Derivative Liability

9 Months Ended

Apr. 30, 2019

Notes to Financial Statements

Derivative Liability

Note 14 – Derivative Liability 

The Company issued debts that consist of the issuance of convertible notes with variable conversion provisions. The conversion terms of the convertible notes are variable based on certain factors, such as the future price of the Company’s common stock. The number of shares of common stock to be issued is based on the future price of the Company’s common stock. The number of shares of common stock issuable upon conversion of the promissory note is indeterminate. Due to the fact that the number of shares of common stock issuable could exceed the Company’s authorized share limit, the equity environment is tainted and all additional convertible debentures and warrants are included in the value of the derivative. Pursuant to ASC 815-15 Embedded Derivatives, the fair values of the variable conversion option and warrants and shares to be issued were recorded as derivative liabilities on the issuance date.

Based on the various convertible notes described in Note 13, the fair value of applicable derivative liabilities on notes, warrants and change in fair value of derivative liability are as follows as of April 30, 2019:

Note		Date of Issuance		Convertible Note Balance		Derivative Liability on Convertible Notes		Derivative Liability on Warrants		Change in FV of Derivative Liability
	A		January 24, 2019	$	2,110,000	$	1,757,644	$	56,707	$	874,184
	B		February 4, 2019		750,000		618,349		3,660		192,037
	C		February 15, 2019		750,000		571,659		48,586		52,437
	D		April 8, 2019		530,000		496,701		77,992		4,001
	E		April 23, 2019		530,000		493,160		70,533		7,508
	Totals			$	4,670,000	$	3,937,513	$	257,478	$	1,130,167

Note A

Subject to certain ownership limitations, the Notes will be convertible at the option of the holder at any time into shares of the Company’s common stock at an effective conversion price determined as follows: the lesser of

• A price determined as of the date of closing; and

• 70% of the lowest volume weighted average trading price of the common stock on the ten days prior to conversion.

Note B

Subject to certain ownership limitations, the Note will be convertible at the option of the holder at any time into shares of the Company’s common stock at an effective conversion price determined as follows: the lesser of

• Average price for the ten days prior to closing; and

• 70% of the lowest volume weighted average trading price of the common stock on the ten days prior to conversion.

Note C

Subject to certain ownership limitations, the Note will be convertible at the option of the holder at any time into shares of the Company’s common stock at an effective conversion price determined as follows: the lesser of

• $2.50 per share; and

• 70% of the lowest volume weighted average trading price of the common stock on the ten days prior to the date a notice of conversion is received.

Note D

Subject to certain ownership limitations, the Note will be convertible at the option of the holder at any time into shares of the Company’s common stock at an effective conversion price determined as follows: the lesser of

• A price determined as of the date of closing; and

• 70% of the lowest volume weighted average trading price of the common stock on the ten days prior to (and including) the date a notice of conversion is received.

Note E

Subject to certain ownership limitations, the Note will be convertible at the option of the holder at any time into shares of the Company’s common stock at an effective conversion price determined as follows: the lesser of

• A price determined as of the date of closing; and

• 70% of the lowest volume weighted average trading price of the common stock on the ten days prior to (and including) the date a notice of conversion is received.  

As a result of the Amended Agreement entered into on March 28, 2019 (“the Amendment”) with Veneto and the equity owners of Veneto (the “Veneto Members”) to restructure the Promissory Note referenced in Note 9, the Company was evaluated for Veneto Downside Protection associated with the 8,400,000 issued shares in lieu of cash payments against the Promissory Note. Based on the valuation as of the date of agreement on March 28, 2019, an allocation of $6,424,338 was allocated to derivative liability for downside protection. As of April 30, 2019, the downside protection had a market change of $570,112 and held a value of $6,994,450.