs of $44,172 and $0 for the three months ended November 30, 2012 and 2011, respectively, were incurred relating to excess of the derivative liability over the face amounts of the convertible notes as discussed in Note 8 of the attached consolidated financial statements.

Change in derivative liability

Change in derivative liability was $36,179 and $0 for the three months ended November 30, 2012 and 2011, respectively.
This change in derivative liability is a non-cash benefit reported on the statements of operations.

Net Loss

Our net loss for the three months ended November 30, 2012 was $451,488.  By comparison, we had net income of $864 for the three months ended November 30, 2011.  Our net loss was attributable to our lack of revenue together with the general and administrative expenses and interest expense incurred during the quarter, as discussed above.  We expect to continue to incur net losses until such time as we can begin generating regular revenue from operations.

Liquidity and Capital Resources

The Company is in the development stage and has not generated revenues since inception. It has experienced recurring operating losses and negative cash flows from operations from September 16, 2010 (inception) to November 30, 2012. It also has a working capital deficit and stockholders’ deficit of $2,017,803 at November 30, 2012. We have less than $1,000 cash on hand which will not last. We expect a burn rate of at least $125,000 per month and will need to raise at least $500,000 by the end of the second quarter of 2013 to remain in business, of which we can give no assurance of success. Due to the "start-up" nature of our business, we expect to incur losses as and if we expand. To date, our cash flow requirements have been met by equity and debt financings. If we are unable to successfully sell additional securities in one or more offerings, generate sufficient profits or otherwise obtain additional funds for our working capital needs, we may need to cease or curtail operations. Furthermore, there is no assurance the net proceeds from any successful financing arrangement will be sufficient to cover cash requirements during the initial stages of our operations. For these reasons, our auditors believe that there is substantial doubt that we will be able to continue as a going concern.

As of November 30, 2012 we had $232 in cash and a working capital deficiency of $2,017,803. A substantial amount of cash will be required in order to continue operations over the next twelve months. Based upon our current cash and working capital deficiency, we will not be able to meet our current operating expenses and will require additional capital. We expect to obtain additional capital in order to execute our business plan, but can give no assurances of success. We are looking to raise up to $500,000 through private placements in the next several months. Our business plan involves adding qualified executives and rolling out various business units. We believe, but can give no assurances, that we will enter into agreements with customers and partners to generate revenue before additional financing is required.

Due to delays in raising financing, OSL was unable to meet the original repayment terms of the Crisnic Note. OSL has made intermittent payments and the current balance of $170,000 as of December 1, 2012 is currently due and payable. The Company and OSL recently received a written notice of default in accordance with the terms of the Crisnic Note and the Company is obligated to issue the 650,001 shares of Preferred Stock to Crisnic as of December 1, 2012. Further examination of the Company’s Articles of Incorporation, as amended, has revealed that the Company’s Articles of Incorporation do not authorize any shares of preferred stock.  Accordingly, the Company does not believe that it is legally able to issue the preferred shares required by the Crisnic loan agreement at this time. In addition to the Crisnic Note, the Company has $641,088 of indebtedness with various terms of repayment through November 30, 2013. We can give no assurance that we will generate revenues, if at all, in order to satisfy our or our subsidiaries’ repayment obligations under any of our or their indebtedness.

Cash used in operating activities was $(79,320) and ($747) for the three months ended November 30, 2012 and 2011, respectively. Cash was primarily used to fund our net losses from operations.
 
 
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Cash provided from financing activities was $79,350 and $0 for the three months ended November 30, 2012 and 2011, respectively.  During the three months ended November 30, 2012, we received cash of $52,500 from the issuance of promissory notes.  The Company also received $26,850 of operating loans from related parties.

We believe our current working capital position together with our expected future cash flows from operations will be insufficient to fund our operations in the ordinary course of business, anticipated capital expenditures, debt payment requirements and other contractual obligations for at least the next twelve months.

In addition to the anticipated $125,000 per month necessary to cover our operating expenses, we anticipate additional annual website and technology development costs of between $300,000 and $500,000. We have been and expect to continue to fund these activities with debt and equity financing.

We have no present agreements or commitments with respect to any material acquisitions of other businesses, products, product rights or technologies or any other material capital expenditures. However, we will continue to evaluate acquisitions of and/or investments in products, technologies, capital equipment or improvements or companies that complement our business and may make such acquisitions and/or investments in the future. Accordingly, we may need to obtain additional sources of capital in the future to finance any such acquisitions and/or investments.

Off Balance Sheet Arrangements

None.

Going Concern

The Company’s independent certified public accountants have stated in their audit report for the year ended August 31, 2012, that the Company has no current source of revenue and, without realization of additional capital, it would be unlikely for the Company to continue as a going concern. If the Company is not successful in raising the necessary capital, then the Company believes that its independent certified public accountants would issue an opinion with a similar going concern modification regarding the Company’s financial condition.

Critical Accounting Policies

The Company’s consolidated financial statements and related public financial information are based on the application of accounting principles generally accepted in the United States (“GAAP”). GAAP requires the use of estimates; assumptions, judgments and subjective interpretations of accounting principles that have an impact on the assets, liabilities, revenues and expense amounts reported. These estimates can also affect supplemental information contained in our external disclosures including information regarding contingencies, risk and financial condition. We believe our use if estimates and underlying accounting assumptions adhere to GAAP and are consistently and conservatively applied. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ materially from these estimates under different assumptions or conditions. We continue to monitor significant estimates made during the preparation of our consolidated financial statements.

Our significant accounting policies are summarized in Note 3 of our annual consolidated financial statements filed on Form 10-K and dated December 12, 2012. While all these significant accounting policies impact its financial condition and results of operations, the Company views certain of these policies as critical. Policies determined to be critical are those policies that have the most significant impact on the Company’s consolidated financial statements and require management to use a greater degree of judgment and estimates. Actual results may differ from those estimates. Our management believes that given current facts and circumstances, it is unlikely that applying any other reasonable judgments or estimate methodologies would cause effect on our consolidated results of operations, financial position or liquidity for the periods presented in this report.

Item 3. 
Quantitative and Qualitative Disclosures About Market Risk

We are a Smaller Reporting Company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.

Item 4. 
Controls and Procedures

Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our Principal Executive Officer and Principal Financial Officer, we conducted an evaluation of the effectiveness of our disclosure controls and procedures, (as defined under Rule 13a-15(e) and Rule 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended (Exchange Act)) as of the period ended November 30, 2012. Based on this evaluation, our Principal Executive Officer  and Principal Financial Officer concluded that our disclosure controls and procedures are ineffective to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including the Company’s CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.
 
 
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We are in the continuous process of improving our internal control over financial reporting in an effort to eliminate these material weaknesses through improved supervision and training of our staff, but additional effort is needed to fully remedy these deficiencies. Management has engaged a Certified Public Accountant as a consultant to assist with the financial reporting process in an effort to mitigate some of the identified weaknesses. The Company intends on hiring the necessary staff to address the weaknesses once additional capital is obtained which will allow full operations to commence.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.
 
We have taken numerous steps to address the underlying causes of the internal control deficiencies, primarily through the development and implementation of policies, improved processes and documented procedures, the retention of third-party experts and contractors, and the hiring of additional accounting personnel with technical accounting and inventory accounting experience.
 
Changes in internal control over financial reporting
 
There were no changes in the Company’s internal control over financial reporting that occurred during the last fiscal quarter covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
 
PART II - OTHER INFORMATION

Item 1. 
Legal Proceedings

We are not currently involved in any litigation that we believe could have a material adverse effect on our financial condition or results of operations. There is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the executive officers of our company or any of our subsidiaries, threatened against or affecting our company, our common stock, any of our subsidiaries or of our companies or our subsidiaries’ officers or directors in their capacities as such, in which an adverse decision could have a material adverse effect.

Item 1A. 
Risk Factors

We are a Smaller Reporting Company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.

Item 2. 
Unregistered Sales of Equity Securities and Use of Proceeds

As discussed in Note 8 to our financial statements filed with this Quarterly Report, during the three months ended November 30, 2012, we issued a total of 30,247 shares of common stock at an average conversion price of $0.89 or $34,177 in the aggregate, as partial repayment of outstanding indebtedness.   

Item 3. 
Defaults Upon Senior Securities

None

Item 4. 
Mine Safety Disclosures
 
None

Item 5. 
Other Information

Subsequent to the reporting period, and effective January 9, 2013, we conducted a reverse split of our common stock on the basis of 1 share for each one thousand shares currently issued and outstanding.
 
 
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Subsequent to the reporting period, and effective January 10, 2013, our Board of Directors approved employment agreements with four of our executive officers and key employees.  These are as follows:

Eric Kotch – Under his new employment agreement, our CFO, Eric Kotch, will receive a monthly cash salary of $15,000. In addition, Mr. Kotch will be issued 100,000 shares of common stock per month.  As additional compensation under the agreement, Mr. Kotch was also issued 21,000,000 shares of common stock on or about January 10, 2012.  At any time during his employ, Mr. Kotch may convert any amounts owed to him under the agreement into shares of common stock at conversion price which is a 70% discount from the average closing price of our common stock during the five trading days preceding the conversion.  If Mr. Kotch is terminated without cause, he will be entitled to 24 months salary and six months of medical benefits as a severance.  As part of the agreement, Mr. Kotch agreed to a one year national non-competition covenant.

Eli Feder – Under his new employment agreement, our CEO, Eli Feder, will receive a monthly cash salary of $15,000. In addition, Mr. Feder will be issued 100,000 shares of common stock per month.  As additional compensation under the agreement, Mr. Feder was also issued 21,000,000 shares of common stock on or about January 10, 2012.  At any time during his employ, Mr. Feder may convert any amounts owed to him under the agreement into shares of common stock at conversion price which is a 70% discount from the average closing price of our common stock during the five trading days preceding the conversion.  If Mr. Feder is terminated without cause, he will be entitled to 24 months salary and six months of medical benefits as a severance.  As part of the agreement, Mr. Feder agreed to a one year national non-competition covenant.

Steven Gormley – Under his new employment agreement, the President of our planned Data Division, Steven Gormley, will receive a monthly cash salary of $20,000.  As additional compensation under the agreement, Mr. Gormley was also issued 10,000,000 shares of common stock on or about January 10, 2012.  These shares were issued in five stock certificates of 2,000,000 shares each, and will be distributed to Mr. Gormley at a rate of 2,000,000 shares per month commencing February 1, 2013. At any time during his employ, Mr. Gormley may convert any amounts owed to him under the agreement into shares of common stock at conversion price which is a 70% discount from the average closing price of our common stock during the five trading days preceding the conversion.  If Mr. Gormley is terminated without cause, he will be entitled to 12 months salary and six months of medical benefits as a severance.  As part of the agreement, Mr. Gormley agreed to a one year national non-competition covenant.

Bob Rothenberg – Under his new employment agreement, our President, Bob Rothenberg, will receive a monthly cash salary of $20,000.  As additional compensation under the agreement, Mr. Rothenberg was also issued 15,000,000 shares of common stock on or about January 10, 2012.  Of these shares, 7,500,000 were delivered to Mr. Rothenberg immediately.  The remaining 7,500,000 shares were issued in six stock certificates of 1,500,000 shares each, and will be distributed to Mr. Rothenberg at a rate of 1,500,000 shares per month commencing February 1, 2013. At any time during his employ, Mr. Rothenberg may convert any amounts owed to him under the agreement into shares of common stock at conversion price which is a 70% discount from the average closing price of our common stock during the five trading days preceding the conversion.  If Mr. Rothenberg is terminated without cause, he will be entitled to 12 months salary and six months of medical benefits as a severance.  As part of the agreement, Mr. Rothenberg agreed to a one year national non-competition covenant.

The foregoing is a summary of the material terms of the listed employment agreements, and not a complete listing of their provisions.  The full text of these agreements should be consulted for additional information.
 
 
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Item 6. 
Exhibits
 
Exhibit Number
 
Exhibit Title
     
3.1
 
Certificate of Amendment to Articles of Incorporation
     
10.1
 
Employment Agreement with Eric Koch
     
10.2
 
Employment Agreement with Eli Feder
     
10.3
 
Employment Agreement with Steven Gormley
     
10.4
 
Employment Agreement with Bob Rothenberg
     
31.1
 
Certification of Principal Executive Officer, pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
     
31.2
 
Certification of Principal Financial Officer, pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
     
32.1
 
Certification of Principal Executive Officer, pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
     
32.2
 
Certification of Principal Financial Officer, pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
101.INS *
 
XBRL Instance Document
     
101.SCH *
 
XBRL Taxonomy Schema
     
101.CAL *
 
XBRL Taxonomy Calculation Linkbase
     
101.DEF *
 
XBRL Taxonomy Definition Linkbase
     
101.LAB *
 
XBRL Taxonomy Label Linkbase
     
101.PRE *
 
XBRL Taxonomy Presentation Linkbase
 
In accordance with SEC Release 33-8238, Exhibit 32.1 and 32.2 are being furnished and not filed.
 
* Furnished herewith. XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.
 
 
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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Dated: January 18, 2013
 
 
OSL HOLDINGS INC.
     
 
 By:
/s/ Eli Feder                                            
   
Eli Feder
Chief Executive Officer
(Duly Authorized Officer and Principal Executive Officer)
     
 
By:
/s/ Eric Kotch
   
Eric Kotch
   
Chief Financial Officer, Treasurer and Secretary
(Duly Authorized Officer and Principal Financial Officer)
 
 
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