0001213900-12-006802.txt : 20121214 0001213900-12-006802.hdr.sgml : 20121214 20121214154153 ACCESSION NUMBER: 0001213900-12-006802 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 26 CONFORMED PERIOD OF REPORT: 20120831 FILED AS OF DATE: 20121214 DATE AS OF CHANGE: 20121214 FILER: COMPANY DATA: COMPANY CONFORMED NAME: OSL HOLDINGS INC. CENTRAL INDEX KEY: 0001329957 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-ALLIED TO MOTION PICTURE PRODUCTION [7819] IRS NUMBER: 980441032 FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-32658 FILM NUMBER: 121265524 BUSINESS ADDRESS: STREET 1: 60 DUTCH HILL ROAD STREET 2: SUITE 15 CITY: ORANGEBURG STATE: NY ZIP: 10962 BUSINESS PHONE: 212-419-4900 MAIL ADDRESS: STREET 1: 60 DUTCH HILL ROAD STREET 2: SUITE 15 CITY: ORANGEBURG STATE: NY ZIP: 10962 FORMER COMPANY: FORMER CONFORMED NAME: OSL HOLDINGS, INC. DATE OF NAME CHANGE: 20111019 FORMER COMPANY: FORMER CONFORMED NAME: RED ROCK PICTURES HOLDINGS, INC DATE OF NAME CHANGE: 20070112 FORMER COMPANY: FORMER CONFORMED NAME: Red Rock Pictures, Inc. DATE OF NAME CHANGE: 20060929 10-K 1 f10k2012_oslholdingsinc.htm ANNUAL REPORT f10k2012_oslholdingsinc.htm


SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-K

(Mark One)
 
x ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the fiscal year ended August 31, 2012
 
or
 
o TRANSITION REPORT UNDER 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)
 
Registrant’s telephone number, including area code: (845) 363-6776
 
Securities registered under Section 12(b) of the Exchange Act:
   
Title of each class registered:
Name of each exchange on which registered:
None
None
 
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, par value $.001
(Title of class)
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 the Securities Act.
Yes o   No x
 
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes o   No x
 
Indicate by check mark 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 last 90 days. Yes o No x

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 o No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. 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.  See the definitions 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 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 Act).  Yes o  No þ

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter, February 29, 2012: $1,610,403

Number of the issuer’s Common Stock outstanding as of December 1, 2012:  117,121,248

 
 

 
 
FORM 10-K
 
FOR THE YEAR ENDED AUGUST 31, 2012
 
INDEX
 
PART I
   
     
Item 1.
Business
 
3
Item 1A.
Risk Factors
 
10
Item 1B.
Unresolved Staff Comments
 
10
Item 2.
Properties
 
10
Item 3.
Legal Proceedings
 
10
Item 4.
Mine Safety Disclosures
 
10
     
PART II
   
     
Item 5.
Market for the Registrant's Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities
 
11
Item 6.
Selected Financial Data
 
11
Item 7.
Management's Discussion and Analysis of Financial Condition and Results of Operations
 
12
Item 7A.
Quantitative and Qualitative Disclosure about Market Risk
 
18
Item 8.
Financial Statements and Supplementary Data
 
18
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
 
18
Item 9A.
Controls and Procedures
 
19
Item 9B.
Other Information
  20
     
PART III
   
     
Item 10.
Directors, Executive Officers and Corporate Governance
 
21
Item 11.
Executive Compensation
 
23
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
 
24
Item 13.
Certain Relationships and Related Transactions, and Director Independence
 
25
Item 14.
Principal Accounting Fees and Services
 
26
     
PART IV
   
     
Item 15.
Exhibits, Financial Statement Schedules
 
27
     
Signatures
 
29
 
 
 

 
 
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 Annual Report on Form 10-K 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, 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 our 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 the Company 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 "Risk Factors" under Item 1A, and "Management's Discussion and Analysis of Financial Condition and Results of Operations," at pages 12-15. Because of these and other factors that may affect the Company’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 the Company files from time to time with the Commission, including subsequent Current Reports on Form 8-K, Quarterly Reports on Form 10-Q and Annual Reports on Form 10-K.
 
 
 

 

PART I
 
Item 1.  Business

Business Overview

OSL Holdings Inc. intends to 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. Our business plan includes the following components:

      
We plan to sell data to major consumer brands for designated markets, such as urban retail, convenient 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 lines of business 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, of which it can give no assurance, 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. Currently, these lines of business are purely our aspirations.

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 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 would 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.

Our wholly owned subsidiary, Office Supply Line, Inc. is an integrated marketer and distributor of “Products for the Office.” It will operate in the competitive office supply market as a virtual distributor, leveraging the existing logistical capabilities of its suppliers who provide for inventory logistics, distribution and delivery. OSL will focus on the development and or acquisition of cutting edge technology, sales, marketing and customer service. To a certain extent we expect OSL’s success to be dependent on the success of our OSL Rewards and our OSL Diversity business units as they will both promote and offer OSL products to their customers. At the present time, OSL has no customers or material assets.

We are also in discussions with 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 are expected to create a transactional network that brings together brands, distributors, wholesalers, retailers (both online commerce and “brick and mortar” 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 sectors (such as local, state and federal governments) 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.
 
 
3

 
 
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 August 31, 2012. It also has a working capital deficit and stockholders’ deficit of $1,841,938 at August 31, 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.

The ability of the Company to continue its operations is dependent on Management's plans, which may include the raising of capital through debt and/or equity markets with some additional funding from other traditional financing sources, including term notes, until such time that funds provided by operations are sufficient to fund working capital requirements. The Company may need to incur liabilities with certain related parties to sustain its existence.

The Company will require additional funding to finance the growth of its current and expected future operations as well as to achieve its strategic objectives. The Company believes its current available cash along with anticipated future revenues may be insufficient to meet its cash needs for the near future. There can be no assurance that financing will be available in amounts or terms acceptable to the Company, if at all.

Our Corporate History and Background

The Company was originally incorporated in Nevada on November 22, 2004 as Maneki Mining (“Maneki”), a development stage company in the business of mineral exploration. In August 2006, Red Rock Pictures, Inc. consummated a share exchange agreement, whereby 100% of its shares were acquired by Maneki in exchange for 1,800,000 shares of Maneki. On October 31, 2006, Maneki filed a certificate of amendment, changing the legal name of the corporation to Red Rock Pictures Holdings Inc. Red Rock Pictures, Inc. was incorporated on August 18, 2006 under the laws of the State of Nevada and was acquired by Red Rock Pictures Holdings Inc. on August 31, 2006. The Company engaged in the business of developing, financing, producing and licensing feature-length motion pictures and direct response infomercials.

OSL was incorporated pursuant to the laws of the State of Nevada on September 16, 2010, as Office Supply Line, Inc.

Share Exchange of OSL

On October 10, 2011, we completed a Share Exchange with OSL whereby OSL exchanged all of the issued and outstanding shares of OSL in exchange for 50,000,000  shares of our common stock, which shares constituted approximately 77% of our issued and outstanding shares, as of and immediately after the consummation of the Share Exchange. As a result of the Share Exchange, OSL became our wholly owned subsidiary. All of our assets at the time of the Share Exchange were either spun-out or assigned, other than Red Rock Pictures, Inc. and SSD which remain our wholly owned subsidiaries, but currently have no operations. The Share Exchange transaction with OSL was treated as a reverse merger recapitalization, with OSL as the acquirer and the Company as the acquired party. Unless the context suggests otherwise, when we refer in this report to business and financial information for periods prior to the consummation of the Share Exchange, we are referring to the business and financial information of OSL.
 
 
4

 
 
Upon the closing of our Share Exchange with OSL, Anthony Gentile, a principal of Crisnic Fund S.A., resigned from all offices that he held at the Company effective immediately. In addition, Anthony Gentile and Kenneth G. Eade resigned from their positions as directors, which was effective on or about November 1, 2011. Additionally, M. Richard Cutler resigned from his position as a director, which was effective immediately.

Also upon the closing of our Share Exchange with OSL, our board of directors decreased its size from three to two members and appointed Eli Feder and Eric Kotch to fill the vacancies created by the resignation of Anthony Gentile, Kenneth G. Eade and M. Richard Cutler. In addition, our board of directors appointed Eli Feder to serve as our President and Chief Executive Officer and Eric Kotch as our Chief Financial Officer, Treasurer and Secretary, effective immediately at the closing of the Share Exchange with OSL.

As a result of our acquisition of OSL, OSL became our wholly owned subsidiary and we have assumed the business and operations of OSL. On October 17, 2011, we changed our name to OSL Holdings Inc, by filing a Certificate of Amendment to the Articles of Incorporation with the State of Nevada to more accurately reflect our new business operations.

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 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 will be combined into one share of common stock. The Company expects to receive approval from FINRA to effect the reverse split and has filed an amendment to its Articles of Incorporation to effect the reverse stock split as of January 2, 2013. Adoption of the reverse stock split, without taking into account the issuance of any additional shares of our common stock, will reduce the shares of common stock outstanding to approximately 117,121 shares of Common Stock (without taking into account adjustments for fractional shares).
 
Our Strategy

Our comprehensive corporate strategy is to generate attractive economic returns by capitalizing on our unique business model in collecting and transmitting real-time consumer and business data, developing electronic marketplaces within the diversity space as well as our loyalty rewards platform. We are creating a distributed model allowing purchases online, at retail, on mobile phones for B2C, B2B, government, and non-profit/charitable companies. The goal is to become the leading provider of consumer and business sales data, electronic marketplaces and loyalty rewards in the channels we focus in. The key elements of our strategy are:

      
Expand our partner base. We intend to increase our market share by adding new partners with strong brand franchises who are seeking to leverage our real-time sales data, electronic marketplaces or loyalty rewards to generate revenues as well as provide value to their customers or audience. New partners could include companies with major brand names in specialty and full-line retail, consumer products, non-profits

      
Internet and media. We expect to launch a rewards platform and B2B marketplace businesses online when funding permits

      
Promote online/offline brands. We intend to build awareness and drive traffic to our businesses by capitalizing on the brand assets, large marketing databases and retail traffic of our partners. Each of our partners prominently features and promotes its brand and/or URL in its marketing and communications materials. We also plan to continue to selectively use a variety of online and offline marketing strategies to reach prospects, including but not limited to search marketing, direct mail, public relations, email programs and affinity relationships.

We believe this initiative will drive repeat purchases as purchasers become increasingly satisfied with their reward experiences and tools to transact business.

      
Enhance the online transaction experience. We plan to continually enhance and expand our online marketplaces to address the evolving needs of our customers. We plan to invest in technology to maximize the flexibility and speed to market of our website www.officesupplyline.com as well as future websites that will be built. We intend to improve the presentation of our product offerings by taking advantage of the unique characteristics of the internet as a retail/selling medium. Specifically, we plan to develop features that improve the functionality, speed, navigation and ease of use of our websites.
 
 
5

 
 
·      
Pursue growth by acquisitions or development of new business units. From time to time we will assess strategic development and acquisitions that are aligned with our goal of increasing our partner and customer base and/or expanding our product offerings.
 
Our strategy for each business unit will be specific to that business unit, vertical or industry segment with the common threads of capturing and transmitting of real-time data, innovative use of technology, revenue scalability and access to deep audience segments. For example, our strategy for OSL’s consumer office products will rely heavily on internet marketing and our strategy for large corporate customers will rely more heavily on relationships and leveraging our cross business unit added value benefits such as rewards, consumer data or supplier data. One example of this added value benefit, which will be one of the common threads between all of our business units, will be the leveraging of our rewards platform.

OSL Data

The OSL Data business will create a bridge between manufacturers/brands, suppliers and consumers to:
 
      
Service the shopper in a better way by understanding their shopping habits and product needs;
 
      
Support retailers by providing fact based information for their decision making process;
 
      
Create product and store loyalty with the consumer by having their favorite products on the shelves; and
 
      
Develop effective retail execution at these stores.

OSL Data will provide the insights brands and suppliers need to operate more efficiently, service their customers and grow the brands through the use of a pool of data being supplied by a network of data points through point of sale (POS) systems deployed at retail locations currently not using POS.

Our business model is to provide brands, manufacturers and distributors with national, regional and real-time in store basket sales data, access to SKU (stock keeping unit) or PLU (price look up) data in real-time via reporting dashboards, ability to monitor your in-store promotions in real-time, compare PLU sales by category and sub category, access and study sales trends with current and historical data, receive real time alerts on sales and promotions by competitors, export data to excel, comma delimited, or PDF.

Our offering is expected to include three levels of service:

      
First Level.  Deliver normalized, real-time via dashboards across markets of full basket sales data.
     
Second Level. Enhanced data combines the real time data with over 1,000 point of data from various sources to make meaningful marketing campaigns and decisions.
     
Third Level.  Offers promotional control with the ability to tie national rewards, instant promotions at POS, and follow-up promotional capabilities (SMS, E-mail and Direct Mail).

We are leveraging a POS system that requires very little training and support, is very easy to implement & Cloud based, where merchants/retailers are operational from the moment of installation. The POS includes inventory replenishment & EDI capability with product Dictionary in the system for various retail set-ups.

OSL Diversity

OSL Diversity’s mission is to provide a strategic sourcing and ecommerce portal powered by rewards that facilitates suppliers doing business with other suppliers, corporations and consumers. Our commitment is to bundle our services to benefit Minority/Women Business Enterprise ("M/WBE") to Corporate, M/WBE to M/WBE and overall capacity building. We believe we can grow rewards, ecommerce, strategic sourcing and social tools for the diversity marketplace. The goal is to better position suppliers to secure 1st and 2nd tier business opportunities with corporations and prime vendors, via mentor-protégé relationships and employing appropriate profiling models.
 
 
6

 
 
The OSL Diversity marketplace will enable corporations to confidently connect with diverse suppliers. Our goal is to be a leading market maker that creates an environment for commerce that:

     
is easy to use so that members can become proficient quickly;
     
has intuitive interfaces, reports and tools to reduce the learning curve;
     
provides a critical mass of participants so buyers can find the products and services they need, and sellers can locate interested buyers;
     
creates marketplace-to-marketplace interaction to give participants access to a larger or smaller "virtual" marketplace and audience as desired; and
     
is functionality rich enough to perform the range of commerce tasks from searching, sourcing, bidding, dynamic pricing, tracking, auditing and authorization management to catalog management.

OSL Rewards

OSL Rewards is expected to provide businesses with the ability to drive more business by issuing and/or redeeming the reward currency to/from customers when shopping at the retail store, on their mobile phone or online. Funding availability will help determine when we can finalize the development of our rewards technology platform that would initially leverage current and developing business relationships within the diversity and affinity marketplaces that have substantial membership bases.

The intent of the reward offering 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 the currency, regardless of the payment method they use when making a purchase (i.e. Visa, Amex, Mastercard, or cash), 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 offering would also allow retail merchants and online ecommerce site operators’ access to our membership base for better business efficiency, boosting sales and profitability while giving our partners the ability to offer value to their membership base.

Businesses would not need to make our rewards program the exclusive rewards programs. We will enter into marketing agreements with partners for exclusive and endorsed programs but it is not required. The benefit to the partner for exclusive use of our program is higher revenue sharing on the program. The competitive advantages of our program versus other programs a partner may use would vary based on the program the partner is then running. Advantages of our program are that our program is merchant (retailer) funded versus partner funded, the rewards will be portable from merchant to merchant—rewards earned by spending at one merchant can be redeemed at another merchant, revenue sharing for usage of issued rewards, as well as de minimus cost for the rewards issuer or partner.

One of the advantages for partners is revenue sharing from issuance of rewards when redeemed, as we share a percentage of revenue received from merchants with the issuers of the rewards. The market rates for merchants to redeem our member rewards will vary, but will be a percentage of the amount of discount redeemed; typically less than 20% of the equivalent redemption dollar amount. Additionally, we will also allow merchant partners to pay flat rate advertising fees or CPM’s (cost per thousand of advertised audience) rates for advertising space to increase exposure of their products/services or advertisements to members.

Office Supply Line (OSL)

One of our integral strategies for OSL is to be a virtual distributor, which allows OSL to offer products, starting with office products, that we can offer without acquiring inventory and such related expenses such as warehouses, packers, truckers and return departments. We have chosen to market our products through either established office product companies and through soon to be affinity program relationships. For example, one aspect of our marketing strategy will be to market our product lines by leveraging any and all customer relationships we currently have or will have in the future to obtain additional contacts with whom we will try to establish revenue sharing agreements, advertising relationships, better pricing and more diverse product lines.
 
 
7

 
 
While we have identified several strategic relationships and have had discussions with various companies, we have not yet formalized these agreements to date. These potential relationships, if and when formalized, are expected to give us access to millions of sales prospects for office supplies, as well as potential members for our developing rewards platform, which in turn should generate additional revenues for the companies.

Our Products

As a holding company, our business units will offer varied products by each business unit.

OSL Data

OSL Data will offer data at three service levels to customers. The first level is data and reporting. The second level is ability to enhance data and create custom reports, while the third levels adds the ability to create promotions or offers to consumers.

OSL Diversity

OSL Diversity will offer memberships to the marketplace to corporations, suppliers, and advocacy groups. Additionally, we will offer secondary services such as matchmaking, data management, data enhancement, human resource rewards programs, financing, consulting and advertising.

OSL Rewards

OSL Rewards will offer customers a funded and merchant funded loyalty and rewards programs to business customers, as well as create and operate a consumer loyalty and rewards program focused around everyday rewards to the end consumer for BtoC transactions.

Office Supply Line

OSL intends to offer thousands of items from over 1,000 manufacturers. It will provide technology products, traditional office products, office furniture, janitorial and break-room supplies and industrial products. By buying from multiple wholesalers, we can deliver any of these products from one of their strategically located distribution centers providing same or next day delivery to more than 90% of the United States. We have access to a variety of catalogs which represent more than 27,000 different items.

Marketing

General

Our marketing will vary for each business unit but we generally plan to build awareness and drive traffic to our businesses by capitalizing on the brand assets, large marketing databases and transactional traffic of our partners. We also plan to continue to selectively use a variety of online and offline marketing strategies to reach prospects, including but not limited to search marketing, direct mail, public relations, email programs and affinity relationships.

OSL Data

Initially, we will market our OSL Data business through a business development team who will utilize their current relationships to reach out to contacts and present our product offerings to brands, manufacturers and distributors.
 
 
8

 
 
OSL Diversity

Initially, we will market our OSL Diversity business through a business development team who will utilize their current relationships to reach out to contacts and present our product offerings to advocacy groups, corporations and suppliers.

OSL Rewards

Initially, we will market our OSL Rewards business through a business development team who will utilize their current relationships to reach out to contacts and present our product offerings to merchants, brands, advocacy groups, and corporations. Once we have secured our merchant and membership partners we will utilize the marketing programs outlined in our marketing section.

Office Supply Line

One of our innovative approaches relates to diversity marketing. Most Fortune 500 companies have supplier diversity programs and publicize how much they spend with diverse suppliers, including minority owned business enterprises (MBE), women owned business enterprises (WBE), suppliers located in Historically Underutilized Business Zones (HUB Zones), and Service Disabled Veteran Owned Small Business Concerns (SDVOSBC). This spending is sometimes termed minority “credits,” or when the federal government requires this spending it is called “minority spend.” Many government contracts require that winning bidders demonstrate that they utilize a certain percentage of certified small business and/or minority businesses. Many large corporations constantly seek new ways to utilize their minority “credits” or “minority spend.” Few office products companies compete for that diversity business effectively, so we will partner with minority owned businesses and create custom marketing programs for their teams to secure and service this diversity business. Additionally, we will use the outlined marketing strategy to secure consumer transactions.

Customers

Each business unit will maintain separate customer bases with the goal of creating agreements to cross promote or refer business relationships and customers. None of our business units currently have any active customers.

Distribution

OSL intends to make use of the infrastructure and logistics offered by its suppliers’ national distribution centers allowing for next day delivery throughout the continental United States. OSL does not have any formal arrangements or agreements with any distributors.

Competition

Each business unit will have specific competitive landscapes as we launch and enter each market. Specifically, OSL have a competitive landscape that includes over 16,000 independent office supply dealers whose gross annual sales vary, running from $1,000,000 or less up to dealers that gross in the hundreds of millions of dollars annually. Additionally, retail competition includes substantial retailers such as Staples and Office Max.

It is our intention to target “business to business” clients as well as the consumer market by implementing our unique reward offering. This approach is typically not consistent with the approach taken by independent office dealers. We believe that by virtue of this approach, we will position ourselves above the typical independent dealer in this competitive environment. Additionally, we plan to operate in a nimble and efficient manner with less management layers and shorter approval timelines for making changes in marketing, product offerings, and pricing as oppose to the major national chains.

Employees

As of December 1, 2012, we have three full time employees.
 
 
9

 
 
Intellectual Property

The Company has no intellectual property.

Item 1A.  Risk Factors
 
Not required for smaller reporting companies.
 
Item 1B.  Unresolved Staff Comments
 
Not applicable for smaller reporting companies.
 
Item 2.  Properties

Our principal executive office is located at 60 Dutch Hill Rd., Orangeburg, NY 10962. This office is under a five year lease dated March 1, 2012 with first year rent of $2,000 per month with escalation clauses in subsequent years. The lease is cancellable after 30 months and would incur a three month penalty. The lease relates to an approximate 2,000 square foot office. We believe that our facilities are adequate to meet our current needs but are evaluating the need for additional office space as we expand our business.
Item 3.  Legal Proceedings
 
From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties and an adverse result in these or other matters may arise from time to time that may harm our business. We are currently not aware of any such legal proceedings or claims that we believe will have a material adverse effect on our business, financial condition or operating results.

Item 4.  Mine Safety Disclosures
 
Not applicable.

 
10

 
 
PART II

Item 5.  Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchase of Equity Securities
 
Market Information
 
Our common stock is traded on The OTCQB under the symbol “OSLH.” As of December 1, 2012, 117,121,248 shares of our common stock were issued and outstanding. Furthermore, we are obligated to issue, as security for a loan default, an aggregate of 650,001 shares of our preferred stock. Each share of preferred stock, when issued, effectively would entitle the holder to 100 votes on all matters submitted to shareholders. The preferred stock will not be listed, traded or quoted on any national securities exchange or over the counter market.

 Price Range of Common Stock

The following table sets forth the high and low trade information for our common stock for each quarter for the previous two years. The prices reflect inter-dealer quotations, do not include retail mark-ups, markdowns or commissions and do not necessarily reflect actual transactions.
 
   
High
   
Low
 
Fiscal Year 2012
           
   First quarter ended November 30, 2011
 
$
.50
   
$
.07
 
   Second quarter ended February 28, 2012
 
$
.50
   
$
.05
 
   Third quarter ended May 31, 2012
 
$
.11
   
$
.04
 
   Fourth quarter ended August 31, 2012
 
$
.05
   
$
.01
 
                 
Fiscal Year 2011
           
   First quarter ended November 30, 2010
 
$
.40
   
$
.12
 
   Second quarter ended February 28, 2011*
 
$
38.00
   
$
.10
 
   Third quarter ended May 31, 2011
 
$
.35
   
$
.10
 
   Fourth quarter ended August 31, 2011
 
$
.15
   
$
.10
 
   
               
*There was one day during the second quarter of fiscal 2011 that the Company’s stock price was $38.00. Every other day during the second quarter the price was under $0.50.
 
Holders

As of December 1, 2012, there were approximately 75 holders of record of our common stock. This number does not include shares held by brokerage clearing houses, depositories or others in unregistered form.

Dividends

We have never declared or paid a cash dividend. Any future decisions regarding dividends will be made by our Board of Directors. We currently intend to retain and use any future earnings for the development and expansion of our business and do not anticipate paying any cash dividends in the foreseeable future. Our Board of Directors has complete discretion on whether to pay dividends. Even if our Board of Directors decides to pay dividends, the form, frequency and amount will depend upon our future operations and earnings, capital requirements and surplus, general financial condition, contractual restrictions and other factors that the Board of Directors may deem relevant.

Securities Authorized for Issuance under Equity Compensation Plans

We do not have in effect any compensation plans under which our equity securities are authorized for issuance.
 
Item 6.  Selected Financial Data
 
We are not required to provide the information required by this Item because we are a smaller reporting company.
 
 
11

 

Item 7.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

OSL Holdings Inc. intends to 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. Our business plan includes the following components:

     
We plan to sell data to major consumer brands for designated markets, such as urban retail, convenient 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 lines of business 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, of which it can give no assurance, 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. Currently, these lines of business are purely our aspirations.

Collectivity these business units are expected to create a transactional network that brings together brands, distributors, wholesalers, retailers (both online commerce and “brick and mortar” 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 sectors (such as local, state and federal governments) 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.

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 August 31, 2012. It also has a working capital deficit and stockholders’ deficit of $1,841,938 at August 31, 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.

The ability of the Company to continue its operations is dependent on Management's plans, which may include the raising of capital through debt and/or equity markets with some additional funding from other traditional financing sources, including term notes, until such time that funds provided by operations are sufficient to fund working capital requirements. The Company may need to incur liabilities with certain related parties to sustain its existence.

The Company will require additional funding to finance the growth of its current and expected future operations as well as to achieve its strategic objectives. The Company believes its current available cash along with anticipated future revenues may be insufficient to meet its cash needs for the near future. There can be no assurance that financing will be available in amounts or terms acceptable to the Company, if at all.

 
12

 
 
Recent Developments

Share Exchange with OSL

On October 10, 2011, we completed a share exchange with OSL whereby OSL exchanged all of the issued and outstanding equity interests of OSL in exchange for 50,000,000  shares of our common stock, par value $0.001 per share. As a result of the Share Exchange, OSL became our wholly owned subsidiary.

As part of the Share Exchange, the Company entered into a Share Cancellation Agreement and Release (the "Share Cancellation Agreement") with Crisnic and OSL. Pursuant to the Share Cancellation Agreement, Crisnic agreed to cancel 14,130,000  shares in exchange for $10,000 and a Secured Promissory Note of OSL in the principal amount of $240,000 (the "Crisnic Note"). Under the terms of the Crisnic 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. The Crisnic Note is secured by 650,001 shares of Series A Preferred Stock (the "Preferred Shares") of the Company. 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 Preferred Shares to Crisnic.
 
Corporate Diversity Solutions, Inc.

On December 15, 2011, the Company acquired a 48% equity interest in Corporate Diversity Solutions, Inc., a New Jersey Corporation (“CDS”) and issued 200,000 shares of common stock valued at $10,000 in December 2011 to the shareholders of CDS to purchase this interest. The Company also entered into an employment agreement with an employee of CDS and issued 500,000 shares valued at $25,000 in accordance with this agreement. The shares issued were valued at $0.05 per share, the trading price of the common stock on the date of the agreement. As part of the agreement, family members of the majority shareholders of the Company also acquired a 2% equity interest in CDS. For financial reporting purposes, the Company initially believed its 48% ownership and the ownership of the 2% interest of related individuals gave the Company effective control of CDS.
 
Pursuant to the terms of the agreement with CDS, all the departing shareholders of CDS (the “Departing Shareholders”) cancelled their shares of CDS. In consideration for the cancelation of shares, CDS indemnified and relieved the Departing Shareholders from any liabilities incurred by CDS. Additionally, OSL requested that United Stationers Inc. (“United Stationers”), a supplier of CDS, release all Departing Shareholders from any liability, and OSL and CDS indemnify all Departing Shareholders until such release is obtained. United Stationers also requested that each of Eric Kotch, our CFO, Eli Feder, our President and CEO, and Office Supply Line, Inc., our wholly-owned subsidiary, guarantee the debt owed by CDS to United Stationers (the “Guarantee”).
 
On April 5, 2012, the Company announced that it was unable to complete a two year audit (the “Audit”) of CDS as required by the rules of the Securities and Exchange Commission and was therefore actively seeking to divest its ownership in CDS. The unrelated CDS shareholders returned $20,000 in cash advanced to CDS and 500,000 shares of OSLH previously issued to CDS employee Ken Scarpa have been returned. On June 5, 2012, United Stationers cancelled the personal guarantee of OSL, Eric Kotch and Eli Feder. For financial reporting purposes at August 31, 2012, the Company has determined that it never had effective control of CDS, and the costs of the acquisition totaling $27,297, comprising the issuance of its common shares (aggregate value of $20,000) and cash advances of $7,297 made to CDS, have been reflected as a cost of abandoned acquisition on the accompanying statement of operations for the twelve months ended August 31, 2012.
 
 
13

 
 
Existing Indebtedness

Emerald

Pursuant to an agreement dated September 19, 2011, by and between Emerald and the Exchange LLC (“Exchange LLC”), Emerald assigned the Senior Secured Convertible Note and the Additional Debt to the Exchange LLC. 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 Additional Debt was forgiven by the Exchange LLC and the maturity date of the Senior Secured Convertible Note was extended to October 5, 2012. In consideration of the forgiveness by the Exchange LLC of the Additional Debt and extending the maturity date of the Senior Secured Convertible Note to October 5, 2012, the Company agreed to amend the conversion price of the Senior Secured Convertible Note to $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 by the maturity date. 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.

Asher Enterprises

During the period November 15, 2011 to July 17, 2012, the Company issued four unsecured Convertible Notes (the “Convertible Notes”) to Asher Enterprises (“Asher”) in the aggregate amount of $150,500. The Convertible Notes are each due after one year from the date thereof 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.
 
During the twelve months ended August 31, 2012, the Company issued a total of 5,355,004 shares of common stock at an average conversion price of $0.007 or $39,000 as partial repayment to the Convertible Notes. Upon conversion, the Company recognized a beneficial conversion cost of $69,101 related to the difference between the conversion price and the market price of the stock at the date of conversion. As of August 31, 2012, the total remaining balance outstanding to Asher is $116,600, including accrued interest of $5,100.
 
 
14

 
 
On November 8, 2012, the Company entered into a Securities Purchase Agreement dated as of October 19, 2012, with Asher, pursuant to which Asher purchased, and the Company issued, a convertible promissory note issued by the Company as of the same date in the principal amount of $22,500 (the “November 2012 Note”) with a maturity date of July 23, 2013. The interest rate of the Note is 8% per annum through the maturity date. The November 2012 Note is convertible into shares of the Company’s common stock (up to an amount that would result in Asher holding no more than 4.99% of the outstanding shares of common stock of the Company, subject to waiver by Asher) at any time beginning on the date that is 180 days following the date of the November 2012 Note and ending on the maturity date, valued at an agreed discount to market not to fall below a 59% discount to the average of the three lowest closing bid prices for the Company’s common stock during the ten days immediately preceding a conversion date, subject to certain exceptions described in the November 2012 Note. In the event the Company fails to deliver to Asher the common stock issuable upon conversion, the Company shall be required to pay to Asher $1,000 per day for each day beyond the due date until the Company so delivers the common stock (the “Conversion Penalty”). Furthermore, upon the occurrence and during the continuation of a “Conversion Default” (as defined in the November 2012 Note), the November 2012 Note shall become immediately due and payable and the Company shall pay to the holder, in full satisfaction of its obligations under the November 2012 Note, an amount equal to the Default Sum (as defined below), multiplied by 2. In the event the Company shall default in the payment of the November 2012 Note, the interest rate shall be increased to 22% per annum. Furthermore, upon the occurrence and during the continuation of any event of default with respect to failure to pay principal or interest when due at the maturity date, the November 2012 Note shall become immediately due and payable and the Company shall pay to Asher, in full satisfaction of its obligations under the November 2012 Note, an amount equal to the Default Sum. “Default Sum” is defined as (a) the then outstanding principal amount of the November 2012 Note to the date of payment, plus (b) the accrued and unpaid interest on the unpaid principal amount of the November 2012 Note to the date of payment plus (c) default interest, if any, on the amounts referred to in clauses (a) and (b) plus (d) any amounts owed to Asher pursuant to the Conversion Penalty.

Besides the Notes disclosed here, there is no material relationship between the Company or its affiliates and Asher.

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 one year from the date thereof. All past-due principal of the Panache Notes shall 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 Panache Notes. As of August 31, 2012, the unamortized balance of the Panache Notes discount was $47,861.
 
As of August 31, 2012, the total remaining balance outstanding to the Payee is $260,600, including accrued interest of $10,600.
 
On September 21, 2012, the Company issued a convertible promissory note to the Payee for the principal amount of $30,000, with a maturity date of September 21, 2013. The interest rate of the note is 10% per annum through the maturity date. The note is convertible into shares of the Company’s common stock at any time and from time to time, valued at an agreed discount to market not to fall below a 49% discount to the average of the three lowest closing bid prices for the Company’s common stock during the ten days immediately preceding a conversion date. In the event the Company fails to deliver to the Payee the common stock issuable upon conversion, the Company shall be required to pay to the Payee $2,000 per day for each day beyond the due date until the Company so delivers the common stock (the “Conversion Penalty”). In the event the Company shall default in the payment of the note, the interest rate shall be increased to 15% per annum. Furthermore, upon the occurrence and during the continuation of any event of default with respect to failure to pay principal or interest when due at the maturity date, the note shall become immediately due and payable and the Company shall pay to the Payee, in full satisfaction of its obligations under the note, an amount equal to the Default Sum. “Default Sum” is defined as (a) the then outstanding principal amount of the note to the date of payment, plus (b) the accrued and unpaid interest on the unpaid principal amount of the note to the date of payment plus (c) default interest, if any, on the amounts referred to in clauses (a) and (b) plus (d) any amounts owed to the Payee pursuant to the Conversion Penalty.

 
15

 
 
On September 21, 2012, the Company entered into an amendment agreement (the “Amendment”) with the Payee, 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, the Payee 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 the Payee 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.

Besides the aforementioned notes, there is no material relationship between the Company or its affiliates and the Payee.

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.

As of August 31, 2012, the total remaining balance outstanding to Continental is $67,465, including accrued interest of $465.

Besides the Profectus Note and the New Note, there is no material relationship between the Company or its affiliates and Continental or Profectus.

Results of Operations

Comparison of the Twelve Months Ended August 31, 2012 and from September 16, 2010 (inception) to August 31, 2011

Revenue

The Company had no revenues for the twelve months ended August 31, 2012 and from September 16, 2010 (inception) to August 31, 2011, respectively.

General and Administrative

General and administrative expenses were $1,424,793 for the twelve months ended August 31, 2012 as compared to $200,454 from September 16, 2010 (inception) to August 31, 2011. The increase in expenses was related to the Company executing its business plan including the recent Share Exchange agreement. Expenses during the twelve months ended August 31, 2012 consisted primarily of professional service expenses and compensation expense. Expenses from inception to August 31, 2011 consisted of primarily of bank fees.

Loss on Impairment of Software Development Costs

During the twelve months ended August 31, 2012, the Company determined that the website under development was not going to be utilized and recorded a charge of $185,800. No similar expense existed from September 16, 2010 (inception) to August 31, 2011.
 
 
16

 
 
Cost of Reverse Merger

The cost of the Share Exchange was $647,880 for the twelve months ended August 31, 2012 as compared to $0 from September 16, 2010 (inception) to August 31, 2011, as a result of the Company assuming certain obligations totaling $647,880.

Cost of Rescinded Acquisition

Loss on acquisition was $27,297 for the twelve months ended August 31, 2012 as compared to $0 from September 16, 2011 (inception) to August 31, 2012. On April 5, 2012, the Company announced that it was unable to complete a two year audit and was therefore actively seeking to divest its ownership in CDS. During the twelve months ended August 31, 2012, the Company incurred approximately $27,297 in expenses related to the acquisition. No similar expense existed in the prior year.

Interest Expense

Interest expense was $178,511 for the twelve months ended August 31, 2012 as compared to $0 from September 16, 2010 (inception) to August 31, 2011. The increase in expenses was related to amortization of note discount amounting to $69,810 and $10,000 paid as part of a share cancellation agreement as discussed in Note 8 of the attached consolidated financial statements. Additionally, the Company recorded an expense of $69,101, which reflects the difference between the debt conversion price used and the market value on date of conversion. No similar activity existed in the same period of the prior year.

Cost of Offering

Private placement costs of $145,510 were incurred relating to the issuance of certain of our convertible notes during the twelve months ended August 31, 2012, as compared to $0 from September 16, 2010 (inception) to August 31, 2011.

Change in derivative liability

During the twelve months ended August 31, 2012, we incurred non-cash costs of $258,510 relating to a derivative liability created upon issuance of certain of our convertible notes. During 2012, this derivative liability was reduced by $7,540. This change in derivative liability is a non-cash benefit reported on the statements of 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 August 31, 2012. It also has a working capital deficit and stockholders’ deficit of $1,841,938 at August 31, 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 August 31, 2012 we had $202 in cash and a working capital deficiency of $1,841,938. 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.
 
 
17

 
 
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. In addition to the Crisnic Note, the Company has $479,442 of indebtedness with various terms of repayment through August 31, 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 $(511,029) and ($25,361) for the twelve months ended August 31, 2012 and from September 16, 2010 (inception) to August 31, 2011, respectively. Cash was primarily used to fund our net losses from operations.

Cash provided from financing activities was $510,084 and $26,508 for the twelve month months ended August 31, 2012 and from September 16, 2010 (inception) to August 31, 2011, respectively. During the twelve months ended August 31, 2012, we received cash of $467,865 from the issuance of promissory notes and we received $105,000 in cash related to common shares to be issued. The Company used $73,000 as repayment of debt. The Company also received $10,219 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.

Item 7A.  Quantitative and Qualitative Disclosures About Market Risk
 
We are not required to provide the information required by this Item because we are a smaller reporting company.
 
Item 8.  Financial Statements and Supplementary Data
 
Our Financial Statements are annexed to this Report as pages F-2 through F-18. An index to such materials appears on page F-1.
 
Item 9.  Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
     
None.
 
 
18

 
Item 9A.  Controls and Procedures
 
Disclosure controls and procedures.

Under the supervision and with the participation of our management, including our President and Chief Executive Officer and Chief Financial Officer (the “Certifying Officers”) we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)). Based upon that evaluation, the Certifying Officers concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were not effective. We and our auditors identified material weaknesses discussed below in the Report of management on internal control over financial reporting.
 
Report of Management on Internal Control over Financial Reporting.

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) under the Exchange Act. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles. Our internal control over financial reporting includes those policies and procedures that:

(i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets;

(ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and

(iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.

Management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement to the Company's annual or interim financial statements will not be prevented or detected.

In the course of management's assessment, we have identified the following material weaknesses in internal control over financial reporting:

-     
Segregation of Duties – As a result of limited resources, we did not maintain proper segregation of incompatible duties. Namely the lack of an audit committee, an understaffed financial and accounting function, and the need for additional personnel to prepare and analyze financial information in a timely manner and to allow review and on-going monitoring and enhancement of our controls. The effect of the lack of segregation of duties potentially affects multiple processes and procedures.

-     
Maintenance of Current Accounting Records – This weakness specifically affects the payments and purchase cycle and therefore we failed to maintain effective internal controls over the completeness and cut off of accounts payable, expenses and other capital transactions.
 
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 to hire the necessary staff to address the weaknesses once additional capital is obtained which will allow full operations to commence.
 
 
19

 
 
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.
 
Changes in internal controls over financial reporting.
 
There were no changes that occurred during the fourth quarter of the fiscal year covered by this Annual Report on Form 10-K that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
 
Item 9B.  Other Information

None.
 
 
20

 
 
PART III
 
Item 10.  Directors, Executive Officers and Corporate Governance
 
The following sets forth information about our directors and executive officers as of the date of this report:

Name
 
Age
 
Position
Eli Feder
 
56
 
Chief Executive Officer and Chairman of the Board
Eric Kotch
 
53
 
Chief Financial Officer, Treasurer, Secretary and Director
Robert Rothenberg
 
42
 
President
 
Eli Feder has been our Chief Executive Officer, and Director of the Company since October 2011 and our president from October 2011 through January 2012. He was the founder of Infinity Network and served as its Chairman from September 2006 through May 2008. Eli has launched several successful companies in the food service and marketing industries. His experiences include founding Quality Care, a nursing staffing firm startup, that now employs 1,500 people in the New York Metropolitan Area and participating successfully in the development of several food products that have been commercialized (e.g., a peanut butter and jelly cookie was conceived and sold to Smuckers). Eli served as Director of Business Development for Splitstream Technologies in 2002 and 2003; the underlying technology that powered Countonme, a registered card program. He has since acquired the technology for use by Infinity Network. Eli was named one of the “Top 40 Businessmen Under 40” by Entrepreneur Magazine in 1989.

Eric Kotch has been our Chief Financial Officer, Secretary, Treasurer and Director of the Company since October 2011. He is currently a manager of Vesuvio Import Company and Beverage Investment Group, LLC which are currently marketing the Sopranos Italian Wines under license from HBO. He has over 20 years of experience in finance and marketing, including 15 years as principal of Express Capital Corporation and Anvil Mortgage Banking Ltd (1986-2001). At Anvil, Kotch had particular success through homebuyer seminar marketing. Kotch founded Black Diamond Enterprises, LLC (“BDE”) (2001-present) a small venture capital company that finances and markets innovative technologies. BDE created and marketed the patented Owl Optical Wallet Light. Approximately three million OWLs have been sold worldwide through direct response marketing. Kotch is a graduate of the Wharton School and the University of Pennsylvania Law School and a member of the New York State Bar.

Robert Rothenberg has been our President since January 2012. Mr. Rothenberg has over 20 years of marketing and operational experience. He transitions out of LSF Interactive, a global digital marketing agency, where he was Managing Director of their U.S. operations. Over the past 18 months he helped LSF navigate three acquisitions, while strengthening their US operations and client roster, gaining momentum and turning it profitable. He helped lead gross revenues this past year to grow significantly & gross profits jumped to two times the rate of gross revenues, while also producing five times that rate of increased direct contribution by expanding profitable engagements with Fortune 1000 companies. Prior to his decade in the internet advertising space, he served as Vice President of Marketing & Business Development at GSI Commerce, helping clients such as JP Morgan Chase, the NFL, L'Oreal, Core Logic, Morgan Stanley (Discover Card), Career Education Corporation, Penske and Warnaco Brands (Speedo, CKU and CK Jeans). As one of the first employees hired after the formation of the company, Mr. Rothenberg helped launch GSI Commerce and grow the foundation of the business that became an e-commerce powerhouse that was recently acquired by eBay for an announced $2.4 billion. Prior to his work for GSI, Mr. Rothenberg worked for the National Basketball Association (NBA) where he launched and managed NBA Properties Direct to Consumer (DTC) business initiatives which included printed catalogues, e-commerce websites, projects for their retail store on 5th Avenue and a database partnership with Sport Illustrated.
 
Family Relationships

There are no family relationships among any of our officers or directors.

 
21

 
 
Conflicts of Interest

Certain potential conflicts of interest are inherent in the relationships between our officers and directors and us.

From time to time, one or more of our affiliates may form or hold an ownership interest in and/or manage other businesses both related and unrelated to the type of business that we own and operate. These persons expect to continue to form, hold an ownership interest in and/or manage additional other businesses which may compete with our business with respect to operations, including financing and marketing, management time and services and potential customers. These activities may give rise to conflicts between or among the interests of us and other businesses with which our affiliates are associated. Our affiliates are in no way prohibited from undertaking such activities, and neither us nor our shareholders will have any right to require participation in such other activities.

Further, because we intend to transact business with some of our officers, directors and affiliates, as well as with firms in which some of our officers, directors or affiliates have a material interest, potential conflicts may arise between the respective interests of us and these related persons or entities. We believe that such transactions will be effected on terms at least as favorable to us as those available from unrelated third parties.
 
With respect to transactions involving real or apparent conflicts of interest, we have adopted policies and procedures which require that: (i) the fact of the relationship or interest giving rise to the potential conflict be disclosed or known to the directors who authorize or approve the transaction prior to such authorization or approval, (ii) the transaction be approved by a majority of our disinterested outside directors, and (iii) the transaction be fair and reasonable to us at the time it is authorized or approved by our directors.
 
Our policies and procedures regarding transactions involving potential conflicts of interest are not in writing. We understand that it will be difficult to enforce our policies and procedures and will rely and trust our officers and directors to follow our policies and procedures. We will implement our policies and procedures by requiring the officer or director who is not in compliance with our policies and procedures to remove himself and the other officers and directors will decide how to implement the policies and procedures, accordingly.

Involvement in Certain Legal Proceedings

To the best of our knowledge, none of our directors or executive officers has been convicted in a criminal proceeding, excluding traffic violations or similar misdemeanors, or has been a party to any judicial or administrative proceeding during the past ten years that resulted in a judgment, decree, or final order enjoining the person from future violations of, or prohibiting activities subject to, federal or state securities laws, or a finding of any violation of federal or state securities laws, except for matters that were dismissed without sanction or settlement. Except as set forth in our discussion below in “Certain Relationships and Related Transactions, and Director Independence – Transactions with Related Persons,” none of our directors, director nominees, or executive officers has been involved in any transactions with us or any of our directors, executive officers, affiliates, or associates which are required to be disclosed pursuant to the rules and regulations of the Commission.
 
Committees
 
Our Board of Directors has no separate committees and our Board of Directors acts as the audit committee and the compensation committee. We do not have an audit committee financial expert serving on our Board of Directors.
 
Compliance with Section 16(A) of the Exchange Act.
 
Section 16(a) of the Exchange Act requires the Company’s officers and directors, and persons who beneficially own more than 10% of a registered class of the Company’s equity securities, to file reports of ownership and changes in ownership with the Securities and Exchange Commission and are required to furnish copies to the Company. To the best of the Company’s knowledge, any reports required to be filed were timely filed in the fiscal year ended August 31, 2012, except that Robert Rothenberg was not timely in filing his initial statement of beneficial ownership on Form 3 when appointed as president of the Company.
 
 
22

 
 
Code of Ethics
 
The Company has adopted a Code of Ethics applicable to its Chief Executive Officer and Chief Financial Officer. This Code of Ethics is filed as an exhibit to the Company’s Annual Report on Form 10-K for the fiscal year ended August 31, 2008.
 
Item 11.  Executive Compensation
 
The following sets forth information with respect to the compensation awarded or paid to our executive officers listed below, for all services rendered in all capacities to us in fiscal 2012 and 2011. On October 10, 2011, we were acquired by OSL through a share exchange transaction and, in connection with that transaction, Mr. Feder was appointed as our President and Chief Executive Officer and Mr. Kotch was appointed as our Chief Financial Officer, Secretary and Treasurer. Mr. Rothenberg replaced Mr. Feder as our president in January 2012.

Summary Compensation Table

The following table sets forth information regarding each element of compensation that we paid or awarded to our executive officers for the year ended August 31, 2012 and 2011.

 Name and
Principal Position
 
Year
 
Salary($)
   
Bonus($)
   
All Other
Compensation ($)
   
Total($)
 
Eli Feder (1)
 
2012
 
$
145,500
   
$
25,000
   
$
0
   
$
170,500
 
Chief Executive  Officer and Chairman
 
2011
 
$
0
   
$
0
   
$
0
   
$
0
 
                                     
Eric Kotch (2)
 
2012
 
$
145,500
   
$
25,000
   
$
0
   
$
170,500
 
Chief Financial Officer, Treasurer, Secretary and Director
 
2011
 
$
0
   
$
0
   
$
0
   
$
0
 
                                     
Robert Rothenberg (3)
President
 
2012
 
$
200,000
   
$
0
   
$
96,250
   
$
296,250
 
 __________
(1)   
For the year ended August 31, 2012, Mr. Feder received $15,500 in cash. Mr. Feder also received 2,833,333 shares of common stock, in lieu of cash compensation owed valued at $85,000. The shares were issued at an average market price of $0.03 per share. The remaining balance owed has been accrued and is included in accrued officer compensation in the attached Consolidated Balance Sheets.
(2)   
For the year ended August 31, 2012, Mr. Kotch received $15,500 in cash. Mr. Kotch also received 2,833,333 shares of common stock, in lieu of cash compensation owed valued at $85,000. The shares were issued at an average market price of $0.03 per share.  The remaining balance owed has been accrued and is included in accrued officer compensation in the attached Consolidated Balance Sheets.
(3)   
For the year ended August 31, 2012, Mr. Rothenberg received $20,000 in cash. Mr. Rothenberg also received 2,374,996 shares of common stock of which 708,330 shares, valued at $96,250, were issued per his employment agreement dated January 17, 2012. Additionally, 1,666,666 shares, valued at $50,000, were issued in lieu of cash compensation owed. The shares were issued at an average market price of $0.03 per share.  The remaining balance owed has been accrued and is included in accrued officer compensation in the attached Consolidated Balance Sheets.

Outstanding Equity Awards at Fiscal Year-End Table

We had no outstanding equity awards as of the end of fiscal 2012.

Employment Agreements

Eli Feder

There is no written employment contract with Mr. Feder. The Company and Mr. Feder have a verbal agreement in which Mr. Feder is to receive $5,000 per month in base compensation. Mr. Feder is also eligible for discretionary bonuses. The Company expects to renegotiate a new employment contract with Mr. Feder which would likely contain substantial stock awards to offset current unpaid and deferred cash compensation and for prior stock awards that are currently under current market prices.
 
 
23

 
 
Eric Kotch

There is no written employment contract with Mr. Kotch. The Company and Mr. Kotch have a verbal agreement in which Mr. Kotch is to receive $5,000 per month in base compensation. Mr. Kotch is also eligible for discretionary bonuses. The Company expects to renegotiate a new employment contract with Mr. Kotch which would likely contain substantial stock awards to offset current unpaid and deferred cash compensation and for prior stock awards that are currently under current market prices.

Robert Rothenberg

Pursuant to the Employment Agreement dated January 17, 2012, Mr. Rothenberg is entitled to an annual base salary of $240,000 and 500,000 shares of the Company’s common stock and an additional 41,666 shares of the Company’s common stock per month, with an annual bonus of up towards $100,000 as well as customary benefits including health benefits. Mr. Rothenberg was entitled to  receive a signing bonus of $50,000 for consulting work done for the Company prior to his hire, as well as, 500,000 shares of stock.  The 500,000 shares of stock have been issued while the $50,000 signing bonus has not been paid as of December 1, 2012.

The Employment Agreement provides for a two year term, and is automatically extended for one year periods unless terminated by either party not less than 90 days prior to the end of the term. The Company can terminate the agreement at any point for cause, as defined in the Employment Agreement, and without cause. If termination is without cause, Mr. Rothenberg is entitled to accrued salary plus six months’ severance pay. The Employment Agreement also contains a six month non-compete clause should Mr. Rothenberg’s employment with the Company end. The Company expects to renegotiate a new employment with Mr. Rothenberg which would likely contain substantial stock awards to offset current unpaid and deferred cash compensation and for prior stock awards that are currently under current market prices.

Compensation of Directors

The Company’s directors received no compensation as such.
 
Item 12.  Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
 
The following table sets forth certain information as of December 1, 2012 with respect to the holdings of: (1) each person known to us to be the beneficial owner of more than 5% of our common stock; (2) each of our directors, nominees for director and named executive officers; and (3) all directors and executive officers as a group. To the best of our knowledge, each of the persons named in the table below as beneficially owning the shares set forth therein has sole voting power and sole investment power with respect to such shares, unless otherwise indicated.
 
Name of Beneficial Owner and Address
 
Amount and Nature of Beneficial Ownership of Common Stock
 
Percent of
Common Stock (1)
 
 
Amount and Nature of
Beneficial Ownership of
Preferred Stock
   
 
 
Percent of
Preferred Stock (2)
 
Crisnic Fund, S.A.
Conhotel Office Center Office 5 Sabana
San Jose, Costa Rica
   
-
     
  -
   
 
 
 650,001
(2)  
 
 
100
ARMK LLC (3)
   
21,575,000
     
18.42
%
           
Eric Kotch (3)
60 Dutch Hill Rd, Suite 15
Orangeburg, NY 10963
   
3,723,833
     
  3.18
%
 
 
 
-
   
 
 
-
 
Eli Feder
60 Dutch Hill Rd, Suite 15
Orangeburg, NY 10963
   
21,430,833
     
   28.30
%
 
 
 
-
   
 
 
-
 
Robert Rothenberg
   
2,524,990
     
2.16
%
           
All directors and executive officers as a group (3 people)
   
49,254,656
     
42.05
%
 
-
   
-
 
 
(1)  
Based on 117,121,248 shares of common stock issued and outstanding as of December 1, 2012. Shares of common stock subject to options or warrants currently exercisable or exercisable within 60 days, are deemed outstanding for purposes of computing the percentage of the person holding such options or warrants, but are not deemed outstanding for purposes of computing the percentage of any other person.
(2)
We agreed, as security for a loan, to issue an aggregate of 650,001 shares of our preferred stock, pending repayment in full of such loan by December 1, 2012. The Company recently received a written notice of default in accordance with the terms of the loan and is obligated to issue the 650,001 shares of Preferred Stock to Crisnic. Each share of preferred stock effectively would entitle the holder to 100 votes on all matters submitted to shareholders. The preferred stock would also convert into our common stock on a 100:1 basis upon certain circumstances. As of the filing of this Annual Report, the 650,001 Preferred Shares have not been issued.
(3)  
Mr. Kotch personally owns 3,723,833 shares and through his wife, Andrea Kotch, is the beneficial owner of the 21,575,000 shares owned by ARMK, LLC.
 
 
 
 
24

 
 
Changes in Control

We are not aware of any person who owns of record, or is known to own beneficially, five percent or more of our outstanding securities of any class, other than as set forth above. We do not have an investment advisor. There are no current arrangements which will result in a change in control, other than those set forth above.
 
Item 13.  Certain Relationships and Related Transactions, and Director Independence.
 
Transactions with Related Persons

The Company has received funding from certain related parties to help fund the operating needs of the Company. The balance outstanding as of August 31, 2012 and August 31, 2011 was $14,727 and $4,508, respectively. The loans are non-interest bearing, unsecured and due on demand.

Director Independence

We do not have any independent directors. Because our common stock is not currently listed on a national securities exchange, we have used the definition of “independence” of The NASDAQ Stock Market to make this determination. NASDAQ Listing Rule 5605(a)(2) provides that an “independent director” is a person other than an officer or employee of the company or any other individual having a relationship which, in the opinion of the company’s Board of Directors, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. The NASDAQ listing rules provide that a director cannot be considered independent if:
 
the director is, or at any time during the past three years was, an employee of the company;
 
the director or a family member of the director accepted any compensation from the company in excess of $120,000 during any period of 12 consecutive months within the three years preceding the independence determination (subject to certain exclusions, including, among other things, compensation for board or board committee service);

a family member of the director is, or at any time during the past three years was, an executive officer of the company;
 
the director or a family member of the director is a partner in, controlling stockholder of, or an executive officer of an entity to which the company made, or from which the company received, payments in the current or any of the past three fiscal years that exceed 5% of the recipient’s consolidated gross revenue for that year or $200,000, whichever is greater (subject to certain exclusions);
 
 
25

 
 
the director or a family member of the director is employed as an executive officer of an entity where, at any time during the past three years, any of the executive officers of the company served on the compensation committee of such other entity; or
 
the director or a family member of the director is a current partner of the company’s outside auditor, or at any time during the past three years was a partner or employee of the company’s outside auditor, and who worked on the company’s audit.

Mr. Feder and Mr. Kotch are not considered to be independent because they are both executive officers of the Company.

We do not currently have a separately designated audit, nominating or compensation committee.
  
Item 14.  Principal Accountant Fees and Services
 
Audit Fees
 
For the Company’s fiscal years ended August 31, 2012 and 2011, we were billed approximately $28,145 and $2,500, respectively, for professional services rendered for the audit and review of our consolidated financial statements.
 
Audit Related Fees

There were no fees for audit related services for the years ended August 31, 2012 and 2011.

Tax Fees
 
For the Company’s fiscal years ended August 31, 2012 and 2011, we were billed $0 and $9,000, respectively, for professional services rendered for tax compliance, tax advice, and tax planning.
 
All Other Fees
 
The Company did not incur any other fees related to services rendered by our principal accountant for the fiscal years ended August 31, 2012 and 2011.
  
The Company has not adopted any written pre-approval policies or procedures as described in paragraph (c)(7)(i) of Rule 2.01 of Regulation S-X.
 
 
26

 
PART IV
 
Item15.  Exhibits, Financial Statement Schedules
 
(a)     Exhibits:
 
Exhibit No.
  
Title of Document
  
Location
     
3.1
  
Articles of Incorporation
  
Incorporated by reference to Form SB-2 filed on June 17, 2005
     
3.2
 
Bylaws
 
Incorporated by reference to Form SB-2 filed on June 17, 2005
         
3.3
 
Certificates of Amendment to Articles of Incorporation and Certificate of Designation
 
Filed herewith
         
10.1
 
Convertible Note dated January 20, 2012 with Asher Enterprises
 
Filed herewith
         
10.2
 
Convertible Note dated June 15, 2012 with Asher Enterprises
 
Filed herewith
         
10.3
 
Convertible Note dated July 17, 2012 with Asher Enterprises
 
Filed herewith
         
10.4
 
Convertible Note dated November 8, 2012 with Asher Enterprises
 
Incorporated by reference to Form 8-K filed on November 14, 2012
         
10.5
 
Convertible Note dated March 5, 2012 with Panache Capital
 
Incorporated by reference to Form 8-K filed on March 15, 2012
         
10.6
 
Convertible Note dated April 10, 2012 with Panache Capital
 
Filed herewith
         
10.7
 
Convertible Note dated April 18, 2012 with Panache Capital
 
Incorporated by reference to Form 8-K filed on April 20, 2012
         
10.8
 
Convertible Note dated April 26, 2012 with Panache Capital
 
Incorporated by reference to Form 8-K filed on May 1, 2012
         
10.9
 
Amendment to Convertible Notes dated September 21, 2012 with Panache Capital
 
Filed herewith
         
10.10
 
Convertible Note dated August 13, 2012 with Continental Equities
 
Incorporated by reference to Form 8-K filed on September 25, 2012
         
10.11
 
Note dated October 10, 2011 with Crisnic Fund
 
Filed herewith
         
10.12
 
Stock Purchase Agreement with Asher Enterprises dated November 8, 2012
 
Incorporated by reference to Form 8-K filed on November 14, 2012
         
10.13
 
Office Lease Agreement
 
Filed herewith
         
10.14*
 
Employment Agreement dated January 17, 2012 with Robert Rothenberg
 
Filed herewith
         
10.15
 
Senior Secured Convertible Note dated December 28, 2008 with The Exchange LLC (as assignee of Emerald Asset Advisors, LLC)
 
Filed herewith
 
 
27

 
 
10.16
 
Amendment No. 1 to Senior Secured Convertible Note dated as of October 12, 2011 with The Exchange LLC
 
Filed herewith
         
10.17
 
Amendment No. 2 to Senior Secured Convertible Note dated as of December 4, 2012 with The Exchange LLC
 
Filed herewith
         
14
 
Code of Ethics
 
Incorporated by reference to Form 10-K/A filed on December 17, 2008
         
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.
 
Filed herewith
         
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.
 
Filed herewith
     
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.
 
Filed herewith
         
32.2
 
Certification of Principal Financial Officer, pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
Filed herewith
         
101
 
Materials from the OSL Holdings, Inc.’s Annual Report on Form 10-K for the fiscal year ended August 31, 2012, formatted in Extensible Business Reporting Language (XBRL): (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Operations, (iii) Consolidated Statement of Stockholders’ Deficit, (iv) Consolidated Statement of Cash Flows and (v) related Notes to the Financial Statements.
 
Filed herewith
 __________
* Management contract or compensatory plan or arrangement.

In accordance with SEC Release 33-8238, Exhibits 32.1 and 32.2 are being furnished and not filed.
 
 
28

 
 
SIGNATURES
 
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the registrant had duly caused this report to be signed on its behalf to the undersigned, thereunto duly authorized.
  
Dated: December 14, 2012
 
 
OSL HOLDINGS INC.
     
 
 By:
/s/ Eli Feder                                            
   
Eli Feder
Chairman and Chief Executive Officer
(Duly Authorized Officer and Principal Executive Officer)
     
 
By:
/s/ Eric Kotch
   
Eric Kotch
   
Chief Financial Officer, Treasurer and Secretary
(Principal Financial Officer)
 
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed as of the 14th day of December 2012, by the following persons on behalf of the registrant in the capacities indicated:
 
/s/ Eli Feder
 
Chairman of the Board and Chief Executive Officer
Eli Feder
   
     
/s/ Eric Kotch
 
Director, Chief Financial Officer, Treasurer and Secretary
Eric Kotch
   
     
 
 
29

 
 
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
 
   
Page
     
Report of Independent Registered Public Accounting Firm
 
F-2
     
Consolidated Balance Sheets as of August 31, 2012 and 2011
 
F-3
     
Consolidated Statements of Operations for the Year Ended August 31, 2012 and from inception to August 31, 2012 and 2011
 
F-4
     
Consolidated Statements of Changes in Stockholders’ Deficit from inception to August 31, 2012
 
F-5
     
Consolidated Statements of Cash Flows for the Year Ended August 31, 2012 and from inception to August 31, 2012 and 2011
 
F-6
     
Notes to the Consolidated Financial Statements
 
F-7
 
 
F-1

 
 
Report of Independent Registered Public Accounting Firm
 
To the Board of Directors and Stockholders
OSL Holdings, Inc. and Subsidiaries.
 
We have audited the consolidated balance sheets of OSL Holdings, Inc. and Subsidiaries as of August 31, 2012 and 2011, and the related consolidated statements of operations, stockholders’ deficit and cash flows for the year ended August 31, 2012 and for the periods from September 16, 2010 (inception) to August 31, 2012 and 2011, respectively. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of OSL Holdings, Inc. and Subsidiaries as of August 31, 2012 and 2011, and the results of their operations and their cash flows for the year ended August 31, 2012 and for the periods from September 16, 2010 (inception) to August 31, 2012 and 2011, respectively,, in conformity with accounting principles generally accepted in the United States of America.

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has suffered recurring losses and negative cash flows from operating activities, which have resulted in a negative working capital and a stockholders' deficit. These factors raise substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
 
Weinberg & Company, P.A.
Los Angeles, California
December 13, 2012

 
F-2

 
 
OSL HOLDINGS INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
 
   
As of
August 31,
   
As of
August 31,
 
   
2012
   
2011
 
             
Assets
 
Current assets:
           
Cash
 
$
202
   
$
1,147
 
Prepaid and other assets
   
2,000
     
12,500
 
Total current assets
   
2,202
     
13,647
 
                 
Website development costs
   
-
     
185,800
 
Total assets
 
$
2,202
   
$
199,447
 
                 
Liabilities and Stockholders’ Deficit
 
Current liabilities:
               
Accounts payable and accrued liabilities
 
$
659,001
   
$
301,393
 
Accrued officers compensation
   
270,000
     
-
 
Advances from related parties
   
14,727
     
4,508
 
Senior secured convertible note, including accrued interest of $51,300
   
135,300
     
-
 
Secured promissory note
   
170,000
     
-
 
Convertible notes, including accrued interest of $18,800
   
318,142
     
-
 
Promissory notes, including accrued interest of $2,000
   
26,000
     
24,000
 
Derivative liability
   
250,970
     
-
 
Total current liabilities
   
1,844,140
     
329,901
 
                 
Stockholders’ deficit:
               
Preferred Stock, $.001 par value; 5,000,000 shares authorized; no shares issued and outstanding
   
-
     
-
 
Common Stock, $.001 par value; 120,000,000 shares authorized; 86,694,333 and 50,000,000 shares issued and outstanding at August 31, 2012 and August 31, 2011, respectively
   
86,694
     
50,000
 
Additional paid-in capital
   
771,990
     
20,000
 
Common shares issuable (1,624,998  shares)
   
102,083
     
-
 
Deficit accumulated during the development stage
   
(2,802,705
)
   
(200,454
)
Total stockholders’ deficit
   
(1,841,938
)
   
(130,454
)
Total liabilities and stockholders’ deficit
 
$
2,202
   
$
199,447
 
 
See accompanying notes to the consolidated financial statements.
 
 
F-3

 
 
OSL HOLDINGS INC. AND SUBSIDIARIES
 (A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
 
   
Year
Ended
August 31, 2012
   
September 16, 2010
(Inception) to
August 31, 2011
   
September 16, 2010
(Inception) to
August 31, 2012
 
                   
Revenues
 
$
-
   
$
-
   
$
-
 
Operating expenses:
                       
General and administrative expenses
   
1,424,793
     
200,454
     
1,625,247
 
Impairment of website development
   
185,800
     
-
     
185,800
 
Operating loss
   
(1,610,593
)
   
(200,454
)
   
(1,811,047
)
Other:
                       
Reverse merger costs
   
(647,880
)
   
-
     
(647,880
)
Costs of rescinded acquisition
   
(27,297
)
   
-
     
(27,297
)
Interest expense
   
(178,511
)
   
-
     
(178,511
)
Cost of offering
   
(145,510
   
-
     
(145,510
Change in value of derivative liability
   
7,540
     
-
     
7,540
 
Other expense, net
   
(991,658
)
   
-
     
(991,658
)
Net loss
 
$
(2,602,251
)
 
$
(200,454
)
 
$
(2,802,705
)
Net loss per common share
                       
Net loss per common share – basic and diluted
 
$
(0.04
)
 
$
(0.00
)
       
Weighted average common shares outstanding – basic and diluted
   
66,796,315
     
50,000,000
         
 
See accompanying notes to the consolidated financial statements.
 
 
F-4

 
 
OSL HOLDINGS INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ DEFICIT
FOR THE PERIOD FROM SEPTEMBER 16, 2010 (INCEPTION) TO AUGUST 31, 2012
 
   
Preferred Stock
   
Common Stock
   
Additional
Paid in
   
Common
Shares
         
Stockholders’
 
   
Shares
   
Amount
   
Shares
   
Amount
   
Capital
   
Issuable
   
Deficit
   
Deficit
 
Balance, September 16, 2010 (Inception)
   
-
   
$
-
     
-
   
$
-
   
$
-
   
$
-
   
$
-
   
$
 
-
                                                                 
Common shares issued for cash received
                   
2,000,000
     
2,000
     
20,000
                     
22,000
 
                                                                 
Stock based compensation expense
                   
48,000,000
     
48,000
                             
48,000
 
                                                                 
Net loss
                                                   
(200,454
)
   
(200,454)
 
Balance, August 31, 2011
   
-
   
$
-
     
50,000,000
   
$
50,000
   
$
20,000
   
$
-
   
$
(200,454
)
 
$
(130,454
)
                                                                 
Shares issued upon Reverse  acquisition
   
-
     
-
     
1,068,255
     
1,068
     
(1,068
)
           
-
     
-
 
                                                                 
Fair value of stock issued upon rescinded acquisition
   
-
     
-
     
400,000
     
400
     
19,600
             
-
     
20,000
 
                                                                 
Shares issued to employees for services provided
                   
8,041,662
     
8,042
     
308,208
                     
316,250
 
                                                                 
Fair value of stock issued for outside services received
   
-
       
-
   
5,800,000
     
5,800
     
234,200
               
-
   
240,000
 
                                                                 
Common stock issued for cash
                   
29,412
     
29
     
4,971
                     
5,000
 
                                                                 
Common stock to be issued
                                           
100,000
             
100,000
 
                                                                 
Common stock to be issued for employee compensation
                                           
2,083
             
2,083
 
                                                                 
Shares issued upon conversion of Convertible Notes
   
-
     
-
     
21,355,004
     
21,355
     
102,746
     
-
     
-
     
124,101
 
                                                                 
Fair value of beneficial conversion feature of Convertible Notes
   
-
     
-
     
-
     
-
     
83,333
     
-
             
83,333
 
                                                                 
Net loss
   
-
     
-
     
-
     
-
     
-
     
-
     
(2,602,251
)
   
(2,602,251
)
                                                                 
Balance, August 31, 2012
   
-
   
$
-
     
86,694,333
   
$
86,694
   
$
771,990
   
$
102,083
   
$
(2,802,705
)
 
$
(1,841,938
)
 
See accompanying notes to the consolidated financial statements.
 
 
F-5

 
 
OSL HOLDINGS INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
 
   
Twelve Months 
Ended 
August 31, 2012
   
September 16, 2010
(Inception) to
August 31, 2011
   
September 16, 2010
(Inception) to
August 31, 2012
 
Cash flows from operating activities:
                 
Net loss:
 
$
(2,602,251
 
$
(200,454
)
 
$
(2,802,705
)
Adjustments to reconcile net loss to cash used in operating activities:
                       
Cost of reverse merger
   
647,880
     
-
     
647,880
 
Impairment of website development costs
   
185,800
             
185,800
 
Fair value of stock issued upon rescinded acquisition
   
20,000
     
-
     
20,000
 
Fair value of stock issued for services
   
240,000
     
-
     
240,000
 
Stock issued to employees for compensation and services
   
98,333
     
48,000
     
146,333
 
Cost of offering
   
145,510
     
-
     
145,510
 
Change in fair value of derivative liability
   
(7,540)
     
-
     
(7,540)
 
Amortization of note discount
   
69,810
     
-
     
69,810
 
Accrued interest
   
29,600
     
-
     
29,600
 
Non cash interest expense on note conversions
   
69,101
     
-
     
69,101
 
(Increase) decrease in:
                       
Prepaid and other assets
   
10,500
     
-
     
10,500
 
Accrued compensation
   
490,000
     
-
     
490,000
 
Accounts payable and accrued liabilities
   
92,228
     
127,093
     
219,320
 
Net cash used in operating activities
   
(511,029)
     
(25,361)
     
(536,390
)
                         
Cash flows from financing activities:
                       
Advances from related parties
   
10,219
     
4,508
     
14,727
 
Payment of senior secured convertible note
   
(70,000
)
   
-
     
(70,000
)
Payment of promissory note
   
(3,000
)
   
-
     
(3,000
)
Cash received on issuance of convertible promissory notes
   
400,500
     
-
     
400,500
 
Cash received on issuance of  a promissory note
   
67,365
     
-
     
67,365
 
Cash received on shares to be issued
   
100,000
     
-
     
100,000
 
Cash received on issuance of common stock
   
5,000
     
22,000
     
27,000
 
Net cash provided by financing activities
   
510,084
     
26,508
     
536,592
 
                         
Change in cash:
                       
Net (decrease) increase
   
(945)
     
1,147
     
202
 
Balance at beginning of period
   
1,147
     
-
     
-
 
Balance at end of period
 
$
202
   
$
1,147
   
$
202
 
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
  $
16,000
    $
-
    $
16,000
 
Fair value of common shares issued upon conversion of convertible notes
 
39,000
    $       $
39,000
 
Accounts payable assumed on reverse acquisition
  $
265,380
    $
-
    $
265,380
 
Acquisition of website for accounts payable
  $
-
    $
185,800
    $
185,800
 
Promissory notes assumed on reverse acquisition
  $
142,500
    $
-
    $
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
    $
  -
    $
220,000
 
Fair value of beneficial conversion feature of convertible notes
  $
358,333
    $       $
358,333
 
 
See accompanying notes to the consolidated financial statements.
 
 
F-6

 
 
OSL HOLDINGS INC. AND SUBSIDIARIES
 
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
YEAR ENDED AUGUST 31, 2012 AND FROM INCEPTION (SEPTEMBER 16, 2010)
TO AUGUST 31, 2011
 
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 50,000,000 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 14,130,000 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.

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 (143,809 shares that had not yet been issued) and Wiseman (5 million 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.
 
 
F-7

 
 
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 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 will be combined into one share of common stock. The Company expects to receive approval from FINRA to effect the reverse split and has filed an amendment to its Articles of Incorporation to effect the reverse stock split as of January 2, 2013. Adoption of the reverse stock split, without taking into account the issuance of any additional shares of our common stock, will reduce the shares of common stock outstanding to approximately 117,121 shares of Common Stock (without taking into account adjustments for fractional shares).  All share and per share amounts will be retroactively adjusted for the reverse split in the Company’s financial statements when the reverse split become effective.
 
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.  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.
 
 
F-8

 
 
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 of the useful life of equipment and intangibles, the impairment of long-lived assets, intangibles and goodwill, the value of stock compensation and the estimates of revenue and costs related to film production. These estimates are reviewed periodically, and, as adjustments become necessary, they are reported in earnings in the period in which they become known.

Internal Website Development Costs

Under Accounting Standards Codification (“ASC”) 350-50 – Intangibles – Goodwill and Other – Website Development Costs, costs and expenses incurred during the planning and operating stages of the Company's web site development are expensed as incurred. Costs incurred in the web site application and infrastructure development stages are capitalized by the Company and amortized to expense over the web site's estimated useful life or period of benefit. In May 2012, the Company determined that the website under development was not going to be utilized and recorded a charge of $185,800 categorized as “Loss on Impairment of Website Development Costs” in the Consolidated Statement of Operations for the year ended August 31, 2012. Prior to this charge, no amortization was recorded and the website was in development and was not  yet placed into service.
 
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.

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.
 
 
F-9

 
 
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 August 31, 2012.

   
Level 1
   
Level 2
   
Level 3
   
Total
 
Fair value of Derivative Liability
 
$
   
$
   
$
250,970
   
$
250,970
 

Vendor Concentration

As of August 31, 2012 and August 31, 2011, one vendor represented 32% and 70% 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 August 31, 2012 or August 31, 2011.

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 1,068,225 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.

 
F-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 – Rescinded Acquisition

On December 15, 2011, the Company acquired a 48% equity interest in Corporate Diversity Solutions, Inc., a New Jersey Corporation (“CDS”) and issued 200,000 shares of common stock valued at $10,000 in December 2011 to the shareholders of CDS to purchase this interest. The Company also entered into an employment agreement with an employee of CDS and issued 500,000 shares valued at $25,000 in accordance with this agreement. The shares issued were valued at $.05 per share, the trading price of the common stock on the date of the agreement. As part of the agreement, family members of the majority shareholders of the Company also acquired a 2% equity interest in CDS. For financial reporting purposes, the Company initially believed its 48% ownership and the ownership of the 2% interest of related individuals gave the Company effective control of CDS.

Pursuant to the terms of the Agreement, all the departing shareholders of CDS (the “Departing Shareholders”) cancelled their shares of CDS. In consideration for the cancelation of shares, CDS indemnified and relieved the Departing Shareholders from any liabilities incurred by CDS. Additionally, OSL requested that United Stationers Inc. (“United Stationers”), a supplier of CDS, release all Departing Shareholders from any liability and OSL and CDS indemnify all Departing Shareholders until such release is obtained. United Stationers also requested that each of Eric Kotch, the Company’s CFO, Eli Feder, the Company’s President and CEO, and OSL, guarantee the debt owed by CDS to United Stationers (the “Guarantee”).

On April 5, 2012, the Company announced that it was unable to complete a two year audit (the “Audit”) of CDS as required by the rules of the SEC and was therefore actively seeking to divest its ownership in CDS. The unrelated CDS shareholders returned $20,000 in cash advanced to CDS and 500 shares of OSLH previously issued to CDS employee Ken Scarpa had been returned. On June 5, 2012, United Stationers cancelled the personal guarantee of OSL, Eric Kotch and Eli Feder. For financial reporting purposes at August 31, 2012, the Company has determined that it never had effective control of the CDS, and the costs of the acquisition totaling $27,297, comprising the issuance of 400,000 shares of its common shares at $0.05 per share (aggregate value of $20,000) and cash advances of $7,297 made to CDS, have been reflected as a cost of abandoned acquisition on the accompanying statement of operations for the twelve months ended August 31, 2012.
 
 
F-11

 
 
Note 5 – 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 August 31, 2012 and August 31, 2011 was $14,727 and $4,508, respectively. The loans are non-interest bearing, unsecured and due on demand.

Note 6 – 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 $1.00. 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.
 
During the twelve months ended August 31, 2012, the Company issued a total of 16,000,000 shares of common stock at the conversion price of $0.001, or $16,000, as partial repayment the Senior Secured Convertible Note.

As of August 31, 2012, the total remaining balance outstanding to Exchange LLC is $135,300, including accrued interest of $51,300.

Note 7 – 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 14,130,000 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.

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.

 
F-12

 
 
Note 8 – Convertible Notes

Convertible notes payable consist of the following as of August 31, 2012:
 
         
Convertible notes payable, interest at 8% per annum (A)
 
$
116,600
 
Convertible notes payable, interest at 10% per annum (B)
   
260,600
 
Convertible notes payable, interest at 8% per annum, due June 30, 2013 (C)
   
67,465
 
Convertible notes payable
   
444,665
 
Less: note discount
   
(126,523)
 
Convertible notes payable, net of discount
 
$
318,142
 
__________

(A) Asher Enterprises
 
During the period November 15, 2011 to July 17, 2012, the Company issued four unsecured Convertible Notes (the “Convertible Notes”) to Asher Enterprises (“Asher”) in the aggregate amount of $150,500. 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 beneficial conversion feature of the Debentures to be $258,510. 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. As such, the Company recorded an $113,000 valuation discount upon issuance.  The Company determined the fair value of the derivative liabilities to be $250,970 as of August 31, 2012, and the Company recorded a gain for the change in fair value of derivative liabilities of $7,540 in the accompanying statement of operations for the year ended August 31, 2012.   During the year ended August 31, 2012, the Company amortized $34,338 of the discount and as of August 31, 2012, the total discount of $78,662 is offset against the balance of the notes for financial statement presentation.
 
 
F-13

 
 
During the twelve months ended August 31, 2012, the Company issued a total of 5,355,004 shares of common stock at an average conversion price of $0.007 or $39,000 as partial repayment to the Convertible Notes. Upon conversion, the Company recognized a beneficial conversion cost of $69,101 related to the difference between the conversion price and the market price of the stock at the date of conversion. As of August 31, 2012, the total remaining balance outstanding to Asher is $116,600, including accrued interest of $5,100.
 
(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.
 
As of August 31, 2012, the total remaining balance outstanding to Panache is $260,600, including accrued interest of $10,600.
 
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.
 
(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.

As of August 31, 2012, the total remaining balance outstanding to Continental is $67,465, including accrued interest of $465.
 
 
F-14

 
 
Note 9 – 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 August 31, 2012, the total remaining balance outstanding under the note is $26,000, including accrued interest of $2,000.

Note 10 – 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 August 31, 2012, the derivative liabilities were valued using a probability weighted average Black-Scholes pricing model with the following assumptions:
 
   
August 31, 2012
   
At Date of Issuance
 
Conversion feature :
               
Risk-free interest rate
   
0.25%
     
0.25%
 
Expected volatility
   
215%
     
215%
 
Expected life (in years)
   
1 year
     
1 year
 
Expected dividend yield
   
0%
     
0%
 
Fair Value :
               
Conversion feature
 
$
250,970
   
$
258,510
 

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 Company determined the fair value of the derivative liabilities to be $250,970 as of August 31, 2012, and the Company recorded a gain for the change in fair value of derivative liabilities of $7,540 in the accompanying statement of operations for the year ended August 31, 2012.
 
 
F-15

 
 
Note 11 – Capital Stock
 
Preferred Stock

The Company’s articles of incorporation provide that it is authorized to issue up to 5,000,000 shares of preferred stock with a par value of $.001 per share. The Company’s Board of Directors has the authority, without further action by the shareholders, to issue from time to time the preferred stock in one or more series for such consideration and with such relative rights, privileges, preferences and restrictions that the Board may determine. The preferences, powers, rights and restrictions of different series of preferred stock may differ with respect to dividend rates, amounts payable on liquidation, voting rights, conversion rights, redemption provisions, sinking fund provisions and purchase funds and other matters. The issuance of preferred stock could adversely affect the voting power or other rights of the holders of common stock.

As security for the 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.

Common Stock

Common Stock Issued for Cash

On December 30, 2011, the Company entered into a private agreement to sell 29,412 shares of the Company’s common stock at $0.17 per share, or $5,000.   

From September 16, 2010 (inception) to August 31, 2011, the Company issued a total of 220,000 shares of common stock at a valuation based upon the par value of $.001 per common share, for $22,000 received from related parties.

Common Stock Issued for Employee Compensation and Services

During the twelve months ended August 31, 2012, the Company issued a total of 8,041,662 shares of common stock at the market price on date of issuance which averaged $0.04 per common share, or $316,250. Of the 8,041,662 shares issued, 708,330 common shares valued at $96,250 were issued as stipulated in an employment agreement dated January 17, 2012 with the Company’s President, Robert Rothenberg.  Per the employment agreement, the Company issued 500,000 shares on at signing of the agreement and is required to issue 42,000 shares per month.  As of August 31, 2012, a total of 124,998 shares of common stock have not been issued and are included in common shares issuable discussed below.

From September 16, 2010 (inception) to August 31, 2011, the Company issued a total of 48,220,000 shares of common stock at a valuation based upon the primarily the fair value of pre-incorporation services rendered which averaged $0.001 per common share, or $48,000.

Common Stock Issued for Outside Services

During the twelve months ended August 31, 2012, the Company issued a total of 5,800,000 shares of common stock valued at the closing market price on date of issuance for payment of investor relations services.  The total shares issued were value at the market price on the date of issuance which averaged $0.04 per common share, or $240,000.

Common Stock Issued for Partial Repayment of Senior Secured Convertible Notes

During the twelve months ended August 31, 2012, the Company issued a total of 16,000,000 shares of common stock at the conversion price of $0.001 or $16,000 representing partial repayment of the Senior Secured Convertible Note, as discussed in Note 6 above.
 
During the twelve months ended August 31, 2012, the Company issued a total of 5,355,004 shares of common stock at an average conversion price of $.007 or $39,000 in the aggregate, as partial repayment of outstanding indebtendess, as discussed in Note 8 above.   The Company additionally recorded interest expense of $69,101, representing the difference between the market price and the conversion price on the date of conversion.
 
 
F-16

 

Common Stock Issued Relating to Rescinded Acquisition

During the twelve months ended August 31, 2012, the Company issued a total of 400,000 shares of common stock to several CDS employees related to services performed prior to the Company’s decision to rescind the acquisition.  Based on the closing market price on date of issuance, the total value of services received was valued at $20,000.
 
Common Shares Issuable

On January 6, 2012, the Company entered into a private agreement to sell 500,000 shares of the Company’s common stock at $0.10 per share, or $50,000.   The Company has not issued the shares as of August 31, 2012.  The amount is classified as common shares issuable in the Balance Sheet at August 31, 2012.

On May 31, 2012, the Company entered into a private agreement to sell 1,000,000 shares of the Company’s common stock at $0.05 per share, or $50,000.   The Company has not issued the shares as of August 31, 2012.  The amount is classified as common shares issuable in the Balance Sheet at August 31, 2012.

As of August 31, 2012, one of our employees is owed 124,998 shares of common stock as stipulated in an employment agreement.  The common stock is valued at the average market price of $0.02 per share, or $2,083.  The amount is classified as common shares issuable in the Balance Sheet at August 31, 2012.
 
Note 12 – Income Taxes

As at August 31, 2012 and August 31, 2011, there were no differences between financial reporting and tax bases of assets and liabilities.  The Company will have tax losses available to be applied against future years' income as result of the losses incurred.  However, due to the losses incurred in the period and expected future operating results, management determined that it is more likely than not that the deferred tax asset resulting from the tax losses available for carry forward will not be realized through the reduction of future income tax payments.  Accordingly a 100% valuation allowance has been recorded for deferred income tax assets.
 
Note 13 – Subsequent Events
 
On September 20, 2012, the Company issued an aggregate of 4,018,240 shares of its common stock at the conversion price of $0.001, or $4,018 as partial repayment of outstanding indebtedness due Asher (See Note 8).
 
On September 21, 2012, the Company issued a convertible promissory note to the Payee for the principal amount of $30,000, with a maturity date of September 21, 2013. The interest rate of the note is 10% per annum through the maturity date. The note is convertible into shares of the Company’s common stock at any time and from time to time, valued at an agreed discount to market not to fall below a 49% discount to the average of the three lowest closing bid prices for the Company’s common stock during the ten days immediately preceding a conversion date. In the event the Company fails to deliver to the Payee the common stock issuable upon conversion, the Company shall be required to pay to the Payee $2,000 per day for each day beyond the due date until the Company so delivers the common stock (the “Conversion Penalty”). In the event the Company shall default in the payment of the note, the interest rate shall be increased to 15% per annum. Furthermore, upon the occurrence and during the continuation of any event of default with respect to failure to pay principal or interest when due at the maturity date, the note shall become immediately due and payable and the Company shall pay to the Payee, in full satisfaction of its obligations under the note, an amount equal to the Default Sum. “Default Sum” is defined as (a) the then outstanding principal amount of the note to the date of payment, plus (b) the accrued and unpaid interest on the unpaid principal amount of the Note to the date of payment plus (c) default interest, if any, on the amounts referred to in clauses (a) and (b) plus (d) any amounts owed to the Payee pursuant to the Conversion Penalty.

On September 21, 2012, the Company entered into an amendment agreement (the “Amendment”) with the Payee, 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, the Payee 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 the Payee 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.
 
 
F-17

 
 
On October 8, 2012, the Company issued a total of 4,476,560 shares of common stock at the conversion price of $0.001 or $4,923 as partial repayment of outstanding indebtedness (See Note 8).
 
On October 17, 2012, the Company issued a total of 3,529,412 shares of common stock upon the conversion of an existing convertible promissory note amounting to $6,000 issued by the Company dated February 10, 2012.
 
On October 31, 2012, the Company issued a total of 4,107,143 shares of common stock upon the conversion of an existing convertible promissory note amounting to $2,300 issued by the Company dated January 20, 2012.
 
Crisnic notified OSL and the Company, by letter dated October 28, 2012 (the "Letter") but deemed delivered in accordance with the terms of the Promissory Note on November 1, 2012, that OSL remains in default under the Promissory Note (see Note 7), and that Crisnic has declared all sums due and owing under the Promissory Note immediately due and payable. The Company and OSL disagreed that any amount under the Promissory Note was immediately due and payable as neither of them had received appropriate notification from Crisnic to commence the Cure Period until receipt of the Letter. Accordingly, OSL and the Company believe that the date to cure the non-payment under the Promissory Note is December 1, 2012. At such time, the Promissory Note remained unpaid in full and, accordingly, all outstanding amounts are due and payable by OSL and the Company is obligated to issue 650,001 Preferred Shares to Crisnic. As of the filing of this Annual Report, the 650,001 Preferred Shares have not been issued.
 
On November 8, 2012, the Company entered into a Securities Purchase Agreement dated as of October 19, 2012, with Asher, pursuant to which Asher purchased, and the Company issued, a convertible promissory note issued by the Company as of the same date in the principal amount of $22,500 (the “November 2012 Note”) with a maturity date of July 23, 2013. The interest rate of the Note is 8% per annum through the maturity date. The November 2012 Note is convertible into shares of the Company’s common stock (up to an amount that would result in Asher holding no more than 4.99% of the outstanding shares of common stock of the Company, subject to waiver by Asher) at any time beginning on the date that is 180 days following the date of the November 2012 Note and ending on the maturity date, valued at an agreed discount to market not to fall below a 59% discount to the average of the three lowest closing bid prices for the Company’s common stock during the ten days immediately preceding a conversion date, subject to certain exceptions described in the November 2012 Note. In the event the Company fails to deliver to Asher the common stock issuable upon conversion, the Company shall be required to pay to Asher $1,000 per day for each day beyond the due date until the Company so delivers the common stock (the “Conversion Penalty”). Furthermore, upon the occurrence and during the continuation of a “Conversion Default” (as defined in the November 2012 Note), the November 2012 Note shall become immediately due and payable and the Company shall pay to the holder, in full satisfaction of its obligations under the November 2012 Note, an amount equal to the Default Sum (as defined below), multiplied by 2. In the event the Company shall default in the payment of the November 2012 Note, the interest rate shall be increased to 22% per annum. Furthermore, upon the occurrence and during the continuation of any event of default with respect to failure to pay principal or interest when due at the maturity date, the November 2012 Note shall become immediately due and payable and the Company shall pay to Asher, in full satisfaction of its obligations under the November 2012 Note, an amount equal to the Default Sum. “Default Sum” is defined as (a) the then outstanding principal amount of the November 2012 Note to the date of payment, plus (b) the accrued and unpaid interest on the unpaid principal amount of the November 2012 Note to the date of payment plus (c) default interest, if any, on the amounts referred to in clauses (a) and (b) plus (d) any amounts owed to Asher pursuant to the Conversion Penalty.

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 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 will be combined into one share of common stock. The Company expects to receive approval from FINRA to effect the reverse split and has filed an amendment to its Articles of Incorporation to effect the reverse stock split as of January 2, 2013. Adoption of the reverse stock split, without taking into account the issuance of any additional shares of our common stock, will reduce the shares of common stock outstanding to approximately 117,121 shares of Common Stock (without taking into account adjustments for fractional shares).
 
 
F-18

EX-3.3 2 f10k2012ex3iii_oslholdings.htm CERTIFICATE OF AMENDMENT TO ARTICLES OF INCORPORATION f10k2012ex3iii_oslholdings.htm
Exhibit 3.3
 
DEAN HELLER
Secretary of State
204 North Carson Street, Suite 1
Carson City, Nevada 89701-4299
(775) 684 5708
Website: secretaryofstate.biz

 
 
Certificate of Amendment
(PURSUANT TO NRS 78.380)
 

Important:  Read attached instructions before completing form.
ABOVE SPACE IS FOR OFFICE USE ONLY
   
Certificate of Amendment to Articles of Incorporation
For Nevada Profit Corporations
(Pursuant to NRS 78.380 - Before Issuance of Stock)
 
1.  Name of corporation:  MANEKI MINING, INC.
 
2.  The articles have been amended as follows (provide article numbers, if available):
 
Article 1: Name of corporation.- Red Rock Pictures Holdings, Inc.
 
3.  The undersigned declare that they constitute at least two-thirds of the incorporatorso, or of the board of directors x. (check one box only)
 
4.  Effective date of filing (optional):  ________________________________________________
(must not be later than 90 days after the certificate is filed)
 
5.  The undersigned affirmatively declare that to the date of this certificate, no stock of the corporation has been issued.
 
6.  Signatures*.
 
/s/
   
Signature
 
Signature
 
* If more than two signatures, attach an 81/2 x 11 plain sheet with the additional signatures.
 
IMPORTANT: Failure to include any of the above information and submit the proper fees may cause this filing to be rejected.
 
This form must be accompanied by appropriate fees.
 
 
 

 
 
 
ROSS MILLER
Secretary of State
204 North Carson Street, Suite 1
Carson City, Nevada 89701-4299
(775) 684 5708
Website: secretaryofstate.biz

 
Certificate of Amendment
(PURSUANT TO NRS 78.380)
 

USE BLACK INK ONLY - DO NOT HIGHLIGHT.
ABOVE SPACE IS FOR OFFICE USE ONLY
 
Certificate of Amendment to Articles of Incorporation
For Nevada Profit Corporations
(Pursuant to NRS 78.380 - Before Issuance of Stock)
 
1.  Name of corporation:
RED ROCK PICTURES HOLDINGS, INC.
 
2.  The articles have been amended as follows (provide article numbers, if available):
The corporation shall have authority to issue an aggregate of one hundred twenty million (120,000,000) shares of common stock at par value of $.001 with no preemptive rights
 
3.  The undersigned declare that they constitute at least two-thirds of the incorporators  o, or of the board of directors x. (check one box only)
 
4.  Effective date of filing (optional):
 
(must not be later than 90 days alter the certificate is filed)      
 
5.  The undersigned affirmatively declare that to the date of this certificate, no stock of the corporation has been issued.
 
6.  Signatures:
   
     
/s/
 
/s/
Signature
 
Signature
     
IMPORTANT:  Failure to include any of the above information and submit the proper fees may cause this filing to be rejected.
 
This form must be accompanied by appropriate fees.
 
 
 

 
 
 
ROSS MILLER
Secretary of State
204 North Carson Street, Suite 1
Carson City, Nevada 89701-4299
(775) 684 5708
Website: secretaryofstate.biz
 
 
Certificate of Designation
(PURSUANT TO NRS 78.1955)
 

USE BLACK INK ONLY - DO NOT HIGHLIGHT.
ABOVE SPACE IS FOR OFFICE USE ONLY
 
Certificate of Designation
For Nevada Profit Corporations
(Pursuant to NRS 78.1955)
 
1.  Name of corporation:
Red Rock Pictures Holdings, Inc.
 
2.  By resolution of the board of directors pursuant to a provision in the articles of incorporation. this certificate establishes the following regarding the voting powers, designations, preferences, limitations, restrictions and relative rights of the following class or series of stock.
 
Designate a Series A Convertible Preferred class of stock consisting 530,000 shares whereby each share of Series A Convertible Preferred would: (i) carry voting rights 100 times the number of Common Stock votes, (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 Corporation has filed a certificate of amendment with the State of Nevada to increase the authorized shares of common stock of the Corporation to a minimum of 500,000,000 into One Hundred (100) common share, and (v) not be subject to reverse stock splits and other changes to the common stock capital of the Company,” (hereinafter, items (i) through (v) shall be referred to as the “Designation”.
 
3.  Effective date of filing (optional):
 
(must not be later than 90 days alter the certificate is filed)      
 
4.  Officer Signature (Required):
 
X /s/
     
Filing Fee:  $175.00
   
 
IMPORTANT: Failure to include any of the above information and submit the proper fees may cause this filing to be rejected.
 
This form must be accompanied by appropriate fees.
 
 
 

 
 
CERTIFICATE OF DESIGNATIONS,
 
PREFERENCES AND RIGHTS OF
 
SERIES A CONVERTIBLE PREFERRED STOCK OF
 
RED ROCK PICTURES HOLDINGS, INC.
 
Red Rock Pictures Holdings, Inc., a Nevada Corporation (the “Corporation”), DOES HEREBY CERTIFY:
 
Pursuant to authority expressly granted and vested in the Board of Directors of the Corporation by the provisions of the Corporation’s Certificate of Incorporation, as amended, the Board of Directors adopted the following resolution on December 29, 2008 (i) authorizing a series of the Corporation’s previously authorized 5,000,000 shares of preferred stock, $0,001 par value per share, and (ii) providing for the designations, preferences and relative, participating, optional or other rights, and the qualifications, limitations or restrictions thereof, of 530,000 shares of Series A Convertible Preferred Stock of the Corporation, as follows:
 
RESOLVED:  That pursuant to the authority vested in the Board of Directors of the Corporation by the Corporation’s Certificate of Incorporation (the “Certificate of Incorporation”) as amended, a series of Convertible Preferred Stock of the Corporation be, and it hereby is, created out of the 5,000,000 authorized but unissued shares of the capital preferred stock of the Corporation, such series to be designated Series A Convertible Preferred Stock (the “Series A Convertible Preferred Stock”), to consist of 530,000 shares, $0,001 par value per share, which shall have the following preferences, powers, designations and other special rights;
 
1.   Voting.  Holders of the Series A Convertible Preferred Stock shall have One Hundred (100) times that number of votes on all matters submitted to the shareholders that is equal to the number of shares of Common Stock (rounded to the nearest whole number) into which such holder’s shares of Series A Convertible Preferred Stock are then convertible, as provided in Section 4, at the record date for the determination of the shareholders entitled to vote on such matters or, if no such record date is established, at the date such vote is taken or any written consent of such shareholders is effected.
 
2.   Dividends.  The holders of Series A Convertible Preferred Stock shall not be entitled to receive dividends paid on the Common Stock.
 
3.   Liquidation Preference.  Upon the liquidation, dissolution and winding up of the Corporation, whether voluntary or involuntary, the holders of the Series A Convertible Preferred Stock then outstanding shall be entitled to receive out of the assets of the Corporation, whether from capital or from earnings available for distribution to its stockholders, before any amount shall be paid to the holders of common stock, two times that sum available for distribution to common stock holders.
 
 
 

 
 
4.   Automatic Conversion.  Each share of Series A Convertible Preferred Stock will automatically convert into One Hundred (100) shares of the Corporation’s common stock, $0.001 par value (the “Common Stock”), at such a time as the Corporation has filed a certificate of amendment with the State of Nevada to increase the authorized shares of Common Stock of the Corporation to a minimum of 500,000,000 shares.
 
5.   Certain Adjustments for Stock Splits, Mergers, Reorganizations, Etc.  In the event the outstanding shares of Common Stock shall, after the filing of this Resolution, be subdivided (split) or combined (reverse split) by reclassification or otherwise, or in the event of a reclassification, reorganization or exchange or any merger, acquisition, consolidation or reorganization of the Corporation with another Corporation, each share of Series A Convertible Preferred Stock shall thereafter be convertible into the kind and number of shares of stock or other securities or property to which a holder of the number of shares of Common Stock of the Corporation deliverable upon conversion of the Series A Convertible Preferred Stock would have been entitled upon such reclassification, reorganization, exchange, consolidation, merger or conveyance had the conversion occurred immediately prior to the event. An adjustment made pursuant to this Section 5 shall become effective immediately after effective date in the case of a subdivision or combination.
 
6.   Conversion Notice.  The Holder of a share of Series A Convertible Preferred Stock may exercise its conversion right by giving a written conversion notice in the form of Exhibit A hereto (the “Conversion Notice”) (1) by facsimile to the Corporation’s transfer agent for its Common Stock, as designated by the Corporation from time to time (the “Transfer Agent”), confirmed by a telephone call or (2) by overnight delivery service, with a copy by facsimile to the Corporation and to its counsel, as designated by the Corporation from time to time. The Holder must also surrender the certificate for the Series A Convertible Preferred Stock-to the Corporation at its principal office (or such other office or agency of the Corporation may designate by notice in writing to the Holder) at any time during its usual business hours on the date set form in the Conversion Notice.
 
7.   Issuance of Certificates:  Time Conversion Effected.  Promptly, but in no event more than three (3) Trading Days, after the receipt of the Conversion Notice referred to in Subsection 6 and surrender of the Series A Convertible Preferred Stock certificate, the Corporation shall cause to be issued and delivered, to the Holder, registered in such name or names as the Holder may direct, a certificate or certificates for the number of whole shares of Common Stock into which the Series A Convertible Preferred Stock has been converted. In the alternative, if the Corporation’s Transfer Agent is a participant in the electronic book transfer program, the Transfer Agent shall credit such aggregate number of shares of Common Stock to which the Holder shall be entitled to the Holder’s or its designee’s balance account with The Depository Trust Corporation. Such conversion shall be deemed to have been effected, and the “Conversion Date” shall be deemed to have occurred, on the date on which such Conversion Notice shall have been received by the Corporation and at the time specified stated in such Conversion Notice, which must be during the calendar day of such notice. The rights of the Holder of the Series A Convertible Preferred Stock shall cease, and the person or persons in whose name or names any certificate or certificates for shares of Common Stock shall be issuable upon such conversion shall be deemed to have become the holder or holders of record of the shares represented thereby, on the Conversion Date. Issuance of shares of Common Stock issuable upon conversion that are requested to be registered in a name other than that of the registered Holder shall be subject to compliance with all applicable federal and state securities laws.
 
 
 

 
 
8.   Fractional Shares.  The Corporation shall not, nor shall it cause the Transfer Agent to, issue any fraction of a share of Common Stock upon any conversion. All shares of Common Stock (including fractions thereof) issuable upon conversion of shares of Series A Convertible Preferred Stock by the Holder shall be aggregated for purposes of determining whether the conversion would result in the issuance of a fraction of a share of Common Stock. If, after such aggregation, the issuance would result in the issuance of a fraction of a share of Common Stock, the Corporation shall round, or cause the Transfer Agent to round, such fraction of a share of Common Stock up to the nearest whole share.
 
9.   No Reissuance of Series A Convertible Preferred Stock. Shares of Series A Convertible Preferred Stock that are converted into shares of Common Stock as provided herein shall not be reissued.
 
10.          Vote to Chance the Terms of or Issue Series A Convertible Preferred Stock.  The affirmative vote at a meeting duly called for such purpose, or the written consent without a meeting, of the holders of not less than fifty-one percent (51%) of the then outstanding shares of Series A Convertible Preferred Stock shall be required for (i) any change to the Corporation’s Articles of Incorporation that would amend, alter, change or repeal any of the preferences, limitations or relative rights of the Series A Convertible Preferred Stock, or (ii) any issuance of additional shares of Series A Convertible Preferred Stock.
 
11.   Notices.  In case at any time:
 
(a)           the Corporation shall offer for subscription pro rata to the holders of its Common Stock any additional shares of stock of any class or other rights; or
 
(b)           there shall be any recapitalization, reorganization, reclassification, consolidation, merger, sale of all or substantially all of the Corporation’s assets to another Person or other transaction in each case, which is effected in such a way that holders of Common Stock are entitled to receive (either directly or upon subsequent liquidation) stock, securities or assets with respect to or in exchange for Common Stock, referred to herein as an “Organic Change”;
 
then, in any one or more of such cases, the Corporation shall give, by first class mail, postage prepaid, or by facsimile or by recognized overnight delivery service to non-U.S. residents, addressed to the Registered Holders of the Series A Convertible Preferred Stock at the address of each such Holder as shown on the books of the Corporation, (i) at least twenty (20) Trading Days prior written notice of the date on which the books of the Corporation shall close or a record shall be taken for such subscription rights or for determining rights to vote in respect of any such Organic Change and (ii) in the case of any such Organic Change, at least twenty (20) Trading Days’ prior written notice of the date when the same shall take place. Such notice in accordance with the foregoing clause (i) shall also specify, in the case of any such subscription rights, the date on which the holders of Common Stock shall be entitled thereto, and such notice in accordance with clause (ii) shall also specify the date on which the holders of Common Stock shall be entitled to exchange their Common Stock for securities or other property deliverable upon such Organic Change.
 
 
 

 
 
12.          Record Owner. The Corporation may deem the person in whose name shares of Series A Convertible Preferred Stock shall be registered upon the registry books of the Corporation to be, and may treat him as, the absolute owner of the Series A Convertible Preferred Stock for the purposes of conversion and for all other purposes, and the Corporation shall not be affected by any notice to the contrary. All such payments and such conversion shall be valid and effective to satisfy and discharge the liabilities arising under this Certificate of Designations to the extent of the sum or sums so paid or the conversion so made.
 
13.          Register.  The Corporation shall maintain a transfer agent, which may be the transfer agent for the Common Stock or the Corporation itself, for the registration of the Series A Convertible Preferred Stock. Upon any transfer of shares of Series A Convertible Preferred Stock in accordance with the provisions hereof the Corporation shall register or cause the transfer agent to register such transfer on the Stock Register.
 
IN WITNESS WHEREOF, Reno R. Rolle, President and Chief Executive Officer of the Corporation, under penalties of perjury, does hereby declare and certify that this is the act and deed of the Corporation and the facts stated herein are true and accordingly has signed this Certificate of Designations on December 29, 2008.
 
/s/
RENO R. ROLLE
 
 
 

 
 
EXHIBITA
 
RED ROCK PICTURES HOLDINGS, INC. CONVERSION NOTICE
 
Reference is made to the Certificate of Designations, Preferences and Rights of Series A Convertible Preferred Stock dated December 29, 2008 (the “Certificate of Designations”), of Red Rock Pictures Holdings, Inc., a Nevada Corporation (the “Corporation”). In accordance with and pursuant to the Certificate of Designations, the undersigned hereby elects to convert the number of shares of Series A Convertible Preferred Stock, par value $0.001 per share (the “Series A Preferred Shares”) indicated below into shares of Common Stock, par value $0.001 per share (the “Common Stock”), of the Corporation, by tendering the stock certificates) representing the Preferred Shares specified below as of the date specified below.
 
Date of Conversion:
 
   
Number of Preferred Shares to be converted:
 
   
Please confirm the following information:
 
   
Number of shares of Common Stock to be issued:
 
   
Please issue the Common Stock into which the Preferred Shares are being converted and, if applicable, any check drawn on an account of the Corporation in the following name and to the following address:
 
Issue to:
 
Facsimile Number:
 
Authorization:
 
 
By:  _______________________________________
 
Title:  ______________________________________
 
Applicable only if the Transfer Agent is a participant in the electronic book entry transfer program:
 
 
Account Number:
 
 
(if electronic book entry transfer):
 
Transaction Code Number
 
 
(if electronic book entry transfer):
 
Participant Code:
 
     
THIS NOTICE MUST BE DELIVERED TO THE TRANSFER AGENT:
 
WITH AN ADDITIONAL COPY TO BE MAILED TO THE CORPORATION
 
 
 

 
 
 
ROSS MILLER
Secretary of State
204 North Carson Street, Suite 1
Carson City, Nevada 89701-4520
(775) 684 5708
Website:  www.nvsos.gov

 
Certificate of Amendment
(PURSUANT TO NRS 78.385 AND 78.390)
 

USE BLACK INK ONLY - DO NOT HIGHLIGHT.
ABOVE SPACE IS FOR OFFICE USE ONLY
 
Certificate of Amendment to Articles of Incorporation
For Nevada Profit Corporations
(Pursuant to NRS 78.385 and 78.390 - After Issuance of Stock)
 
1.  Name of corporation:
Red Rock Pictures Holdings, Inc.
 
2.  The articles have been amended as follows: (provide article numbers, if available)
Article One
The name of the corporation is OSL Holdings Inc.
 
3.  The vote by which the stockholders holding shares in the corporation entitling them to exercise a (east a majority of the voting power, or such greater proportion of the voting power as may be required in the case of a vote by classes or series, or as may be required by the provisions of the articles of incorporation* have voted in favor of the amendment is:                  93%                  
 
4.  Effective date of filing (optional):
 
(must not be later than 90 days alter the certificate is filed)          
 
5.  Signature (required):
- NOTARIZATION ON THE BACK -
X  /s/
Signature of Officer
 
*If any proposed amendment would alter or change any preference or any relative or other right given to any class or series of outstanding shares, then the amendment must be approved by the vote, in addition to the affirmative vote otherwise required, of the holders of shares representing a majority of the voting power of each class or series affected by the amendment regardless to limitations or restrictions on the voting power thereof.
 
IMPORTANT:  Failure to include any of the above information and submit the proper fees may cause this filing to be rejected.
 
This form must be accompanied by appropriate fees.
 
 
 

 
 
ROSS MILLER
Secretary of State
204 North Carson Street, Suite 1
Carson City, Nevada 89701-4299
(775) 684 5708
Website:  www.nvsos.gov

 
Certificate of Amendment
(PURSUANT TO NRS 78.385 AND 78.390)
 

USE BLACK INK ONLY l DO NOT HIGHLIGHT
ABOVE SPACE IS FOR OFFICE USE ONLY
   
Certificate of Amendment to Articles of Incorporation
For Nevada Profit Corporations
(Pursuant to NRS 78.385 and 78.390 - After Issuance of Stock)
 
1.           Name of corporation:  OSL Holdings, Inc.
 
2.           The articles have been amended as follows:  (provide article numbers, if available)
 
The first paragraph of Article Four shall be deleted in its entirety and replaced with the following:
 
ARTICLE FOUR.  [CAPITAL STOCK].  The corporation shall have authority to issue an Aggregate of FOUR HUNDRED FIFTY MILLION (450,000,000) Common Capital Shares, $0.001 par value per share for a total capitalization of FOUR HUNDRED FIFTY THOUSAND DOLLARS ($450,000).
 
 
3.           The vote by which the stockholders holding shares in the corporation entitling them to exercise a least a majority of the voting power, or such greater proportion of the voting power as may be required in the case of a vote by classes or series, or as may be required by the provisions of the articles of incorporation* have voted in favor of the amendment is:  55.52%
 
4.           Effective date of filing:  (optional)                                                                           Date:  Upon Filing                                           Time:
(must not be later than 90 days after the certificate is filed)
 
5.           Signature:  (required).
/s/ Eric Kotch
 
Signature of Officer
 
 
*  If any proposed amendment would alter or change any preference or any relative or other right given to any class or series of outstanding shares, then the amendment must be approved by the vote, in addition to the affirmative vote otherwise required, of the holders of shares representing a majority of the voting power of each class or series affected by the amendment regardless to limitations or restrictions on the voting power thereof.
 
IMPORTANT: Failure to include any of the above information and submit the proper fees may cause this filing to be rejected.
This form must be accompanied by appropriate fees.
Nevada Secretary of State Amend Profit-After
Revised:  8-31-11
 
 
 

 
 
Certificate of Amendment
(PURSUANT TO NRS 78.385 AND 78.390)
 
Certificate of Amendment to Articles of Incorporation
For Nevada Profit Corporations
(Pursuant to NRS 78.385 and 78.390 - After Issuance of Stock)
 
Name of Corporation:
 
OSL Holdings, Inc.
 
The articles have been amended as follows: (provide article numbers, if available)
 
Upon the filing and effectiveness (the “Effective Time”) of this Certificate of Amendment of the Corporation, each one thousand (1,000) shares of the Corporation’s common stock, par value $0.001 per share, issued and outstanding immediately prior to the Effective Time shall be combined into one (1) validly issued, fully paid and non-assessable share of common stock, par value $0.001 per share, without any further action by the Corporation or the holder thereof, subject to the treatment of fractional share interests as described below (the “Reverse Stock Split”). No certificates representing fractional shares of common stock shall be issued in connection with the Reverse Stock Split. Stockholders who otherwise would be entitled to receive fractional shares of common stock shall be entitled to receive cash (without interest or deduction) from or on behalf of the Corporation in lieu of such fractional shares upon such terms as may be required by the Corporation, including the submission of a transmittal letter by stockholders and/or upon the surrender of the stockholder’s Old Certificates (as defined below), in an amount equal to the product obtained by multiplying (a) the average closing sales price of the Corporation’s common stock as reported by the OTC Bulletin Board for the five trading days preceding the Effective Time by (b) the amount of the fractional share. Each certificate that immediately prior to the Effective Time represented shares of common stock (“Old Certificates”), shall thereafter represent that number of shares of common stock into which the shares of common stock represented by the Old Certificate shall have been combined, subject to the elimination of fractional share interests as described above.
 
The vote by which the stockholders holding shares in the corporation entitling them to exercise at least a majority of the voting power, or such greater proportion of the voting power as may be required in the case of a vote by classes or series, or as may be required by the provisions of the articles of incorporation have voted in favor of the amendment is:
 
52.56%.
 
Effective date of filing: (optional): January 2, 2012
 
Signature: (required)
 

 
/s/ Eric Kotch
Signature of Officer
 
 


 


 
EX-10.1 3 f10k2012ex10i_oslholdings.htm CONVERTIBLE NOTE DATED JANUARY 20, 2012 WITH ASHER ENTERPRISES f10k2012ex10i_oslholdings.htm
Exhibit 10.1
 
NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE CONVERTIBLE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS.  THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL (WHICH COUNSEL SHALL BE SELECTED BY THE HOLDER), IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT.  NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.
 
Principal Amount:  $32,500.00
Issue Date:  January 20, 2012
Purchase Price:  $32,500.00
 
   
CONVERTIBLE PROMISSORY NOTE
 
FOR VALUE RECEIVED, OSL HOLDINGS INC. f/k/a RED ROCK PICTURES HOLDINGS INC., a Nevada corporation (hereinafter called the “Borrower”), hereby promises to pay to the order of ASHER ENTERPRISES, INC., a Delaware corporation, or registered assigns (the “Holder”) the sum of $32,500.00 together with any interest as set forth herein, on October 23, 2012 (the “Maturity Date”), and to pay interest on the unpaid principal balance hereof at the rate of eight percent (8%) (the “Interest Rate”) per annum from the date hereof (the “Issue Date”) until the same becomes due and payable, whether at maturity or upon acceleration or by prepayment or otherwise. This Note may be prepaid in whole or in part as set forth herein.  Any amount of principal or interest on this Note which is not paid when due shall bear interest at the rate of twenty two percent (22%) per annum from the due date thereof until the same is paid (“Default Interest”).  Interest shall commence accruing on the date that the Note is fully paid (i.e. when the Note is fully funded by the Holder) and shall be computed on the basis of a 365-day year and the actual number of days elapsed.  All payments due hereunder (to the extent not converted into common stock, $0.001 par value per share (the “Common Stock”) in accordance with the terms hereof) shall be made in lawful money of the United States of America.  All payments shall be made at such address as the Holder shall hereafter give to the Borrower by written notice made in accordance with the provisions of this Note.  Whenever any amount expressed to be due by the terms of this Note is due on any day which is not a business day, the same shall instead be due on the next succeeding day which is a business day and, in the case of any interest payment date which is not the date on which this Note is paid in full, the extension of the due date thereof shall not be taken into account for purposes of determining the amount of interest due on such date.  As used in this Note, the term “business day” shall mean any day other than a Saturday, Sunday or a day on which commercial banks in the city of New York, New York are authorized or required by law or executive order to remain closed.  Each capitalized term used herein, and not otherwise defined, shall have the meaning ascribed thereto in that certain Securities Purchase Agreement dated the date hereof, pursuant to which this Note was originally issued (the “Purchase Agreement”).
 
 
1

 
 
This Note is free from all taxes, liens, claims and encumbrances with respect to the issue thereof and shall not be subject to preemptive rights or other similar rights of shareholders of the Borrower and will not impose personal liability upon the holder thereof.
 
The following terms shall apply to this Note:
 
ARTICLE I.  CONVERSION RIGHTS
 
1.1           Conversion Right.  The Holder shall have the right at any time during the period beginning on the date which is one hundred eighty (180) days following the date of this Note and ending on the later of (i) the Maturity Date and (ii) the date of payment of the Default Amount (as defined in Article III) pursuant to Section 1.6(a) or Article III, each in respect of the remaining outstanding principal amount of this Note to convert all or any part of the outstanding and unpaid principal amount of this Note into fully paid and non- assessable shares of Common Stock, as such Common Stock exists on the Issue Date, or any shares of capital stock or other securities of the Borrower into which such Common Stock shall hereafter be changed or reclassified at the conversion price (the “Conversion Price”) determined as provided herein (a “Conversion”); provided, however, that in no event shall the Holder be entitled to convert any portion of this Note in excess of that portion of this Note upon conversion of which the sum of (1) the number of shares of Common Stock beneficially owned by the Holder and its affiliates (other than shares of Common Stock which may be deemed beneficially owned through the ownership of the unconverted portion of the Notes or the unexercised or unconverted portion of any other security of the Borrower subject to a limitation on conversion or exercise analogous to the limitations contained herein) and (2) the number of shares of Common Stock issuable upon the conversion of the portion of this Note with respect to which the determination of this proviso is being made, would result in beneficial ownership by the Holder and its affiliates of more than 4.99% of the outstanding shares of Common Stock.  For purposes of the proviso to the immediately preceding sentence, beneficial ownership shall be determined in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Regulations 13D-G thereunder, except as otherwise provided in clause (1) of such proviso, provided, further, however, that the limitations on conversion may be waived by the Holder upon, at the election of the Holder, not less than 61 days’ prior notice to the Borrower, and the provisions of the conversion limitation shall continue to apply until such 61st day (or such later date, as determined by the Holder, as may be specified in such notice of waiver).  The number of shares of Common Stock to be issued upon each conversion of this Note shall be determined by dividing the Conversion Amount (as defined below) by the applicable Conversion Price then in effect on the date specified in the notice of conversion, in the form attached hereto as Exhibit A (the “Notice of Conversion”), delivered to the Borrower by the Holder in accordance with Section 1.4 below; provided that the Notice of Conversion is submitted by facsimile or e-mail (or by other means resulting in, or reasonably expected to result in, notice) to the Borrower before 6:00 p.m., New York, New York time on such conversion date (the “Conversion Date”).  The term “Conversion Amount” means, with respect to any conversion of this Note, the sum of (1) the principal amount of this Note to be converted in such conversion plus (2) at the Borrower’s option, accrued and unpaid interest, if any, on such principal amount at the interest rates provided in this Note to the Conversion Date, plus (3) at the Borrower’s option, Default Interest, if any, on the amounts referred to in the immediately preceding clauses (1) and/or (2) plus (4) at the Holder’s option, any amounts owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof.
 
 
2

 
 
1.2           Conversion Price.
 
(a)           Calculation of Conversion Price.  The conversion price (the “Conversion Price”) shall equal the Variable Conversion Price (as defined herein) (subject to equitable adjustments for stock splits, stock dividends or rights offerings by the Borrower relating to the Borrower’s securities or the securities of any subsidiary of the Borrower, combinations, recapitalization, reclassifications, extraordinary distributions and similar events).  The "Variable Conversion Price" shall mean 51% multiplied by the Market Price (as defined herein) (representing a discount rate of 49%).  “Market Price” means the average of the lowest three (3) Trading Prices (as defined below) for the Common Stock during the ten (10) Trading Day period ending on the latest complete Trading Day prior to the Conversion Date.  “Trading Price” means, for any security as of any date, the closing bid price on the Over-the-Counter Bulletin Board, or applicable trading market (the “OTCBB”) as reported by a reliable reporting service (“Reporting Service”) mutually acceptable to Borrower and Holder (i.e. Bloomberg) or, if the OTCBB is not the principal trading market for such security, the closing bid price of such security on the principal securities exchange or trading market where such security is listed or traded or, if no closing bid price of such security is available in any of the foregoing manners, the average of the closing bid prices of any market makers for such security that are listed in the “pink sheets” by the National Quotation Bureau, Inc.  If the Trading Price cannot be calculated for such security on such date in the manner provided above, the Trading Price shall be the fair market value as mutually determined by the Borrower and the holders of a majority in interest of the Notes being converted for which the calculation of the Trading Price is required in order to determine the Conversion Price of such Notes.  “Trading Day” shall mean any day on which the Common Stock is tradable for any period on the OTCBB, or on the principal securities exchange or other securities market on which the Common Stock is then being traded.
 
(b)           Conversion Price During Major Announcements.  Notwithstanding anything contained in Section 1.2(a) to the contrary, in the event the Borrower (i) makes a public announcement that it intends to consolidate or merge with any other corporation (other than a merger in which the Borrower is the surviving or continuing corporation and its capital stock is unchanged) or sell or transfer all or substantially all of the assets of the Borrower or (ii) any person, group or entity (including the Borrower) publicly announces a tender offer to purchase 50% or more of the Borrower’s Common Stock (or any other takeover scheme) (the date of the announcement referred to in clause (i) or (ii) is hereinafter referred to as the “Announcement Date”), then the Conversion Price shall, effective upon the Announcement Date and continuing through the Adjusted Conversion Price Termination Date (as defined below), be equal to the lower of (x) the Conversion Price which would have been applicable for a Conversion occurring on the Announcement Date and (y) the Conversion Price that would otherwise be in effect.  From and after the Adjusted Conversion Price Termination Date, the Conversion Price shall be determined as set forth in this Section 1.2(a).  For purposes hereof, “Adjusted Conversion Price Termination Date” shall mean, with respect to any proposed transaction or tender offer (or takeover scheme) for which a public announcement as contemplated by this Section 1.2(b) has been made, the date upon which the Borrower (in the case of clause (i) above) or the person, group or entity (in the case of clause (ii) above) consummates or publicly announces the termination or abandonment of the proposed transaction or tender offer (or takeover scheme) which caused this Section 1.2(b) to become operative.
 
 
3

 
 
1.3           Authorized Shares.  The Borrower covenants that during the period the conversion right exists, the Borrower will reserve from its authorized and unissued Common Stock a sufficient number of shares, free from preemptive rights, to provide for the issuance of Common Stock upon the full conversion of this Note issued pursuant to the Purchase Agreement.  The Borrower is required at all times to have authorized and reserved five times the number of shares that is actually issuable upon full conversion of the Note (based on the Conversion Price of the Notes in effect from time to time) (the “Reserved Amount”).  The Reserved Amount shall be increased from time to time in accordance with the Borrower’s obligations pursuant to Section 4(g) of the Purchase Agreement.  The Borrower represents that upon issuance, such shares will be duly and validly issued, fully paid and non-assessable.  In addition, if the Borrower shall issue any securities or make any change to its capital structure which would change the number of shares of Common Stock into which the Notes shall be convertible at the then current Conversion Price, the Borrower shall at the same time make proper provision so that thereafter there shall be a sufficient number of shares of Common Stock authorized and reserved, free from preemptive rights, for conversion of the outstanding Notes.  The Borrower (i) acknowledges that it has irrevocably instructed its transfer agent to issue certificates for the Common Stock issuable upon conversion of this Note, and (ii) agrees that its issuance of this Note shall constitute full authority to its officers and agents who are charged with the duty of executing stock certificates to execute and issue the necessary certificates for shares of Common Stock in accordance with the terms and conditions of this Note.
 
If, at any time the Borrower does not maintain the Reserved Amount it will be considered an Event of Default under Section 3.2 of the Note.
 
1.4           Method of Conversion.
 
(a)           Mechanics of Conversion.  Subject to Section 1.1, this Note may be converted by the Holder in whole or in part at any time from time to time as set forth above, by (A) submitting to the Borrower a Notice of Conversion (by facsimile, e-mail or other reasonable means of communication dispatched on the Conversion Date prior to 5:00 p.m., New York, New York time) and (B) subject to Section 1.4(b), surrendering this Note at the principal office of the Borrower.
 
(b)           Surrender of Note Upon Conversion.  Notwithstanding anything to the contrary set forth herein, upon conversion of this Note in accordance with the terms hereof, the Holder shall not be required to physically surrender this Note to the Borrower unless the entire unpaid principal amount of this Note is so converted.  The Holder and the Borrower shall maintain records showing the principal amount so converted and the dates of such conversions or shall use such other method, reasonably satisfactory to the Holder and the Borrower, so as not to require physical surrender of this Note upon each such conversion.  In the event of any dispute or discrepancy, such records of the Borrower shall, prima facie, be controlling and determinative in the absence of manifest error.  Notwithstanding the foregoing, if any portion of this Note is converted as aforesaid, the Holder may not transfer this Note unless the Holder first physically surrenders this Note to the Borrower, whereupon the Borrower will forthwith issue and deliver upon the order of the Holder a new Note of like tenor, registered as the Holder (upon payment by the Holder of any applicable transfer taxes) may request, representing in the aggregate the remaining unpaid principal amount of this Note.  The Holder and any assignee, by acceptance of this Note, acknowledge and agree that, by reason of the provisions of this paragraph, following conversion of a portion of this Note, the unpaid and unconverted principal amount of this Note represented by this Note may be less than the amount stated on the face hereof.
 
 
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(c)           Payment of Taxes.  The Borrower shall not be required to pay any tax which may be payable in respect of any transfer involved in the issue and delivery of shares of Common Stock or other securities or property on conversion of this Note in a name other than that of the Holder (or in street name), and the Borrower shall not be required to issue or deliver any such shares or other securities or property unless and until the person or persons (other than the Holder or the custodian in whose street name such shares are to be held for the Holder’s account) requesting the issuance thereof shall have paid to the Borrower the amount of any such tax or shall have established to the satisfaction of the Borrower that such tax has been paid.
 
(d)           Delivery of Common Stock Upon Conversion.  Upon receipt by the Borrower from the Holder of a facsimile transmission or e-mail (or other reasonable means of communication) of a Notice of Conversion meeting the requirements for conversion as provided in this Section 1.4, the Borrower shall issue and deliver or cause to be issued and delivered to or upon the order of the Holder certificates for the Common Stock issuable upon such conversion within three (3) business days after such receipt (the “Deadline”) (and, solely in the case of conversion of the entire unpaid principal amount hereof, surrender of this Note) in accordance with the terms hereof and the Purchase Agreement.
 
(e)           Obligation of Borrower to Deliver Common Stock.  Upon receipt by the Borrower of a Notice of Conversion, the Holder shall be deemed to be the holder of record of the Common Stock issuable upon such conversion, the outstanding principal amount and the amount of accrued and unpaid interest on this Note shall be reduced to reflect such conversion, and, unless the Borrower defaults on its obligations under this Article I, all rights with respect to the portion of this Note being so converted shall forthwith terminate except the right to receive the Common Stock or other securities, cash or other assets, as herein provided, on such conversion.  If the Holder shall have given a Notice of Conversion as provided herein, the Borrower’s obligation to issue and deliver the certificates for Common Stock shall be absolute and unconditional, irrespective of the absence of any action by the Holder to enforce the same, any waiver or consent with respect to any provision thereof, the recovery of any judgment against any person or any action to enforce the same, any failure or delay in the enforcement of any other obligation of the Borrower to the holder of record, or any setoff, counterclaim, recoupment, limitation or termination, or any breach or alleged breach by the Holder of any obligation to the Borrower, and irrespective of any other circumstance which might otherwise limit such obligation of the Borrower to the Holder in connection with such conversion.  The Conversion Date specified in the Notice of Conversion shall be the Conversion Date so long as the Notice of Conversion is received by the Borrower before 5:00 p.m., New York, New York time, on such date.
 
(f)           Delivery of Common Stock by Electronic Transfer.  In lieu of delivering physical certificates representing the Common Stock issuable upon conversion, provided the Borrower is participating in the Depository Trust Company (“DTC”) Fast Automated Securities Transfer (“FAST”) program, upon request of the Holder and its compliance with the provisions contained in Section 1.1 and in this Section 1.4, the Borrower will use its commercially reasonable best efforts to cause its transfer agent to electronically transmit the Common Stock issuable upon conversion to the Holder by crediting the account of Holder’s Prime Broker with DTC through its Deposit Withdrawal Agent Commission (“DWAC”) system.
 
 
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(g)           Failure to Deliver Common Stock Prior to Delivery Deadline. Without in any way limiting the Holder’s right to pursue other remedies, including actual damages and/or equitable relief, the parties agree that if delivery of the Common Stock issuable upon conversion of this Note is not delivered by the Deadline (other than a failure due to the circumstances described in Section 1.3 above, which failure shall be governed by such Section) the Borrower shall pay to the Holder $1,000 per day in cash, for each day beyond the Deadline that the Borrower fails to deliver such Common Stock.  Such cash amount shall be paid to Holder by the fifth day of the month following the month in which it has accrued or, at the option of the Holder (by written notice to the Borrower by the first day of the month following the month in which it has accrued), shall be added to the principal amount of this Note, in which event interest shall accrue thereon in accordance with the terms of this Note and such additional principal amount shall be convertible into Common Stock in accordance with the terms of this Note.  The Borrower agrees that the right to convert is a valuable right to the Holder.  The damages resulting from a failure, attempt to frustrate, interference with such conversion right are difficult if not impossible to qualify.  Accordingly the parties acknowledge that the liquidated damages provision contained in this Section 1.4(g) are justified.
 
1.5           Concerning the Shares.  The shares of Common Stock issuable upon conversion of this Note may not be sold or transferred unless (i) such shares are sold pursuant to an effective registration statement under the Act or (ii) the Borrower or its transfer agent shall have been furnished with an opinion of investor’s counsel (which opinion shall be in form, substance and scope customary for opinions of counsel in comparable transactions) to the effect that the shares to be sold or transferred may be sold or transferred pursuant to an exemption from such registration or (iii) such shares are sold or transferred pursuant to Rule 144 under the Act (or a successor rule) (“Rule 144”) or (iv) such shares are transferred to an “affiliate” (as defined in Rule 144) of the Borrower who agrees to sell or otherwise transfer the shares only in accordance with this Section 1.5 and who is an Accredited Investor (as defined in the Purchase Agreement).  Except as otherwise provided in the Purchase Agreement (and subject to the removal provisions set forth below), until such time as the shares of Common Stock issuable upon conversion of this Note have been registered under the Act or otherwise may be sold pursuant to Rule 144 without any restriction as to the number of securities as of a particular date that can then be immediately sold, each certificate for shares of Common Stock issuable upon conversion of this Note that has not been so included in an effective registration statement or that has not been sold pursuant to an effective registration statement or an exemption that permits removal of the legend, shall bear a legend substantially in the following form, as appropriate:
 
“NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE EXERCISABLE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS.  THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL (WHICH COUNSEL SHALL BE SELECTED BY THE HOLDER), IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT.  NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.”
 
 
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The legend set forth above shall be removed and the Borrower shall issue to the Holder a new certificate therefore free of any transfer legend if (i) the Borrower or its transfer agent shall have received an opinion of counsel, in form, substance and scope customary for opinions of counsel in comparable transactions, to the effect that a public sale or transfer of such Common Stock may be made without registration under the Act, which opinion shall be accepted by the Company so that the sale or transfer is effected or (ii) in the case of the Common Stock issuable upon conversion of this Note, such security is registered for sale by the Holder under an effective registration statement filed under the Act or otherwise may be sold pursuant to Rule 144 without any restriction as to the number of securities as of a particular date that can then be immediately sold.  In the event that the Company does not accept the opinion of counsel provided by the Buyer with respect to the transfer of Securities pursuant to an exemption from registration, such as Rule 144 or Regulation S, at the Deadline, it will be considered an Event of Default pursuant to Section 3.2 of the Note.
 
1.6           Effect of Certain Events.
 
(a)           Effect of Merger, Consolidation, Etc.  At the option of the Holder, the sale, conveyance or disposition of all or substantially all of the assets of the Borrower, the effectuation by the Borrower of a transaction or series of related transactions in which more than 50% of the voting power of the Borrower is disposed of, or the consolidation, merger or other business combination of the Borrower with or into any other Person (as defined below) or Persons when the Borrower is not the survivor shall be treated pursuant to Section 1.6(b) hereof.  “Person” shall mean any individual, corporation, limited liability company, partnership, association, trust or other entity or organization.
 
(b)           Adjustment Due to Merger, Consolidation, Etc.  If, at any time when this Note is issued and outstanding and prior to conversion of all of the Notes, there shall be any merger, consolidation, exchange of shares, recapitalization, reorganization, or other similar event, as a result of which shares of Common Stock of the Borrower shall be changed into the same or a different number of shares of another class or classes of stock or securities of the Borrower or another entity, or in case of any sale or conveyance of all or substantially all of the assets of the Borrower other than in connection with a plan of complete liquidation of the Borrower, then the Holder of this Note shall thereafter have the right to receive upon conversion of this Note, upon the basis and upon the terms and conditions specified herein and in lieu of the shares of Common Stock immediately theretofore issuable upon conversion, such stock, securities or assets which the Holder would have been entitled to receive in such transaction had this Note been converted in full immediately prior to such transaction (without regard to any limitations on conversion set forth herein), and in any such case appropriate provisions shall be made with respect to the rights and interests of the Holder of this Note to the end that the provisions hereof (including, without limitation, provisions for adjustment of the Conversion Price and of the number of shares issuable upon conversion of the Note) shall thereafter be applicable, as nearly as may be practicable in relation to any securities or assets thereafter deliverable upon the conversion hereof.  The Borrower shall not affect any transaction described in this Section 1.6(b) unless (a) it first gives, to the extent practicable, thirty (30) days prior written notice (but in any event at least fifteen (15) days prior written notice) of the record date of the special meeting of shareholders to approve, or if there is no such record date, the consummation of, such merger, consolidation, exchange of shares, recapitalization, reorganization or other similar event or sale of assets (during which time the Holder shall be entitled to convert this Note) and (b) the resulting successor or acquiring entity (if not the Borrower) assumes by written instrument the obligations of this Section 1.6(b).  The above provisions shall similarly apply to successive consolidations, mergers, sales, transfers or share exchanges.
 
 
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(c)           Adjustment Due to Distribution.  If the Borrower shall declare or make any distribution of its assets (or rights to acquire its assets) to holders of Common Stock as a dividend, stock repurchase, by way of return of capital or otherwise (including any dividend or distribution to the Borrower’s shareholders in cash or shares (or rights to acquire shares) of capital stock of a subsidiary (i.e., a spin-off)) (a “Distribution”), then the Holder of this Note shall be entitled, upon any conversion of this Note after the date of record for determining shareholders entitled to such Distribution, to receive the amount of such assets which would have been payable to the Holder with respect to the shares of Common Stock issuable upon such conversion had such Holder been the holder of such shares of Common Stock on the record date for the determination of shareholders entitled to such Distribution.
 
(d)           Adjustment Due to Dilutive Issuance.  If, at any time when any Notes are issued and outstanding, the Borrower issues or sells, or in accordance with this Section 1.6(d) hereof is deemed to have issued or sold, except for shares of Common Stock issued directly to vendors or suppliers of the Company in satisfaction of amounts owed to such vendors or suppliers (provided, however, that such vendors or suppliers shall not have an arrangement to transfer, sell or assign such shares of Common Stock prior to the issuance of such shares), any shares of Common Stock for no consideration or for a consideration per share (before deduction of reasonable expenses or commissions or underwriting discounts or allowances in connection therewith) less than the Conversion Price in effect on the date of such issuance (or deemed issuance) of such shares of Common Stock (a “Dilutive Issuance”), then immediately upon the Dilutive Issuance, the Conversion Price will be reduced to the amount of the consideration per share received by the Borrower in such Dilutive Issuance.
 
The Borrower shall be deemed to have issued or sold shares of Common Stock if the Borrower in any manner issues or grants any warrants, rights or options (not including employee stock option plans), whether or not immediately exercisable, to subscribe for or to purchase Common Stock or other securities convertible into or exchangeable for Common Stock (“Convertible Securities”) (such warrants, rights and options to purchase Common Stock or Convertible Securities are hereinafter referred to as “Options”) and the price per share for which Common Stock is issuable upon the exercise of such Options is less than the Conversion Price then in effect, then the Conversion Price shall be equal to such price per share.  For purposes of the preceding sentence, the “price per share for which Common Stock is issuable upon the exercise of such Options” is determined by dividing (i) the total amount, if any, received or receivable by the Borrower as consideration for the issuance or granting of all such Options, plus the minimum aggregate amount of additional consideration, if any, payable to the Borrower upon the exercise of all such Options, plus, in the case of Convertible Securities issuable upon the exercise of such Options, the minimum aggregate amount of additional consideration payable upon the conversion or exchange thereof at the time such Convertible Securities first become convertible or exchangeable, by (ii) the maximum total number of shares of Common Stock issuable upon the exercise of all such Options (assuming full conversion of Convertible Securities, if applicable).  No further adjustment to the Conversion Price will be made upon the actual issuance of such Common Stock upon the exercise of such Options or upon the conversion or exchange of Convertible Securities issuable upon exercise of such Options.
 
 
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Additionally, the Borrower shall be deemed to have issued or sold shares of Common Stock if the Borrower in any manner issues or sells any Convertible Securities, whether or not immediately convertible (other than where the same are issuable upon the exercise of Options), and the price per share for which Common Stock is issuable upon such conversion or exchange is less than the Conversion Price then in effect, then the Conversion Price shall be equal to such price per share.  For the purposes of the preceding sentence, the “price per share for which Common Stock is issuable upon such conversion or exchange” is determined by dividing (i) the total amount, if any, received or receivable by the Borrower as consideration for the issuance or sale of all such Convertible Securities, plus the minimum aggregate amount of additional consideration, if any, payable to the Borrower upon the conversion or exchange thereof at the time such Convertible Securities first become convertible or exchangeable, by (ii) the maximum total number of shares of Common Stock issuable upon the conversion or exchange of all such Convertible Securities.  No further adjustment to the Conversion Price will be made upon the actual issuance of such Common Stock upon conversion or exchange of such Convertible Securities.  The following will not be considered Dilutive Issuances:  (i) any issuance in relation to a convertible debenture that is in excess of $100,000.00; (ii) any issuances presently or in the future made with regards to conversion by the holder of the Emerald Asset Advisors Note and/or the holder of the Crisnic Fund Note and (iii) any shares of Common Stock offered to employees or consultants for services renders shall also not be considered a Dilutive Issuance.
 
(e)           Purchase Rights.  If, at any time when any Notes are issued and outstanding, the Borrower issues any convertible securities or rights to purchase stock, warrants, securities or other property (the “Purchase Rights”) pro rata to the record holders of any class of Common Stock, then the Holder of this Note will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which such Holder could have acquired if such Holder had held the number of shares of Common Stock acquirable upon complete conversion of this Note (without regard to any limitations on conversion contained herein) immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights or, if no such record is taken, the date as of which the record holders of Common Stock are to be determined for the grant, issue or sale of such Purchase Rights.
 
 
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(f)           Notice of Adjustments.  Upon the occurrence of each adjustment or readjustment of the Conversion Price as a result of the events described in this Section 1.6, the Borrower, at its expense, shall promptly compute such adjustment or readjustment and prepare and furnish to the Holder a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based.  The Borrower shall, upon the written request at any time of the Holder, furnish to such Holder a like certificate setting forth (i) such adjustment or readjustment, (ii) the Conversion Price at the time in effect and (iii) the number of shares of Common Stock and the amount, if any, of other securities or property which at the time would be received upon conversion of the Note.
 
1.7           Trading Market Limitations.  Unless permitted by the applicable rules and regulations of the principal securities market on which the Common Stock is then listed or traded, in no event shall the Borrower issue upon conversion of or otherwise pursuant to this Note and the other Notes issued pursuant to the Purchase Agreement more than the maximum   number of shares of Common Stock that the Borrower can issue pursuant to any rule of the principal United States securities market on which the Common Stock is then traded (the “Maximum Share Amount”), which shall be 4.99% of the total shares outstanding on the Closing Date (as defined in the Purchase Agreement), subject to equitable adjustment from time to time for stock splits, stock dividends, combinations, capital reorganizations and similar events relating to the Common Stock occurring after the date hereof.  Once the Maximum Share Amount has been issued, if the Borrower fails to eliminate any prohibitions under applicable law or the rules or regulations of any stock exchange, interdealer quotation system or other self-regulatory organization with jurisdiction over the Borrower or any of its securities on the Borrower’s ability to issue shares of Common Stock in excess of the Maximum Share Amount, in lieu of any further right to convert this Note, this will be considered an Event of Default under Section 3.3 of the Note.
 
1.8           Status as Shareholder.  Upon submission of a Notice of Conversion by a Holder, (i) the shares covered thereby (other than the shares, if any, which cannot be issued because their issuance would exceed such Holder’s allocated portion of the Reserved Amount or Maximum Share Amount) shall be deemed converted into shares of Common Stock and (ii) the Holder’s rights as a Holder of such converted portion of this Note shall cease and terminate, excepting only the right to receive certificates for such shares of Common Stock and to any remedies provided herein or otherwise available at law or in equity to such Holder because of a failure by the Borrower to comply with the terms of this Note.  Notwithstanding the foregoing, if a Holder has not received certificates for all shares of Common Stock prior to the tenth (10th) business day after the expiration of the Deadline with respect to a conversion of any portion of this Note for any reason, then (unless the Holder otherwise elects to retain its status as a holder of Common Stock by so notifying the Borrower) the Holder shall regain the rights of a Holder of this Note with respect to such unconverted portions of this Note and the Borrower shall, as soon as practicable, return such unconverted Note to the Holder or, if the Note has not been surrendered, adjust its records to reflect that such portion of this Note has not been converted.  In all cases, the Holder shall retain all of its rights and remedies (including, without limitation, (i) the right to receive Conversion Default Payments pursuant to Section 1.3 to the extent required thereby for such Conversion Default and any subsequent Conversion Default and (ii) the right to have the Conversion Price with respect to subsequent conversions determined in accordance with Section 1.3) for the Borrower’s failure to convert this Note.
 
 
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1.9           Prepayment.  Notwithstanding anything to the contrary contained in this Note, at any time during the period beginning on the Issue Date and ending on the date which is one hundred twenty (120) days following the date hereof, the Borrower shall have the right, exercisable on not less than three (3) Trading Days prior written notice to the Holder of the Note to prepay the outstanding Note (principal and accrued interest), in full, in accordance with this Section 1.9.  Any notice of prepayment hereunder (an “Optional Prepayment Notice”) shall be delivered to the Holder of the Note at its registered addresses and shall state:  (1) that the Borrower is exercising its right to prepay the Note, and (2) the date of prepayment which shall be not more than three (3) Trading Days from the date of the Optional Prepayment Notice.  On the date fixed for prepayment (the “Optional Prepayment Date”), the Borrower shall make payment of the Optional Prepayment Amount (as defined below) to or upon the order of the Holder as specified by the Holder in writing to the Borrower at least one (1) business day prior to the Optional Prepayment Date.  If the Borrower exercises its right to prepay the Note, the Borrower shall make payment to the Holder of an amount in cash (the “Optional Prepayment Amount”) equal to 150%, multiplied by the sum of:  (w) the then outstanding principal amount of this Note plus (x) accrued and unpaid interest on the unpaid principal amount of this Note to the Optional Prepayment Date plus (y) Default Interest, if any, on the amounts referred to in clauses (w) and (x) plus (z) any amounts owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof.  If the Borrower delivers an Optional Prepayment Notice and fails to pay the Optional Prepayment Amount due to the Holder of the Note within four (4) business days following the Optional Prepayment Date, the Borrower shall forever forfeit its right to prepay the Note pursuant to this Section 1.9.
 
Notwithstanding any to the contrary stated elsewhere herein, at any time during the period beginning on the date which is one hundred twenty-one (121) days from the issue date and ending one hundred eighty (180) days following the issue date, the Borrower shall have the right, exercisable on not less than three (3) Trading Days prior written notice to the Holder of the Note to prepay the outstanding Note (principal and accrued interest), in full, in accordance with this Section 1.9.  Any notice of prepayment hereunder (an “Optional Prepayment Notice”) shall be delivered to the Holder of the Note at its registered addresses and shall state:  (1) that the Borrower is exercising its right to prepay the Note, and (2) the date of prepayment which shall be not more than three (3) Trading Days from the date of the Optional Prepayment Notice.  On the date fixed for prepayment (the “Optional Prepayment Date”), the Borrower shall make payment of the Second Optional Prepayment Amount (as defined below) to or upon the order of the Holder as specified by the Holder in writing to the Borrower at least one (1) business day prior to the Optional Prepayment Date.  If the Borrower exercises its right to prepay the Note, the Borrower shall make payment to the Holder of an amount in cash (the “Second Optional Prepayment Amount”) equal to 175%, multiplied by the sum of:  (w) the then outstanding principal amount of this Note plus (x) accrued and unpaid interest on the unpaid principal amount of this Note to the Optional Prepayment Date plus (y) Default Interest, if any, on the amounts referred to in clauses (w) and (x) plus (z) any amounts owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof.  If the Borrower delivers an Optional Prepayment Notice and fails to pay the Second Optional Prepayment Amount due to the Holder of the Note within two (2) business days following the Optional Prepayment Date, the Borrower shall forever forfeit its right to prepay the Note pursuant to this Section 1.9.
 
 
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After the expiration of one hundred eighty (180) following the date of the Note, the Borrower shall have no right of prepayment.
 
ARTICLE II.  CERTAIN COVENANTS
 
2.1           Distributions on Capital Stock.  So long as the Borrower shall have any obligation under this Note, the Borrower shall not without the Holder’s written consent (a) pay, declare or set apart for such payment, any dividend or other distribution (whether in cash, property or other securities) on shares of capital stock other than dividends on shares of Common Stock solely in the form of additional shares of Common Stock or (b) directly or indirectly or through any subsidiary make any other payment or distribution in respect of its capital stock except for distributions pursuant to any shareholders’ rights plan which is approved by a majority of the Borrower’s disinterested directors.
 
2.2           Restriction on Stock Repurchases.  So long as the Borrower shall have any obligation under this Note, the Borrower shall not without the Holder’s written consent redeem, repurchase or otherwise acquire (whether for cash or in exchange for property or other securities or otherwise) in any one transaction or series of related transactions any shares of capital stock of the Borrower or any warrants, rights or options to purchase or acquire any such shares.
 
2.3           Borrowings.  So long as the Borrower shall have any obligation under this Note, the Borrower shall not, without the Holder’s written consent, create, incur, assume guarantee, endorse, contingently agree to purchase or otherwise become liable upon the obligation of any person, firm, partnership, joint venture or corporation, except by the endorsement of negotiable instruments for deposit or collection, or suffer to exist any liability for borrowed money, except (a) borrowings in existence or committed on the date hereof and of which the Borrower has informed Holder in writing prior to the date hereof, (b) indebtedness to trade creditors or financial institutions incurred in the ordinary course of business or (c) borrowings, the proceeds of which shall be used to repay this Note.
 
2.4           Sale of Assets.  So long as the Borrower shall have any obligation under this Note, the Borrower shall not, without the Holder’s written consent, sell, lease or otherwise dispose of any significant portion of its assets outside the ordinary course of business.  Any consent to the disposition of any assets may be conditioned on a specified use of the proceeds of disposition.
 
2.5           Advances and Loans.  So long as the Borrower shall have any obligation under this Note, the Borrower shall not, without the Holder’s written consent, lend money, give credit or make advances to any person, firm, joint venture or corporation, including, without limitation, officers, directors, employees, subsidiaries and affiliates of the Borrower, except loans, credits or advances (a) in existence or committed on the date hereof and which the Borrower has informed Holder in writing prior to the date hereof, (b) made in the ordinary course of business or (c) not in excess of $100,000.
 
 
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ARTICLE III.  EVENTS OF DEFAULT
 
If any of the following events of default (each, an “Event of Default”) shall occur:
 
3.1           Failure to Pay Principal or Interest.  The Borrower fails to pay the principal hereof or interest thereon when due on this Note, whether at maturity, upon acceleration or otherwise.
 
3.2           Conversion and the Shares.  The Borrower fails to issue shares of Common Stock to the Holder (or announces or threatens in writing that it will not honor its obligation to do so) upon exercise by the Holder of the conversion rights of the Holder in accordance with the terms of this Note, or the exercise of the Warrant in favor of the Holder, fails to transfer or cause its transfer agent to transfer (issue) (electronically or in certificated form) any certificate for shares of Common Stock issued to the Holder upon conversion of or otherwise pursuant to this Note as and when required by this Note (or the Warrant pursuant to the Warrant), the Borrower directs its transfer agent not to transfer or delays, impairs, and/or hinders its transfer agent in transferring (or issuing) (electronically or in certificated form) any certificate for shares of Common Stock to be issued to the Holder upon conversion of or otherwise pursuant to this Note as and when required by this Note (or the Warrant pursuant to the Warrant), or fails to remove (or directs its transfer agent not to remove or impairs, delays, and/or hinders its transfer agent from removing) any restrictive legend (or to withdraw any stop transfer instructions in respect thereof) on any certificate for any shares of Common Stock issued to the Holder upon conversion of or otherwise pursuant to this Note as and when required by this Note (or the Warrant pursuant to the Warrant)(or makes any written announcement, statement or threat that it does not intend to honor the obligations described in this paragraph) and any such failure shall continue uncured (or any written announcement, statement or threat not to honor its obligations shall not be rescinded in writing) for three (3) business days after the Holder shall have delivered a Notice of Conversion (or Exercise Notice pursuant to the Warrant).  It is an obligation of the Borrower to remain current in its obligations to its transfer agent.  It shall be an event of default of this Note, if a conversion of this Note is delayed, hindered or frustrated due to a balance owed by the Borrower to its transfer agent.  If at the option of the Holder, the Holder advances any funds to the Borrower’s transfer agent in order to process a conversion, such advanced funds shall be paid by the Borrower to the Holder within forty eight (48) hours of a demand from the Holder.
 
3.3           Breach of Covenants.  The Borrower breaches any material covenant or other material term or condition contained in this Note and any collateral documents including but not limited to the Purchase Agreement and such breach continues for a period of twenty (20) days after written notice thereof to the Borrower from the Holder.
 
3.4           Breach of Representations and Warranties.  Any representation or warranty of the Borrower made herein or in any agreement, written statement or certificate given in writing pursuant hereto or in connection herewith (including, without limitation, the Purchase Agreement), shall be false or misleading in any material respect when made and the breach of which has (or with the passage of time will have) a material adverse effect on the rights of the Holder with respect to this Note or the Purchase Agreement.
 
3.5           Receiver or Trustee.  The Borrower or any subsidiary of the Borrower shall make an assignment for the benefit of creditors, or apply for or consent to the appointment of a receiver or trustee for it or for a substantial part of its property or business, or such a receiver or trustee shall otherwise be appointed.
 
 
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3.6           Judgments.  Any money judgment, writ or similar process shall be entered or filed against the Borrower or any subsidiary of the Borrower or any of its property or other assets for more than $50,000, and shall remain unvacated, unbonded or unstayed for a period of twenty (20) business days unless otherwise consented to by the Holder, which consent will not be unreasonably withheld.
 
3.7           Bankruptcy.  Bankruptcy, insolvency, reorganization or liquidation proceedings or other proceedings, voluntary or involuntary, for relief under any bankruptcy law or any law for the relief of debtors shall be instituted by or against the Borrower or any subsidiary of the Borrower.
 
3.8           Delisting of Common Stock.  The Borrower shall fail to maintain the listing of the Common Stock on at least one of the OTCBB or an equivalent replacement exchange, the Nasdaq National Market, the Nasdaq SmallCap Market, the New York Stock Exchange, or the American Stock Exchange.
 
3.9           Failure to Comply with the Exchange Act.  The Borrower shall fail to comply with the reporting requirements of the Exchange Act; and/or immediately upon the Borrower ceasing to be subject to the reporting requirements of the Exchange Act; provided, however, that the Borrower shall have fifteen (15) days to cure any failure of the Borrower’s obligation pursuant to the Exchange Act to file a current report on Form 8-K.
 
3.10           Liquidation.  Any dissolution, liquidation, or winding up of Borrower or any substantial portion of its business.
 
3.11           Cessation of Operations.  Any cessation of operations by Borrower or Borrower admits it is otherwise generally unable to pay its debts as such debts become due, provided, however, that any disclosure of the Borrower’s ability to continue as a “going concern” shall not be an admission that the Borrower cannot pay its debts as they become due.
 
3.12           Maintenance of Assets.  The failure by Borrower to maintain any material intellectual property rights, personal, real property or other assets which are necessary to conduct its business (whether now or in the future).
 
3.13           Financial Statement Restatement.  The restatement of any financial statements filed by the Borrower with the SEC for any date or period from two years prior to the Issue Date of this Note and until this Note is no longer outstanding, if the result of such restatement would, by comparison to the unrestated financial statement, have constituted a material adverse effect on the rights of the Holder with respect to this Note or the Purchase Agreement.  For the avoidance of doubt, any restatement related to new accounting pronouncements, including without limitation, for derivative accounting shall not constitute a default under this Section 3.13.
 
3.14           Reverse Splits.  The Borrower effectuates a reverse split of its Common Stock without twenty (20) days prior written notice to the Holder.
 
3.15           Replacement of Transfer Agent.  In the event that the Borrower proposes to replace its transfer agent, the Borrower fails to provide, prior to the effective date of such replacement, a fully executed Irrevocable Transfer Agent Instructions in a form as initially delivered pursuant to the Purchase Agreement (including but not limited to the provision to irrevocably reserve shares of Common Stock in the Reserved Amount) signed by the successor transfer agent to Borrower and the Borrower.
 
 
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3.16           Cross-Default.  Notwithstanding anything to the contrary contained in this Note or the other related or companion documents, a breach or default by the Borrower of any covenant or other term or condition contained in any of the Other Agreements, after the passage of all applicable notice and cure or grace periods, shall, at the option of the Holder, be considered a default under this Note and the Other Agreements, in which event the Holder shall be entitled (but in no event required) to apply all rights and remedies of the Holder under the terms of this Note and the Other Agreements by reason of a default under said Other Agreement or hereunder.  “Other Agreements” means, collectively, all agreements and instruments between, among or by:  (1) the Borrower, and, or for the benefit of, (2) the Holder and any affiliate of the Holder, including, without limitation, promissory notes; provided, however, the term “Other Agreements” shall not include the related or companion documents to this Note.  Each of the loan transactions will be cross-defaulted with each other loan transaction and with all other existing and future debt of Borrower to the Holder.  Upon the occurrence and during the continuation of any Event of Default specified in Section 3.1 (solely with respect to failure to pay the principal hereof or interest thereon when due at the Maturity Date), the Note shall become immediately due and payable and the Borrower shall pay to the Holder, in full satisfaction of its obligations hereunder, an amount equal to the Default Sum (as defined herein).  UPON THE OCCURRENCE AND DURING THE CONTINUATION OF ANY EVENT OF DEFAULT SPECIFIED IN SECTION 3.2, THE NOTE SHALL BECOME IMMEDIATELY DUE AND PAYABLE AND THE BORROWER SHALL PAY TO THE HOLDER, IN FULL SATISFACTION OF ITS OBLIGATIONS HEREUNDER, AN AMOUNT EQUAL TO:  (Y) THE DEFAULT SUM (AS DEFINED HEREIN); MULTIPLIED BY (Z) TWO (2).  Upon the occurrence and during the continuation of any Event of Default specified in Sections 3.1 (solely with respect to failure to pay the principal hereof or interest thereon when due on this Note upon a Trading Market Prepayment Event pursuant to Section 1.7 or upon acceleration), 3.3, 3.4, 3.6, 3.8, 3.9, 3.11, 3.12, 3.13, 3.14, 3.15 and/or 3.16 exercisable through the delivery of written notice to the Borrower by such Holders (the “Default Notice”), and upon the occurrence of an Event of Default specified the remaining sections of Articles III (other than failure to pay the principal hereof or interest thereon at the Maturity Date specified in Section 3,1 hereof), the Note shall become immediately due and payable and the Borrower shall pay to the Holder, in full satisfaction of its obligations hereunder, an amount equal to the greater of (i) 150% times the sum of (w) the then outstanding principal amount of this Note plus (x) accrued and unpaid interest on the unpaid principal amount of this Note to the date of payment (the “Mandatory Prepayment Date”) plus (y) Default Interest, if any, on the amounts referred to in clauses (w) and/or (x) plus (z) any amounts owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof (the then outstanding principal amount of this Note to the date of payment plus the amounts referred to in clauses (x), (y) and (z) shall collectively be known as the “Default Sum”) or (ii) the “parity value” of the Default Sum to be prepaid, where parity value means (a) the highest number of shares of Common Stock issuable upon conversion of or otherwise pursuant to such Default Sum in accordance with Article I, treating the Trading Day immediately preceding the Mandatory Prepayment Date as the “Conversion Date” for purposes of determining the lowest applicable Conversion Price, unless the Default Event arises as a result of a breach in respect of a specific Conversion Date in which case such Conversion Date shall be the Conversion Date), multiplied by (b) the highest Closing Price for the Common Stock during the period beginning on the date of first occurrence of the Event of Default and ending one day prior to the Mandatory Prepayment Date (the “Default Amount”) and all other amounts payable hereunder shall immediately become due and payable, all without demand, presentment or notice, all of which hereby are expressly waived, together with all costs, including, without limitation, legal fees and expenses, of collection, and the Holder shall be entitled to exercise all other rights and remedies available at law or in equity.
 
 
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If the Borrower fails to pay the Default Amount within five (5) business days of written notice that such amount is due and payable, then the Holder shall have the right at any time, so long as the Borrower remains in default (and so long and to the extent that there are sufficient authorized shares), to require the Borrower, upon written notice, to immediately issue, in lieu of the Default Amount, the number of shares of Common Stock of the Borrower equal to the Default Amount divided by the Conversion Price then in effect.
 
ARTICLE IV.  MISCELLANEOUS
 
4.1           Failure or Indulgence Not Waiver.  No failure or delay on the part of the Holder in the exercise of any power, right or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other right, power or privileges.  All rights and remedies existing hereunder are cumulative to, and not exclusive of, any rights or remedies otherwise available.
 
4.2           Notices.  All notices, demands, requests, consents, approvals, and other communications required or permitted hereunder shall be in writing and, unless otherwise specified herein, shall be (i) personally served, (ii) deposited in the mail, registered or certified, return receipt requested, postage prepaid, (iii) delivered by reputable air courier service with charges prepaid, or (iv) transmitted by hand delivery, telegram, or facsimile, addressed as set forth below or to such other address as such party shall have specified most recently by written notice.  Any notice or other communication required or permitted to be given hereunder shall be deemed effective (a) upon hand delivery or delivery by facsimile, with accurate confirmation generated by the transmitting facsimile machine, at the address or number designated below (if delivered on a business day during normal business hours where such notice is to be received), or the first business day following such delivery (if delivered other than on a business day during normal business hours where such notice is to be received) or (b) on the second business day following the date of mailing by express courier service, fully prepaid, addressed to such address, or upon actual receipt of such mailing, whichever shall first occur.  The addresses for such communications shall be:
 
If to the Borrower, to:
OSL HOLDINGS INC. f/k/a RED ROCK PICTURES HOLDINGS INC.
1710 First Avenue
Attn:  ERIC KOTCH, Chief Financial Officer
facsimile:  [enter fax number]
 
 
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With a copy by fax only to (which copy shall not constitute notice):
Anslow & Jaclin, LLP
195 Route 9 South – Suite 204
Manalapan, New Jersey 07726
732-499-1212
732-577-1188
 
If to the Holder:
ASHER ENTERPRISES, INC.
1 Linden Pl., Suite 207
Great Neck, NY  11021
Attn:  Curt Kramer, President
facsimile:  516-498-9894
 
With a copy by fax only to (which copy shall not constitute notice):
Naidich Wurman Birnbaum & Maday LLP
80 Cuttermill Road, Suite 410
Great Neck, NY 11021
Attn:  Bernard S. Feldman, Esq.
facsimile:  516-466-3555

4.3           Amendments.  This Note and any provision hereof may only be amended by an instrument in writing signed by the Borrower and the Holder.  The term “Note” and all reference thereto, as used throughout this instrument, shall mean this instrument (and the other Notes issued pursuant to the Purchase Agreement) as originally executed, or if later amended or supplemented, then as so amended or supplemented.
 
4.4           Assignability.  This Note shall be binding upon the Borrower and its successors and assigns, and shall inure to be the benefit of the Holder and its successors and assigns.  Each transferee of this Note must be an “accredited investor” (as defined in Rule 501(a) of the 1933 Act) and must agree in writing to be bound by the same provisions of the original Holder under the Purchase Agreement.  Notwithstanding anything in this Note to the contrary, this Note may be pledged as collateral in connection with a bona fide margin account or other lending arrangement.
 
4.5           Cost of Collection.  If default is made in the payment of this Note, the Borrower shall pay the Holder hereof reasonable costs of collection, including reasonable attorneys’ fees.
 
4.6           Governing Law.  This Note shall be governed by and construed in accordance with the laws of the State of New York without regard to principles of conflicts of laws.  Any action brought by either party against the other concerning the transactions contemplated by this Note shall be brought only in the state courts of New York or in the federal courts located in the state and county of Nassau.  The parties to this Note hereby irrevocably waive any objection to jurisdiction and venue of any action instituted hereunder and shall not assert any defense based on lack of jurisdiction or venue or based upon forum non conveniens.  The Company and Holder waive trial by jury.  The prevailing party shall be entitled to recover from the other party its reasonable attorney's fees and costs.  In the event that any provision of this Note or any other agreement delivered in connection herewith is invalid or unenforceable under any applicable statute or rule of law, then such provision shall be deemed inoperative to the extent that it may conflict therewith and shall be deemed modified to conform with such statute or rule of law.  Any such provision which may prove invalid or unenforceable under any law shall not affect the validity or enforceability of any other provision of any agreement.  Each party hereby irrevocably waives personal service of process and consents to process being served in any suit, action or proceeding in connection with this Agreement or any other Transaction Document by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof.  Nothing contained herein shall be deemed to limit in any way any right to serve process in any other manner permitted by law.
 
 
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4.7           Certain Amounts.  Whenever pursuant to this Note the Borrower is required to pay an amount in excess of the outstanding principal amount (or the portion thereof required to be paid at that time) plus accrued and unpaid interest plus Default Interest on such interest, the Borrower and the Holder agree that the actual damages to the Holder from the receipt of cash payment on this Note may be difficult to determine and the amount to be so paid by the Borrower represents stipulated damages and not a penalty and is intended to compensate the Holder in part for loss of the opportunity to convert this Note and to earn a return from the sale of shares of Common Stock acquired upon conversion of this Note at a price in excess of the price paid for such shares pursuant to this Note.  The Borrower and the Holder hereby agree that such amount of stipulated damages is not plainly disproportionate to the possible loss to the Holder from the receipt of a cash payment without the opportunity to convert this Note into shares of Common Stock.
 
4.8           Purchase Agreement.  By its acceptance of this Note, each party agrees to be bound by the applicable terms of the Purchase Agreement.
 
4.9           Notice of Corporate Events.  Except as otherwise provided below, the Holder of this Note shall have no rights as a Holder of Common Stock unless and only to the extent that it converts this Note into Common Stock.  The Borrower shall provide the Holder with prior notification of any meeting of the Borrower’s shareholders (and copies of proxy materials and other information sent to shareholders).  In the event of any taking by the Borrower of a record of its shareholders for the purpose of determining shareholders who are entitled to receive payment of any dividend or other distribution, any right to subscribe for, purchase or otherwise acquire (including by way of merger, consolidation, reclassification or recapitalization) any share of any class or any other securities or property, or to receive any other right, or for the purpose of determining shareholders who are entitled to vote in connection with any proposed sale, lease or conveyance of all or substantially all of the assets of the Borrower or any proposed liquidation, dissolution or winding up of the Borrower, the Borrower shall mail a notice to the Holder, at least twenty (20) days prior to the record date specified therein (or thirty (30) days prior to the consummation of the transaction or event, whichever is earlier), of the date on which any such record is to be taken for the purpose of such dividend, distribution, right or other event, and a brief statement regarding the amount and character of such dividend, distribution, right or other event to the extent known at such time.  The Borrower shall make a public announcement of any event requiring notification to the Holder hereunder substantially simultaneously with the notification to the Holder in accordance with the terms of this Section 4.9.
 
 
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4.10           Remedies.  The Borrower acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Holder, by vitiating the intent and purpose of the transaction contemplated hereby.  Accordingly, the Borrower acknowledges that the remedy at law for a breach of its obligations under this Note will be inadequate and agrees, in the event of a breach or threatened breach by the Borrower of the provisions of this Note, that the Holder shall be entitled, in addition to all other available remedies at law or in equity, and in addition to the penalties assessable herein, to an injunction or injunctions restraining, preventing or curing any breach of this Note and to enforce specifically the terms and provisions thereof, without the necessity of showing economic loss and without any bond or other security being required.
 
IN WITNESS WHEREOF, Borrower has caused this Note to be signed in its name by its duly authorized officer this January 20, 2012.
 
 
OSL HOLDINGS INC. f/k/a RED ROCK PICTURES HOLDINGS INC.
       
 
By:
/s/  
   
ERIC KOTCH
 
    Chief Financial Officer  

 
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EXHIBIT A
NOTICE OF CONVERSION
 
The undersigned hereby elects to convert $______________ principal amount of the Note (defined below) into that number of shares of Common Stock to be issued pursuant to the conversion of the Note (“Common Stock”) as set forth below, of OSL HOLDINGS INC. f/k/a RED ROCK PICTURES HOLDINGS INC., a Nevada corporation (the “Borrower”) according to the conditions of the convertible note of the Borrower dated as of January 20, 2012 (the “Note”), as of the date written below.  No fee will be charged to the Holder for any conversion, except for transfer taxes, if any.
 
Box Checked as to applicable instructions:
 
o
The Borrower shall electronically transmit the Common Stock issuable pursuant to this Notice of Conversion to the account of the undersigned or its nominee with DTC through its Deposit Withdrawal Agent Commission system (“DWAC Transfer”).
   
 
Name of DTC Prime Broker:  Account Number:
   
o
The undersigned hereby requests that the Borrower issue a certificate or certificates for the number of shares of Common Stock set forth below (which numbers are based on the Holder’s calculation attached hereto) in the name(s) specified immediately below or, if additional space is necessary, on an attachment hereto:
   
 
ASHER ENTERPRISES, INC.
1 Linden Pl., Suite 207
Great Neck, NY  11021
Attention:  Certificate Delivery
(516) 498-9890
   
 
Date of Conversion:
_____________
 
Applicable Conversion Price:
$____________                              
 
Number of Shares of Common Stock to be Issued Pursuant to Conversion of the Notes:
_____________
 
Amount of Principal Balance Due remaining Under the Note after this conversion:
_____________
   
 
ASHER ENTERPRISES, INC.
By:___________________________
Name:  Curt Kramer
Title:  President
Date:  ______________
1 Linden Pl., Suite 207
Great Neck, NY  11021
 
 
 

EX-10.2 4 f10k2012ex10ii_oslholdings.htm CONVERTIBLE NOTE DATED JUNE 15, 2012 WITH ASHER ENTERPRISES f10k2012ex10ii_oslholdings.htm
Exhibit 10.2
 
NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE CONVERTIBLE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS.  THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL (WHICH COUNSEL SHALL BE SELECTED BY THE HOLDER), IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT.  NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.
 
Principal Amount:  $53,000.00
Issue Date:  June 15, 2012
Purchase Price:  $53,000.00
 
   
CONVERTIBLE PROMISSORY NOTE
 
FOR VALUE RECEIVED, OSL HOLDINGS INC. f/k/a RED ROCK PICTURES HOLDINGS INC., a Nevada corporation (hereinafter called the “Borrower”), hereby promises to pay to the order of ASHER ENTERPRISES, INC., a Delaware corporation, or registered assigns (the “Holder”) the sum of $53,000.00 together with any interest as set forth herein, on March 15, 2013 (the “Maturity Date”), and to pay interest on the unpaid principal balance hereof at the rate of eight percent (8%) (the “Interest Rate”) per annum from the date hereof (the “Issue Date”) until the same becomes due and payable, whether at maturity or upon acceleration or by prepayment or otherwise.  This Note may be prepaid in whole or in part as set forth herein.  Any amount of principal or interest on this Note which is not paid when due shall bear interest at the rate of twenty two percent (22%) per annum from the due date thereof until the same is paid (“Default Interest”).  Interest shall commence accruing on the date that the Note is fully paid (i.e. when the Note is fully funded by the Holder) and shall be computed on the basis of a 365-day year and the actual number of days elapsed.  All payments due hereunder (to the extent not converted into common stock, $0.001 par value per share (the “Common Stock”) in accordance with the terms hereof) shall be made in lawful money of the United States of America.  All payments shall be made at such address as the Holder shall hereafter give to the Borrower by written notice made in accordance with the provisions of this Note.  Whenever any amount expressed to be due by the terms of this Note is due on any day which is not a business day, the same shall instead be due on the next succeeding day which is a business day and, in the case of any interest payment date which is not the date on which this Note is paid in full, the extension of the due date thereof shall not be taken into account for purposes of determining the amount of interest due on such date.  As used in this Note, the term “business day” shall mean any day other than a Saturday, Sunday or a day on which commercial banks in the city of New York, New York are authorized or required by law or executive order to remain closed.  Each capitalized term used herein, and not otherwise defined, shall have the meaning ascribed thereto in that certain Securities Purchase Agreement dated the date hereof, pursuant to which this Note was originally issued (the “Purchase Agreement”).
 
 
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This Note is free from all taxes, liens, claims and encumbrances with respect to the issue thereof and shall not be subject to preemptive rights or other similar rights of shareholders of the Borrower and will not impose personal liability upon the holder thereof.
 
The following terms shall apply to this Note:
 
ARTICLE I.  CONVERSION RIGHTS
 
1.1           Conversion Right.  Conversion Right.  The Holder shall have the right at any time during the period beginning on the date which is one hundred eighty (180) days following the date of this Note and ending on the later of (i) the Maturity Date and (ii) the date of payment of the Default Amount (as defined in Article III) pursuant to Section 1.6(a) or Article III, each in respect of the remaining outstanding principal amount of this Note to convert all or any part of the outstanding and unpaid principal amount of this Note into fully paid and non- assessable shares of Common Stock, as such Common Stock exists on the Issue Date, or any shares of capital stock or other securities of the Borrower into which such Common Stock shall hereafter be changed or reclassified at the conversion price (the “Conversion Price”) determined as provided herein (a “Conversion”); provided, however, that in no event shall the Holder be entitled to convert any portion of this Note in excess of that portion of this Note upon conversion of which the sum of (1) the number of shares of Common Stock beneficially owned by the Holder and its affiliates (other than shares of Common Stock which may be deemed beneficially owned through the ownership of the unconverted portion of the Notes or the unexercised or unconverted portion of any other security of the Borrower subject to a limitation on conversion or exercise analogous to the limitations contained herein) and (2) the number of shares of Common Stock issuable upon the conversion of the portion of this Note with respect to which the determination of this proviso is being made, would result in beneficial ownership by the Holder and its affiliates of more than 4.99% of the outstanding shares of Common Stock.  For purposes of the proviso to the immediately preceding sentence, beneficial ownership shall be determined in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Regulations 13D-G thereunder, except as otherwise provided in clause (1) of such proviso, provided, further, however, that the limitations on conversion may be waived by the Holder upon, at the election of the Holder, not less than 61 days’ prior notice to the Borrower, and the provisions of the conversion limitation shall continue to apply until such 61st day (or such later date, as determined by the Holder, as may be specified in such notice of waiver).  The number of shares of Common Stock to be issued upon each conversion of this Note shall be determined by dividing the Conversion Amount (as defined below) by the applicable Conversion Price then in effect on the date specified in the notice of conversion, in the form attached hereto as Exhibit A (the “Notice of Conversion”), delivered to the Borrower by the Holder in accordance with Section 1.4 below; provided that the Notice of Conversion is submitted by facsimile or e-mail (or by other means resulting in, or reasonably expected to result in, notice) to the Borrower before 6:00 p.m., New York, New York time on such conversion date (the “Conversion Date”).  The term “Conversion Amount” means, with respect to any conversion of this Note, the sum of (1) the principal amount of this Note to be converted in such conversion plus (2) at the Holder’s option, accrued and unpaid interest, if any, on such principal amount at the interest rates provided in this Note to the Conversion Date, plus (3) at the Holder’s option, Default Interest, if any, on the amounts referred to in the immediately preceding clauses (1) and/or (2) plus (4) at the Holder’s option, any amounts owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof.
 
 
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1.2           Conversion Price.
 
(a)           Calculation of Conversion Price.  The conversion price (the “Conversion Price”) shall equal the Variable Conversion Price (as defined herein) (subject to equitable adjustments for stock splits, stock dividends or rights offerings by the Borrower relating to the Borrower’s securities or the securities of any subsidiary of the Borrower, combinations, recapitalization, reclassifications, extraordinary distributions and similar events).  The "Variable Conversion Price" shall mean 51% multiplied by the Market Price (as defined herein) (representing a discount rate of 49%).  “Market Price” means the average of the lowest three (3) Trading Prices (as defined below) for the Common Stock during the ten (10) Trading Day period ending on the latest complete Trading Day prior to the Conversion Date.  “Trading Price” means, for any security as of any date, the closing bid price on the Over-the-Counter Bulletin Board, or applicable trading market (the “OTCBB”) as reported by a reliable reporting service (“Reporting Service”) mutually acceptable to Borrower and Holder (i.e. Bloomberg) or, if the OTCBB is not the principal trading market for such security, the closing bid price of such security on the principal securities exchange or trading market where such security is listed or traded or, if no closing bid price of such security is available in any of the foregoing manners, the average of the closing bid prices of any market makers for such security that are listed in the “pink sheets” by the National Quotation Bureau, Inc.  If the Trading Price cannot be calculated for such security on such date in the manner provided above, the Trading Price shall be the fair market value as mutually determined by the Borrower and the holders of a majority in interest of the Notes being converted for which the calculation of the Trading Price is required in order to determine the Conversion Price of such Notes.  “Trading Day” shall mean any day on which the Common Stock is tradable for any period on the OTCBB, or on the principal securities exchange or other securities market on which the Common Stock is then being traded.
 
(b)           Conversion Price During Major Announcements.  Notwithstanding anything contained in Section 1.2(a) to the contrary, in the event the Borrower (i) makes a public announcement that it intends to consolidate or merge with any other corporation (other than a merger in which the Borrower is the surviving or continuing corporation and its capital stock is unchanged) or sell or transfer all or substantially all of the assets of the Borrower or (ii) any person, group or entity (including the Borrower) publicly announces a tender offer to purchase 50% or more of the Borrower’s Common Stock (or any other takeover scheme) (the date of the announcement referred to in clause (i) or (ii) is hereinafter referred to as the “Announcement Date”), then the Conversion Price shall, effective upon the Announcement Date and continuing through the Adjusted Conversion Price Termination Date (as defined below), be equal to the lower of (x) the Conversion Price which would have been applicable for a Conversion occurring on the Announcement Date and (y) the Conversion Price that would otherwise be in effect.  From and after the Adjusted Conversion Price Termination Date, the Conversion Price shall be determined as set forth in this Section 1.2(a).  For purposes hereof, “Adjusted Conversion Price Termination Date” shall mean, with respect to any proposed transaction or tender offer (or takeover scheme) for which a public announcement as contemplated by this Section 1.2(b) has been made, the date upon which the Borrower (in the case of clause (i) above) or the person, group or entity (in the case of clause (ii) above) consummates or publicly announces the termination or abandonment of the proposed transaction or tender offer (or takeover scheme) which caused this Section 1.2(b) to become operative.
 
 
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1.3           Authorized Shares.  The Borrower covenants that during the period the conversion right exists, the Borrower will reserve from its authorized and unissued Common Stock a sufficient number of shares, free from preemptive rights, to provide for the issuance of Common Stock upon the full conversion of this Note issued pursuant to the Purchase Agreement.  The Borrower is required at all times to have authorized and reserved four times the number of shares that is actually issuable upon full conversion of the Note (based on the Conversion Price of the Notes in effect from time to time) (the “Reserved Amount”).  The Reserved Amount shall be increased from time to time in accordance with the Borrower’s obligations pursuant to Section 4(g) of the Purchase Agreement.  The Borrower represents that upon issuance, such shares will be duly and validly issued, fully paid and non-assessable.  In addition, if the Borrower shall issue any securities or make any change to its capital structure which would change the number of shares of Common Stock into which the Notes shall be convertible at the then current Conversion Price, the Borrower shall at the same time make proper provision so that thereafter there shall be a sufficient number of shares of Common Stock authorized and reserved, free from preemptive rights, for conversion of the outstanding Notes.  The Borrower (i) acknowledges that it has irrevocably instructed its transfer agent to issue certificates for the Common Stock issuable upon conversion of this Note, and (ii) agrees that its issuance of this Note shall constitute full authority to its officers and agents who are charged with the duty of executing stock certificates to execute and issue the necessary certificates for shares of Common Stock in accordance with the terms and conditions of this Note.
 
If, at any time the Borrower does not maintain the Reserved Amount it will be considered an Event of Default under Section 3.2 of the Note.
 
1.4           Method of Conversion.
 
(a)           Mechanics of Conversion.  Subject to Section 1.1, this Note may be converted by the Holder in whole or in part at any time from time to time as set forth above, by (A) submitting to the Borrower a Notice of Conversion (by facsimile, e-mail or other reasonable means of communication dispatched on the Conversion Date prior to 5:00 p.m., New York, New York time) and (B) subject to Section 1.4(b), surrendering this Note at the principal office of the Borrower.
 
(b)           Surrender of Note Upon Conversion.  Notwithstanding anything to the contrary set forth herein, upon conversion of this Note in accordance with the terms hereof, the Holder shall not be required to physically surrender this Note to the Borrower unless the entire unpaid principal amount of this Note is so converted.  The Holder and the Borrower shall maintain records showing the principal amount so converted and the dates of such conversions or shall use such other method, reasonably satisfactory to the Holder and the Borrower, so as not to require physical surrender of this Note upon each such conversion.  In the event of any dispute or discrepancy, such records of the Borrower shall, prima facie, be controlling and determinative in the absence of manifest error.  Notwithstanding the foregoing, if any portion of this Note is converted as aforesaid, the Holder may not transfer this Note unless the Holder first physically surrenders this Note to the Borrower, whereupon the Borrower will forthwith issue and deliver upon the order of the Holder a new Note of like tenor, registered as the Holder (upon payment by the Holder of any applicable transfer taxes) may request, representing in the aggregate the remaining unpaid principal amount of this Note.  The Holder and any assignee, by acceptance of this Note, acknowledge and agree that, by reason of the provisions of this paragraph, following conversion of a portion of this Note, the unpaid and unconverted principal amount of this Note represented by this Note may be less than the amount stated on the face hereof.
 
 
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(c)           Payment of Taxes.  The Borrower shall not be required to pay any tax which may be payable in respect of any transfer involved in the issue and delivery of shares of Common Stock or other securities or property on conversion of this Note in a name other than that of the Holder (or in street name), and the Borrower shall not be required to issue or deliver any such shares or other securities or property unless and until the person or persons (other than the Holder or the custodian in whose street name such shares are to be held for the Holder’s account) requesting the issuance thereof shall have paid to the Borrower the amount of any such tax or shall have established to the satisfaction of the Borrower that such tax has been paid.
 
(d)           Delivery of Common Stock Upon Conversion.  Upon receipt by the Borrower from the Holder of a facsimile transmission or e-mail (or other reasonable means of communication) of a Notice of Conversion meeting the requirements for conversion as provided in this Section 1.4, the Borrower shall issue and deliver or cause to be issued and delivered to or upon the order of the Holder certificates for the Common Stock issuable upon such conversion within three (3) business days after such receipt (the “Deadline”) (and, solely in the case of conversion of the entire unpaid principal amount hereof, surrender of this Note) in accordance with the terms hereof and the Purchase Agreement.
 
(e)           Obligation of Borrower to Deliver Common Stock.  Upon receipt by the Borrower of a Notice of Conversion, the Holder shall be deemed to be the holder of record of the Common Stock issuable upon such conversion, the outstanding principal amount and the amount of accrued and unpaid interest on this Note shall be reduced to reflect such conversion, and, unless the Borrower defaults on its obligations under this Article I, all rights with respect to the portion of this Note being so converted shall forthwith terminate except the right to receive the Common Stock or other securities, cash or other assets, as herein provided, on such conversion.  If the Holder shall have given a Notice of Conversion as provided herein, the Borrower’s obligation to issue and deliver the certificates for Common Stock shall be absolute and unconditional, irrespective of the absence of any action by the Holder to enforce the same, any waiver or consent with respect to any provision thereof, the recovery of any judgment against any person or any action to enforce the same, any failure or delay in the enforcement of any other obligation of the Borrower to the holder of record, or any setoff, counterclaim, recoupment, limitation or termination, or any breach or alleged breach by the Holder of any obligation to the Borrower, and irrespective of any other circumstance which might otherwise limit such obligation of the Borrower to the Holder in connection with such conversion.  The Conversion Date specified in the Notice of Conversion shall be the Conversion Date so long as the Notice of Conversion is received by the Borrower before 5:00 p.m., New York, New York time, on such date.
 
 
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(f)           Delivery of Common Stock by Electronic Transfer.  In lieu of delivering physical certificates representing the Common Stock issuable upon conversion, provided the Borrower is participating in the Depository Trust Company (“DTC”) Fast Automated Securities Transfer (“FAST”) program, upon request of the Holder and its compliance with the provisions contained in Section 1.1 and in this Section 1.4, the Borrower will use its commercially reasonable best efforts to cause its transfer agent to electronically transmit the Common Stock issuable upon conversion to the Holder by crediting the account of Holder’s Prime Broker with DTC through its Deposit Withdrawal Agent Commission (“DWAC”) system.
 
(g)           Failure to Deliver Common Stock Prior to Delivery Deadline.  Without in any way limiting the Holder’s right to pursue other remedies, including actual damages and/or equitable relief, the parties agree that if delivery of the Common Stock issuable upon conversion of this Note is not delivered by the Deadline (other than a failure due to the circumstances described in Section 1.3 above, which failure shall be governed by such Section) the Borrower shall pay to the Holder $1,000 per day in cash, for each day beyond the Deadline that the Borrower fails to deliver such Common Stock.  Such cash amount shall be paid to Holder by the fifth day of the month following the month in which it has accrued or, at the option of the Holder (by written notice to the Borrower by the first day of the month following the month in which it has accrued), shall be added to the principal amount of this Note, in which event interest shall accrue thereon in accordance with the terms of this Note and such additional principal amount shall be convertible into Common Stock in accordance with the terms of this Note.  The Borrower agrees that the right to convert is a valuable right to the Holder.  The damages resulting from a failure, attempt to frustrate, interference with such conversion right are difficult if not impossible to qualify.  Accordingly the parties acknowledge that the liquidated damages provision contained in this Section 1.4(g) are justified.
 
1.5           Concerning the Shares.  The shares of Common Stock issuable upon conversion of this Note may not be sold or transferred unless (i) such shares are sold pursuant to an effective registration statement under the Act or (ii) the Borrower or its transfer agent shall have been furnished with an opinion of investor’s counsel (which opinion shall be in form, substance and scope customary for opinions of counsel in comparable transactions) to the effect that the shares to be sold or transferred may be sold or transferred pursuant to an exemption from such registration or (iii) such shares are sold or transferred pursuant to Rule 144 under the Act (or a successor rule) (“Rule 144”) or (iv) such shares are transferred to an “affiliate” (as defined in Rule 144) of the Borrower who agrees to sell or otherwise transfer the shares only in accordance with this Section 1.5 and who is an Accredited Investor (as defined in the Purchase Agreement).  Except as otherwise provided in the Purchase Agreement (and subject to the removal provisions set forth below), until such time as the shares of Common Stock issuable upon conversion of this Note have been registered under the Act or otherwise may be sold pursuant to Rule 144 without any restriction as to the number of securities as of a particular date that can then be immediately sold, each certificate for shares of Common Stock issuable upon conversion of this Note that has not been so included in an effective registration statement or that has not been sold pursuant to an effective registration statement or an exemption that permits removal of the legend, shall bear a legend substantially in the following form, as appropriate:
 
“NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE EXERCISABLE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS.  THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL (WHICH COUNSEL SHALL BE SELECTED BY THE HOLDER), IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT.  NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.”
 
 
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The legend set forth above shall be removed and the Borrower shall issue to the Holder a new certificate therefore free of any transfer legend if (i) the Borrower or its transfer agent shall have received an opinion of counsel, in form, substance and scope customary for opinions of counsel in comparable transactions, to the effect that a public sale or transfer of such Common Stock may be made without registration under the Act, which opinion shall be accepted by the Company so that the sale or transfer is effected or (ii) in the case of the Common Stock issuable upon conversion of this Note, such security is registered for sale by the Holder under an effective registration statement filed under the Act or otherwise may be sold pursuant to Rule 144 without any restriction as to the number of securities as of a particular date that can then be immediately sold.  In the event that the Company does not accept the opinion of counsel provided by the Buyer with respect to the transfer of Securities pursuant to an exemption from registration, such as Rule 144 or Regulation S, at the Deadline, it will be considered an Event of Default pursuant to Section 3.2 of the Note.
 
1.6           Effect of Certain Events.
 
(a)           Effect of Merger, Consolidation, Etc.  At the option of the Holder, the sale, conveyance or disposition of all or substantially all of the assets of the Borrower, the effectuation by the Borrower of a transaction or series of related transactions in which more than 50% of the voting power of the Borrower is disposed of, or the consolidation, merger or other business combination of the Borrower with or into any other Person (as defined below) or Persons when the Borrower is not the survivor shall be treated pursuant to Section 1.6(b) hereof.  “Person” shall mean any individual, corporation, limited liability company, partnership, association, trust or other entity or organization.
 
(b)           Adjustment Due to Merger, Consolidation, Etc.  If, at any time when this Note is issued and outstanding and prior to conversion of all of the Notes, there shall be any merger, consolidation, exchange of shares, recapitalization, reorganization, or other similar event, as a result of which shares of Common Stock of the Borrower shall be changed into the same or a different number of shares of another class or classes of stock or securities of the Borrower or another entity, or in case of any sale or conveyance of all or substantially all of the assets of the Borrower other than in connection with a plan of complete liquidation of the Borrower, then the Holder of this Note shall thereafter have the right to receive upon conversion of this Note, upon the basis and upon the terms and conditions specified herein and in lieu of the shares of Common Stock immediately theretofore issuable upon conversion, such stock, securities or assets which the Holder would have been entitled to receive in such transaction had this Note been converted in full immediately prior to such transaction (without regard to any limitations on conversion set forth herein), and in any such case appropriate provisions shall be made with respect to the rights and interests of the Holder of this Note to the end that the provisions hereof (including, without limitation, provisions for adjustment of the Conversion Price and of the number of shares issuable upon conversion of the Note) shall thereafter be applicable, as nearly as may be practicable in relation to any securities or assets thereafter deliverable upon the conversion hereof.  The Borrower shall not affect any transaction described in this Section 1.6(b) unless (a) it first gives, to the extent practicable, thirty (30) days prior written notice (but in any event at least fifteen (15) days prior written notice) of the record date of the special meeting of shareholders to approve, or if there is no such record date, the consummation of, such merger, consolidation, exchange of shares, recapitalization, reorganization or other similar event or sale of assets (during which time the Holder shall be entitled to convert this Note) and (b) the resulting successor or acquiring entity (if not the Borrower) assumes by written instrument the obligations of this Section 1.6(b).  The above provisions shall similarly apply to successive consolidations, mergers, sales, transfers or share exchanges.
 
 
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(c)           Adjustment Due to Distribution.  If the Borrower shall declare or make any distribution of its assets (or rights to acquire its assets) to holders of Common Stock as a dividend, stock repurchase, by way of return of capital or otherwise (including any dividend or distribution to the Borrower’s shareholders in cash or shares (or rights to acquire shares) of capital stock of a subsidiary (i.e., a spin-off)) (a “Distribution”), then the Holder of this Note shall be entitled, upon any conversion of this Note after the date of record for determining shareholders entitled to such Distribution, to receive the amount of such assets which would have been payable to the Holder with respect to the shares of Common Stock issuable upon such conversion had such Holder been the holder of such shares of Common Stock on the record date for the determination of shareholders entitled to such Distribution.
 
(d)           Adjustment Due to Dilutive Issuance.  If, at any time when any Notes are issued and outstanding, the Borrower issues or sells, or in accordance with this Section 1.6(d) hereof is deemed to have issued or sold, except for shares of Common Stock issued directly to vendors or suppliers of the Company in satisfaction of amounts owed to such vendors or suppliers (provided, however, that such vendors or suppliers shall not have an arrangement to transfer, sell or assign such shares of Common Stock prior to the issuance of such shares), any shares of Common Stock for no consideration or for a consideration per share (before deduction of reasonable expenses or commissions or underwriting discounts or allowances in connection therewith) less than the Conversion Price in effect on the date of such issuance (or deemed issuance) of such shares of Common Stock (a “Dilutive Issuance”), then immediately upon the Dilutive Issuance, the Conversion Price will be reduced to the amount of the consideration per share received by the Borrower in such Dilutive Issuance.
 
 
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The Borrower shall be deemed to have issued or sold shares of Common Stock if the Borrower in any manner issues or grants any warrants, rights or options (not including employee stock option plans), whether or not immediately exercisable, to subscribe for or to purchase Common Stock or other securities convertible into or exchangeable for Common Stock (“Convertible Securities”) (such warrants, rights and options to purchase Common Stock or Convertible Securities are hereinafter referred to as “Options”) and the price per share for which Common Stock is issuable upon the exercise of such Options is less than the Conversion Price then in effect, then the Conversion Price shall be equal to such price per share.  For purposes of the preceding sentence, the “price per share for which Common Stock is issuable upon the exercise of such Options” is determined by dividing (i) the total amount, if any, received or receivable by the Borrower as consideration for the issuance or granting of all such Options, plus the minimum aggregate amount of additional consideration, if any, payable to the Borrower upon the exercise of all such Options, plus, in the case of Convertible Securities issuable upon the exercise of such Options, the minimum aggregate amount of additional consideration payable upon the conversion or exchange thereof at the time such Convertible Securities first become convertible or exchangeable, by (ii) the maximum total number of shares of Common Stock issuable upon the exercise of all such Options (assuming full conversion of Convertible Securities, if applicable).  No further adjustment to the Conversion Price will be made upon the actual issuance of such Common Stock upon the exercise of such Options or upon the conversion or exchange of Convertible Securities issuable upon exercise of such Options.
 
Additionally, the Borrower shall be deemed to have issued or sold shares of Common Stock if the Borrower in any manner issues or sells any Convertible Securities, whether or not immediately convertible (other than where the same are issuable upon the exercise of Options), and the price per share for which Common Stock is issuable upon such conversion or exchange is less than the Conversion Price then in effect, then the Conversion Price shall be equal to such price per share.  For the purposes of the preceding sentence, the “price per share for which Common Stock is issuable upon such conversion or exchange” is determined by dividing (i) the total amount, if any, received or receivable by the Borrower as consideration for the issuance or sale of all such Convertible Securities, plus the minimum aggregate amount of additional consideration, if any, payable to the Borrower upon the conversion or exchange thereof at the time such Convertible Securities first become convertible or exchangeable, by (ii) the maximum total number of shares of Common Stock issuable upon the conversion or exchange of all such Convertible Securities.  No further adjustment to the Conversion Price will be made upon the actual issuance of such Common Stock upon conversion or exchange of such Convertible Securities.  The following will not be considered Dilutive Issuances:  (i) any issuance in relation to a convertible debenture that is in excess of $100,000.00; (ii) any issuances presently or in the future made with regards to conversion by the holder of the Emerald Asset Advisors Note and/or the holder of the Crisnic Fund Note and (iii) any shares of Common Stock offered to employees or consultants for services renders shall also not be considered a Dilutive Issuance.
 
(e)           Purchase Rights.  If, at any time when any Notes are issued and outstanding, the Borrower issues any convertible securities or rights to purchase stock, warrants, securities or other property (the “Purchase Rights”) pro rata to the record holders of any class of Common Stock, then the Holder of this Note will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which such Holder could have acquired if such Holder had held the number of shares of Common Stock acquirable upon complete conversion of this Note (without regard to any limitations on conversion contained herein) immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights or, if no such record is taken, the date as of which the record holders of Common Stock are to be determined for the grant, issue or sale of such Purchase Rights.
 
 
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(f)           Notice of Adjustments.  Upon the occurrence of each adjustment or readjustment of the Conversion Price as a result of the events described in this Section 1.6, the Borrower, at its expense, shall promptly compute such adjustment or readjustment and prepare and furnish to the Holder a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based.  The Borrower shall, upon the written request at any time of the Holder, furnish to such Holder a like certificate setting forth (i) such adjustment or readjustment, (ii) the Conversion Price at the time in effect and (iii) the number of shares of Common Stock and the amount, if any, of other securities or property which at the time would be received upon conversion of the Note.
 
1.7           Trading Market Limitations.  Unless permitted by the applicable rules and regulations of the principal securities market on which the Common Stock is then listed or traded, in no event shall the Borrower issue upon conversion of or otherwise pursuant to this Note and the other Notes issued pursuant to the Purchase Agreement more than the maximum number of shares of Common Stock that the Borrower can issue pursuant to any rule of the principal United States securities market on which the Common Stock is then traded (the “Maximum Share Amount”), which shall be 4.99% of the total shares outstanding on the Closing Date (as defined in the Purchase Agreement), subject to equitable adjustment from time to time for stock splits, stock dividends, combinations, capital reorganizations and similar events relating to the Common Stock occurring after the date hereof.  Once the Maximum Share Amount has been issued, if the Borrower fails to eliminate any prohibitions under applicable law or the rules or regulations of any stock exchange, interdealer quotation system or other self-regulatory organization with jurisdiction over the Borrower or any of its securities on the Borrower’s ability to issue shares of Common Stock in excess of the Maximum Share Amount, in lieu of any further right to convert this Note, this will be considered an Event of Default under Section 3.3 of the Note.
 
1.8           Status as Shareholder.  Upon submission of a Notice of Conversion by a Holder, (i) the shares covered thereby (other than the shares, if any, which cannot be issued because their issuance would exceed such Holder’s allocated portion of the Reserved Amount or Maximum Share Amount) shall be deemed converted into shares of Common Stock and (ii) the Holder’s rights as a Holder of such converted portion of this Note shall cease and terminate, excepting only the right to receive certificates for such shares of Common Stock and to any remedies provided herein or otherwise available at law or in equity to such Holder because of a failure by the Borrower to comply with the terms of this Note.  Notwithstanding the foregoing, if a Holder has not received certificates for all shares of Common Stock prior to the tenth (10th) business day after the expiration of the Deadline with respect to a conversion of any portion of this Note for any reason, then (unless the Holder otherwise elects to retain its status as a holder of Common Stock by so notifying the Borrower) the Holder shall regain the rights of a Holder of this Note with respect to such unconverted portions of this Note and the Borrower shall, as soon as practicable, return such unconverted Note to the Holder or, if the Note has not been surrendered, adjust its records to reflect that such portion of this Note has not been converted.  In all cases, the Holder shall retain all of its rights and remedies (including, without limitation, (i) the right to receive Conversion Default Payments pursuant to Section 1.3 to the extent required thereby for such Conversion Default and any subsequent Conversion Default and (ii) the right to have the Conversion Price with respect to subsequent conversions determined in accordance with Section 1.3) for the Borrower’s failure to convert this Note.
 
 
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1.9           Prepayment.  Notwithstanding anything to the contrary contained in this Note, at any time during the period beginning on the Issue Date and ending on the date which is sixty (60) days following the issue date, the Borrower shall have the right, exercisable on not less than three (3) Trading Days prior written notice to the Holder of the Note to prepay the outstanding Note (principal and accrued interest), in full, in accordance with this Section 1.9.  Any notice of prepayment hereunder (an “Optional Prepayment Notice”) shall be delivered to the Holder of the Note at its registered addresses and shall state:  (1) that the Borrower is exercising its right to prepay the Note, and (2) the date of prepayment which shall be not more than three (3) Trading Days from the date of the Optional Prepayment Notice.  On the date fixed for prepayment (the “Optional Prepayment Date”), the Borrower shall make payment of the Optional Prepayment Amount (as defined below) to or upon the order of the Holder as specified by the Holder in writing to the Borrower at least one (1) business day prior to the Optional Prepayment Date.  If the Borrower exercises its right to prepay the Note, the Borrower shall make payment to the Holder of an amount in cash (the “Optional Prepayment Amount”) equal to 130%, multiplied by the sum of:  (w) the then outstanding principal amount of this Note plus (x) accrued and unpaid interest on the unpaid principal amount of this Note to the Optional Prepayment Date plus (y) Default Interest, if any, on the amounts referred to in clauses (w) and (x) plus (z) any amounts owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof.  If the Borrower delivers an Optional Prepayment Notice and fails to pay the Optional Prepayment Amount due to the Holder of the Note within two (2) business days following the Optional Prepayment Date, the Borrower shall forever forfeit its right to prepay the Note pursuant to this Section 1.9.
 
Notwithstanding anything to the contrary contained in this Note, at any time during the period beginning on the date which is sixty-one (61) days following the issue date and ending on the date which is one hundred twenty (120) days following the issue date, the Borrower shall have the right, exercisable on not less than three (3) Trading Days prior written notice to the Holder of the Note to prepay the outstanding Note (principal and accrued interest), in full, in accordance with this Section 1.9.  Any Optional Prepayment Notice shall be delivered to the Holder of the Note at its registered addresses and shall state:  (1) that the Borrower is exercising its right to prepay the Note, and (2) the date of prepayment which shall be not more than three (3) Trading Days from the date of the Optional Prepayment Notice.  On the Optional Prepayment Date, the Borrower shall make payment of the Second Optional Prepayment Amount (as defined below) to or upon the order of the Holder as specified by the Holder in writing to the Borrower at least one (1) business day prior to the Optional Prepayment Date.  If the Borrower exercises its right to prepay the Note, the Borrower shall make payment to the Holder of an amount in cash (the “Second Optional Prepayment Amount”) equal to 135%, multiplied by the sum of:  (w) the then outstanding principal amount of this Note plus (x) accrued and unpaid interest on the unpaid principal amount of this Note to the Optional Prepayment Date plus (y) Default Interest, if any, on the amounts referred to in clauses (w) and (x) plus (z) any amounts owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof.  If the Borrower delivers an Optional Prepayment Notice and fails to pay the Second Optional Prepayment Amount due to the Holder of the Note within two (2) business days following the Optional Prepayment Date, the Borrower shall forever forfeit its right to prepay the Note pursuant to this Section 1.9.
 
 
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Notwithstanding anything to the contrary contained in this Note, at any time during the period beginning on the date which is one hundred twenty-one (121) days following the issue date and ending on the date which is one hundred fifty (150) days following the issue date, the Borrower shall have the right, exercisable on not less than three (3) Trading Days prior written notice to the Holder of the Note to prepay the outstanding Note (principal and accrued interest), in full, in accordance with this Section 1.9.  Any Optional Prepayment Notice shall be delivered to the Holder of the Note at its registered addresses and shall state:  (1) that the Borrower is exercising its right to prepay the Note, and (2) the date of prepayment which shall be not more than three (3) Trading Days from the date of the Optional Prepayment Notice.  On the Optional Prepayment Date, the Borrower shall make payment of the Third Optional Prepayment Amount (as defined below) to or upon the order of the Holder as specified by the Holder in writing to the Borrower at least one (1) business day prior to the Optional Prepayment Date.  If the Borrower exercises its right to prepay the Note, the Borrower shall make payment to the Holder of an amount in cash (the “Third Optional Prepayment Amount”) equal to 140%, multiplied by the sum of:  (w) the then outstanding principal amount of this Note plus (x) accrued and unpaid interest on the unpaid principal amount of this Note to the Optional Prepayment Date plus (y) Default Interest, if any, on the amounts referred to in clauses (w) and (x) plus (z) any amounts owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof.  If the Borrower delivers an Optional Prepayment Notice and fails to pay the Third Optional Prepayment Amount due to the Holder of the Note within two (2) business days following the Optional Prepayment Date, the Borrower shall forever forfeit its right to prepay the Note pursuant to this Section 1.9.
 
Notwithstanding any to the contrary stated elsewhere herein, at any time during the period beginning on the date that is one hundred fifty-one (151) day from the issue date and ending one hundred eighty (180) days following the issue date, the Borrower shall have the right, exercisable on not less than three (3) Trading Days prior written notice to the Holder of the Note to prepay the outstanding Note (principal and accrued interest), in full, in accordance with this Section 1.9.  Any Optional Prepayment Notice shall be delivered to the Holder of the Note at its registered addresses and shall state:  (1) that the Borrower is exercising its right to prepay the Note, and (2) the date of prepayment which shall be not more than three (3) Trading Days from the date of the Optional Prepayment Notice.  On the Optional Prepayment Date, the Borrower shall make payment of the Fourth Optional Prepayment Amount (as defined below) to or upon the order of the Holder as specified by the Holder in writing to the Borrower at least one (1) business day prior to the Optional Prepayment Date.  If the Borrower exercises its right to prepay the Note, the Borrower shall make payment to the Holder of an amount in cash (the “Fourth Optional Prepayment Amount”) equal to 150%, multiplied by the sum of:  (w) the then outstanding principal amount of this Note plus (x) accrued and unpaid interest on the unpaid principal amount of this Note to the Optional Prepayment Date plus (y) Default Interest, if any, on the amounts referred to in clauses (w) and (x) plus (z) any amounts owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof.  If the Borrower delivers an Optional Prepayment Notice and fails to pay the Fourth Optional Prepayment Amount due to the Holder of the Note within two (2) business days following the Optional Prepayment Date, the Borrower shall forever forfeit its right to prepay the Note pursuant to this Section 1.9.
 
 
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After the expiration of one hundred eighty (180) following the date of the Note, the Borrower shall have no right of prepayment.
 
ARTICLE II.  CERTAIN COVENANTS
 
2.1           Distributions on Capital Stock.  So long as the Borrower shall have any obligation under this Note, the Borrower shall not without the Holder’s written consent (a) pay, declare or set apart for such payment, any dividend or other distribution (whether in cash, property or other securities) on shares of capital stock other than dividends on shares of Common Stock solely in the form of additional shares of Common Stock or (b) directly or indirectly or through any subsidiary make any other payment or distribution in respect of its capital stock except for distributions pursuant to any shareholders’ rights plan which is approved by a majority of the Borrower’s disinterested directors.
 
2.2           Restriction on Stock Repurchases.  So long as the Borrower shall have any obligation under this Note, the Borrower shall not without the Holder’s written consent redeem, repurchase or otherwise acquire (whether for cash or in exchange for property or other securities or otherwise) in any one transaction or series of related transactions any shares of capital stock of the Borrower or any warrants, rights or options to purchase or acquire any such shares.
 
2.3           Borrowings.  So long as the Borrower shall have any obligation under this Note, the Borrower shall not, without the Holder’s written consent, (a) create, incur, assume guarantee, endorse, contingently agree to purchase or otherwise become liable upon the obligation of any other person, firm, partnership, joint venture or corporation, except by the endorsement of negotiable instruments for deposit or collection, or (b) suffer to exist any liability for borrowed money, except any borrowings that does not render the Borrower a "Shell" company as defined in Rule 12b-2 under the Securities Exchange Act of 1934.
 
2.4           Sale of Assets.  So long as the Borrower shall have any obligation under this Note, the Borrower shall not, without the Holder’s written consent, sell, lease or otherwise dispose of any significant portion of its assets outside the ordinary course of business.  Any consent to the disposition of any assets may be conditioned on a specified use of the proceeds of disposition.
 
2.5           Advances and Loans.  So long as the Borrower shall have any obligation under this Note, the Borrower shall not, without the Holder’s written consent, lend money, give credit or make advances to any person, firm, joint venture or corporation, including, without limitation, officers, directors, employees, subsidiaries and affiliates of the Borrower, except loans, credits or advances (a) in existence or committed on the date hereof and which the Borrower has informed Holder in writing prior to the date hereof, (b) made in the ordinary course of business or (c) not in excess of $100,000.
 
 
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ARTICLE III.  EVENTS OF DEFAULT
 
If any of the following events of default (each, an “Event of Default”) shall occur:
 
3.1           Failure to Pay Principal or Interest.  The Borrower fails to pay the principal hereof or interest thereon when due on this Note, whether at maturity, upon acceleration or otherwise.
 
3.2           Conversion and the Shares.  The Borrower fails to issue shares of Common Stock to the Holder (or announces or threatens in writing that it will not honor its obligation to do so) upon exercise by the Holder of the conversion rights of the Holder in accordance with the terms of this Note, or the exercise of the Warrant in favor of the Holder, fails to transfer or cause its transfer agent to transfer (issue) (electronically or in certificated form) any certificate for shares of Common Stock issued to the Holder upon conversion of or otherwise pursuant to this Note as and when required by this Note (or the Warrant pursuant to the Warrant), the Borrower directs its transfer agent not to transfer or delays, impairs, and/or hinders its transfer agent in transferring (or issuing) (electronically or in certificated form) any certificate for shares of Common Stock to be issued to the Holder upon conversion of or otherwise pursuant to this Note as and when required by this Note (or the Warrant pursuant to the Warrant), or fails to remove (or directs its transfer agent not to remove or impairs, delays, and/or hinders its transfer agent from removing) any restrictive legend (or to withdraw any stop transfer instructions in respect thereof) on any certificate for any shares of Common Stock issued to the Holder upon conversion of or otherwise pursuant to this Note as and when required by this Note (or the Warrant pursuant to the Warrant)(or makes any written announcement, statement or threat that it does not intend to honor the obligations described in this paragraph) and any such failure shall continue uncured (or any written announcement, statement or threat not to honor its obligations shall not be rescinded in writing) for three (3) business days after the Holder shall have delivered a Notice of Conversion (or Exercise Notice pursuant to the Warrant).  It is an obligation of the Borrower to remain current in its obligations to its transfer agent.  It shall be an event of default of this Note, if a conversion of this Note is delayed, hindered or frustrated due to a balance owed by the Borrower to its transfer agent.  If at the option of the Holder, the Holder advances any funds to the Borrower’s transfer agent in order to process a conversion, such advanced funds shall be paid by the Borrower to the Holder within forty eight (48) hours of a demand from the Holder.
 
3.3           Breach of Covenants.  The Borrower breaches any material covenant or other material term or condition contained in this Note and any collateral documents including but not limited to the Purchase Agreement and such breach continues for a period of twenty (20) days after written notice thereof to the Borrower from the Holder.
 
3.4           Breach of Representations and Warranties.  Any representation or warranty of the Borrower made herein or in any agreement, written statement or certificate given in writing pursuant hereto or in connection herewith (including, without limitation, the Purchase Agreement), shall be false or misleading in any material respect when made and the breach of which has (or with the passage of time will have) a material adverse effect on the rights of the Holder with respect to this Note or the Purchase Agreement.
 
3.5           Receiver or Trustee.  The Borrower or any subsidiary of the Borrower shall make an assignment for the benefit of creditors, or apply for or consent to the appointment of a receiver or trustee for it or for a substantial part of its property or business, or such a receiver or trustee shall otherwise be appointed.
 
 
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3.6           Judgments.  Any money judgment, writ or similar process shall be entered or filed against the Borrower or any subsidiary of the Borrower or any of its property or other assets for more than $50,000, and shall remain unvacated, unbonded or unstayed for a period of twenty (20) business days unless otherwise consented to by the Holder, which consent will not be unreasonably withheld.
 
3.7           Bankruptcy.  Bankruptcy, insolvency, reorganization or liquidation proceedings or other proceedings, voluntary or involuntary, for relief under any bankruptcy law or any law for the relief of debtors shall be instituted by or against the Borrower or any subsidiary of the Borrower.
 
3.8           Delisting of Common Stock.  The Borrower shall fail to maintain the listing of the Common Stock on at least one of the OTCBB or an equivalent replacement exchange, the Nasdaq National Market, the Nasdaq SmallCap Market, the New York Stock Exchange, or the American Stock Exchange.
 
3.9           Failure to Comply with the Exchange Act.  The Borrower shall fail to comply with the reporting requirements of the Exchange Act; and/or immediately upon the Borrower ceasing to be subject to the reporting requirements of the Exchange Act; provided, however, that the Borrower shall have fifteen (15) days to cure any failure of the Borrower’s obligation pursuant to the Exchange Act to file a current report on Form 8-K.
 
3.10           Liquidation.  Any dissolution, liquidation, or winding up of Borrower or any substantial portion of its business.
 
3.11           Cessation of Operations.  Any cessation of operations by Borrower or Borrower admits it is otherwise generally unable to pay its debts as such debts become due, provided, however, that any disclosure of the Borrower’s ability to continue as a “going concern” shall not be an admission that the Borrower cannot pay its debts as they become due.
 
3.12           Maintenance of Assets.  The failure by Borrower to maintain any material intellectual property rights, personal, real property or other assets which are necessary to conduct its business (whether now or in the future).
 
3.13           Financial Statement Restatement.  The restatement of any financial statements filed by the Borrower with the SEC for any date or period from two years prior to the Issue Date of this Note and until this Note is no longer outstanding, if the result of such restatement would, by comparison to the unrestated financial statement, have constituted a material adverse effect on the rights of the Holder with respect to this Note or the Purchase Agreement.  For the avoidance of doubt, any restatement related to new accounting pronouncements, including without limitation, for derivative accounting shall not constitute a default under this Section 3.13.
 
3.14           Reverse Splits.  The Borrower effectuates a reverse split of its Common Stock without twenty (20) days prior written notice to the Holder.
 
3.15           Replacement of Transfer Agent.  In the event that the Borrower proposes to replace its transfer agent, the Borrower fails to provide, prior to the effective date of such replacement, a fully executed Irrevocable Transfer Agent Instructions in a form as initially delivered pursuant to the Purchase Agreement (including but not limited to the provision to irrevocably reserve shares of Common Stock in the Reserved Amount) signed by the successor transfer agent to Borrower and the Borrower.
 
 
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3.16           Cross-Default.  Notwithstanding anything to the contrary contained in this Note or the other related or companion documents, a breach or default by the Borrower of any covenant or other term or condition contained in any of the Other Agreements, after the passage of all applicable notice and cure or grace periods, shall, at the option of the Holder, be considered a default under this Note and the Other Agreements, in which event the Holder shall be entitled (but in no event required) to apply all rights and remedies of the Holder under the terms of this Note and the Other Agreements by reason of a default under said Other Agreement or hereunder.  “Other Agreements” means, collectively, all agreements and instruments between, among or by:  (1) the Borrower, and, or for the benefit of, (2) the Holder and any affiliate of the Holder, including, without limitation, promissory notes; provided, however, the term “Other Agreements” shall not include the related or companion documents to this Note.  Each of the loan transactions will be cross-defaulted with each other loan transaction and with all other existing and future debt of Borrower to the Holder.
 
Upon the occurrence and during the continuation of any Event of Default specified in Section 3.1 (solely with respect to failure to pay the principal hereof or interest thereon when due at the Maturity Date), the Note shall become immediately due and payable and the Borrower shall pay to the Holder, in full satisfaction of its obligations hereunder, an amount equal to the Default Sum (as defined herein).  UPON THE OCCURRENCE AND DURING THE CONTINUATION OF ANY EVENT OF DEFAULT SPECIFIED IN SECTION 3.2, THE NOTE SHALL BECOME IMMEDIATELY DUE AND PAYABLE AND THE BORROWER SHALL PAY TO THE HOLDER, IN FULL SATISFACTION OF ITS OBLIGATIONS HEREUNDER, AN AMOUNT EQUAL TO:  (Y) THE DEFAULT SUM (AS DEFINED HEREIN); MULTIPLIED BY (Z) TWO (2).  Upon the occurrence and during the continuation of any Event of Default specified in Sections 3.1 (solely with respect to failure to pay the principal hereof or interest thereon when due on this Note upon a Trading Market Prepayment Event pursuant to Section 1.7 or upon acceleration), 3.3, 3.4, 3.6, 3.8, 3.9, 3.11, 3.12, 3.13, 3.14, 3.15 and/or 3.16 exercisable through the delivery of written notice to the Borrower by such Holders (the “Default Notice”), and upon the occurrence of an Event of Default specified the remaining sections of Articles III (other than failure to pay the principal hereof or interest thereon at the Maturity Date specified in Section 3,1 hereof), the Note shall become immediately due and payable and the Borrower shall pay to the Holder, in full satisfaction of its obligations hereunder, an amount equal to the greater of (i) 150% times the sum of (w) the then outstanding principal amount of this Note plus (x) accrued and unpaid interest on the unpaid principal amount of this Note to the date of payment (the “Mandatory Prepayment Date”) plus (y) Default Interest, if any, on the amounts referred to in clauses (w) and/or (x) plus (z) any amounts owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof (the then outstanding principal amount of this Note to the date of payment plus the amounts referred to in clauses (x), (y) and (z) shall collectively be known as the “Default Sum”) or (ii) the “parity value” of the Default Sum to be prepaid, where parity value means (a) the highest number of shares of Common Stock issuable upon conversion of or otherwise pursuant to such Default Sum in accordance with Article I, treating the Trading Day immediately preceding the Mandatory Prepayment Date as the “Conversion Date” for purposes of determining the lowest applicable Conversion Price, unless the Default Event arises as a result of a breach in respect of a specific Conversion Date in which case such Conversion Date shall be the Conversion Date), multiplied by (b) the highest Closing Price for the Common Stock during the period beginning on the date of first occurrence of the Event of Default and ending one day prior to the Mandatory Prepayment Date (the “Default Amount”) and all other amounts payable hereunder shall immediately become due and payable, all without demand, presentment or notice, all of which hereby are expressly waived, together with all costs, including, without limitation, legal fees and expenses, of collection, and the Holder shall be entitled to exercise all other rights and remedies available at law or in equity.
 
 
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If the Borrower fails to pay the Default Amount within five (5) business days of written notice that such amount is due and payable, then the Holder shall have the right at any time, so long as the Borrower remains in default (and so long and to the extent that there are sufficient authorized shares), to require the Borrower, upon written notice, to immediately issue, in lieu of the Default Amount, the number of shares of Common Stock of the Borrower equal to the Default Amount divided by the Conversion Price then in effect.
 
ARTICLE IV.  MISCELLANEOUS
 
4.1           Failure or Indulgence Not Waiver.  No failure or delay on the part of the Holder in the exercise of any power, right or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other right, power or privileges.  All rights and remedies existing hereunder are cumulative to, and not exclusive of, any rights or remedies otherwise available.
 
4.2           Notices.  All notices, demands, requests, consents, approvals, and other communications required or permitted hereunder shall be in writing and, unless otherwise specified herein, shall be (i) personally served, (ii) deposited in the mail, registered or certified, return receipt requested, postage prepaid, (iii) delivered by reputable air courier service with charges prepaid, or (iv) transmitted by hand delivery, telegram, or facsimile, addressed as set forth below or to such other address as such party shall have specified most recently by written notice.  Any notice or other communication required or permitted to be given hereunder shall be deemed effective (a) upon hand delivery or delivery by facsimile, with accurate confirmation generated by the transmitting facsimile machine, at the address or number designated below (if delivered on a business day during normal business hours where such notice is to be received), or the first business day following such delivery (if delivered other than on a business day during normal business hours where such notice is to be received) or (b) on the second business day following the date of mailing by express courier service, fully prepaid, addressed to such address, or upon actual receipt of such mailing, whichever shall first occur.  The addresses for such communications shall be:
 
If to the Borrower, to:
OSL HOLDINGS INC. f/k/a RED ROCK PICTURES HOLDINGS INC.
60 Dutch Hill Road - Suite 15
Orangeburg, NY 10962
Attn:  ELI FEDER, Chief Executive Officer
facsimile:  [enter fax number]
 
 
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With a copy by fax only to (which copy shall not constitute notice):
Anslow & Jaclin, LLP
195 Route 9 South – Suite 204
Manalapan, New Jersey 07726
732-499-1212
732-577-1188
 
If to the Holder:
ASHER ENTERPRISES, INC.
1 Linden Pl., Suite 207
Great Neck, NY  11021
Attn:  Curt Kramer, President
facsimile:  516-498-9894
 
With a copy by fax only to (which copy shall not constitute notice):
Naidich Wurman Birnbaum & Maday LLP
80 Cuttermill Road, Suite 410
Great Neck, NY 11021
Attn:  Bernard S. Feldman, Esq.
facsimile:  516-466-3555

4.3           Amendments.  This Note and any provision hereof may only be amended by an instrument in writing signed by the Borrower and the Holder.  The term “Note” and all reference thereto, as used throughout this instrument, shall mean this instrument (and the other Notes issued pursuant to the Purchase Agreement) as originally executed, or if later amended or supplemented, then as so amended or supplemented.
 
4.4           Assignability.  This Note shall be binding upon the Borrower and its successors and assigns, and shall inure to be the benefit of the Holder and its successors and assigns.  Each transferee of this Note must be an “accredited investor” (as defined in Rule 501(a) of the 1933 Act) and must agree in writing to be bound by the same provisions of the original Holder under the Purchase Agreement.  Notwithstanding anything in this Note to the contrary, this Note may be pledged as collateral in connection with a bona fide margin account or other lending arrangement.
 
4.5           Cost of Collection.  If default is made in the payment of this Note, the Borrower shall pay the Holder hereof reasonable costs of collection, including reasonable attorneys’ fees.
 
4.6           Governing Law.  This Note shall be governed by and construed in accordance with the laws of the State of New York without regard to principles of conflicts of laws.  Any action brought by either party against the other concerning the transactions contemplated by this Note shall be brought only in the state courts of New York or in the federal courts located in the state and county of Nassau.  The parties to this Note hereby irrevocably waive any objection to jurisdiction and venue of any action instituted hereunder and shall not assert any defense based on lack of jurisdiction or venue or based upon forum non conveniens.  The Company and Holder waive trial by jury.  The prevailing party shall be entitled to recover from the other party its reasonable attorney's fees and costs.  In the event that any provision of this Note or any other agreement delivered in connection herewith is invalid or unenforceable under any applicable statute or rule of law, then such provision shall be deemed inoperative to the extent that it may conflict therewith and shall be deemed modified to conform with such statute or rule of law.  Any such provision which may prove invalid or unenforceable under any law shall not affect the validity or enforceability of any other provision of any agreement.  Each party hereby irrevocably waives personal service of process and consents to process being served in any suit, action or proceeding in connection with this Agreement or any other Transaction Document by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof.  Nothing contained herein shall be deemed to limit in any way any right to serve process in any other manner permitted by law.
 
 
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4.7           Certain Amounts.  Whenever pursuant to this Note the Borrower is required to pay an amount in excess of the outstanding principal amount (or the portion thereof required to be paid at that time) plus accrued and unpaid interest plus Default Interest on such interest, the Borrower and the Holder agree that the actual damages to the Holder from the receipt of cash payment on this Note may be difficult to determine and the amount to be so paid by the Borrower represents stipulated damages and not a penalty and is intended to compensate the Holder in part for loss of the opportunity to convert this Note and to earn a return from the sale of shares of Common Stock acquired upon conversion of this Note at a price in excess of the price paid for such shares pursuant to this Note.  The Borrower and the Holder hereby agree that such amount of stipulated damages is not plainly disproportionate to the possible loss to the Holder from the receipt of a cash payment without the opportunity to convert this Note into shares of Common Stock.
 
4.8           Purchase Agreement.  By its acceptance of this Note, each party agrees to be bound by the applicable terms of the Purchase Agreement.
 
4.9           Notice of Corporate Events.  Except as otherwise provided below, the Holder of this Note shall have no rights as a Holder of Common Stock unless and only to the extent that it converts this Note into Common Stock.  The Borrower shall provide the Holder with prior notification of any meeting of the Borrower’s shareholders (and copies of proxy materials and other information sent to shareholders).  In the event of any taking by the Borrower of a record of its shareholders for the purpose of determining shareholders who are entitled to receive payment of any dividend or other distribution, any right to subscribe for, purchase or otherwise acquire (including by way of merger, consolidation, reclassification or recapitalization) any share of any class or any other securities or property, or to receive any other right, or for the purpose of determining shareholders who are entitled to vote in connection with any proposed sale, lease or conveyance of all or substantially all of the assets of the Borrower or any proposed liquidation, dissolution or winding up of the Borrower, the Borrower shall mail a notice to the Holder, at least twenty (20) days prior to the record date specified therein (or thirty (30) days prior to the consummation of the transaction or event, whichever is earlier), of the date on which any such record is to be taken for the purpose of such dividend, distribution, right or other event, and a brief statement regarding the amount and character of such dividend, distribution, right or other event to the extent known at such time.  The Borrower shall make a public announcement of any event requiring notification to the Holder hereunder substantially simultaneously with the notification to the Holder in accordance with the terms of this Section 4.9.
 
 
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4.10           Remedies.  The Borrower acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Holder, by vitiating the intent and purpose of the transaction contemplated hereby.  Accordingly, the Borrower acknowledges that the remedy at law for a breach of its obligations under this Note will be inadequate and agrees, in the event of a breach or threatened breach by the Borrower of the provisions of this Note, that the Holder shall be entitled, in addition to all other available remedies at law or in equity, and in addition to the penalties assessable herein, to an injunction or injunctions restraining, preventing or curing any breach of this Note and to enforce specifically the terms and provisions thereof, without the necessity of showing economic loss and without any bond or other security being required.
 
IN WITNESS WHEREOF, Borrower has caused this Note to be signed in its name by its duly authorized officer this June 15, 2012.
 
  OSL HOLDINGS INC. f/k/a RED ROCK PICTURES HOLDINGS INC.
       
 
By:
/s/  
    ELI FEDER  
   
Chief Executive Officer
 
 
 
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EXHIBIT A
NOTICE OF CONVERSION
 
The undersigned hereby elects to convert $______________ principal amount of the Note (defined below) into that number of shares of Common Stock to be issued pursuant to the conversion of the Note (“Common Stock”) as set forth below, of OSL HOLDINGS INC. f/k/a RED ROCK PICTURES HOLDINGS INC., a Nevada corporation (the “Borrower”) according to the conditions of the convertible note of the Borrower dated as of June 15, 2012 (the “Note”), as of the date written below.  No fee will be charged to the Holder for any conversion, except for transfer taxes, if any.
 
Box Checked as to applicable instructions:
 
o
The Borrower shall electronically transmit the Common Stock issuable pursuant to this Notice of Conversion to the account of the undersigned or its nominee with DTC through its Deposit Withdrawal Agent Commission system (“DWAC Transfer”).
   
 
Name of DTC Prime Broker:
Account Number:
   
o
The undersigned hereby requests that the Borrower issue a certificate or certificates for the number of shares of Common Stock set forth below (which numbers are based on the Holder’s calculation attached hereto) in the name(s) specified immediately below or, if additional space is necessary, on an attachment hereto:
   
 
ASHER ENTERPRISES, INC.
1 Linden Pl., Suite 207
Great Neck, NY  11021
Attention:  Certificate Delivery
(516) 498-9890
   
 
Date of Conversion:
____________
 
Applicable Conversion Price:
$                              
 
Number of Shares of Common Stock to be Issued Pursuant to Conversion of the Notes:
____________
 
Amount of Principal Balance Due remaining Under the Note after this conversion:
____________
   
 
ASHER ENTERPRISES, INC.
 
By:                                                               
Name:  Curt Kramer
Title:  President
Date:                               
1 Linden Pl., Suite 207
Great Neck, NY  11021
 
 
 

EX-10.3 5 f10k2012ex10iii_oslholdings.htm CONVERTIBLE NOTE DATED JULY 17, 2012 WITH ASHER ENTERPRISES f10k2012ex10iii_oslholdings.htm
Exhibit 10.3
 
NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE CONVERTIBLE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS.  THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL (WHICH COUNSEL SHALL BE SELECTED BY THE HOLDER), IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT.  NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.
 
Principal Amount: $27,500.00
Issue Date: July 12, 2012
Purchase Price: $27,500.00
 
 
CONVERTIBLE PROMISSORY NOTE
 
FOR VALUE RECEIVED, OSL HOLDINGS INC. f/k/a RED ROCK PICTURES HOLDINGS INC., a Nevada corporation (hereinafter called the “Borrower”), hereby promises to pay to the order of ASHER ENTERPRISES, INC., a Delaware corporation, or registered assigns (the “Holder”) the sum of $27,500.00 together with any interest as set forth herein, on April 16, 2013 (the “Maturity Date”), and to pay interest on the unpaid principal balance hereof at the rate of eight percent (8%) (the “Interest Rate”) per annum from the date hereof (the “Issue Date”) until the same becomes due and payable, whether at maturity or upon acceleration or by prepayment or otherwise.  This Note may be prepaid in whole or in part as set forth herein.  Any amount of principal or interest on this Note which is not paid when due shall bear interest at the rate of twenty two percent (22%) per annum from the due date thereof until the same is paid (“Default Interest”).  Interest shall commence accruing on the date that the Note is fully paid (i.e. when the Note is fully funded by the Holder) and shall be computed on the basis of a 365-day year and the actual number of days elapsed.  All payments due hereunder (to the extent not converted into common stock, $0.001 par value per share (the “Common Stock”) in accordance with the terms hereof) shall be made in lawful money of the United States of America.  All payments shall be made at such address as the Holder shall hereafter give to the Borrower by written notice made in accordance with the provisions of this Note.  Whenever any amount expressed to be due by the terms of this Note is due on any day which is not a business day, the same shall instead be due on the next succeeding day which is a business day and, in the case of any interest payment date which is not the date on which this Note is paid in full, the extension of the due date thereof shall not be taken into account for purposes of determining the amount of interest due on such date.  As used in this Note, the term “business day” shall mean any day other than a Saturday, Sunday or a day on which commercial banks in the city of New York, New York are authorized or required by law or executive order to remain closed.  Each capitalized term used herein, and not otherwise defined, shall have the meaning ascribed thereto in that certain Securities Purchase Agreement dated the date hereof, pursuant to which this Note was originally issued (the “Purchase Agreement”).
 
 
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This Note is free from all taxes, liens, claims and encumbrances with respect to the issue thereof and shall not be subject to preemptive rights or other similar rights of shareholders of the Borrower and will not impose personal liability upon the holder thereof.
 
The following terms shall apply to this Note:
 
ARTICLE I.  CONVERSION RIGHTS
 
1.1           Conversion Right.  The Holder shall have the right at any time during the period beginning on the date which is one hundred eighty (180) days following the date of this Note and ending on the later of (i) the Maturity Date and (ii) the date of payment of the Default Amount (as defined in Article III) pursuant to Section 1.6(a) or Article III, each in respect of the remaining outstanding principal amount of this Note to convert all or any part of the outstanding and unpaid principal amount of this Note into fully paid and non-assessable shares of Common Stock, as such Common Stock exists on the Issue Date, or any shares of capital stock or other securities of the Borrower into which such Common Stock shall hereafter be changed or reclassified at the conversion price (the “Conversion Price”) determined as provided herein (a “Conversion”); provided, however, that in no event shall the Holder be entitled to convert any portion of this Note in excess of that portion of this Note upon conversion of which the sum of (1) the number of shares of Common Stock beneficially owned by the Holder and its affiliates (other than shares of Common Stock which may be deemed beneficially owned through the ownership of the unconverted portion of the Notes or the unexercised or unconverted portion of any other security of the Borrower subject to a limitation on conversion or exercise analogous to the limitations contained herein) and (2) the number of shares of Common Stock issuable upon the conversion of the portion of this Note with respect to which the determination of this proviso is being made, would result in beneficial ownership by the Holder and its affiliates of more than 4.99% of the outstanding shares of Common Stock. For purposes of the proviso to the immediately preceding sentence, beneficial ownership shall be determined in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Regulations 13D-G thereunder, except as otherwise provided in clause (1) of such proviso, provided, further, however, that the limitations on conversion may be waived by the Holder upon, at the election of the Holder, not less than 61 days’ prior notice to the Borrower, and the provisions of the conversion limitation shall continue to apply until such 61st day (or such later date, as determined by the Holder, as may be specified in such notice of waiver).  The number of shares of Common Stock to be issued upon each conversion of this Note shall be determined by dividing the Conversion Amount (as defined below) by the applicable Conversion Price then in effect on the date specified in the notice of conversion, in the form attached hereto as Exhibit A (the “Notice of Conversion”), delivered to the Borrower by the Holder in accordance with Section 1.4 below; provided that the Notice of Conversion is submitted by facsimile or e-mail (or by other means resulting in, or reasonably expected to result in, notice) to the Borrower before 6:00 p.m., New York, New York time on such conversion date (the “Conversion Date”).  The term “Conversion Amount” means, with respect to any conversion of this Note, the sum of (1) the principal amount of this Note to be converted in such conversion plus (2) at the Holder’s option, accrued and unpaid interest, if any, on such principal amount at the interest rates provided in this Note to the Conversion Date, plus (3) at the Holder’s option, Default Interest, if any, on the amounts referred to in the immediately preceding clauses (1) and/or (2) plus (4) at the Holder’s option, any amounts owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof.
 
 
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1.2           Conversion Price.
 
(a)           Calculation of Conversion Price.  The conversion price (the “Conversion Price”) shall equal the Variable Conversion Price (as defined herein)(subject to equitable adjustments for stock splits, stock dividends or rights offerings by the Borrower relating to the Borrower’s securities or the securities of any subsidiary of the Borrower, combinations, recapitalization, reclassifications, extraordinary distributions and similar events).  The "Variable Conversion Price" shall mean 51% multiplied by the Market Price (as defined herein) (representing a discount rate of 49%).  “Market Price” means the average of the lowest three (3) Trading Prices (as defined below) for the Common Stock during the ten (10) Trading Day period ending on the latest complete Trading Day prior to the Conversion Date.  “Trading Price” means, for any security as of any date, the closing bid price on the Over-the-Counter Bulletin Board, or applicable trading market (the “OTCBB”) as reported by a reliable reporting service (“Reporting Service”) mutually acceptable to Borrower and Holder (i.e. Bloomberg) or, if the OTCBB is not the principal trading market for such security, the closing bid price of such security on the principal securities exchange or trading market where such security is listed or traded or, if no closing bid price of such security is available in any of the foregoing manners, the average of the closing bid prices of any market makers for such security that are listed in the “pink sheets” by the National Quotation Bureau, Inc.  If the Trading Price cannot be calculated for such security on such date in the manner provided above, the Trading Price shall be the fair market value as mutually determined by the Borrower and the holders of a majority in interest of the Notes being converted for which the calculation of the Trading Price is required in order to determine the Conversion Price of such Notes.  “Trading Day” shall mean any day on which the Common Stock is tradable for any period on the OTCBB, or on the principal securities exchange or other securities market on which the Common Stock is then being traded.
 
(b)           Conversion Price During Major Announcements.  Notwithstanding anything contained in Section 1.2(a) to the contrary, in the event the Borrower (i) makes a public announcement that it intends to consolidate or merge with any other corporation (other than a merger in which the Borrower is the surviving or continuing corporation and its capital stock is unchanged) or sell or transfer all or substantially all of the assets of the Borrower or (ii) any person, group or entity (including the Borrower) publicly announces a tender offer to purchase 50% or more of the Borrower’s Common Stock (or any other takeover scheme) (the date of the announcement referred to in clause (i) or (ii) is hereinafter referred to as the “Announcement Date”), then the Conversion Price shall, effective upon the Announcement Date and continuing through the Adjusted Conversion Price Termination Date (as defined below), be equal to the lower of (x) the Conversion Price which would have been applicable for a Conversion occurring on the Announcement Date and (y) the Conversion Price that would otherwise be in effect.  From and after the Adjusted Conversion Price Termination Date, the Conversion Price shall be determined as set forth in this Section 1.2(a).  For purposes hereof, “Adjusted Conversion Price Termination Date” shall mean, with respect to any proposed transaction or tender offer (or takeover scheme) for which a public announcement as contemplated by this Section 1.2(b) has been made, the date upon which the Borrower (in the case of clause (i) above) or the person, group or entity (in the case of clause (ii) above) consummates or publicly announces the termination or abandonment of the proposed transaction or tender offer (or takeover scheme) which caused this Section 1.2(b) to become operative.
 
 
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1.3           Authorized Shares.  The Borrower covenants that during the period the conversion right exists, the Borrower will reserve from its authorized and unissued Common Stock a sufficient number of shares, free from preemptive rights, to provide for the issuance of Common Stock upon the full conversion of this Note issued pursuant to the Purchase Agreement.  The Borrower is required at all times to have authorized and reserved four times the number of shares that is actually issuable upon full conversion of the Note (based on the Conversion Price of the Notes in effect from time to time)(the “Reserved Amount”).  The Reserved Amount shall be increased from time to time in accordance with the Borrower’s obligations pursuant to Section 4(g) of the Purchase Agreement.  The Borrower represents that upon issuance, such shares will be duly and validly issued, fully paid and non-assessable.  In addition, if the Borrower shall issue any securities or make any change to its capital structure which would change the number of shares of Common Stock into which the Notes shall be convertible at the then current Conversion Price, the Borrower shall at the same time make proper provision so that thereafter there shall be a sufficient number of shares of Common Stock authorized and reserved, free from preemptive rights, for conversion of the outstanding Notes.  The Borrower (i) acknowledges that it has irrevocably instructed its transfer agent to issue certificates for the Common Stock issuable upon conversion of this Note, and (ii) agrees that its issuance of this Note shall constitute full authority to its officers and agents who are charged with the duty of executing stock certificates to execute and issue the necessary certificates for shares of Common Stock in accordance with the terms and conditions of this Note.
 
If, at any time the Borrower does not maintain the Reserved Amount it will be considered an Event of Default under Section 3.2 of the Note.
 
1.4           Method of Conversion.
 
(a)           Mechanics of Conversion.  Subject to Section 1.1, this Note may be converted by the Holder in whole or in part at any time from time to time as set forth above, by (A) submitting to the Borrower a Notice of Conversion (by facsimile, e-mail or other reasonable means of communication dispatched on the Conversion Date prior to 5:00 p.m., New York, New York time) and (B) subject to Section 1.4(b), surrendering this Note at the principal office of the Borrower.
 
(b)           Surrender of Note Upon Conversion.  Notwithstanding anything to the contrary set forth herein, upon conversion of this Note in accordance with the terms hereof, the Holder shall not be required to physically surrender this Note to the Borrower unless the entire unpaid principal amount of this Note is so converted.  The Holder and the Borrower shall maintain records showing the principal amount so converted and the dates of such conversions or shall use such other method, reasonably satisfactory to the Holder and the Borrower, so as not to require physical surrender of this Note upon each such conversion.  In the event of any dispute or discrepancy, such records of the Borrower shall, primafacie, be controlling and determinative in the absence of manifest error.  Notwithstanding the foregoing, if any portion of this Note is converted as aforesaid, the Holder may not transfer this Note unless the Holder first physically surrenders this Note to the Borrower, whereupon the Borrower will forthwith issue and deliver upon the order of the Holder a new Note of like tenor, registered as the Holder (upon payment by the Holder of any applicable transfer taxes) may request, representing in the aggregate the remaining unpaid principal amount of this Note.  The Holder and any assignee, by acceptance of this Note, acknowledge and agree that, by reason of the provisions of this paragraph, following conversion of a portion of this Note, the unpaid and unconverted principal amount of this Note represented by this Note may be less than the amount stated on the face hereof.
 
 
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(c)           Payment of Taxes.  The Borrower shall not be required to pay any tax which may be payable in respect of any transfer involved in the issue and delivery of shares of Common Stock or other securities or property on conversion of this Note in a name other than that of the Holder (or in street name), and the Borrower shall not be required to issue or deliver any such shares or other securities or property unless and until the person or persons (other than the Holder or the custodian in whose street name such shares are to be held for the Holder’s account) requesting the issuance thereof shall have paid to the Borrower the amount of any such tax or shall have established to the satisfaction of the Borrower that such tax has been paid.
 
(d)           Delivery of Common Stock Upon Conversion.  Upon receipt by the Borrower from the Holder of a facsimile transmission or e-mail (or other reasonable means of communication) of a Notice of Conversion meeting the requirements for conversion as provided in this Section 1.4, the Borrower shall issue and deliver or cause to be issued and delivered to or upon the order of the Holder certificates for the Common Stock issuable upon such conversion within three (3) business days after such receipt (the “Deadline”) (and, solely in the case of conversion of the entire unpaid principal amount hereof, surrender of this Note) in accordance with the terms hereof and the Purchase Agreement.
 
(e)           Obligation of Borrower to Deliver Common Stock.  Upon receipt by the Borrower of a Notice of Conversion, the Holder shall be deemed to be the holder of record of the Common Stock issuable upon such conversion, the outstanding principal amount and the amount of accrued and unpaid interest on this Note shall be reduced to reflect such conversion, and, unless the Borrower defaults on its obligations under this Article I, all rights with respect to the portion of this Note being so converted shall forthwith terminate except the right to receive the Common Stock or other securities, cash or other assets, as herein provided, on such conversion.  If the Holder shall have given a Notice of Conversion as provided herein, the Borrower’s obligation to issue and deliver the certificates for Common Stock shall be absolute and unconditional, irrespective of the absence of any action by the Holder to enforce the same, any waiver or consent with respect to any provision thereof, the recovery of any judgment against any person or any action to enforce the same, any failure or delay in the enforcement of any other obligation of the Borrower to the holder of record, or any setoff, counterclaim, recoupment, limitation or termination, or any breach or alleged breach by the Holder of any obligation to the Borrower, and irrespective of any other circumstance which might otherwise limit such obligation of the Borrower to the Holder in connection with such conversion.  The Conversion Date specified in the Notice of Conversion shall be the Conversion Date so long as the Notice of Conversion is received by the Borrower before 5:00 p.m., New York, New York time, on such date.
 
 
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(f)           Delivery of Common Stock by Electronic Transfer.  In lieu of delivering physical certificates representing the Common Stock issuable upon conversion, provided the Borrower is participating in the Depository Trust Company (“DTC”) Fast Automated Securities Transfer (“FAST”) program, upon request of the Holder and its compliance with the provisions contained in Section 1.1 and in this Section 1.4, the Borrower will use its commercially reasonable best efforts to cause its transfer agent to electronically transmit the Common Stock issuable upon conversion to the Holder by crediting the account of Holder’s Prime Broker with DTC through its Deposit Withdrawal Agent Commission (“DWAC”) system.
 
(g)           Failure to Deliver Common Stock Prior to Delivery Deadline.  Without in any way limiting the Holder’s right to pursue other remedies, including actual damages and/or equitable relief, the parties agree that if delivery of the Common Stock issuable upon conversion of this Note is not delivered by the Deadline (other than a failure due to the circumstances described in Section 1.3 above, which failure shall be governed by such Section) the Borrower shall pay to the Holder $1,000 per day in cash, for each day beyond the Deadline that the Borrower fails to deliver such Common Stock.  Such cash amount shall be paid to Holder by the fifth day of the month following the month in which it has accrued or, at the option of the Holder (by written notice to the Borrower by the first day of the month following the month in which it has accrued), shall be added to the principal amount of this Note, in which event interest shall accrue thereon in accordance with the terms of this Note and such additional principal amount shall be convertible into Common Stock in accordance with the terms of this Note.  The Borrower agrees that the right to convert is a valuable right to the Holder.  The damages resulting from a failure, attempt to frustrate, interference with such conversion right are difficult if not impossible to qualify.  Accordingly the parties acknowledge that the liquidated damages provision contained in this Section 1.4(g) are justified.
 
1.5           Concerning the Shares.  The shares of Common Stock issuable upon conversion of this Note may not be sold or transferred unless (i) such shares are sold pursuant to an effective registration statement under the Act or (ii) the Borrower or its transfer agent shall have been furnished with an opinion of investor’s counsel (which opinion shall be in form, substance and scope customary for opinions of counsel in comparable transactions) to the effect that the shares to be sold or transferred may be sold or transferred pursuant to an exemption from such registration or (iii) such shares are sold or transferred pursuant to Rule 144 under the Act (or a successor rule) (“Rule 144”) or (iv) such shares are transferred to an “affiliate” (as defined in Rule 144) of the Borrower who agrees to sell or otherwise transfer the shares only in accordance with this Section 1.5 and who is an Accredited Investor (as defined in the Purchase Agreement).  Except as otherwise provided in the Purchase Agreement (and subject to the removal provisions set forth below), until such time as the shares of Common Stock issuable upon conversion of this Note have been registered under the Act or otherwise may be sold pursuant to Rule 144 without any restriction as to the number of securities as of a particular date that can then be immediately sold, each certificate for shares of Common Stock issuable upon conversion of this Note that has not been so included in an effective registration statement or that has not been sold pursuant to an effective registration statement or an exemption that permits removal of the legend, shall bear a legend substantially in the following form, as appropriate:
 
“NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE EXERCISABLE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS.  THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL (WHICH COUNSEL SHALL BE SELECTED BY THE HOLDER), IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT.  NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.”
 
 
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The legend set forth above shall be removed and the Borrower shall issue to the Holder a new certificate therefore free of any transfer legend if (i) the Borrower or its transfer agent shall have received an opinion of counsel, in form, substance and scope customary for opinions of counsel in comparable transactions, to the effect that a public sale or transfer of such Common Stock may be made without registration under the Act, which opinion shall be accepted by the Company so that the sale or transfer is effected or (ii) in the case of the Common Stock issuable upon conversion of this Note, such security is registered for sale by the Holder under an effective registration statement filed under the Act or otherwise may be sold pursuant to Rule 144 without any restriction as to the number of securities as of a particular date that can then be immediately sold.In the event that the Company does not accept the opinion of counsel provided by the Buyer with respect to the transfer of Securities pursuant to an exemption from registration, such as Rule 144 or Regulation S, at the Deadline, it will be considered an Event of Default pursuant to Section 3.2 of the Note.
 
1.6           Effect of Certain Events.
 
(a)           Effect of Merger, Consolidation, Etc.  At the option of the Holder, the sale, conveyance or disposition of all or substantially all of the assets of the Borrower, the effectuation by the Borrower of a transaction or series of related transactions in which more than 50% of the voting power of the Borrower is disposed of, or the consolidation, merger or other business combination of the Borrower with or into any other Person (as defined below) or Persons when the Borrower is not the survivor shall be treated pursuant to Section 1.6(b) hereof.  “Person” shall mean any individual, corporation, limited liability company, partnership, association, trust or other entity or organization.
 
(b)           Adjustment Due to Merger, Consolidation, Etc.  If, at any time when this Note is issued and outstanding and prior to conversion of all of the Notes, there shall be any merger, consolidation, exchange of shares, recapitalization, reorganization, or other similar event, as a result of which shares of Common Stock of the Borrower shall be changed into the same or a different number of shares of another class or classes of stock or securities of the Borrower or another entity, or in case of any sale or conveyance of all or substantially all of the assets of the Borrower other than in connection with a plan of complete liquidation of the Borrower, then the Holder of this Note shall thereafter have the right to receive upon conversion of this Note, upon the basis and upon the terms and conditions specified herein and in lieu of the shares of Common Stock immediately theretofore issuable upon conversion, such stock, securities or assets which the Holder would have been entitled to receive in such transaction had this Note been converted in full immediately prior to such transaction (without regard to any limitations on conversion set forth herein), and in any such case appropriate provisions shall be made with respect to the rights and interests of the Holder of this Note to the end that the provisions hereof (including, without limitation, provisions for adjustment of the Conversion Price and of the number of shares issuable upon conversion of the Note) shall thereafter be applicable, as nearly as may be practicable in relation to any securities or assets thereafter deliverable upon the conversion hereof.  The Borrower shall not affect any transaction described in this Section 1.6(b) unless (a) it first gives, to the extent practicable, thirty (30) days prior written notice (but in any event at least fifteen (15) days prior written notice) of the record date of the special meeting of shareholders to approve, or if there is no such record date, the consummation of, such merger, consolidation, exchange of shares, recapitalization, reorganization or other similar event or sale of assets (during which time the Holder shall be entitled to convert this Note) and (b) the resulting successor or acquiring entity (if not the Borrower) assumes by written instrument the obligations of this Section 1.6(b).  The above provisions shall similarly apply to successive consolidations, mergers, sales, transfers or share exchanges.
 
 
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(c)           Adjustment Due to Distribution.  If the Borrower shall declare or make any distribution of its assets (or rights to acquire its assets) to holders of Common Stock as a dividend, stock repurchase, by way of return of capital or otherwise (including any dividend or distribution to the Borrower’s shareholders in cash or shares (or rights to acquire shares) of capital stock of a subsidiary (i.e., a spin-off)) (a “Distribution”), then the Holder of this Note shall be entitled, upon any conversion of this Note after the date of record for determining shareholders entitled to such Distribution, to receive the amount of such assets which would have been payable to the Holder with respect to the shares of Common Stock issuable upon such conversion had such Holder been the holder of such shares of Common Stock on the record date for the determination of shareholders entitled to such Distribution.
 
(d)           Adjustment Due to Dilutive Issuance.  If, at any time when any Notes are issued and outstanding, the Borrower issues or sells, or in accordance with this Section 1.6(d) hereof is deemed to have issued or sold, except for shares of Common Stock issued directly to vendors or suppliers of the Company in satisfaction of amounts owed to such vendors or suppliers (provided, however, that such vendors or suppliers shall not have an arrangement to transfer, sell or assign such shares of Common Stock prior to the issuance of such shares), any shares of Common Stock for no consideration or for a consideration per share (before deduction of reasonable expenses or commissions or underwriting discounts or allowances in connection therewith) less than the Conversion Price in effect on the date of such issuance (or deemed issuance) of such shares of Common Stock (a “Dilutive Issuance”), then immediately upon the Dilutive Issuance, the Conversion Price will be reduced to the amount of the consideration per share received by the Borrower in such Dilutive Issuance.
 
 
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The Borrower shall be deemed to have issued or sold shares of Common Stock if the Borrower in any manner issues or grants any warrants, rights or options (not including employee stock option plans), whether or not immediately exercisable, to subscribe for or to purchase Common Stock or other securities convertible into or exchangeable for Common Stock (“Convertible Securities”) (such warrants, rights and options to purchase Common Stock or Convertible Securities are hereinafter referred to as “Options”) and the price per share for which Common Stock is issuable upon the exercise of such Options is less than the Conversion Price then in effect, then the Conversion Price shall be equal to such price per share.  For purposes of the preceding sentence, the “price per share for which Common Stock is issuable upon the exercise of such Options” is determined by dividing (i) the total amount, if any, received or receivable by the Borrower as consideration for the issuance or granting of all such Options, plus the minimum aggregate amount of additional consideration, if any, payable to the Borrower upon the exercise of all such Options, plus, in the case of Convertible Securities issuable upon the exercise of such Options, the minimum aggregate amount of additional consideration payable upon the conversion or exchange thereof at the time such Convertible Securities first become convertible or exchangeable, by (ii) the maximum total number of shares of Common Stock issuable upon the exercise of all such Options (assuming full conversion of Convertible Securities, if applicable).  No further adjustment to the Conversion Price will be made upon the actual issuance of such Common Stock upon the exercise of such Options or upon the conversion or exchange of Convertible Securities issuable upon exercise of such Options.
 
Additionally, the Borrower shall be deemed to have issued or sold shares of Common Stock if the Borrower in any manner issues or sells any Convertible Securities, whether or not immediately convertible (other than where the same are issuable upon the exercise of Options), and the price per share for which Common Stock is issuable upon such conversion or exchange is less than the Conversion Price then in effect, then the Conversion Price shall be equal to such price per share.  For the purposes of the preceding sentence, the “price per share for which Common Stock is issuable upon such conversion or exchange” is determined by dividing (i) the total amount, if any, received or receivable by the Borrower as consideration for the issuance or sale of all such Convertible Securities, plus the minimum aggregate amount of additional consideration, if any, payable to the Borrower upon the conversion or exchange thereof at the time such Convertible Securities first become convertible or exchangeable, by (ii) the maximum total number of shares of Common Stock issuable upon the conversion or exchange of all such Convertible Securities.  No further adjustment to the Conversion Price will be made upon the actual issuance of such Common Stock upon conversion or exchange of such Convertible Securities.The following will not be considered Dilutive Issuances: (i) any issuance in relation to a convertible debenture that is in excess of $100,000.00; (ii) any issuances presently or in the future made with regards to conversion by the holder of the Emerald Asset Advisors Note and/or the holder of the Crisnic Fund Note and (iii) any shares of Common Stock offered to employees or consultants for services renders shall also not be considered a Dilutive Issuance.
 
(e)           Purchase Rights.  If, at any time when any Notes are issued and outstanding, the Borrower issues any convertible securities or rights to purchase stock, warrants, securities or other property (the “Purchase Rights”) pro rata to the record holders of any class of Common Stock, then the Holder of this Note will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which such Holder could have acquired if such Holder had held the number of shares of Common Stock acquirable upon complete conversion of this Note (without regard to any limitations on conversion contained herein) immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights or, if no such record is taken, the date as of which the record holders of Common Stock are to be determined for the grant, issue or sale of such Purchase Rights.
 
 
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(f)           Notice of Adjustments.  Upon the occurrence of each adjustment or readjustment of the Conversion Price as a result of the events described in this Section 1.6, the Borrower, at its expense, shall promptly compute such adjustment or readjustment and prepare and furnish to the Holder a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based.  The Borrower shall, upon the written request at any time of the Holder, furnish to such Holder a like certificate setting forth (i) such adjustment or readjustment, (ii) the Conversion Price at the time in effect and (iii) the number of shares of Common Stock and the amount, if any, of other securities or property which at the time would be received upon conversion of the Note.
 
1.7           Trading Market Limitations.  Unless permitted by the applicable rules and regulations of the principal securities market on which the Common Stock is then listed or traded, in no event shall the Borrower issue upon conversion of or otherwise pursuant to this Note and the other Notes issued pursuant to the Purchase Agreement more than the maximum number of shares of Common Stock that the Borrower can issue pursuant to any rule of the principal United States securities market on which the Common Stock is then traded (the “Maximum Share Amount”), which shall be 4.99% of the total shares outstanding on the Closing Date (as defined in the Purchase Agreement), subject to equitable adjustment from time to time for stock splits, stock dividends, combinations, capital reorganizations and similar events relating to the Common Stock occurring after the date hereof.  Once the Maximum Share Amount has been issued, if the Borrower fails to eliminate any prohibitions under applicable law or the rules or regulations of any stock exchange, interdealer quotation system or other self-regulatory organization with jurisdiction over the Borrower or any of its securities on the Borrower’s ability to issue shares of Common Stock in excess of the Maximum Share Amount, in lieu of any further right to convert this Note, this will be considered an Event of Default under Section 3.3 of the Note.
 
1.8           Status as Shareholder.  Upon submission of a Notice of Conversion by a Holder, (i) the shares covered thereby (other than the shares, if any, which cannot be issued because their issuance would exceed such Holder’s allocated portion of the Reserved Amount or Maximum Share Amount) shall be deemed converted into shares of Common Stock and (ii) the Holder’s rights as a Holder of such converted portion of this Note shall cease and terminate, excepting only the right to receive certificates for such shares of Common Stock and to any remedies provided herein or otherwise available at law or in equity to such Holder because of a failure by the Borrower to comply with the terms of this Note.  Notwithstanding the foregoing, if a Holder has not received certificates for all shares of Common Stock prior to the tenth (10th) business day after the expiration of the Deadline with respect to a conversion of any portion of this Note for any reason, then (unless the Holder otherwise elects to retain its status as a holder of Common Stock by so notifying the Borrower) the Holder shall regain the rights of a Holder of this Note with respect to such unconverted portions of this Note and the Borrower shall, as soon as practicable, return such unconverted Note to the Holder or, if the Note has not been surrendered, adjust its records to reflect that such portion of this Note has not been converted.  In all cases, the Holder shall retain all of its rights and remedies (including, without limitation, (i) the right to receive Conversion Default Payments pursuant to Section 1.3 to the extent required thereby for such Conversion Default and any subsequent Conversion Default and (ii) the right to have the Conversion Price with respect to subsequent conversions determined in accordance with Section 1.3) for the Borrower’s failure to convert this Note.
 
 
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1.9           Prepayment.  Notwithstanding anything to the contrary contained in this Note, at any time during the period beginning on the Issue Date and ending on the date which is sixty (60) days following the issue date, the Borrower shall have the right, exercisable on not less than three (3) Trading Days prior written notice to the Holder of the Note to prepay the outstanding Note (principal and accrued interest), in full, in accordance with this Section 1.9.  Any notice of prepayment hereunder (an “Optional Prepayment Notice”) shall be delivered to the Holder of the Note at its registered addresses and shall state: (1) that the Borrower is exercising its right to prepay the Note, and (2) the date of prepayment which shall be not more than three (3) Trading Days from the date of the Optional Prepayment Notice.  On the date fixed for prepayment (the “Optional Prepayment Date”), the Borrower shall make payment of the Optional Prepayment Amount (as defined below) to or upon the order of the Holder as specified by the Holder in writing to the Borrower at least one (1) business day prior to the Optional Prepayment Date.  If the Borrower exercises its right to prepay the Note, the Borrower shall make payment to the Holder of an amount in cash (the “Optional Prepayment Amount”) equal to 130%, multiplied by the sum of: (w) the then outstanding principal amount of this Note plus(x) accrued and unpaid interest on the unpaid principal amount of this Note to the Optional Prepayment Date plus (y) Default Interest, if any, on the amounts referred to in clauses (w) and (x) plus (z) any amounts owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof.  If the Borrower delivers an Optional Prepayment Notice and fails to pay the Optional Prepayment Amount due to the Holder of the Note within two (2) business days following the Optional Prepayment Date, the Borrower shall forever forfeit its right to prepay the Note pursuant to this Section 1.9.
 
Notwithstanding anything to the contrary contained in this Note, at any time during the period beginning on the date which is sixty-one (61) days following the issue date and ending on the date which is one hundred twenty (120) days following the issue date, the Borrower shall have the right, exercisable on not less than three (3) Trading Days prior written notice to the Holder of the Note to prepay the outstanding Note (principal and accrued interest), in full, in accordance with this Section 1.9.  Any Optional Prepayment Notice shall be delivered to the Holder of the Note at its registered addresses and shall state: (1) that the Borrower is exercising its right to prepay the Note, and (2) the date of prepayment which shall be not more than three (3) Trading Days from the date of the Optional Prepayment Notice.  On the Optional Prepayment Date, the Borrower shall make payment of the Second Optional Prepayment Amount (as defined below) to or upon the order of the Holder as specified by the Holder in writing to the Borrower at least one (1) business day prior to the Optional Prepayment Date.  If the Borrower exercises its right to prepay the Note, the Borrower shall make payment to the Holder of an amount in cash (the “Second Optional Prepayment Amount”) equal to 135%, multiplied by the sum of: (w) the then outstanding principal amount of this Note plus (x) accrued and unpaid interest on the unpaid principal amount of this Note to the Optional Prepayment Date plus (y) Default Interest, if any, on the amounts referred to in clauses (w) and (x) plus (z) any amounts owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof.  If the Borrower delivers an Optional Prepayment Notice and fails to pay the Second Optional Prepayment Amount due to the Holder of the Note within two (2) business days following the Optional Prepayment Date, the Borrower shall forever forfeit its right to prepay the Note pursuant to this Section 1.9.
 
 
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Notwithstanding anything to the contrary contained in this Note, at any time during the period beginning on the date which is one hundred twenty-one (121) days following the issue date and ending on the date which is one hundred fifty (150) days following the issue date, the Borrower shall have the right, exercisable on not less than three (3) Trading Days prior written notice to the Holder of the Note to prepay the outstanding Note (principal and accrued interest), in full, in accordance with this Section 1.9.  Any Optional Prepayment Notice shall be delivered to the Holder of the Note at its registered addresses and shall state: (1) that the Borrower is exercising its right to prepay the Note, and (2) the date of prepayment which shall be not more than three (3) Trading Days from the date of the Optional Prepayment Notice.  On the Optional Prepayment Date, the Borrower shall make payment of the Third Optional Prepayment Amount (as defined below) to or upon the order of the Holder as specified by the Holder in writing to the Borrower at least one (1) business day prior to the Optional Prepayment Date.  If the Borrower exercises its right to prepay the Note, the Borrower shall make payment to the Holder of an amount in cash (the “Third Optional Prepayment Amount”) equal to 140%, multiplied by the sum of: (w) the then outstanding principal amount of this Note plus (x) accrued and unpaid interest on the unpaid principal amount of this Note to the Optional Prepayment Date plus (y) Default Interest, if any, on the amounts referred to in clauses (w) and (x) plus (z) any amounts owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof.  If the Borrower delivers an Optional Prepayment Notice and fails to pay the Third Optional Prepayment Amount due to the Holder of the Note within two (2) business days following the Optional Prepayment Date, the Borrower shall forever forfeit its right to prepay the Note pursuant to this Section 1.9.
 
Notwithstanding any to the contrary stated elsewhere herein, at any time during the period beginning on the date that is one hundred fifty-one (151) day from the issue date and ending one hundred eighty (180) days following the issue date, the Borrower shall have the right, exercisable on not less than three (3) Trading Days prior written notice to the Holder of the Note to prepay the outstanding Note (principal and accrued interest), in full, in accordance with this Section 1.9.  Any Optional Prepayment Notice shall be delivered to the Holder of the Note at its registered addresses and shall state: (1) that the Borrower is exercising its right to prepay the Note, and (2) the date of prepayment which shall be not more than three (3) Trading Days from the date of the Optional Prepayment Notice.  On the Optional Prepayment Date, the Borrower shall make payment of the Fourth Optional Prepayment Amount (as defined below) to or upon the order of the Holder as specified by the Holder in writing to the Borrower at least one (1) business day prior to the Optional Prepayment Date.  If the Borrower exercises its right to prepay the Note, the Borrower shall make payment to the Holder of an amount in cash (the “Fourth Optional Prepayment Amount”) equal to 150%, multiplied by the sum of: (w) the then outstanding principal amount of this Note plus (x) accrued and unpaid interest on the unpaid principal amount of this Note to the Optional Prepayment Date plus (y) Default Interest, if any, on the amounts referred to in clauses (w) and (x) plus (z) any amounts owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof.  If the Borrower delivers an Optional Prepayment Notice and fails to pay the Fourth Optional Prepayment Amount due to the Holder of the Note within two (2) business days following the Optional Prepayment Date, the Borrower shall forever forfeit its right to prepay the Note pursuant to this Section 1.9.
 
 
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After the expiration of one hundred eighty (180) following the date of the Note, the Borrower shall have no right of prepayment.
 
ARTICLE II.  CERTAIN COVENANTS
 
2.1           Distributions on Capital Stock.  So long as the Borrower shall have any obligation under this Note, the Borrower shall not without the Holder’s written consent (a) pay, declare or set apart for such payment, any dividend or other distribution (whether in cash, property or other securities) on shares of capital stock other than dividends on shares of Common Stock solely in the form of additional shares of Common Stock or (b) directly or indirectly or through any subsidiary make any other payment or distribution in respect of its capital stock except for distributions pursuant to any shareholders’ rights plan which is approved by a majority of the Borrower’s disinterested directors.
 
2.2           Restriction on Stock Repurchases.  So long as the Borrower shall have any obligation under this Note, the Borrower shall not without the Holder’s written consent redeem, repurchase or otherwise acquire (whether for cash or in exchange for property or other securities or otherwise) in any one transaction or series of related transactions any shares of capital stock of the Borrower or any warrants, rights or options to purchase or acquire any such shares.
 
2.3           Borrowings.  So long as the Borrower shall have any obligation under this Note, the Borrower shall not, without the Holder’s written consent, (a) create, incur, assume guarantee, endorse, contingently agree to purchase or otherwise become liable upon the obligation of any other person, firm, partnership, joint venture or corporation, except by the endorsement of negotiable instruments for deposit or collection, or (b) suffer to exist any liability for borrowed money, except any borrowings that does not render the Borrower a "Shell" company as defined in Rule 12b-2 under the Securities Exchange Act of 1934.
 
2.4           Sale of Assets.  So long as the Borrower shall have any obligation under this Note, the Borrower shall not, without the Holder’s written consent, sell, lease or otherwise dispose of any significant portion of its assets outside the ordinary course of business.  Any consent to the disposition of any assets may be conditioned on a specified use of the proceeds of disposition.
 
2.5           Advances and Loans.  So long as the Borrower shall have any obligation under this Note, the Borrower shall not, without the Holder’s written consent, lend money, give credit or make advances to any person, firm, joint venture or corporation, including, without limitation, officers, directors, employees, subsidiaries and affiliates of the Borrower, except loans, credits or advances (a) in existence or committed on the date hereof and which the Borrower has informed Holder in writing prior to the date hereof, (b) made in the ordinary course of business or (c) not in excess of $100,000.
 
 
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ARTICLE III.  EVENTS OF DEFAULT
 
If any of the following events of default (each, an “Event of Default”) shall occur:
 
3.1           Failure to Pay Principal or Interest.  The Borrower fails to pay the principal hereof or interest thereon when due on this Note, whether at maturity, upon acceleration or otherwise.
 
3.2           Conversion and the Shares.  The Borrower fails to issue shares of Common Stock to the Holder (or announces or threatens in writing that it will not honor its obligation to do so) upon exercise by the Holder of the conversion rights of the Holder in accordance with the terms of this Note, or the exercise of the Warrant in favor of the Holder, fails to transfer or cause its transfer agent to transfer (issue) (electronically or in certificated form) any certificate for shares of Common Stock issued to the Holder upon conversion of or otherwise pursuant to this Note as and when required by this Note (or the Warrant pursuant to the Warrant), the Borrower directs its transfer agent not to transfer or delays, impairs, and/or hinders its transfer agent in transferring (or issuing) (electronically or in certificated form) any certificate for shares of Common Stock to be issued to the Holder upon conversion of or otherwise pursuant to this Note as and when required by this Note (or the Warrant pursuant to the Warrant), or fails to remove (or directs its transfer agent not to remove or impairs, delays, and/or hinders its transfer agent from removing) any restrictive legend (or to withdraw any stop transfer instructions in respect thereof) on any certificate for any shares of Common Stock issued to the Holder upon conversion of or otherwise pursuant to this Note as and when required by this Note (or the Warrant pursuant to the Warrant)(or makes any written announcement, statement or threat that it does not intend to honor the obligations described in this paragraph) and any such failure shall continue uncured (or any written announcement, statement or threat not to honor its obligations shall not be rescinded in writing) for three (3) business days after the Holder shall have delivered a Notice of Conversion (or Exercise Notice pursuant to the Warrant).  It is an obligation of the Borrower to remain current in its obligations to its transfer agent.  It shall be an event of default of this Note, if a conversion of this Note is delayed, hindered or frustrated due to a balance owed by the Borrower to its transfer agent.  If at the option of the Holder, the Holder advances any funds to the Borrower’s transfer agent in order to process a conversion, such advanced funds shall be paid by the Borrower to the Holder within forty eight (48) hours of a demand from the Holder.
 
3.3           Breach of Covenants.  The Borrower breaches any material covenant or other material term or condition contained in this Note and any collateral documents including but not limited to the Purchase Agreement and such breach continues for a period of twenty (20) days after written notice thereof to the Borrower from the Holder.
 
3.4           Breach of Representations and Warranties.  Any representation or warranty of the Borrower made herein or in any agreement, written statement or certificate given in writing pursuant hereto or in connection herewith (including, without limitation, the Purchase Agreement), shall be false or misleading in any material respect when made and the breach of which has (or with the passage of time will have) a material adverse effect on the rights of the Holder with respect to this Note or the Purchase Agreement.
 
3.5           Receiver or Trustee.  The Borrower or any subsidiary of the Borrower shall make an assignment for the benefit of creditors, or apply for or consent to the appointment of a receiver or trustee for it or for a substantial part of its property or business, or such a receiver or trustee shall otherwise be appointed.
 
 
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3.6           Judgments.  Any money judgment, writ or similar process shall be entered or filed against the Borrower or any subsidiary of the Borrower or any of its property or other assets for more than $50,000, and shall remain unvacated, unbonded or unstayed for a period of twenty (20) business days unless otherwise consented to by the Holder, which consent will not be unreasonably withheld.
 
3.7           Bankruptcy.  Bankruptcy, insolvency, reorganization or liquidation proceedings or other proceedings, voluntary or involuntary, for relief under any bankruptcy law or any law for the relief of debtors shall be instituted by or against the Borrower or any subsidiary of the Borrower.
 
3.8           Delisting of Common Stock.  The Borrower shall fail to maintain the listing of the Common Stock on at least one of the OTCBB or an equivalent replacement exchange, the Nasdaq National Market, the NasdaqSmallCap Market, the New York Stock Exchange, or the American Stock Exchange.
 
3.9           Failure to Comply with the Exchange Act.  The Borrower shall fail to comply with the reporting requirements of the Exchange Act; and/or immediately upon the Borrower ceasing to be subject to the reporting requirements of the Exchange Act; provided, however, that the Borrower shall have fifteen (15) days to cure any failure of the Borrower’s obligation pursuant to the Exchange Act to file a current report on Form 8-K.
 
3.10           Liquidation.  Any dissolution, liquidation, or winding up of Borrower or any substantial portion of its business.
 
3.11           Cessation of Operations.  Any cessation of operations by Borrower or Borrower admits it is otherwise generally unable to pay its debts as such debts become due, provided, however, that any disclosure of the Borrower’s ability to continue as a “going concern” shall not be an admission that the Borrower cannot pay its debts as they become due.
 
3.12           Maintenance of Assets.  The failure by Borrower to maintain any material intellectual property rights, personal, real property or other assets which are necessary to conduct its business (whether now or in the future).
 
3.13           Financial Statement Restatement.  The restatement of any financial statements filed by the Borrower with the SEC for any date or period from two years prior to the Issue Date of this Note and until this Note is no longer outstanding, if the result of such restatement would, by comparison to the unrestated financial statement, have constituted a material adverse effect on the rights of the Holder with respect to this Note or the Purchase Agreement.  For the avoidance of doubt, any restatement related to new accounting pronouncements, including without limitation, for derivative accounting shall not constitute a default under this Section 3.13.
 
3.14           Reverse Splits.  The Borrower effectuates a reverse split of its Common Stock without twenty (20) days prior written notice to the Holder.
 
3.15           Replacement of Transfer Agent.  In the event that the Borrower proposes to replace its transfer agent, the Borrower fails to provide, prior to the effective date of such replacement, a fully executed Irrevocable Transfer Agent Instructions in a form as initially delivered pursuant to the Purchase Agreement (including but not limited to the provision to irrevocably reserve shares of Common Stock in the Reserved Amount) signed by the successor transfer agent to Borrower and the Borrower.
 
 
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3.16           Cross-Default.  Notwithstanding anything to the contrary contained in this Note or the other related or companion documents, a breach or default by the Borrower of any covenant or other term or condition contained in any of the Other Agreements, after the passage of all applicable notice and cure or grace periods, shall, at the option of the Holder, be considered a default under this Note and the Other Agreements, in which event the Holder shall be entitled (but in no event required) to apply all rights and remedies of the Holder under the terms of this Note and the Other Agreements by reason of a default under said Other Agreement or hereunder.  “Other Agreements” means, collectively, all agreements and instruments between, among or by: (1) the Borrower, and, or for the benefit of, (2) the Holder and any affiliate of the Holder, including, without limitation, promissory notes; provided, however, the term “Other Agreements” shall not include the related or companion documents to this Note.  Each of the loan transactions will be cross-defaulted with each other loan transaction and with all other existing and future debt of Borrower to the Holder.
 
Upon the occurrence and during the continuation of any Event of Default specified in Section 3.1 (solely with respect to failure to pay the principal hereof or interest thereon when due at the Maturity Date), the Note shall become immediately due and payable and the Borrower shall pay to the Holder, in full satisfaction of its obligations hereunder, an amount equal to the Default Sum (as defined herein).  UPON THE OCCURRENCE AND DURING THE CONTINUATION OF ANY EVENT OF DEFAULT SPECIFIED IN SECTION 3.2, THE NOTE SHALL BECOME IMMEDIATELY DUE AND PAYABLE AND THE BORROWER SHALL PAY TO THE HOLDER, IN FULL SATISFACTION OF ITS OBLIGATIONS HEREUNDER, AN AMOUNT EQUAL TO: (Y) THE DEFAULT SUM (AS DEFINED HEREIN); MULTIPLIED BY (Z) TWO (2).  Upon the occurrence and during the continuation of any Event of Default specified in Sections 3.1 (solely with respect to failure to pay the principal hereof or interest thereon when due on this Note upon a Trading Market Prepayment Event pursuant to Section 1.7 or upon acceleration), 3.3, 3.4, 3.6, 3.8, 3.9, 3.11, 3.12, 3.13, 3.14, 3.15 and/or 3.16 exercisable through the delivery of written notice to the Borrower by such Holders (the “Default Notice”), and upon the occurrence of an Event of Default specified the remaining sections of Articles III (other than failure to pay the principal hereof or interest thereon at the Maturity Date specified in Section 3,1 hereof), the Note shall become immediately due and payable and the Borrower shall pay to the Holder, in full satisfaction of its obligations hereunder, an amount equal to the greater of (i) 150% times the sum of (w) the then outstanding principal amount of this Note plus (x) accrued and unpaid interest on the unpaid principal amount of this Note to the date of payment (the “Mandatory Prepayment Date”) plus (y) Default Interest, if any, on the amounts referred to in clauses (w) and/or (x) plus (z) any amounts owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof (the then outstanding principal amount of this Note to the date of payment plus the amounts referred to in clauses (x), (y) and (z) shall collectively be known as the “Default Sum”) or (ii) the “parity value” of the Default Sum to be prepaid, where parity value means (a) the highest number of shares of Common Stock issuable upon conversion of or otherwise pursuant to such Default Sum in accordance with Article I, treating the Trading Day immediately preceding the Mandatory Prepayment Date as the “Conversion Date” for purposes of determining the lowest applicable Conversion Price, unless the Default Event arises as a result of a breach in respect of a specific Conversion Date in which case such Conversion Date shall be the Conversion Date), multiplied by (b) the highest Closing Price for the Common Stock during the period beginning on the date of first occurrence of the Event of Default and ending one day prior to the Mandatory Prepayment Date (the “Default Amount”) and all other amounts payable hereunder shall immediately become due and payable, all without demand, presentment or notice, all of which hereby are expressly waived, together with all costs, including, without limitation, legal fees and expenses, of collection, and the Holder shall be entitled to exercise all other rights and remedies available at law or in equity.
 
 
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If the Borrower fails to pay the Default Amount within five (5) business days of written notice that such amount is due and payable, then the Holder shall have the right at any time, so long as the Borrower remains in default (and so long and to the extent that there are sufficient authorized shares), to require the Borrower, upon written notice, to immediately issue, in lieu of the Default Amount, the number of shares of Common Stock of the Borrower equal to the Default Amount divided by the Conversion Price then in effect.
 
ARTICLE IV.  MISCELLANEOUS
 
4.1           Failure or Indulgence Not Waiver.  No failure or delay on the part of the Holder in the exercise of any power, right or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other right, power or privileges.  All rights and remedies existing hereunder are cumulative to, and not exclusive of, any rights or remedies otherwise available.
 
4.2           Notices.  All notices, demands, requests, consents, approvals, and other communications required or permitted hereunder shall be in writing and, unless otherwise specified herein, shall be (i) personally served, (ii) deposited in the mail, registered or certified, return receipt requested, postage prepaid, (iii) delivered by reputable air courier service with charges prepaid, or (iv) transmitted by hand delivery, telegram, or facsimile, addressed as set forth below or to such other address as such party shall have specified most recently by written notice.  Any notice or other communication required or permitted to be given hereunder shall be deemed effective (a) upon hand delivery or delivery by facsimile, with accurate confirmation generated by the transmitting facsimile machine, at the address or number designated below (if delivered on a business day during normal business hours where such notice is to be received), or the first business day following such delivery (if delivered other than on a business day during normal business hours where such notice is to be received) or (b) on the second business day following the date of mailing by express courier service, fully prepaid, addressed to such address, or upon actual receipt of such mailing, whichever shall first occur.  The addresses for such communications shall be:
 
If to the Borrower, to:
   
 
OSL HOLDINGS INC.
 
f/k/a RED ROCK PICTURES HOLDINGS INC.
 
60 Dutch Hill Road - Suite 15
 
Orangeburg, NY 10962
 
Attn:  ELI FEDER, Chief Executive Officer
 
facsimile:  [enter fax number]
 
 
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With a copy by fax only to (which copy shall not constitute notice):
 
Anslow& Jaclin, LLP
 
195 Route 9 South – Suite 204
 
Manalapan, New Jersey 07726
 
732-499-1212
 
732-577-1188
 
If to the Holder:
 
ASHER ENTERPRISES, INC.
 
1 Linden Pl., Suite 207
 
Great Neck, NY. 11021
 
Attn:  Curt Kramer, President
 
facsimile:  516-498-9894
 
With a copy by fax only to (which copy shall not constitute notice):
 
Naidich Wurman Birnbaum & Maday LLP
 
80 Cuttermill Road, Suite 410
 
Great Neck, NY 11021
 
Attn:  Bernard S. Feldman, Esq.
 
facsimile:  516-466-3555
 
4.3           Amendments.  This Note and any provision hereof may only be amended by an instrument in writing signed by the Borrower and the Holder.  The term “Note” and all reference thereto, as used throughout this instrument, shall mean this instrument (and the other Notes issued pursuant to the Purchase Agreement) as originally executed, or if later amended or supplemented, then as so amended or supplemented.
 
4.4           Assignability.  This Note shall be binding upon the Borrower and its successors and assigns, and shall inure to be the benefit of the Holder and its successors and assigns.  Each transferee of this Note must be an “accredited investor” (as defined in Rule 501(a) of the 1933 Act) and must agree in writing to be bound by the same provisions of the original Holder under the Purchase Agreement.  Notwithstanding anything in this Note to the contrary, this Note may be pledged as collateral in connection with a bonafide margin account or other lending arrangement.
 
4.5           Cost of Collection.  If default is made in the payment of this Note, the Borrower shall pay the Holder hereof reasonable costs of collection, including reasonable attorneys’ fees.
 
4.6           Governing Law.  This Note shall be governed by and construed in accordance with the laws of the State of New York without regard to principles of conflicts of laws.  Any action brought by either party against the other concerning the transactions contemplated by this Note shall be brought only in the state courts of New York or in the federal courts located in the state and county of Nassau.  The parties to this Note hereby irrevocably waive any objection to jurisdiction and venue of any action instituted hereunder and shall not assert any defense based on lack of jurisdiction or venue or based upon forum non conveniens.  The Company and Holder waive trial by jury.  The prevailing party shall be entitled to recover from the other party its reasonable attorney's fees and costs.  In the event that any provision of this Note or any other agreement delivered in connection herewith is invalid or unenforceable under any applicable statute or rule of law, then such provision shall be deemed inoperative to the extent that it may conflict therewith and shall be deemed modified to conform with such statute or rule of law.  Any such provision which may prove invalid or unenforceable under any law shall not affect the validity or enforceability of any other provision of any agreement.  Each party hereby irrevocably waives personal service of process and consents to process being served in any suit, action or proceeding in connection with this Agreement or any other Transaction Document by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof.  Nothing contained herein shall be deemed to limit in any way any right to serve process in any other manner permitted by law.
 
 
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4.7           Certain Amounts.  Whenever pursuant to this Note the Borrower is required to pay an amount in excess of the outstanding principal amount (or the portion thereof required to be paid at that time) plus accrued and unpaid interest plus Default Interest on such interest, the Borrower and the Holder agree that the actual damages to the Holder from the receipt of cash payment on this Note may be difficult to determine and the amount to be so paid by the Borrower represents stipulated damages and not a penalty and is intended to compensate the Holder in part for loss of the opportunity to convert this Note and to earn a return from the sale of shares of Common Stock acquired upon conversion of this Note at a price in excess of the price paid for such shares pursuant to this Note.  The Borrower and the Holder hereby agree that such amount of stipulated damages is not plainly disproportionate to the possible loss to the Holder from the receipt of a cash payment without the opportunity to convert this Note into shares of Common Stock.
 
4.8           Purchase Agreement.  By its acceptance of this Note, each party agrees to be bound by the applicable terms of the Purchase Agreement.
 
4.9           Notice of Corporate Events.  Except as otherwise provided below, the Holder of this Note shall have no rights as a Holder of Common Stock unless and only to the extent that it converts this Note into Common Stock.  The Borrower shall provide the Holder with prior notification of any meeting of the Borrower’s shareholders (and copies of proxy materials and other information sent to shareholders).  In the event of any taking by the Borrower of a record of its shareholders for the purpose of determining shareholders who are entitled to receive payment of any dividend or other distribution, any right to subscribe for, purchase or otherwise acquire (including by way of merger, consolidation, reclassification or recapitalization) any share of any class or any other securities or property, or to receive any other right, or for the purpose of determining shareholders who are entitled to vote in connection with any proposed sale, lease or conveyance of all or substantially all of the assets of the Borrower or any proposed liquidation, dissolution or winding up of the Borrower, the Borrower shall mail a notice to the Holder, at least twenty (20) days prior to the record date specified therein (or thirty (30) days prior to the consummation of the transaction or event, whichever is earlier), of the date on which any such record is to be taken for the purpose of such dividend, distribution, right or other event, and a brief statement regarding the amount and character of such dividend, distribution, right or other event to the extent known at such time.  The Borrower shall make a public announcement of any event requiring notification to the Holder hereunder substantially simultaneously with the notification to the Holder in accordance with the terms of this Section 4.9.
 
 
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4.10           Remedies.  The Borrower acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Holder, by vitiating the intent and purpose of the transaction contemplated hereby.  Accordingly, the Borrower acknowledges that the remedy at law for a breach of its obligations under this Note will be inadequate and agrees, in the event of a breach or threatened breach by the Borrower of the provisions of this Note, that the Holder shall be entitled, in addition to all other available remedies at law or in equity, and in addition to the penalties assessable herein, to an injunction or injunctions restraining, preventing or curing any breach of this Note and to enforce specifically the terms and provisions thereof, without the necessity of showing economic loss and without any bond or other security being required.
 
IN WITNESS WHEREOF, Borrower has caused this Note to be signed in its name by its duly authorized officer this July 12, 2012.
 
OSL HOLDINGS INC.
 
f/k/a RED ROCK PICTURES HOLDINGS INC.
   
By: /s/  
ELI FEDER
 
Chief Executive Officer
 

 
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EXHIBIT A
NOTICE OF CONVERSION
 
The undersigned hereby elects to convert $ _____________ principal amount of the Note (defined below) into that number of shares of Common Stock to be issued pursuant to the conversion of the Note (“Common Stock”) as set forth below, of OSL HOLDINGS INC. f/k/a RED ROCK PICTURES HOLDINGS INC., a Nevada corporation (the “Borrower”) according to the conditions of the convertible note of the Borrower dated as of July 12, 2012 (the “Note”), as of the date written below.  No fee will be charged to the Holder for any conversion, except for transfer taxes, if any.
 
Box Checked as to applicable instructions:
 
o
The Borrower shall electronically transmit the Common Stock issuable pursuant to this Notice of Conversion to the account of the undersigned or its nominee with DTC through its Deposit Withdrawal Agent Commission system (“DWAC Transfer”).
   
 
Name of DTC Prime Broker:
 
Account Number:
   
o
The undersigned hereby requests that the Borrower issue a certificate or certificates for the number of shares of Common Stock set forth below (which numbers are based on the Holder’s calculation attached hereto) in the name(s) specified immediately below or, if additional space is necessary, on an attachment hereto:
   
 
ASHER ENTERPRISES, INC.
 
1 Linden Pl., Suite 207
 
Great Neck, NY. 11021
 
Attention:  Certificate Delivery
 
(516) 498-9890
   
 
Date of Conversion:
   
 
Applicable Conversion Price:
$_______________
 
 
Number of Shares of Common Stock to be Issued Pursuant to Conversion of the Notes:
   
 
Amount of Principal Balance Due remaining Under the Note after this conversion:
   

 
 

 
 
ASHER ENTERPRISES, INC.
 
 
By:  _________________________
Name: Curt Kramer
Title: President
Date:  ___________________
1 Linden Pl., Suite 207
Great Neck, NY. 11021
 
 
 

EX-10.6 6 f10k2012ex10vi_oslholdings.htm CONVERTIBLE NOTE DATED APRIL 10, 2012 WITH PANACHE CAPITAL f10k2012ex10vi_oslholdings.htm
Exhibit 10.6
 
NEITHER THIS NOTE NOR THE SECURITIES ISSUABLE UPON CONVERSION HEREOF HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAW8, AND MAY NOT BE TRANSFERRED, SOLD OR OTHERWISE DISPOSED OF IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT WITH RESPECT TO THIS SECURITY, FILED AND MADE EFFECTIVE UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND SUCH APPLICABLE STATE SECURITIES LAWS* OR (B) AN OPINION OF COUNSEL ADDRESSED AND SATISFACTORY TO THE ISSUER TO THE EFFECT THAT REGISTRATION UNDER SUCH ACT AND SUCH APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED.
 
CONVERTIBLE PROMISSORY NOTE
 
$50,000
Wilmington, Delaware
April 10, 2012
     
 
FOR VALUE RECEIVED, the undersigned, OSL Holdings, Inc. (F/K/A Red Rock Pictures Holdings, Inc.), (“Maker”), whose address is 1710 First Avenue, New York, NY 10028, hereby unconditionally promises to pay to Panache Capital, LLC, (“Payee”), the principal sum of $50,000 together with 10% annum interest in lawful money of the United States of America.
 
1.           Definitions.  The following terms shall have the meanings assigned to them in this Section 1.
 
“Business Day” means any day other than a Saturday, Sunday or other day on which banks are authorized to be closed under the laws of the State of Delaware.
 
“Maximum Rate,” means the maximum nonusurious interest rate that at any time may be contracted for, taken, reserved, charged, or received on the indebtedness evidenced by this Note.
 
“Note” shall refer to and mean this Convertible Promissory Note.
 
2.           Payment of Principal.  The principal of this Note shall be due and payable one year to the day from the date of this Note, April 10,2013.  All past-due principal of this Note shall bear interest until paid at the Maximum Rate or, if no Maximum Rate is established by applicable law, at the rate of 15% per annum.
 
3.           Conversion of Note.  Payee, at its discretion, has the right to convert this Note into the common stock of Maker, on the terms and conditions set forth in this Section.
 
 
I.
(a) Payee shall have the right to convert this Note in its entirety or in part into common stock valued at a price not to fall below the higher of:
 
(A)  A Twenty Five Percent (25%) discount to the average of the three (3) lowest closing bid prices for the Company’s common stock during the Ten (10) trading days immediately preceding a conversion date, as reported by Bloomberg (the “Average Closing Bid Price”); or
 
 
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(B)  $.01 per share.
 
For purposes of this Agreement, the Clearing Date shall be on the date in which the conversion shares are deposited into the Purchaser’s brokerage account and Purchaser’s broker has confirmed with Purchaser the Purchaser may execute trades of the conversion shares.
 
The maker shall use its reasonable efforts in good faith to take such corporate and other action as may be required to authorize and permit the issuance, delivery and/or registration of the conversion stock, including, without limitation, the amendment of the Marker’s Certificate of Incorporation.
 
 
II.
Within 48 hours after the conversion of any portion of this Note into Conversion Stock as contemplated herein, the Company shall issue and deliver to or upon the written order of me holder, to the place designated by the holder, a certificate or certificates for the number of full shares of Conversion Stock.
 
The undersigned parties may, however, reconvene to amend this section as needed.
 
4.           Payment Date.  Should the principal of this Note become due and payable on any day other than a Business Day, the maturity thereof shall be extended to the next succeeding Business Day.  All payments made to Payee by Maker hereunder shall be applied first to accrued interest and then to principal.  Payments received by Payee after 6:00 o’clock p.m. EST on any Business Day shall be deemed to have been received on the following Business Day.
 
5.           Optional Prepayment.  A Twenty-Five percent (25%) prepayment fee shall entitle the Debtor to prepay the outstanding principal and interest on the note, in whole or in part, at any time.
 
6.           Events of Default: Acceleration: Recourse.  An “Event of Default” shall exist under this Note if any one or more of the following events shall occur:
 
(a)           Maker shall fail to pay when due any principal of this Note;
 
(b)           Maker shall: (t) apply for or consent to the appointment of a receiver, trustee, or intervener, custodian or liquidator of all or a substantial part of its assets, (ii) be adjudicated as bankrupt or insolvent or file a voluntary petition for bankruptcy or admit in writing that it is unable to pay its debts as they become due, (Hi) make a general assignment for the benefit of creditors, (iv) file a petition or answer seeking reorganization or an arrangement with creditors or to take advantage of any bankruptcy or insolvency laws, (v) file an answer admitting the material allegations of, or consent to, or default in answering, a petition filed against H in any bankruptcy, reorganization, or insolvency proceeding, or any action for the purpose of effecting any of the foregoing; or (vi) an order, judgment or decree shall be entered by any court of competent jurisdiction or other competent authority approving a petition appointing a receiver, trustee, intervenor or liquidator of all of its assets, and such order, judgment or decree shall continue unstayed and in effect for a period of sixty (60) days.
 
 
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(c)           Maker, upon fall or partial conversion by payee, fails to deliver said shares to the payee within 3 business days.  For purposes of this section, shares will be deemed delivered on the business day that they are received by the payee at the address listed below.
 
If Maker fails or refuses to pay any part of the principal of this Note as the same becomes due, or upon the occurrence of an Event of Default hereunder, then in any such event the payee hereof may, at its option, (i) declare the entire unpaid balance of principal of this Note to be immediately due and payable without notice, (ii) reduce any claim to judgment, (iii) foreclose any liens or security interest securing all or any part hereof, and/or (iv) demand, pursue and enforce any of Payee’s rights and remedies pursuant to any applicable law or agreement.  Each right and remedy available to Payee shall be cumulative of and in addition to each other such right and remedy.  No delay on the part of Payee in the exercise of any right or remedy available to Payee shall operate as a waiver thereof, nor shall any single or partial exercise thereof preclude other or further exercise thereof or exercise of any other such right or remedy.
 
7.           Notice.  Whenever this Note requires or permits any notice, approval, request or demand from one party to another, the notice, approval, request or demand must be in writing and shall be deemed to have been given when personally served or when deposited in the United States mail, registered or certified, return receipt requested, addressed to the party to be notified at the following address (or at such other address as may have been designated by written notice):
 
Maker:
OSL Holdings, Inc.
 
1710 First Avenue
 
New York, NY 10028
 
Website:
 
Phone:
 
Email:
 
 
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Payee:
Panache Capital, LLC
 
1350 6TH Avenue
 
2nd Floor
 
New York, NY 10019
 
Attention:  Mark Grober
 
Telephone:  (646) 599-9219
 
In the event that the payee hereof shall fail to give notice of default to Maker as provided herein, the sole and exclusive remedy of Maker for such failure shall be to seek appropriate equitable relief to enforce this agreement to give such notice and to have any acceleration of the maturity hereof postponed or revoked and foreclosure proceedings in connection therewith delayed or terminated pending or upon the curing of such default in the manner and during the period of time hereinbefore set out, and Maker shall have no right to damages or any other type of relief not herein specifically set out against the payee hereof all of which damages or other relief are expressly waived by Maker.  The foregoing is not intended and shall not be deemed under any circumstances to require the payee hereof to give notice of any type or nature to Maker not expressly required by other provisions of this Note.
 
8.           Miscellaneous.
 
(a)           Governing Law.  This Note is being executed and delivered, and is intended to be performed, in the State of Delaware.  Except to the extent that the laws of the United States may apply to the terms hereof, the substantive laws of the State of Delaware shall govern the validity, construction, enforcement and interpretation of this Mote.  In the event of a dispute involving this Note or any other instruments executed in connection herewith, the parties irrevocably agree that exclusive venue for such dispute shall lie in any court of competent jurisdiction in Delaware, and the parties waive any claim that such forum is inappropriate or inconvenient
 
(b)           Limitations on Interest.  Regardless of any provisions contained in this Note, Payee shall never be deemed to have contracted for or be entitled to receive, collect or apply as interest on this Note, any amount in excess of the Maximum Rate, and, in the event Payee ever receives, collects or applies as interest any such excess, such amount that would be excessive interest shall be applied to the reduction of the unpaid principal balance of this Note, and, if the principal balance of this Note is paid in full any remaining excess shall forthwith be paid to Maker.  In determining whether or not the interest paid or payable under any specific contingency exceeds the Maximum Rate, Maker and Payee shall, to the maximum extent permitted under applicable law, (i) characterize any non-principal payment (other than payments that are expressly designated as interest payments hereunder) as an expense or fee, rather than as interest, (ii) exclude voluntary prepayments and the effect thereof, and (iii) spread the total amount of interest throughout the entire contemplated term of this Note so that the interest rate is uniform throughout such term.
 
 
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(c)           Waivers.  Maker agrees to waive presentment and demand for payment, protest, notice of protest, notice of intent to accelerate, notice of acceleration, and notice of default, and agree that their liability under this Note shall not be affected by any renewal or extension in the time of payment hereof, or by any increases or indulgences, or by any release or change in any security for the payment of this Note, and hereby consent to any and all renewals, extensions? increases, indulgences, releases or changes, regardless of the number of such renewals, extensions, increases, indulgences, releases or changes.
 
(d)           Costs of Collection.  If this Note is not paid when due or if an Event of Default occurs, Maker promises to pay all costs of enforcement and collection, including reasonable attorney’s fees, whether or not any action or proceeding is brought to enforce the provision hereof.
 
(e)           Partial Invalidity.  The unenforceability or invalidity of any provision of this Note shall not affect the enforceability or validity of any other provision of this Note.
 
(f)           Amendment.  This Note may be amended or modified only by written instruments) duly executed by both Maker and Payee.
 
THIS NOTE REPRESENTS THE FINAL AGREEMENT BETWEEN MAKER AND PAYEE CONCERNING THE MATTERS HEREIN AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS QF TO PARTIES.
 
THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
 
 
MAKER:
 
 
OSL Holdings, Inc.
 
     
 
By:
/s/  
   
Name:
 
   
Title:  CEO
 
     
 
PAYEE:
 
 
Panache Capital, LLC
 
     
 
By:
/s/  
   
Name:  Mark Grober
 
   
Title:  Managing Member
 

 
 
5

EX-10.9 7 f10k2012ex10ix_oslholdings.htm AMENDMENT TO CONVERTIBLE NOTES DATED SEPTEMBER 21, 2012 WITH PANACHE CAPITAL f10k2012ex10ix_oslholdings.htm
Exhibit 10.9
 
AMENDMENT

WHEREAS, Panache Capital LLC. (“Panache”), an unaffiliated third-party investor, has loaned OSL Holdings, Inc. (the “Company” or “OSLH”) money from time to time through the issuance of the following Convertible Promissory Notes:

DATED
PRINCIPAL AMOUNT
March 5, 2012
$125,000
April 10, 2012
$50,000
April 18, 2012
$50,000
April 26, 2012
$25,000

The undersigned, on this ___ day of September, 2012, being duly authorized and for good and valuable consideration, RESOLVE to immediately effectuate the following:
 
1. Panache adopts a policy granting OSLH the option to redeem the Convertible Promissory Notes listed above for 100% of their outstanding principal and interest within Ninety days of the signing of this Agreement,. Said option will expire on December __, 2012, and the redemption terms contained in the Notes (125% of outstanding principal and interest) shall be reinstated thereafter.
 
2. For a period of Ninety days following the execution of this agreement (through December __, 2012), Panache, absent an Event of Default, will refrain from submitting any notices of conversions pursuant to the rights contained in the Convertible Promissory Notes listed above.
 
3. OSLH hereby adopts a policy, effective immediately, that absent an Event of Default, it will not convert any debt held by Panache that would result in Panache owning more than 9.99% of the Company.
 
4. Panache and OSLH agree to amend that portion of each individual Convertible Promissory Note listed above, respectively, which presently reads as follows:
 
“3. Conversion of Note. Payee, at its discretion, has the right to convert this Note into the common stock of Maker, on the terms and conditions set forth in this Section.
 
(a) Payee shall have the right to convert this Note in its entirety or in part into common stock valued at a price not to fall below the higher of:
 
(A) A Twenty Five Percent (25%) discount to the average of the three (3) lowest closing bid prices for the Company’s common stock during the Ten (10) trading days immediately preceding a conversion date, as reported by Bloomberg (the “Average Closing Bid Price”); or
 
(B) $.01 per share.”
 
to immediately reflect the following changes:
 
 
 

 
 
3. Conversion of Note. Payee, at its discretion, has the right to convert this Note into the common stock of Maker, on the terms and conditions set forth in this Section.
 
(a) Payee shall have the right to convert this Note in its entirety or in part into common stock valued at a price not to fall below a Forty Nine (49%) discount to the average of the Three (3) lowest closing bid prices for the Company’s common stock during the Ten (10) trading days immediately preceding a conversion date, as reported by Bloomberg (the “Average Closing Bid Price”).
 
OSL HOLDINGS, INC.
 
BY: 
/s/  
Print:
   
Title:
   
Date:
   
     
PANACHE CAPITAL, LLC.
 
 
BY:
/s/  
Print:
   
Title:
   
Date:
   
 
 
 

EX-10.11 8 f10k2012ex10xi_oslholdings.htm PROMISSORY NOTE f10k2012ex10xi_oslholdings.htm
Exhibit 10.11
 
NEITHER THIS SECURITY NOR THE SECURITIES FOR WHICH THIS SECURITY IS CONVERTIBLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE SECURITIES ACT), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS.
 
OFFICE SUPPLY LINE, INC.
 
PROMISSORY NOTE
 
Date of Issuance:  October 3, 2011
Principal Amount: $240,000
 
 
FOR VALUE RECEIVED Office Supply Line, Inc., a Nevada company (the “Company”), promises to pay to Crisnic Fund, S.A. (“Holder”), or its registered assigns, the principal sum of two hundred and forty thousand dollars ($240,000) (the “Principal”) when due, whether upon the Due Date (as defined below), acceleration, prepayment or otherwise (in each case in accordance with the terms hereof). This promissory note (this “Note”) is issued pursuant to the Securities Exchange Agreement dated as of the date set out above as the Issuance Date (the “Issuance Date”), by and among the Holder, the Company, Red Rock Pictures Holdings Inc., a Nevada corporation and the shareholders of the Company, as may be amended from time to time (the “Exchange Agreement”). Capitalized terms not otherwise defined herein shall have the same meanings ascribed to them in the Exchange Agreement.
 
Section 1. Payment of Principal. On the Due Date, the Company shall pay to the Holder an amount in cash representing all outstanding Principal. For purposes of this Note, “Due Date” means the schedule of payment dates listed on Schedule A.
 
Section 2. Payment. Payments due hereunder shall be made in lawful tender of the United States. All payments due hereunder shall be made by the Company to Holder at the address set forth in Section 13 below, or at such other place as the Holder may from time to time designate in writing.
 
Section 3. Events of Default. The occurrence of any of the following shall constitute an “Event of Default” under this Note:
 
(a)  The Company shall fail to pay any principal payment required under the terms of this Note within five (5) days of the Due Date thereof.
 
 
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Section 4. Notice of Default; Cure; Remedies. Upon an Event of Default, the Holder shall deliver written notice of the Event of Default to the Company in accordance with Section  13 hereof (a “Default Notice”). The Company shall have the right to cure, within the thirty (30) days following the Company’s receipt of a Default Notice (the “Cure Period”), any Event of Default. If the Company fails to cure an Event of Default within the Cure Period, then at any time following the end of the Cure Period (the “Demand Date”) the Holder may declare all outstanding obligations payable by the Company hereunder to be immediately due and payable without presentment, demand, protest or any other notice of any kind, all of which are hereby expressly waived and, in addition to the foregoing remedies, the Holder may exercise any other right, power or remedy granted to it or otherwise permitted to it by law, either by suit in equity or by action at law, or both.
 
Section 5. Escrow Agreement. The obligations of the Company under this Promissory Note are secured by 650,001 preferred shares of Red Rock Pictures Holdings, Inc. (“Red Rock”) pursuant to the Escrow Agreement, dated as of October 3, 2011 between the Company, Red Rock, the Holder and Sichenzia Ross Friedman Ference Anslow LLP.
 
Section 6. Subordination. All payments due under this Note shall rank pari passu with all Other Notes; provided, however, that any and all payments due under this Note shall become subordinate to any future Indebtedness of the Company relating to the consummation of any business combination through purchase, sale, merger, joint venture or otherwise in one or more transactions. For purposes of this Note, “Indebtedness” means (x) any liabilities for borrowed money or amounts owed in excess of $1,000 (other than trade accounts payable incurred in the ordinary course of business), (y) all guaranties, endorsements and other contingent obligations in respect of Indebtedness of others, whether or not the same are or should be reflected in the Company’s balance sheet (or the notes thereto), except guaranties by endorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of business; and (z) the present value of any lease payments in excess of $1,000 due under leases required to be capitalized in accordance with GAAP.
 
Section 7. No Voting or Dividend Rights; Limitation of Liability. Nothing contained in this Note shall be construed as conferring upon the Holder the right to vote or to consent or to receive notice as a member of the Company or any other matters or any rights whatsoever as a member of the Company. No dividends shall be payable or accrued in respect of this Note, the interest represented hereby or the underlying securities until, and only to the extent that, the conversion rights of this Note shall have been exercised.
 
Section 8. Successors and Assigns. The Company may not sell, transfer or otherwise dispose of this Note without the prior written consent of the Holder. The rights and obligations of the Company and the Holder shall be binding upon and benefit the successors, assigns, heirs, administrators and transferees of the parties.
 
Section 9. Construction; Headings. This Note shall be deemed to be jointly drafted by the Company and the Holder and shall not be construed against any person as the drafter hereof. The headings of this Note are for convenience of reference and shall not form part of, or affect the interpretation of, this Note.
 
 
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Section 10. Severability.Any provision of this Note that is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof but shall be interpreted as if it were written so as to be enforceable to the maximum extent permitted by applicable law, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. To the extent permitted by applicable law, the parties hereby waive any provision of law which renders any provision hereof prohibited or unenforceable in any respect.
 
Section 11. Cancellation. After all principal, accrued interest, late charges and other amounts at any time owed on this Note have been converted or paid in full, this Note shall automatically be deemed canceled, shall be surrendered to the Company for cancellation and shall not be reissued.
 
Section 12. Amendments; Waivers. Any term of this Note may be amended and the observance of any term of this Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively), only with the written consent of the Company and the Purchaser.
 
Section 13. Notices. Any notice required or permitted by this Note shall be made in accordance with the Exchange Agreement.
 
Section 14. Governing Law; Consent to Jurisdiction; Waiver of Jury Trial. This Note shall be governed by, and construed in accordance with, the internal laws of the State of New York without regard to the choice of law principles thereof. Each of the Company and the Holder irrevocably submits to the exclusive jurisdiction of the courts of the State of New York for the purpose of any suit, action, proceeding or judgment relating to or arising out of this Note and the transactions contemplated hereby. Service of process in connection with any such suit, action or proceeding may be served on the Company and the Holder, as applicable, anywhere in the world by the same methods as are specified for the giving of notices under the Exchange Agreement. Each of the Company and the Holder irrevocably consents to the jurisdiction of any such court in any such suit, action or proceeding and to the laying of venue in such court. Each of the Company and the Holder irrevocably waives any objection to the laying of venue of any such suit, action or proceeding brought in such courts and irrevocably waives any claim that any such suit, action or proceeding brought in any such court has been brought in an inconvenient forum. EACH OF THE COMPANY AND THE HOLDER WAIVES ANY RIGHT TO REQUEST A TRIAL BY JURY IN ANY LITIGATION WITH RESPECT TO THIS NOTE AND REPRESENTS THAT COUNSEL HAS BEEN CONSULTED SPECIFICALLY AS TO THIS WAIVER.
 
[Signature Follows On Next Page]
 
 
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IN WITNESS WHEREOF, the Company has caused this Note to be issued as of the date first written above.
 
 
OFFICE SUPPLY LINE, INC.
 
       
 
By:
/s/   
  Name    
  Title:    

 
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Schedule A
 
Amount Due
Due Date
   
$50,000
November 8, 2011
   
$25,000
November 15, 2011
   
$25,000
November 22, 2011
   
$25,000
November 29, 2011
   
$25,000
December 6, 2011
   
$25,000
December 13, 2011
   
$25,000
December 20, 2011
   
$25,000
December 27, 2011
   
$15,000
January 3, 2012
 
 
 5

EX-10.13 9 f10k2012ex10xiii_oslholdings.htm LEASE AGREEMENT f10k2012ex10xiii_oslholdings.htm
Exhibit 10.13
 
Lease Agreement (hereinafter called "Lease") made this 11th day of March, 2012 between ULSTER HEIGHTS PROPERTIES INC., with offices at P.O.B. 1029, Monsey, New York 10952 (hereinafter called "Lessor" or "Landlord"); and OSL Holdings Inc. (hereinafter called "Lessee" or "Tenant"), with a principal place of business at 60 Dutch Hill Rd. # 15 Prel Plaza, Orangeburg, New York 10962.
 
W I T N E S S E T H:
 
            Lessor leases to Lessee and Lessee hires from Lessor Thirteen hundred and eighty nine  (1389) gross square feet designated office #15, as more particularly set forth in Schedule A attached hereto and made a part hereof (hereinafter called the "Demised Premises" or the "Premises") in the building known as Prel Plaza, Orangeburg, in the Town of Orangeburg, State of New York, (hereinafter called "Building") for the term and upon the payment of the rents and the keeping, performance and observance of all the terms, covenants, provisions, conditions and limitations hereinafter set forth, and each of the parties covenants and agrees to keep, perform and observe all of the same on its part to be kept, performed and observed.  The parties acknowledge that each has independently measured the area to be demised and have agreed upon 1330 square feet for the purposes of this Lease.
 
TERM AND COMMENCEMENT DATE
 
            1.         (a)        The term of this Lease shall be for FIVE (5) years beginning on the "commencement date" as set forth in paragraph 1(b).
 
                        (b)        The initial term of this Lease shall commence on March 1, 2012 (hereinafter called the "Commencement Date").
 
                        (c)        Tenant shall have access to the Demised Premises twenty-four (24) hours a day seven (7) days a week.
 
RENT AND SECURITY DEPOSIT
 
            2.         (a)        Lessee covenants and agrees to pay Lessor the Base Rent and additional rents hereinafter provided.  As Base Rent for the Demised Premises, the Lessee shall pay the sum set forth in Subparagraph (b) of this Paragraph 2, payable in equal monthly installments in advance, on the first day of each calendar month during the term.  Lessee covenants and agrees that the Base Rent and all additional rents, charges and adjustments hereunder shall be paid to Lessor in legal tender of the United States of America without any demand therefor, at the address of Lessor as above, or at such other place as Lessor may from time to time designate by notice in writing.
 
                        Rent is due on the first of every month, in the event payment is not made on or before the 10’tht’day of the month, Lessee shall pay a late charge in the amount of 7% of the total monthly rental payments that are due.
 
 (b)        Base Rent payable by Lessee to Lessor shall be the sum of $24,000.00 per annum, payable in equal monthly installments of $2000.00 for the first year of this Lease.  The rent for the Second year of the lease shall be the amount of $2500.00 per month. The rent for the third year of the lease shall be the amount of $3000.00 per month The rent for the last two years of the lease should be the amount mentioned above with an increase of the CPI plus Two percent with a five percent cap.
 
 
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                        (c)        The Lessee has deposited with Lessor the sum of $5000.00 as security for the faithful performance and observance by Lessee of the terms, provisions and conditions of this lease; it is agreed that in the event Lessee defaults in respect of any of the terms, provisions and conditions of this lease, including, but not limited to the payment of rent and additional rent.  Lessor may use, apply or retain the whole or any part of the security so deposited to the extent required for the payment of any rent and additional rent or any other sum as to which Lessee is in default or for any sum which Lessor may expend or may be required to expend by reason of Lessee's default in respect of any of the terms, covenants and conditions of this lease, including but not limited to, any damages or deficiency in the re-letting of the premises, whether such damages or deficiency accrued before or after summary proceedings or other re-entry by Lessor.  In the event that Lessee shall fully and faithfully comply with all of the terms, provisions, covenants and conditions of this lease, the security shall be returned to Lessee after the date fixed as the end of the Lease and after delivery of entire possession of the demised premises to Lessor.  In the event of a sale of the land and building or leasing of the building, of which the demised premises form a part, Lessor shall have the right to transfer the security to the vendee or lessee and Lessor shall thereupon be released by Lessee from all liability for the return of such security, and Lessee agrees to look to the new Lessor for the return of said security; and it is agreed that the provisions hereof shall apply to every transfer or assignment made of the security to a new Lessor.  Lessor further covenants that it will not assign or encumber or attempt to assign or encumber the monies deposited herein as security and that neither Lessor nor its successors or assigns shall be bound by any such assignment, encumbrance, attempted assignment or attempted encumbrance.
 
USE
 
            3.         (a)        Lessee shall use and occupy the Demised Premises for any legal office purpose and for no other purposes.
                                                    
                        (b)        Lessee shall not use or permit the Demised Premises to be used for any unlawful or illegal business or purpose or for lodging and no cooking shall be done therein.  Using a microwave and coffeemaker is permissible. Lessee at its sole expense shall comply promptly with all laws, orders and regulations of Federal, State, County and Municipal Authorities and with any direction of any public officer or officers which shall impose any liability, order or duty upon Lessor or Lessee with respect to Lessee's use or occupancy of the Demised Premises any spirituous, malt or vinous liquor or any narcotic drugs and shall not exhibit, sell or offer for sale on the Demised Premises or in the building anything whatsoever except such as are essentially connected with the stated use of the Demised Premises.  Lessee shall not do or permit to be done any act or thing upon the Demised Premises which will invalidate or be in conflict with any fire insurance policies or increase the rate for fire insurance covering the building of which the Demised Premises form a part and shall not do or permit to be done any act or things upon the Demised Premises which shall or might subject Lessor to any liability or responsibility for injury to any person or persons or to property by reason of any business or operation being carried on in the Demised Premises or for any other reason.  In no event shall any explosives or flammable materials be taken into or retained in the premises.  If by reason of failure of Lessee to comply with the provisions hereof including, but not limited to, the use to which Lessee puts the Premises, the fire insurance rate shall at the commencement of the term or at any time thereafter be higher than it otherwise would be, then Lessee shall reimburse Lessor, as additional rent hereunder, for that part of all fire insurance premiums thereafter paid by Lessor, which shall have been charged because of such failure or use by Lessee and shall make such reimbursement upon the first day of the month following payment of such additional cost by Lessor.  Lessee will not at any time use or occupy the Demised Premises in violation of any certificate of occupancy issued for the building or the Premises, provided said Certificate of Occupancy allows for the use hereinabove set forth.
 
 
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                        (c)        Lessor expressly warrants and represents that it is authorized to enter into this Lease Agreement with Lessee and that the Building is zoned to permit the Premises to be used for all of the purposes hereinbefore stated in Paragraph 3(b) above.  Lessor also covenants and agrees that it is not currently in violation of any law, order of regulation of Federal, State, County and Municipal Authorities, with respect to the subject Premises.  Notwithstanding anything in this Paragraph 3(c) to the contrary, Lessor shall be responsible for and shall hold Lessee harmless from any costs, damages of expenses resulting from Lessor's failure at anytime during the term of the Lease to comply with any laws, orders and regulations of Federal, State, County and Municipal Authorities pertaining to the Building.  Without limiting the foregoing, Lessor shall be solely responsible for, and shall hold Lessee harmless from any costs, damages or expenses involved in the Lessor's compliance or attempt to comply as owners of the Building, with any order, public or private suit, action or claim relating to an environmental problem not attributable to Lessee.
 
                        (d)        In the event any governmental authority having jurisdiction shall hereafter at any time contend and/or declare by notice, violation, order, statute, rule, regulation or in any other manner whatsoever that the Demised Premises are used for a purpose which is in violation of any such law, order or certificate of occupancy provided it shall hold the Landlord harmless and indemnify it from any liability of whatever kind whatsoever resulting from the Lessee's continued use of the Premises.  In the event Lessee chooses not to contest or an adverse determination is made against it as a result of such contest, failure by Lessee to discontinue such use after such notice shall be deemed a default in the fulfillment of a covenant of this Lease and Lessor shall have the right to terminate this Lease immediately, and in addition shall have any and all the rights, privileges and remedies given to Lessor by and pursuant to the provisions of Paragraph 19 hereof.
 
ADDITIONAL RENT
 
            4.          (a)        Gross Lease.  It is understood and agreed that this Lease Agreement is intended to a be gross lease.  It is the intention of the parties that Landlord shall receive the rentals herein reserved free form all charges and expenses, except as set forth herein in this Lease, imposed upon or by reason of the Premises and the ownership of Landlord, its successors and assigns.
 
                                    (i)  In no event shall Tenant be liable hereunder for or required to pay any income, profit, excise or franchise taxes, or taxes with respect to the rent received by Landlord under this Lease Agreement, or upon the right of Landlord to receive such rent or to do business, or any tax, assessment or governmental imposition in replacement or substitution of the foregoing or of a similar character.
 
 
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                                    (vi)  If Landlord shall receive a refund for any tax year in which a tax payment shall have been made by Tenant, Landlord shall repay to Tenant, Tenant's Proportionate Share of such refund after deducting therefrom the costs and expenses of obtaining such refund.  If Landlord shall effect a reduction in assessed valuation, thus reducing the amount of taxes which would otherwise be payable by Tenant hereunder, Tenant shall pay, within twenty (20) days after demand to Landlord, Tenant's share of the costs and expenses of obtaining such reduction of assessed value (less any amounts paid or applied upon receipt of refund), which demand shall set forth a breakdown of such costs and expenses.
 
REPAIRS, REPLACEMENTS, ALTERATIONS and INSTALLATIONS
 
            5.         (a)        Lessee shall take good care of the Demised Premises and the fixtures and appurtenances therein.  Lessee shall make at its own expense all repairs and replacements required to keep the Demised Premises and fixtures in good working order and condition except (a) structural repairs other than those resulting from the misuse or negligence of the Tenant; (b) repairs required to be made by Lessor pursuant to Article 14 hereof; (c) repairs and replacements to the lighting ballasts and major components of the heating and air conditioning system, including, without limitation, compressors, fans, motors, blowers and duct work.  All such repairs and replacements shall be the Lessor's sole responsibility unless same was caused due to the negligence of the Tenant; and (d) such repairs as may be required of Lessor in furnishing the services specified in Paragraph 6 hereof.  Lessee shall maintain, at its own expense, all light bulbs, fluorescent tubes, and lighting fixtures in the Demised Premises, including all component parts such as starters, ballasts, and lenses or grills.  All repairs made by Lessee shall be at least equal in quality to the original work.  Lessee shall not make any installations, alterations, additions or improvements in or to the Demised Premises without first obtaining Lessor's written consent thereto other than cosmetic changes and those relating to the Tenant's initial fix-up of the Premises and shall make the same and all repairs only between such hours and by such contractors or mechanics as may be approved in writing by Lessor, which approval shall not be unreasonably withheld.  All alterations, decorations, installations, additions or improvements upon the Demised Premises made by either party (including but not limited to fixed panelling, partitions, railings, and the like), except Lessee's movable fixtures book shelves and furniture shall, unless Lessor elects otherwise (by notice in writing to Lessee given not less than twenty (20) days prior to the expiration or other termination of this Lease or of any renewal or extension thereof) become the property of Lessor and shall remain upon, and be surrendered with, said Premises, as a part thereof, at the end of said term or renewal term, as the case may be.  If Lessor shall elect otherwise, then Lessee shall remove at its expense such alterations, installations, additions or improvements made by Lessee upon the Premises as Lessor shall so elect, and Lessee shall repair and restore the Premises to original condition, fair wear and tear accepted, at its sole expense prior to the expiration of the term.
 
            Lessee shall have the right to provide additional telephone and/or electric lines to the Demised Premises providing such additional lines do not involve the defacing of the building or affect the appearance of the building.  Should such additional electric lines increase the cost of electricity to the Lessor, such increase shall be paid by Lessee, or Lessor may, at its sole discretion, have the area demised separately metered, with all charges incident thereto and monthly charges thereafter paid by Lessee during the term of the Lease.
 
 
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                        (b)        ALTERATIONS     Tenant shall, before making any alterations, additions, installations or improvements, at its expense, obtain all permits, approvals, certificates required by any government or quasi-governmental bodies and (upon completion) certificates of final approval thereof and shall deliver promptly duplicates of all such permits, approvals and certificates to Lessor and Lessee agrees to carry and will cause Lessee's contractors and subcontractors to carry such workman's compensation, general liability, personal and property damage insurance as Lessor may reasonably require. l If any mechanic's lien is filed against the Demised Premises, or the building of which the same forms a part, for work claimed to have been done for, or materials furnished to, Lessee, whether or not done pursuant to this paragraph, the same shall be discharged by Lessee within twenty (20) days thereafter, at Lessee's expense, by filing the bond required by law or otherwise.  All fixtures including but not limited to all plumbing, electrical and HVAC installations, (but excluding the Lessee's trade fixtures), partitions railings and like installations, installed in the Premises at any time, either by Lessee or by Lessor in Lessee's behalf, shall, upon installation, become the property of Lessor and shall remain upon and be surrendered with the Demised Premises unless Lessor, by notice to Lessee no later than twenty (20) days prior to the date fixed as the termination of this Lease, elects to relinquish Lessor's rights thereto and to have them removed by Lessee, in which event, the same shall be removed from the Premises by Lessee prior to the expiration of the Lease, at Lessee's expense.  Nothing in this paragraph shall be construed to give Lessor title to or to prevent Lessee's removal of trade fixtures, moveable office furniture and equipment, and records and files, but upon removal of any such from the Premises or upon removal of other installations as may be required by Lessor.  Lessee shall immediately and at its expense, repair and restore the Premises to the condition existing prior to installation, normal wear and tear accepted, and repair any damage to the Demised Premises or the Building due to such removal.  All property permitted or required to be removed by Lessee at the end of the term remaining in the Premises after Lessee's removal shall be deemed abandoned and may, at the election of Lessor, either be retained as Lessor's property or may be removed from the Premises by Lessor at Lessee's expense.
 
(c)        The Landlord at its sole cost and expense shall install upon the roof of the building new air conditioning unit of units of sufficient size and capacity so as to cool the demised premises to 70 degrees when the outside temperature is 90 degrees.  Tenant shall as part of its plans and specifications show the duct work and all other electrical and installation requirements and other required work for the use of such unit installed by the Landlord which work shall be at Tenant's cost and expense as set forth in paragraph 2 (b) hereof.
 
(d)        The landlord shall install a kitchen as promised  to tenant at the landlords cost in the future in the same manner they agreed on. 
 
ASSIGNMENT
 
            6.         Lessor acknowledges and consents to Lessee sharing all or part of the Demised Premises with various affiliated entities and shall permit Lessee to apportion space and payments in its sole discretion. Lessor also consents to Lessee’s right to sublet all or part of Demised premises for any lawful office use in its sole discretion. The consent by Lessor to an assignment or underletting shall not in any wise be construed to relieve Lessee from obtaining the express consent in writing of Lessor to any further assignment or underletting, nor shall the same release or discharge Lessee from any liability, past, present or future, under this Lease, and Lessee shall continue fully liable in all respects hereunder.
 
 
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LIABILITY AND INDEMNITY
 
            7.         (a)        Lessee agrees to indemnify and save harmless Lessor against and from any and all claims by or on behalf of any person or persons, firm or firms, corporations, arising from the conduct or management of or from any work or anything whatsoever done by or on behalf of Lessee other than those claims resulting from the intentional or negligent acts and omissions of the Landlord or its agents, contractors, servants, employees or licenses in or about the Demised Premises, and will further indemnify and save Lessor harmless against and from any and all claims arising from any breach or default on the part of Lessee in the performance of any covenant or agreement on the part of Lessee to be performed, pursuant to the terms of this Lease, or arising from intentional or negligent acts and omissions of Lessee, or any of its agents, contractors, servants, employees or licensees, and from and against all costs, counsel fees, expenses and liabilities incurred in or about any such claim or action or proceeding brought thereon; and in case any action or proceeding be brought against Lessor by reason of any claim, Lessee upon notice from Lessor covenants to resist or defend at Lessee's expense such action or proceeding.
 
                        (b)        Landlord shall not be liable to Tenant or Tenant's employees, agents, patrons or invitees, or any person whomsoever, for any injury to person or damage to property on or about the Demised Premises or upon the parking lot or sidewalk areas adjoining the Demised Premises caused by the sole negligence or sole misconduct of Tenant, its employees or agents, or any other person entering upon the Premises under express or implied invitation of the Tenant (other than Landlord or Landlord's employees or agents), and Tenant agrees to indemnify Landlord and hold it harmless from any loss, claim, damage, cost or expense suffered or incurred by Landlord by reason of any such damage or injury.
 
                        (c)        If the Landlord or any successor in interest be an individual, joint venture, tenancy in common, co-partnership, limited partnership, unincorporated association, or other unincorporated aggregate of individuals ()all of which are referred to below, individually and collectively, as an "unincorporated Landlord"), then anything elsewhere to the contrary notwithstanding, Tenant shall look solely to the estate and property of such unincorporated Landlord in the land and building of which the Leased Premises are a part, for the satisfaction of Tenant's remedies for the collection of a judgment (or other judicial process) requiring the payment of money by Landlord in the event of any default or breach by Landlord with respect to any of the terms, covenants and conditions of the Lease to be observed and/or performed by Landlord, and no other property or assets of such unincorporated landlord shall be subject to levy, execution or other enforcement procedure for the satisfaction of tenant's remedies except for any insurance fund which may be available to the Landlord with respect to any such default or breach.
 
 
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                        (d)        Except in the case of an assignment or subletting requiring the prior written consent of the Landlord and subject to the provisions of subparagraph 8(e), the Landlord shall look solely to the furniture, equipment and fixtures and property of the Tenant, or successor in interest for the satisfaction of Landlord's remedies for the collection of a judgment requiring the payment of money by the Tenant in the event of any default or breach by the Tenant with respect to the payment of rent or additional rent.
 
SUBORDINATION AND ATTORNMENT
 
            8.         (a)        This lease and all rights of Lessee hereunder are subject and subordinate to all ground and/or underlying Leases and to all trust indentures and mortgages, blanket or otherwise, which do now or may hereafter affect the same or the real property of which the Demised Premises form a part (and which may also affect other property) and to any and all renewals, modifications, consolidations, replacements and extensions hereof.  It is the intention of the parties that this provision be self-operative and that no further instrument shall be required to effect such subordination of this Lease.  Lessee shall, however, upon demand at any time or times, promptly execute, acknowledge and deliver to Lessor, without expense to Lessor, any and all instruments that may be necessary or proper to subordinate this Lease and all rights of Lessee hereunder to any such Leases, indentures, and/or mortgages or to confirm or evidence said subordination.  Lessee covenants and agrees, in the event any proceedings are brought for the foreclosure of any such mortgage, to attorney to the purchaser upon any such foreclosure sale and to recognize such purchaser as the Lessor under this Lease or, in the event of the termination, for any reason whatsoever, of any such underlying Lease above referred to, that Lessee (at the option of the holder of the reversion under such underlying Lease to be evidenced by written notice of election to Lessee) will attorn to and recognize such holder as the then Lessor under this Lease to the same extent and effect as the original lessor hereunder.  Lessee agrees to execute and deliver at any time and from time to time, upon the request of lessor or of any such holder, any instrument which, in the sole judgment of Lessor, may be necessary or appropriate in any of such events to evidence such attornment.  Lessee further waives the provisions of any statute or rule of law, now or hereafter in effect, which may give or purport to give Lessee any right or election to terminate or otherwise adversely affect this Lease and the obligation of Lessee hereunder in the event any such foreclosure proceeding is brought, and agrees that this Lease shall not be affected in any way whatsoever by any such foreclosure proceeding.
 
                (b)       Tenant agrees that if by reason of default on the part of Landlord herein, under any ground or underlying Lease or any Leasehold mortgage or any mortgage affecting landlord's interest (as ground lessee), or as mortgagor, the underlying lessor (overlandlord) or a Leasehold mortgagee or mortgagee shall enter into and become possessed of the real property of which the Demised Premises form a part, or any part or parts of which real property, either through possession or foreclosure action or proceedings, or through the issuance and delivery of a new Lease of the Premises covered by the ground and underlying Lease to said Leasehold mortgage or new mortgage, then if this Lease is in full force and effect at such time, Tenant shall attorn to such overlandlord, Leasehold mortgagee or mortgagee as its landlord; and in such event, such lessor or Leasehold mortgagee or mortgagee shall not be liable to Tenant for any defaults theretofore committed by Landlord and no such default shall give rise to any rights of offset or deduction against the rents payable under this Lease.
 
 
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            The provisions for attornment herein before set forth shall not require the execution of any further instrument.  However if such lessor or mortgagee to which Tenant agrees to attorn, as aforesaid, reasonably requests a further instrument expressing such attornment, Tenant agrees to execute the same promptly.
 
LOSS OR DAMAGE TO PROPERTY - INSURANCE
 
            9.         (a)        All personal property belonging to Lessee, its servants, employees, suppliers, consignors, customers, licensees, located in or about the building or Demised Premises shall be there at the sole risk of Lessee and neither Lessor or Lessor's agents shall be liable for the theft, loss or misappropriation thereof nor for any damage or injury thereto, nor shall the Lessor be considered the voluntary or involuntary bailee of such personal property, nor for damage or injury to Lessee or any of its officers, agents or employees or to any other persons or to any property caused by fire, explosion, water, rain, snow, frost, steam, gas, electricity, heat or cold, dampness, falling plaster, sewers or sewage, odors, noise, leaks from any part of said building or the roof, the bursting or leaking of pipes, plumbing, electrical wiring and equipment and fixtures of all kinds, or by any act or neglect of other tenants or occupants of the building or of any other person, or caused in any manner whatsoever, except for the intentional or negligent acts or omissions of the Landlord, its agents, servants and/or employees, nor shall Lessor be liable for any latent defect in the Demised Premises or in the building as to Tenant's improvements, except for such latent defects affecting such improvements to the Demised Premises made by the Landlord, Lessee shall give immediate written notice to Lessor in case of fire or accident in the Demised Premises or of any defects, damage or injury therein or in any fixtures or equipment.  Each party will protect, indemnify and save the other harmless from all loses, costs or damages sustained by reason of any act or occurrence causing injury to any person and/or property whomsoever to whatsoever, due directly or indirectly due to its negligence.
 
                        (b)        Lessee agrees to maintain the broadest form available of all risk liability insurance covering the Demised Premises in its name and for the benefit of Landlord of which the Landlord shall be named as an additional insured with any reputable insurance company licensed to do business in the State of New York.  Lessee agrees to maintain fire and extended coverage as well as loss of income insurance covering the demised premises in its name and shall name the Landlord as an additional insured and loss payee with any reputable insurance company licensed to do business in the State of New York.  Said policies shall provide the following minimum coverages:
 
  Property Damage: $ 500,000.00;  
  Liability: $l,000.000.00 per person  
    $3,000,000.00 per occurrence  
  Fire and Extended Coverage, including Loss of Income: $300,000, with Landlord as Loss Payee  
 
            Proof of such insurance shall be submitted to the Lessor from time to time upon request.  Such policies shall further provide that the Lessor must be notified in writing at least ten (10) days prior to the cancellation of any such policies.
 
 
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HOLDING OVER
 
            10.       If the Lessee willfully and wrongfully retains possession of the Demised Premises or any part thereof after the termination of the term by lapse of time or otherwise, without prior written approval of Lessor, the Lessee shall pay the Lessor rent at double the rate specified in Paragraph 2 as increased by adjustments required by Paragraph 4 for the time the Lessee thus remains in possession, and in addition thereto, shall pay the Lessor all damages, consequential as well as direct, sustained by reason of the Lessee's retention of possession.  If the Lessee remains in possession of the Demised Premises, or any part thereof, after the termination of the term by lapse of time or otherwise, such holding over shall, at the election of the Lessor expressed in a written notice to the Lessee and not otherwise, constitute an extension of this Lease on a month to month basis at double the monthly rental set forth in Paragraph 2 as increased by adjustments required by Paragraph 4.  The provisions of this Section do not exclude the Lessor's rights of re-entry or any other right hereunder.
 
EARLIER POSSESSION BY LESSEE
 
            11.       If permission is given to Lessee to enter into the possession of the Demised Premises or to occupy Premises other than the Demised Premises prior to the first day of the term of this Lease, Lessee covenants and agrees that such occupancy shall be deemed to be under all the terms, covenants, conditions and provisions of this Lease. including the covenant to pay rent pro rata.  In any event, rent shall commence on the first day of the term.  Taking possession of the Demised Premises by Lessee shall be conclusive evidence as against Lessee that the Premises were in good order and satisfactory condition when Lessee took possession.  This Lease does not grant any right to light or air over property, and Lessor shall not be liable to Lessee for any expense, injury, loss or damages, resulting from work done in or upon, or by reason of the use of, any adjacent or nearby building, land, street or alley.
 
SURRENDER AT END OF TERM
 
            12.       Lessee shall quit and surrender the Premises at the expiration or earlier termination of the term broom clean and in as good condition as ordinary wear and reasonable use will permit, damage by fire, other casualty and the elements excepted and, subject to Lessor's exercise of the election provided in Article 5, with all installations, alterations, additions and improvements, including partitions which may have been installed by either of the parties upon the Premises (except the Lessee's removable fixtures, furniture, records and files shall remain Lessee's property, and Lessee shall remove the same).  Lessee's obligations to observe and perform this covenant shall survive the said expiration or earlier termination of this Lease.  If the last day of the term or of any renewal thereof falls on a Saturday, Sunday or legal holiday, the term shall expire on the business day immediately preceding.
 
 
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DAMAGE BY FIRE OR OTHER CAUSE
 
            13.       If the Demised Premises shall be partially damaged by fire or other casualty, the damage shall be repaired by and at the expense of Lessor as soon as reasonably possible, and (i) if such damage shall not have been caused by the fault or neglect of Lessee, its servants, employees, agents, or licensees, the rent and any additional rent until such repairs shall by made, shall be apportioned according to the part of the Demised Premises which is usable by Lessee; or (ii) if such damage shall be due to the fault or neglect of Lessee, its servants, employees, agents, or licensees (without prejudice to any other rights and remedies of Lessor), there shall be no abatement or apportionment of rent.  Lessor shall incur no liability on account of any delay in the completion of such repairs which may arise by reason of adjustment of insurance, labor difficulties or any other cause beyond Lessor's control.  If all or substantially all of the Demised Premises or the building are wholly destroyed or become unfit for occupancy as a result of fire or other cause or casualty, either party may elect, by written notice to the other within ninety (90) days after the casualty date (a) to terminate this Lease as of the date when the Demised Premises or building became unfit for occupancy; or (b) the Lessor shall elect to repair, restore or rehabilitate the building or Demised Premises (at the expense of Lessor) commencing within ninety (90) days after Lessor is able to take possession of the damaged Premises and undertake reconstruction or repairs and thereafter to prosecute the work with reasonable diligence, in which latter event the lease shall not terminate, but rent shall be abated on a per diem basis while the Premises are unfit for occupancy.  If Lessor elects to repair, restore and rehabilitate the building and the Demised Premises, and the same shall not have been repaired and restored to substantially their former condition within six (6) months after the date of the casualty (delays caused by adjustment of insurance, labor difficulties or other causes beyond Lessor's control to be excluded from such computation), either party shall have the right to terminate this Lease as of the casualty date by written notice to the other within ten (10) days after the expiration of said six (6) month period.  In the event of such termination of this Lease, Lessee's liability for rent shall cease as of the date the Premises or the building were made unfit for occupancy.  If the Lease shall be terminated pursuant to this Article, Lessee shall promptly vacate the Premises and surrender the same to lessor.  If the damage or destruction be due to the fault or neglect of Lessee, the debris shall be removed at the expense of Lessee.  If the Demised Premises are repaired and restored, the term of this Lease shall be extended for such period of time as the Demised Premises was uninhabitable by Tenant.
 
ADDITIONAL RENT
 
            14.       All costs, charges, adjustments and expenses which Lessee assumes or agrees to pay pursuant to the Lease shall at Lessor's election be treated as additional rent and, in the event of nonpayment, Lessor shall have the rights and remedies herein provided for in the case of nonpayment of rent or a breach of condition.  If Lessee shall default in making any payment required to be made by Lessee or shall default in performing any term, covenant or condition of this Lease on the part of lessee to be performed hereunder, Lessor at Lessor's option may (but shall not be obligated to) immediately or at any time thereafter on ten (10) days' notice make such payment or, on behalf of Lessee, cause the same to be performed for the account of Lessee and expend such sum as may be necessary to perform and fulfill such term, covenant or condition, and any and all sums so expended by Lessor, with interest thereon at the rate of fifteen percent (15%) per annum from the date of such expenditure, shall be and be deemed to be additional rent, in addition to the Base Rent, and shall be repaid by Lessee to Lessor on demand, but no such payment or expenditure by Lessor shall be deemed a waiver of Lessee's default nor shall it affect any other remedy of Lessor by reason of such default.
 
 
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MECHANIC'S LIEN
 
            15.       If, because of any act or omission of Lessee or anyone claiming through or under Lessee, any mechanic's or other lien or order for the payment of money shall be filed against the Demised Premises or the Building, or against Lessor (whether or not such lien or order is valid or enforceable as such), Lessee shall, at Lessee's own cost and expense, cause the same to be canceled and discharged of record within sixty (60) days after the date of filing thereof, and shall also indemnify and save harmless Lessor from and against any and all costs, expenses, claims, losses or damages, including reasonable counsel fees, resulting therefrom or by reason thereof.
 
EMINENT DOMAIN
 
            16.       If the whole or any part of the Demised Premises shall be condemned and taken for any public or quasi-public use, this Lease shall wholly expire on the date title shall vest in the condemnor.  In no event whatsoever shall Lessee have any claim against Lessor by reason of any condemnation or taking of the whole or any part of the Demised Premises or of the Building, nor shall Lessee have any claim to the amount or any portion thereof that may be awarded as damages or paid as the result of any condemnation and taking.  Lessee hereby assigns to Lessor all Lessee's right, title and interest in and to any and all amounts awarded or paid by reason of any condemnation and taking, except that Lessee shall be entitled to a claim for the value of its leasehold and its leasehold improvements provided same does not reduce the Landlord's claim.  Nothing contained in this paragraph to the contrary notwithstanding, if there is a partial taking of the Demised Premises and the Lessor continued the operation of the Building housing same, this Lease may continue at the option of the Tenant and the rent to be paid hereunder will be prorated in accordance with the diminution causes by the condemnation.
 
BANKRUPTCY
 
            17.       (a)        If at any time prior to the date herein fixed as the commencement of the term of this Lease there shall be filed by Lessee in any court pursuant to any statute either of the United States or of any State a petition in bankruptcy or insolvency or for reorganization, arrangement or composition, or for the appointment of a receiver or trustee of all or a portion of Lessee's property, or if such petition shall be filed against Lessee (and within thirty (30) days thereof, Lessee fails to secure a stay or discharge thereof) or if Lessee makes an assignment for the benefit of creditors, this Lease shall ipso facto be canceled and terminated and in such event neither Lessee nor any person claiming through or under Lessee or by virtue of any statute or of an order of any court shall be entitled to possession of the Demised Premises and Lessor, in addition to the other rights and remedies given by virtue of any other provision herein or elsewhere in this Lease contained or by virtue of any statute or rule of law, may exercise any right of off-set, and/or may retain as liquidated damages any rent, security, deposit or monies received by Lessor from Lessee or others in behalf of Lessee upon the execution hereof.
 
                        (b)        If at the date fixed as the commencement of the term of this Lease or if at any time during the term hereof there shall be filed by Lessee in any court pursuant to any statute either of the United States or of any State a petition in bankruptcy or insolvency or for reorganization, arrangement or composition, or for the appointment of a receiver or trustee of all or a portion of Lessee's property or if any such petition shall be filed against Lessee (and within thirty (30) days thereof, Lessee fails to secure a stay or discharge thereof) or if Lessee makes an assignment for the benefit of creditors this Lease at the option of Lessor, exercised by written notice to Lessee within a reasonable time after notice of the happening of any one or more of such events, may be canceled and terminated and in such event neither Lessee nor any person claiming through or under Lessee by virtue of any statute or of any order of any court shall be entitled to possession or to remain in possession of the Premises demised but shall forthwith quit and surrender the Premises, and Lessor, in addition to the other rights and remedies Lessor has by virtue of any other provision herein or elsewhere in this Lease contained or by virtue of any statute or rule of law, may exercise any right of off-set, and/or may retain as liquidated damages any rent, security, deposit or monies received by the Lessor from Lessee or others on behalf of the Lessee.
 
 
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DEFAULT
 
            18.       (a)        If Lessee defaults in fulfilling any of the covenants of this Lease other than the covenants for the payment of rent or additional rent, or if the Demised Premises become vacant or deserted, then in any one or more of such events, Lessor may serve a written notice upon Lessee specifying the nature of said default and that this Lease will be terminated on a date which is twenty (20) days after the giving of such notice, and upon the expiration of said twenty days (unless before such date all defaults at the time existing under this Lease shall have been fully cured and made good, or in case of a default being of such nature that the same cannot be completely cured or remedied within said twenty (20) day period, Lessee shall then be diligently proceeding to remedy or cure such default and shall promptly complete such remedying or curing, in which event such default and such notice from Lessor shall be deemed to be annulled) this Lease and the term hereby demised and all rights of Lease under this Lease shall expire and terminate as fully and completely as if the date of expiration of such twenty (20) day period were the date herein definitely fixed for the end and expiration of this Lease and the term thereof and Lessee shall then quite and surrender the Demised Premises to Lessor, but Lessee shall remain liable as hereinafter provided.
 
                        (b)        If (l) the notice provided for in subparagraph (a) hereof shall have been given and the term shall expire as aforesaid; or (2) if Lessee shall default in the payment of additional rent herein mentioned, or any part, or in making any other payment herein provided for more than ten (10) days or (3) if any execution or attachment shall be issued against Lessee or any of Lessee's property whereby the Demised Premises shall be taken or occupied or attempted to be taken or occupied by someone other than Lessee; or (4) if Lessee shall default with respect to any other Lease between Lessor and lessee, its subsidiaries and/or other Lease between Lessor and Lessee, its subsidiaries and/or affiliates, if any; or (5) if Lessee shall fail to move into or take possession of the Premises within thirty (30) days after commencement of the term of this Lease; then and in any of such events Lessor may without notice, re-enter the Demised Premises either by force or otherwise, the right to re-entry being expressly reserved to and by Landlord and dispossess, by summary proceeding or otherwise, Lessee, the legal representatives of Lessee or any other occupant of Demised Premises and remove their effects and hold the Premises as if this Lease had not been made.  If Lessee shall default hereunder prior to the date fixed as the commencement of any renewal or extension of this Lease, Lessor may cancel and terminate such renewal or extension agreement by written notice.
 
 
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                        (c)        In case of any such default, re-entry, expiration and/or dispossess by summary proceedings or otherwise, (l) all rent and additional rent shall become due thereupon and be paid up to the time of such re-entry, dispossess and/or expiration, together with such expenses as Lessor may incur for legal expenses, and, reasonable attorneys' fees, brokerage, and/or putting the Demised Premises in good order, or for preparing the same for re-rental; (2) Lessor may re-let the Premises of any part or parts thereof, either in the name of Lessor or otherwise, for a term or terms which may at Lessor's option be less than or exceed the period which would otherwise have constituted the balance of the term of this Lease and may grant reasonable concessions or free rent; and/or (3) Lessee or the legal representatives of Lessee shall also pay Lessor as liquidated damages for the failure of Lessee to observe and perform said Lessee's covenants herein contained, any deficiency between the rent hereby reserved and/or covenanted to be paid and the net amount, if any, of the rents collected on account of the Lease or Leases of the Demised Premises for each month of the period which would otherwise have constituted the balance of the term of this lease.  The failure of Lessor after due diligence to re-let the Premises or any part or parts thereof shall not release or affect Lessee's liability for damages.  In computing such liquidated damages there shall be added to the said deficiency such expenses as Lessor may in cur in connection with re-letting, such as legal expenses, reasonable attorneys' fees, brokerage and for keeping the Demised Premises in good order or for preparing the same for re-letting.  Any such liquidated damages shall be paid in monthly installments by Lessee on the rent day specified in this Lease and any suit brought to collect the amount of the deficiency for any month shall not prejudice in any way the rights of Lessor to collect the deficiency for any subsequent month by a similar proceeding.  Lessor at Lessor's option may make such reasonable and customary alterations, repairs, replacements and/or decorations in the Demised Premises as Lessor in Lessor's sole judgment considers advisable and necessary for the purpose of re-letting the Demised premises; and the making of such alterations and/or decorating shall not operate or be construed to release Lessee from liability hereunder as aforesaid.  Lessor shall in no event be liable in any way whatsoever for failure to collect the rent thereof under such re-letting, provided Lessor has acted in good faith and with due diligence.  In the event of a breach or threatened breach by Lessee of any of the covenants or provisions hereof, Lessor shall have the right of injunction and the right to invoke any remedy allowed at law or in equity as if re-entry, summary proceedings and other remedies were not herein provided for.  Mention in this Lease of any particular remedy shall not preclude Lessor from any other available remedy, in law or in equity.  Lessee hereby expressly waives any and all rights of redemption granted by or under any present or future laws in the event of Lessee being evicted or dispossessed for any cause, or in the event of Lessor obtaining possession of the Demised Premises, by reason of the violation by Lessee of any of the covenants and conditions of this Lease, or otherwise.
 
NO WAIVER
 
            19.       (a)        No receipt of money by Lessor from Lessee with knowledge of the breach of any covenant or agreement of this Lease, or after the termination hereof, or after the service of any notice, or after the commencement of any suit, or after final judgment for possession of the Demised Premises, shall be deemed a waiver of such breach, nor shall it reinstate, continue or extend the term of this Lease or affect any such notice, demand or suit.  Any demand upon Lessee for rent, wheresoever and whenever made, after the same shall have become due and payable under the provisions hereof shall have the same effect as though made at the time and place such rent became due, any law to the contrary notwithstanding.
 
 
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                        (b)        No delay on the part of the Lessor in exercising any right, power or privilege hereunder or to seek redress for violation of, or to insist upon the strict performance of any covenant or condition of this Lease, or of any part of the Rules and Regulations described in Paragraph 27 hereof, shall operate as a waiver thereof nor shall any single or partial exercise of any right, power or privilege, precluding any other or further exercise thereof or the exercise of any other right, power or privilege.
 
                        (c)        No act done or thing said by Lessor or Lessor's agent shall constitute a cancellation, termination or modification of, or eviction or surrender under, this Lease, or a waiver of any covenant, condition or provision hereof, nor relieve Lessee of Lessor's obligation to pay the rents herein provided.  Any acceptance of surrender, waiver or release by Lessor and any cancellation, termination or modification of this Lease must be in writing signed by Lessor, by its duly authorized officer.  The delivery of keys to any employee or agent of Lessor shall not operate as a surrender or as a termination of the Lease, and no such employee or agent shall have any power to accept such keys prior to the termination of the Lease.
 
                        (d)       Lessee hereby further waives any and all rights to recover or regain possession of the Demised Premises or to reinstate or to redeem the Lease as permitted or provided by or under any statute, law or decision now or hereafter in force and effect.
 
                        (e)        If there by any agreement between Lessor and Lessee providing for the cancellation of this Lease upon certain provisions or contingencies, and/or an agreement for the renewal hereof at the expiration of the term first above mentioned, the right to such renewal or the execution of a rental agreement between Lessor and Lessee prior to the expiration of such first mentioned term shall not be considered an extension thereof or a vested right in Lessee to such further term, so as to prevent Lessor from canceling this Lease and any such extension thereof during the remainder of the original term hereby granted; such privilege, if and when so exercised by Lessor, shall cancel and terminate this Lease and any such renewal or extension previously entered into between said Lessor and Lessee or the right of Lessee to any such renewal or extension; any right herein contained on the part of Lessor to cancel this Lease shall continue during any extension or renewal hereof; and any option of the part of Lessee herein contained for an extension or renewal hereof shall not be deemed to give Lessee any option for a further extension beyond the first renewal or extended.
 
                        (f)         No failure by Lessor to enforce any of the said Rules and Regulations against Lessee and/or any other lessee or occupant of the Building shall be deemed a waiver thereof.  No provision of this Lease shall be deemed waived by Lessor unless such waiver be in writing signed by Lessor, except that no Rule and Regulation will be enforced against the Lessee if not enforced against the other Tenants of the Landlord.
 
                        (g)        No payment by Lessee or receipt by Lessor of a lesser amount than the rent or additional rent herein stipulated and reserved shall be deemed to be other than on account of the earliest stipulated rent or additional rent then due and payable, nor shall any endorsement or statement or any check, or letter accompanying any rent check or payment be deemed an accord and satisfaction, and Lessor may accept the same without prejudice to Lessor's right to recover any balance due or to pursue any other remedy in this Lease provided.
 
 
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RIGHTS RESERVED BY LESSOR
 
            20.       Without abatement or diminution in rent, Lessor reserves and shall have the following additional rights:
 
                        (a)        To change the street address and/or the name of the building and/or the arrangement and/or location of entrances, passageways, doors, doorways, corridors, elevators, stairs, toilets, or other public parts of the building without liability to Lessee, provided same does not interfere with Lessee's use and enjoyment of the Demised Premises.
 
                        (b)        To approve in writing all signs and all sources furnishing sign painting and lettering.  It is specifically understood and agreed that the Lessor shall provide an interior building directory upon which Lessee may display its name.  However, the cost of said display shall be borne by the Lessee.  Likewise, all interior signage in the common areas (to wit:  doors) upon which the demised premises form a part shall be uniform, as selected by Lessor, and all said signage shall be ordered from Lessor's source at Lessee's expense.
 
                        (c)        To enter the demised Premises at all reasonable times upon reasonable notice to Lessee (1) for the making of inspections, decorations, alterations, improvements and repairs, as Lessor may deem necessary or desirable, (2) to exhibit the Premises to prospective purchasers or lessees of the Building at any time and to others during the last nine (9) months of the term, or extended term, of this Lease, (3) for any purpose whatsoever relating thereto or to the safety, protection or preservation of the Demised Premises or of the building or of Lessor's interest, and (4) to take material into and upon said Premises in connection therewith.
 
                        (d)        At any time or times Lessor either voluntarily or pursuant to governmental requirement, may, at Lessor's own expense, make repairs, alterations or improvements in or to the building or any part thereof and during alterations, may close entrances, doors, windows, corridors, elevators or other facilities, provided that such acts shall not unreasonably interfere with Lessee's use and occupancy of the Premises as a whole.
 
                        (e)         To erect, use and maintain pipes and conduits in and through the Demised Premises.
 
                        (f)         To charge to Lessee any expense including overtime cost incurred by Lessor in the event that repairs, alterations, decorating or other work in the Premises are made or done after ordinary business hours at Lessee's request.
 
                        (g)        If during the last six months of the term or of a renewal term, lessee shall have removed all or substantially all of Lessee's property therefrom, Lessor may immediately enter and alter, renovate, and redecorate the Premises without reduction or abatement of rent or incurring any liability to Lessee for compensation.
 
 
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                        (h)        To grant to anyone the exclusive right to conduct any particular business or undertaking in the building and provided same does not interfere with Lessee's use and enjoyment of the Demised Premises.
 
                        Lessor may exercise any or all of the foregoing rights hereby reserved to Lessor without being deemed guilty of an eviction, actual or constructive, or disturbance or interruption of Lessee's use or possession and without being liable in any manner toward Lessee and without limitation or abatement of rent or other compensation, and such acts shall have no effect on this Lease.
 
WAIVER OF TRIAL BY JURY
 
            21.       It is mutually agreed by and between Lessor and Lessee that the respective parties hereto shall and they hereby do waive trial by jury in any action, proceeding or counterclaim brought by either of the parties hereto against the other on any matters whatsoever arising out of or in any way connected with this Lease, the relationship of landlord and tenant, Lessee's use or occupancy of said Premises, and/or any claim of injury or damage, or for the enforcement of any remedy under any statute, emergency or otherwise.
 
ENTRY BY LESSOR
 
            22.       If a representative of Lessee shall not be personally present, after reasonable notice (where possible), to open and permit an entry into said Premises at any time when an entry shall be necessary or permissible hereunder, due to compelling circumstances or an emergency, Lessor or its authorized or responsible agents may enter by a master key or may, if the circumstances so warrant, forcibly enter the same without rendering Lessor or its agents liable therefor (provided that, during such entry, reasonable care shall be accorded to avoid damage or injury to Lessee's property), and without in any  manner affecting the obligations and covenants of this Lease.  Nothing contained in this Article, however, shall be construed to impose upon Lessee any additional obligations, responsibilities or liability whatsoever for the care, supervision or repair of the Building or Premises or any part thereof, except as elsewhere in this Lease provided.
 
LESSEE'S DAMAGE OR INJURY TO THE PREMISES OR BUILDING
 
            23.       All damage or injury to the Premises or to its fixtures, appurtenances and equipment or to the Building, its fixtures, appurtenances or equipment caused by Lessee moving property in or out of the building or by installation or removal of furniture, fixtures or other property or from any cause of any kind or nature whatsoever of which Lessee, its servants, employees, agents, visitors or licensees shall be the cause, shall be repaired, restored and replaced promptly by Lessee at its sole cost and reasonable expense, in quality and class at least equal to the original work or installations, and to the satisfaction of Lessor, normal wear and tear accepted.  If Lessee fails to make such repairs, restorations or replacements within a reasonable time, the same may be made by Lessor for the account of Lessee  and the cost thereof shall be collectible as additional rent or otherwise after rendition of a bill or statement and payable simultaneously with the next monthly installments of rental due and payable hereunder.
 
 
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                        Lessee shall not place a load upon any floor of the Premises exceeding the floor load per square foot area which such floor was designed to carry and which is allowed by law.  Lessor reserves the right to prescribe the weight and position of all safes which must be placed so as to distribute the weight.  Business machines and mechanical equipment shall be placed and maintained by and at Lessee's expense in settings sufficient in Lessor's judgment to absorb and prevent vibration, excess heat, noise and annoyance.  Except as provided in Paragraph 14 hereof, there shall be no allowance to Lessee for a diminution of rental value and no liability on the part of Lessor by reason of inconvenience, annoyance or injury to business arising from Lessor, Lessee, or others making any repairs, alterations, additions or improvements required or desirable to be made in or to any public portion of the Building or to any fixtures, appurtenances or equipment thereof, or to the Demised Premises or the fixtures, appurtenances, equipment thereof, provided that the same shall be done as expeditiously and with as little inconvenience to Lessee as possible and provided further, that Lessor shall, at all times, provide access to the Demised Premises from the elevators and public areas of the Building.  There shall be no liability in damages upon Lessor for failure of Lessor or others to make any repairs, alterations, additions or improvements in or to any portion of the Building or of the Premises or of the fixtures, appurtenances or equipment thereof, except where same interferes with the Lessee's use and enjoyment of the Premises.
 
                        Lessee shall not move any safe, heavy machinery, heavy equipment freight, bulky material or fixtures into or out of the Building without Lessor's prior written consent, which consent shall not be unreasonably withheld; and, if any of the same shall require special handling by reason of their bulk, weight, or otherwise, Lessee agrees to employ only persons holding an appropriate license to perform said work and that all work in connection therewith shall comply with all requirements of law.
 
BILLS AND NOTICES
 
            24.       Except as otherwise in this Lease provided, a bill, statement, notice or communication which Lessor may be required to give to Lessee shall be deemed sufficiently given or rendered if in writing, sent by registered or certified mail, addressed to Lessee, Eric Kotch OSL Holdings Inc. , 60 Dutch Hill Rd. #15 Orangeburg NY 10962 The time of the rendition of such bill or statement and of the giving of such notice or communication shall be deemed to be the time when the same is delivered to Lessee or deposited in a United States Depository, postage prepaid.  Any notice by Lessee to Lessor shall be served by registered or certified mail addressed to Lessor at the address first hereinabove given or at such other address as Lessor shall designate by written notice, with copy to Lessor, Managing Agent.
 
INABILITY TO PERFORM
 
            25.       This Lease and the obligations of Lessee to pay rent hereunder and perform all of the other covenants and agreements hereunder on part of Lessee to be performed shall in no wise be affected, impaired or excused because Lessor is unable to fulfill any of its obligations under this Lease or to supply,  or is delayed in supplying, any service expressly or impliedly to be supplied or is unable to make, or is delayed in making any repairs, additions, alterations or decorations or is unable to supply or is delayed in supplying any equipment or fixtures if Lessor is prevented or delayed from so doing by reason of strike or labor troubles or any outside cause whatsoever including, but not limited to, governmental preemption in connection with a National Emergency or by reason of any rule, order or regulation of any department or subdivision thereof or of any government agency or by reason of the conditions of supply and demand which have been or are affected by war or other emergency, or by reason of any fire or other casualty or act of God.  The provisions of this paragraph shall not apply to a willful or an intentional default on the part of the Landlord.
 
 
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RULES AND REGULATIONS
 
            26.       Subject to the provisions of Paragraph "20(f)", Lessee and Lessee's servants, employees, agents, visitors and licensees shall observe faithfully, and comply strictly with, the Rules and Regulations hereto annexed, and such other and further reasonable Rules and Regulations as Lessor or Lessor's agents may, after notice to Lessee, from time to time adopt.  If the Lessee disputes the reasonableness of any Rule or Regulation hereinafter made or adopted by Landlord, the parties agree to submit the reasonableness of such Rule or Regulation to such impartial person as the Lessor and Lessee may agree upon, and in case the parties fail to agree upon an impartial person, the Lessee shall have the right to submit the reasonableness of such regulation to arbitration in the manner and in accordance with the rules of the American Arbitration Association.  Nothing in this Lease contained shall be construed to impose upon Lessor any duty or obligation to enforce the Rules and Regulations or terms, covenants or conditions in any other Lease, as against any other Lessee and Lessor shall not be liable to Lessee for violation of the same by any other Lessee, its servants, employees, agents, visitors or licensees.
 
SPRINKLERS
 
            27.       If there now is or shall be installed in the Building a "sprinkler system" and such system or any of its appliances shall be damaged or injured, or not in proper working order by reason of any act of omission of Lessee, or Lessee's agents, servants, employees, licenses or visitors, Lessee shall forthwith restore the same to good working condition at its own expense; and if the Board of Fire Underwriters or any bureau, department or official of the state or city government having jurisdiction shall require or recommend that any changes, modifications, alterations or additional sprinkler heads or other equipment be made or supplied by reason of Lessee's business, or the location of partitions, trade fixtures, or other contents of the Demised Premises, or for any other reason, or if any such changes, modifications, alterations, additional sprinkler heads or other equipment, become necessary to prevent the imposition of a penalty or charge against the full allowance for a sprinkler system in the fire insurance rate as fixed by said Board, or by any Fire Insurance Company, Lessee shall, at Lessee's expense, promptly make and supply such changes, modifications, alterations, additional sprinkler heads or other equipment.
 
OFFER BY MANAGING AGENT
 
            28.       If this Lease is offered to Lessee by the managing agent of the Building, such offer is made solely in the capacity as such agent and subject to Lessor's acceptance and approval; and Lessee has executed this Lease upon the understanding that this Lease shall not in any way bind Lessor until such time as the same has been approved and executed by Lessor and a counterpart delivered to or received by Lessee.
 
 
18

 
 
NO REPRESENTATIONS BY LESSOR
 
            29.       Lessor or Lessor's agents have made no representations or promises with respect to the said building or the Demised Premises except as herein expressly set forth.  The taking possession of the Demised Premises shall be conclusive evidence, as against Lessee, that Lessee accepts the same "as is", and that said Premises and the Building of which the same form a part were in good and satisfactory condition at the time such possession was so taken, except as to undiscoverable latent defects, and further subject to a punch list as to uncompleted items which the Tenant shall provide Landlord within fifteen (15) days of taking of possession.
 
MARGINAL NOTES
 
            30.       The marginal notes are inserted only as a matter of convenience and for reference and in no way define, limit or describe the scope or intent of this Lease; nor in any way affect this Lease.
 
QUIET ENJOYMENT
 
            31.       Upon Lessee's paying the rent and additional rent and observing and performing all of the terms, covenants, agreements, conditions and provisions on Lessee's part to be paid, observed or performed, Lessee shall quietly enjoy the Demised Premises, subject, however, to the terms of this Lease or mortgages provided for in Paragraph 9 hereof, free of hindrance and molestation by Lessor.  Under no circumstances shall the Lessor be liable to the Lessee, or any of its servants, agents, or employees for damage, loss or injury resulting from civil disorder, riot, or insurrection, except resulting from the intentional acts of the Landlord, its agents or employees.
 
ASSIGNS
 
            32.       The terms, covenants and conditions contained in this Lease shall bind and inure to the benefit of Lessor, Lessee and their respective heirs, legal representatives, successors and assigns, subject, however, to the provisions of Paragraph "7" hereof.
 
CERTIFICATE OF LESSEE
 
            33.       At request of either party and without charge therefor, the other party will execute, acknowledge and deliver to Lessor a Certificate to the effect that:
 
                        (a)        The Lease is in full force and effect and has not been modified (or if modified, modifications will be set forth).
 
                        (b)        Dates on which rent and additional rents have been paid.
 
                        (c)        Any defaults exists on the part of the Lessor or Lessee.
 
 
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PARKING PRIVILEGES
 
            34.       (a)        Parking areas shall not be considered part of the Demised Premises; however, Lessee shall have the right in common with all other Lessees and their customers to access and use of the existing parking facilities.
 
                        (b)        The Lessor shall be responsible for the customary maintenance of the parking lot, including the appropriate signage, striping and lighting thereof including snow removal from parking lot and sidewalks.
 
CURING TENANT'S DEFAULT - ADDITIONAL RENT
 
            35.       If Tenant shall default in the performance of any covenant, agreement, agreement, term, provision or condition herein contained, Landlord, without thereby waiving such default, may perform the same for the account and at the expense of Tenant, without notice in a case of emergency and in any other case if such default continues after thirty (30) days from the date of the giving of Landlord to Tenant of written notice of intention so to do.  Bills for any expense incurred by Landlord in connection with any such performance by Landlord for the account of Tenant, as well as bills for any property, material, labor or services provided, furnished or rendered, or caused to be provided, furnished or rendered by Landlord to Tenant may be sent by Landlord to Tenant monthly, or immediately, at Landlord's option, and shall be due and payable by Tenant within fifteen (15) days after the same is sent to Tenant by Landlord, and the amounts thereof shall be deemed to be additional rent under this Lease.
 
MISCELLANEOUS
 
            36.      (a)        The Landlord shall deliver the premises in a broom clean condition and the Landlord shall remove from the premises at Landlord's own cost and expense all equipment used by the former tenant in the operation of the former tenant's restaurant.  The Landlord shall similarly remove all items capable of removal, but in no event shall the Landlord required to remove any of the interior walls, carpets or ceilings.
 
                        (b)        There presently exists at the rear of the lower level of the middle wing a loading dock.  So long as the Landlord maintains said loading dock, said dock shall not be used for storage, pick-up of materials or garbage.
           
                        (c)       The Landlord at its own cost and expense will remove the trash and garbage every business day and shall cause the exterior of the windows of the premises demised to be cleaned in accordance with the Landlord's schedule of cleaning the exterior of windows of the Landlord's entire building.
 
                        (d)        Tenant shall have the right to inspect the Demised Premises prior to the Commencement Date.  Tenant agrees that neither Landlord, nor any broker, Landlord's agent, employee or representatives of Landlord nor any other party has made, and Tenant does not rely on, any representations, warranties or promises with respect to the building, the land and the Demised Premises or this Lease, except as herein expressly set forth, and no rights, easements or licenses are acquired by Tenant by implication or otherwise, except as expressly set forth in the provisions of this Lease.
 
 
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                        (e)        Nothing shall be done or permitted in any Tenant's Premises, and nothing shall be brought into or kept in any Tenant's Premises, which would impair or interfere with any of the building services or the proper and economic heating, cleaning or other services of the building or the Premises, nor shall there be installed by any Tenant any ventilating, air conditioning, electrical or other equipment of any kind which, in the reasonable judgment of the Landlord, might cause any such impairment or interference.  No dangerous, inflammable combustible or explosive object or material shall be brought into the building by any Tenant or with the permission of any Tenant.
 
                       (f)         Whenever Landlord's consent or approval is required under this Lease, Landlord agrees that such consent or approval shall not be unreasonably withheld or delayed at such times as Tenant is not in default in the performance of any of its obligations under this Lease beyond the applicable grace period provided herein.  This paragraph shall not apply to any provision in this Lease which expressly permits Landlord to arbitrarily withhold its consent or approval.
 
                        (g)        Lessor agrees to provide exterminating services to the Demised Premises and the building housing same.
 
       (h)        In the event the Building in which the Demised Premises are situate is converted to a cooperative or condominium form of ownership, then, and in such event, the Lessee, its successor in interest, or assigns, shall have the first right of refusal to purchase the Demised Premises as a condominium unit or to purchase shares allowing occupancy of the Demised Premises at a purchase price set forth in any prospectus or Offering Plan approved by the Attorney General of the State of New York, or for such price and on such terms and conditions as are offered to any third party bona fide purchase for value or to any other Tenant in occupancy of comparable space at that time.
 
       (i)          Tenant reserves the right to sublease his office with written consent of landlord or his agent
 
       (j)          After thirty month of the lease tenant has the right of an early withdrew of the lease with a penalty of (3) Three months rent payment.
 
       (k)         Lessor will renovate Demised Premises prior to occupancy in accordance with agreed upon specifications
 
       (l)          Lessee shall have two months free rent
 
       (m)        Lessor shall include up to three listings on the vbuilding directory and additional listings on the door sign at no additional cost
 
       (n)        Lessor shall pay for heat and airconditioning and electric and water utilities. Lessee will pay for its telephone and internet service
 
 
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ENTIRE AGREEMENT
 
            37.       This Lease contains the entire agreement between the parties and shall not be modified in any manner except by an instrument in writing executed by the parties or their respective successors in interest.
 
            IN WITNESS WHEREOF, Lessor and Lessee have hereunto respectively executed duplicate originals of this Lease as of the day and year first above written.
 
 
ULSTER HEIGHTS PROPERTIES INC., Lessor
 
       
 
By:
/s/   
       
 
OSL Holdings Inc lessee
 
       
 
By:
/s/   
 
 
 
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EX-10.14 10 f10k2012ex10xiv_oslholdings.htm EMPLOYMENT AGREEMENT f10k2012ex10xiv_oslholdings.htm
Exhibit 10.14
 
EMPLOYMENT AGREEMENT
 
This Employment Agreement (the “Agreement”) is entered into as of  January 15, 2011 (the “Effective Date”), by and between ROBERT H. ROTHENBERG, (the “Employee”) and OSL Holdings, Inc (the Company).
 
WHEREAS, the Company desires to employ the Employee, and the Employee desires to be employed by the Company, on the terms and subject to the conditions set forth herein.
 
NOW, THEREFORE, in consideration of agreements herein contained and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto, intending to be legally bound, hereby agree as follows:
 
1)
Employment. Subject to the terms and conditions set forth in this Agreement, the Company offers and the Employee hereby accepts employment, effective as of the Effective Date.
 
2)
Initial Term. Subject to earlier termination as provided in Section 5 hereof, this Agreement and the Employee’s employment shall continue for an Initial Term of two (2) years, commencing on the Effective Date and ending on the second anniversary of the Effective Date (the “Initial Term”).  
 
 
a)
After the Initial Term, and subject to earlier termination as provided in Section 5 hereof, this Agreement shall renew for successive, additional one (1) year periods (each additional year, a “Renewal Term”) commencing on the second anniversary of the Effective Date, and on each anniversary thereafter, unless terminated by written notice from either party to the other not less than ninety (90) days prior to the expiration of the then Term, on the terms and conditions as they exist on the last day of the existing Term or Renewal Term, as the case may be (the term of this Agreement, as it may be from time to time modified and in effect, the “Term”).
 
Employment Agreement for Bob Rothenberg  Page  1 of  14

 
 
 
 
 
b)
The Initial Term and the Renewal Terms (if any) are sometimes collectively referred to herein as the “Term”.
 
3)
Capacity and Performance. During the Term, the Employee shall serve the Company as its President (and Chief Strategy Officer). The Employee shall comply with and perform, faithfully, diligently and to the best of his ability, such duties as are customary for President and Chief Strategy Officer or such duties as may from time to time be vested in or requested of him by the CEO and/or Board of Directors of the Company (the “CEO and/or Board of Directors” are hereinafter collectively referred to herein as the “Board”).
 
4)
Compensation and Benefits. As compensation for the satisfactory performance by the Employee of his duties and obligations hereunder to the Company and subject to the provisions of Section 5, the Company shall pay to Employee the following:
 
 
a)
Base Salary During Term. Commencing on or about January 15, 2012, the Employee began receiving an annualized base salary (the “Base Salary”) of $240,000 which shall continue through the pay period ending on or about January 15, 2014.
 
 
i)
Thereafter, the Base Salary will be reviewed annually by the Board based upon the performance of both the Employee and the Company, with any positive adjustments to Base Salary to be made at the discretion of the Board.
 
 
ii)
The Base Salary shall be payable by the Company to the Employee in equal installments on the dates that payments of salary are regularly made by the Company to its Employees, subject to deductions for taxes and contribution for benefits, if any, in accordance with the Company’s regular payroll practices.
 
 
b)
Signing Compensation:  The Company shall pay a signing bonus of $50,000 weekly over the first 90 days of the agreement to cover consulting time covering hours Employee expended prior to signing employment agreement.
 
Employment Agreement for Bob Rothenberg  Page  2 of  14

 
 
 
 
 
c)
Bonus.  In addition to the base salary outlined in (a), the Company may pay you a bonus of up to Hundred Thousand Dollars ($100,000) per year as set forth below in the Schedule A of this Agreement. This bonus plan and the base salary shall be revisited once a year based on a performance review to be conducted annually, with the first review taking place on or around nine (9) months from your start date of employment.
 
 
d)
Benefits.  During the Term and subject to any contribution therefore generally required of Employees of the Company of similar position and responsibility, the Employee shall be entitled to participate in all employee benefits plans from time to time adopted by the Company and in effect for employees of the Company in similar positions, including 401(k), and medical plans. Such participation shall be subject to (1) the terms of the applicable plan documents, (2) generally applicable Company policies and (3) the discretion of the Board or any administrative or other committee provided for in or contemplated by such plan. The Company’s current plans and policies shall govern all other benefits. The Company may alter, modify, add to, or eliminate its employee benefits plans at any time as the Company and/or the Board, in its sole judgment, determines to be appropriate. The Company agrees to maintain 401(k), and medical plans substantially similar to those Company plans in effect immediately prior to the Effective Date.
 
 
i)
At the current moment, the benefits provided for Executives of the Company of similar position and responsibility include “Full Coverage for Employee and Dependents”.
 
 
e)
Expenses. The Company shall pay or reimburse the Employee for all reasonable travel and other properly documented expenses incurred by the Employee in performing his duties under this Agreement in accordance with the Company’s policies relating thereto.
 
 
f)
Vacation. During the Term, the Employee shall be entitled to receive up to twenty (25) days of Paid Time Off (PTO) per year on an accrual basis.  PTO includes vacation, personal, sick and floating days.  All PTO shall be accrued and used in accordance with the Company’s policies relating thereto in the then current Employee Handbook.
 
Employment Agreement for Bob Rothenberg  Page  3 of  14

 
 
 
 
 
i)
Stock Award. The Company anticipates delivery of Company stock and/or Equity to certain of its Employees.   Employee will be entitled to 500,000 shares at signing of the employment agreement and 500,000 shares each year (or the appropriate equivalent), that will vest monthly in equal increments each year of employment.
 
5)
Termination of Employment. Notwithstanding the provisions of Section 2 hereof, the Employee’s employment and this Agreement shall terminate prior to the expiration of the Term under any of the following circumstances:
 
 
a)
Death or Disability. In the event of the Employee’s death or Disability during the Term, the Employee’s employment and this Agreement shall immediately and automatically terminate and the Company shall pay to the Employee (or in the case of death, the Employee’s designated beneficiary or, if no beneficiary has been designated by the Employee, his estate), any Base Salary earned or unearned through the date of the original term but unpaid through the date of death or Disability, after which Company shall have no further obligation or liability to the Employee relating to Employee’s employment by the Company or this Agreement (other than as it relates to any non-voting shares/options of the Company owned by Employee).  For the purposes of this Agreement “Disability” shall mean any physical or mental incapacity as a result of which the Employee is unable to perform substantially all his duties and responsibilities for an aggregate of 180 days, whether or not consecutive, during any twelve month period.
 
 
b)
By the Company for Cause.
 
 
i)
The Company may terminate the Employee’s employment and this Agreement for Cause at any time during the Term. Upon such termination, the Company shall have no further obligation or liability to the Employee relating to the Employee’s employment by the Company or this Agreement, other than Base Salary earned but unpaid through the date of termination or as it relates to any non-voting shares/options of the Company owned by Employee.
 
Employment Agreement for Bob Rothenberg  Page  4 of  14

 
 
 
 
 
ii)
The following events or conditions shall constitute “Cause” for purpose of Employee’s employment: (1) the Employee’s refusal or failure to render services to the Company in accordance with his obligations under this Agreement if such failure or refusal continues for more than ten (10) days after written notice from the Company to the Employee setting forth the specifics of the Employee’s breach; (2) the commission by the Employee of any act of gross negligence, dishonesty or breach of fiduciary duty towards the Company; (3) the conviction of the Employee of any felony or any act involving dishonesty, fraud, theft or breach of trust.
 
 
c)
By the Company Other than for Cause. Company may terminate the Employees employment and this Agreement at any time without Cause during the Initial Term or any Renewal Term.  If Employee is discharged without Cause during the Term,  Employee shall be entitled to (i) receive Base Salary and continuation of benefits through the date of discharge, and (ii) upon delivery of a general release satisfactory to Company and so long as Employee is in full compliance with his obligations under Section 6 during the entire Non-Competition Period (as hereunder defined), Employee shall receive continuation of Base Salary for a period of six (6) months; provided, however that payment of the “post termination” compensation shall be paid in equal installments spread across the term of Employee’s Non-Competition Period.  Thereafter, Company shall have no further obligations or liabilities to Employee under the Employment Agreement (other than as relates to any non-voting shares/options of the Company owned by Employee) or otherwise arising from Employee’s employment with, or termination of that employment by the Company.
 
Employment Agreement for Bob Rothenberg  Page  5 of  14

 
 
 
 
 
i)
If Company elects not to renew this Agreement at the conclusion of the Initial Term, Company shall either (i) pay Employee’s Base Salary and benefits through the expiration date of the Initial Term or, (ii) at the election of Company and upon delivery of a general release satisfactory to Company, and so long as Employee is in full compliance with his obligations under Section 6 during the entire Non-Competition Period (as hereunder defined) pay Employee severance equal to six (6) months of Base Salary.  Payment of severance compensation shall be spread across the entire term of Employee’s Non-Competition Period.  Thereafter, Company shall have no further obligations or liabilities to Employee under the Employment Agreement (other than as relates to any non-voting shares/options of the Company owned by Employee) or otherwise arising from Employees employment with, or termination of that employment by the Company.
 
 
ii)
The Employee shall not be required to mitigate the amount of any payment provided for in this Section 5 by seeking other employment. However, if the Employee shall obtain other employment during the Non-Competition Period or during any period in which the Employee is receiving continued payments, and the annualized salary for the other employment is greater than that of the Employee’s base salary at the time of termination, the payments to be made by the Company under this Section 5(c) shall cease immediately.
 
 
d)
By the Employee.   If the Employee terminates this Agreement and/or his employment with the Company for any reason other than Good Reason, death or Disability, the Company shall have no further obligation or liability to the Employee relating to the Employee’s employment or this Agreement (other than as relates to any non-voting shares/options of the Company owned by Employee) except for any Base Salary earned but unpaid and any reasonable, properly documented and approved business expenses incurred but unreimbursed through the date of termination.
 
Employment Agreement for Bob Rothenberg  Page  6 of  14

 
 
 
 
 
i)
For purposes of this Agreement, “Good Reason” for termination by Employee (who shall provide thirty (60) days advance written notice if requested by the Company) shall exist if (a) the Company breaches this Agreement in any material respect, which it refuses to correct within ten (10) days following written notice of same from Employee setting forth the specifics of Company’s alleged breach.  In the event of such a termination, Employee shall receive the same post-termination compensation as would have been applicable in the event Company had terminated Employee other than for Cause.
 
 
e)
Post-Agreement Employment. Upon the expiration of the Initial Term or any Renewal Term, this Agreement shall automatically be deemed to have terminated and the Company shall have no further obligations to Employee hereunder (other than as relates to any non-voting shares/options of the Company owned by Employee), including without limitation, any duty to provide severance pay to Employee. In the event the Employee remains in the employ of the Company following the expiration or termination of this Agreement, then such employment shall be on an at-will basis, unless otherwise agreed to in writing by the Company and the Employee.
 
6)
Confidentiality; Non-Competition.
 
 
a)
Confidentiality.     It is specifically understood and agreed that some of the Company’s business activities are confidential in nature and constitute trade secrets, including but not limited to the Company’s “know-how,” methods of business and operations, and proprietary and financial analyses and reports (all such information, the “Confidential Information”). All of the Confidential Information is and shall be the property of the Company for its own exclusive use and benefit, and the Employee agrees that he will hold all of the Confidential Information in strictest confidence and will not, at any time, either during or after his employment with the Company, use or permit the use of the same for his own benefit or for the benefit of others unless authorized to do so by the prior written consent of the Board or by a contract or agreement to which the Company is a party or is bound. The provisions of this Section 6(a) shall survive the termination of this Agreement indefinitely.
 
Employment Agreement for Bob Rothenberg  Page  7 of  14

 
 
 
 
 
b)
Non-Competition.  In consideration of the mutual promises contained in this Agreement, including, without limitation, those involving the Confidential Information, compensation and termination, and in order to protect the Confidential Information and to reduce the likelihood of irreparable damage that would occur in the event the Confidential Information is provided to or used by a competitor of the Company, the Employee agrees that during the Term and for an additional period of twelve (6) months immediately following the Term (collectively the “Non-Competition Period”), not to engage in any Competitive Activity. For purposes of this Agreement, “Competitive Activity” shall mean engaging in any activity, without the prior written consent of the Company (which consent may be withheld in Company’s sole discretion), directly or indirectly, either through any form of ownership or as a director, officer, principal, agent, manager, employee, employer, adviser, consultant, stockholder, partner, or in any other individual or representative capacity whatsoever, either for his own benefit or for the benefit of any other person, firm, corporation, governmental or private entity of any nature whatsoever, that involves any of (i) office supply company; or, (ii) business activity, on behalf of any person or entity, that competes with the business of the Company.   If, during any period within the Non-Competition Period, the Employee is not in compliance with the terms of this Section 6(b), the Company shall be entitled to, among other remedies, compel compliance by the Employee of the terms of this Section 6(b) for an additional period equal to the period of such noncompliance. For purposes of this Agreement, the term “Non-Competition Period” shall also include this additional period. The Employee hereby acknowledges that the worldwide boundaries, scope of prohibited activities and the time duration of the provisions of this Section 6(b) are reasonable and are no broader than are necessary to protect the legitimate business interests of the Company. The provisions of this Section 6(b) shall survive the termination of the Employee’s employment and can only be revoked or modified by a writing signed by the parties that specifically states an intent to revoke or modify this provision. The Company and the Employee agree and stipulate that the agreements and covenants not to compete contained in this Section 6(b) are fair and reasonable in light of all of the facts and circumstances of the relationship between the Employee and the Company; however, the Employee and the Company are aware that in certain circumstances courts have refused to enforce certain agreements not to compete. Therefore, in furtherance of, and not in derogation of the provisions of this Section 6(b), the Company and the Employee agree that in the event a court should decline to enforce the provisions of this Section 6(b), that this Section 6(b) shall be deemed to be modified or reformed to restrict the Employee’s competition with the Company or its affiliates to the maximum extent, as to time, geography and business scope, that the court shall find enforceable; provided, however, in no event shall the provisions of this Section 6(b) be deemed to be more restrictive to the Employee than those contained herein
 
Employment Agreement for Bob Rothenberg  Page  8 of  14

 
 
 
 
 
c)
Non-Interference or Solicitation. In consideration of the numerous mutual promises contained in this Agreement, and in order to prevent the Employee from violating the provisions of Section 6(a) and 6(b), the Employee agrees that during his employment with the Company, during the Non-Competition Period and for an additional period of six months (6) months beyond the expiration of any Non-Competition Period, that neither Employee nor any individual, partner, limited partnership, corporation or other entity or business with which he is in any way affiliated, including, without limitation, any partner, limited partner, member, director, officer, shareholder or employee of any such entity or business, will solicit for employment or hire any person who is, or within the preceding six months was, an officer, manager, or employee of the Company.  In consideration of the mutual promises contained in this Agreement, and in order to prevent the Employee from violating the provisions of Section 6(a) and 6(b), the Employee further agrees that during the period beginning with the Effective Date, throughout the Non-Competition Period and for an additional period of six (6) months beyond the expiration of the Non-Competition Period, he shall not, directly or indirectly, as a manager, agent, consultant, stockholder, director, employee, employer, partner or in any other individual or representative capacity, solicit or encourage any customer, supplier, contractor, partner or investor of the Company or any of its affiliates with whom the Employee or Company had dealings or about whom the Employee acquired Confidential Information during his employment with the Company, to do business with any person or entity other than the Company or its affiliates, or reduce the amount or scope of business that it did with the Company and its affiliates as of the last day of Employee’s employment with the Company.
 
Employment Agreement for Bob Rothenberg  Page  9 of  14

 
 
 
 
 
d)
Return of Documents.   The Employee agrees that at such time as his relationship with the Company is terminated (for whatever reason), the Employee shall not take with him, but will leave with the Company, all work product, Confidential Information, records, files, memoranda, reports, customer lists, supplier lists, documents and other information related to the conduct of the business, in whatever form (including on computer disk), and any copies thereof; or if such items are not on the premises of the Company, the Employee agrees to immediately return such items to the Company upon the Employee’s termination. The Employee acknowledges that all such items are and shall at all times remain the property of the Company.
 
7)
Effect of Termination. The provisions of this Section 7 shall apply in the event of termination of this Agreement and/or the Employee’s employment pursuant to Sections 2 or 5.
 
 
a)
Payment in Full. Payment by the Company to the Employee of any Base Salary and other amounts provided for herein shall constitute the entire obligation of the Company to the Employee; provided, however, that nothing in this Section 7(a) is intended or shall be construed to affect the rights and obligations of either the Company, or the Employee with respect to any loans, stock warrants, stock pledge arrangements, option plans or other agreements to the extent said rights or obligations survive the Employee’s termination of employment under the provisions of documents relating thereto.
 
 
b)
Termination of Benefits.  Except for any right to continuation of benefits coverage provided by the Consolidated Omnibus Budget Reconciliation Act of 1985 (“COBRA”) or other applicable law, benefits shall terminate pursuant to the terms of the applicable benefit plans as of the termination date of the Employee’s employment without regard to any continuation of Base Salary or other payments to the Employee following such termination date.
 
Employment Agreement for Bob Rothenberg  Page  10 of  14

 
 
 
 
 
c)
Cessation of Severance and Benefits.  If the Employee breaches his obligations under this Agreement, the Company may immediately cease payment of all severance and benefits described in this Agreement. The cessation of these payments shall be in addition to, and not as an alternative to, any other remedies at law or in equity available to the Company, including the right to seek specific performance or an injunction.
 
8)
Survival of Certain Provisions.  The obligations of the parties under Sections 6 and 7 of this Agreement shall expressly survive any termination of the Employee’s employment, regardless of the manner of such termination, or termination of this Agreement.
 
9)
Conflicting Agreements. The Employee hereby warrants that the execution of this Agreement and the performance of his obligations hereunder will not breach or be in conflict with any other agreement to which or by which the Employee is a party or is bound and that the Employee is not now subject to and will not enter into any agreements that would affect the performance of his obligations hereunder.
 
10)
Withholding.  All payments made by the Company under this Agreement shall be subject to and reduced by any federal, state and/or local taxes or other amounts required to be withheld by the Company under any applicable law.
 
11)
Miscellaneous.
 
 
a)
Assignment.  The Employee may not assign this Agreement or any interest herein but this Agreement shall inure to the benefit of the estate of the Employee or his legal successor upon death or Disability. The Company may assign this Agreement. This Agreement shall inure to the benefit of and be binding upon the successors and assigns of the Company.
 
 
b)
Waiver; Amendment.  No waiver of any provision hereof shall be effective unless made in writing and signed by the waiving party. The failure of the Company to require the performance of any term or obligation of this Agreement, or the waiver by the Company of any breach of this Agreement, shall not prevent any subsequent enforcement of such term or obligation or be deemed a waiver of any subsequent breach. This Agreement may be amended or modified only by a written instrument signed by the Employee and the Company.
 
Employment Agreement for Bob Rothenberg  Page  11 of  14

 
 
 
 
 
c)
Notices.  All notices, requests and other communications provided for by this Agreement shall be in writing and shall be effective when delivered in person against a receipt, by facsimile or by overnight air courier or four (4) business days after being deposited in the mail of the United States, postage prepaid, registered or certified, and addressed (i) in the case of the Employee, to the address set forth underneath his signature to this Agreement or (ii) in the case of the Company, at the address of the Company’s principal office on the date of the notice and to the attention of the CEO,  or to such other address as either party may specify by notice to the other, given in accordance with the provisions of this Section 11(c).
 
 
d)
Entire Agreement.  This Agreement constitutes the entire agreement between the Company and the Employee with respect to the terms and conditions of the Employee’s employment with the Company and supersedes and cancels all prior communications, agreements and understandings, written or oral, between the Employee and the Company, with respect to the terms and conditions of the Employee’s employment with the Company.
 
 
e)
Counterparts; Facsimile Signatures.  This Agreement may be executed in counterparts, each of which shall be original and all of which together shall constitute one and the same instrument.  This Agreement may be executed and delivered by facsimile and, upon such delivery, the facsimile will be deemed to have the same effect as if the original signature had been delivered by the other party.
 
 
f)
Governing Law.  This Agreement, the employment relationship contemplated herein and any claim arising from such relationship, whether or not arising under this Agreement, shall be governed and interpreted by the laws of the Commonwealth of Pennsylvania without giving effect to conflicts of laws principles. The parties hereto consent to the exclusive jurisdiction of the courts of the Commonwealth of Pennsylvania and of federal courts situated therein to hear all claims, disputes and causes of action arising out of this Agreement, and agree that the exclusive venue for all such claims shall be in either the Court of Common Pleas of Montgomery County, Pennsylvania or the United States District Court for the Eastern District of Pennsylvania.  Each party hereto stipulates and acknowledges that litigation of claims in any such court would not be unreasonable.
 
Employment Agreement for Bob Rothenberg  Page  12 of  14

 
 
 
 
IN WITNESS WHEREOF, the parties have executed and delivered this Agreement on the date first above written.
 
OSL      ROBERT H. ROTHENBERG  
         
By: /s/   By: /s/  
           
Name:
 
  Name:
 
 
           
Title:     Address:      
 
Employment Agreement for Bob Rothenberg  Page  13 of  14

 
 
 

Schedule A

Bonus Plan

Set forth below is the Bonus Plan (“Plan”) from the Start Date of your employment with the Company and throughout your first year of employment with the Company. The terms and conditions set forth in this Plan shall not be amended or modified except by written notice executed by the Chief Executive Officer or the Chief Financial Officer of the Company.
 
Going forward, the performance-based bonus will be revisited once a clear set of goals can be set forth by the Company and mutually agreed upon between you and the Company annually, with the first review taking place within 60 days of your start date of employment.  If no plan is put in place by the company then the Plan will be based on

 
½ (uncapped) based on organic Net Revenue growth of client portfolio – for example
 
(i)
Bonus allocation per 1% of revenue growth from benchmark period (the benchmark period being defined as the 3-month monthly average prior to the Effective Date)
 
(ii)
No bonus below a certain growth
 
(iii)
Bonus allocation per additional 1% above a certain growth

 
½ (uncapped) based on Gross Profit of client portfolio
 
(iv)
Bonus allocation for every month during which fully loaded Direct Costs of Services =<  certain growth of Net Revenues during first six months period and =< certain growth of Net Revenues during second six months period
 
 
Bonus shall be paid quarterly within Fifteen (15) days from the end of each Fiscal Quarter for any Bonus that was earned in that period.
 
 
Employment Agreement for Bob Rothenberg  Page  14 of  14

EX-10.15 11 f10k2012ex10xv_oslholdings.htm SENIOR SECURED CONVERTIBLE NOTE DATED DECEMBER 28, 2008 WITH THE EXCHANGE LLC (AS ASSIGNEE OF EMERALD ASSET ADVISORS, LLC) f10k2012ex10xv_oslholdings.htm
EXHIBIT 10.15
 
SENIOR SECURED CONVERTIBLE NOTE
 
NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE CONVERTIBLE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL, IN A REASONABLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES. ANY TRANSFEREE OF THIS NOTE SHOULD CAREFULLY REVIEW THE TERMS OF THIS NOTE, INCLUDING SECTIONS 3(c)(iii) AND 18(a) HEREOF. THE PRINCIPAL AMOUNT REPRESENTED BY THIS NOTE AND, ACCORDINGLY, THE SECURITIES ISSUABLE UPON CONVERSION HEREOF MAY BE LESS THAN THE AMOUNTS SET FORTH ON THE FACE HEREOF PURSUANT TO SECTION 3(c)(iii) OF THIS NOTE.
 
RED ROCK PICTURES HOLDINGS, INC.
 
SENIOR SECURED CONVERTIBLE NOTE
 
Issuance Date: December 28, 2008 Original Principal Amount: U.S. $100,000
 
FOR VALUE RECEIVED, Red Rock Pictures Holdings, Inc., a Nevada corporation (the "Company"), hereby promises to pay to Emerald Asset Advisors, LLC, a company domiciled in Delaware, or registered assigns ("Holder") the amount set out above as the Original Principal Amount (as reduced pursuant to the terms hereof pursuant to redemption, conversion or otherwise, the "Principal") when due, whether upon the Maturity Date (as defined below), acceleration, redemption or otherwise (in each case in accordance with the terms hereof) and to pay interest ("Interest") on any outstanding Principal at the applicable Interest Rate, from the date set out above as the Issuance Date (the "Issuance Date") until the same becomes due and payable, whether upon an Interest Date (as defined below), the Maturity Date, acceleration, conversion, redemption or otherwise (in each case in accordance with the terms hereof). This Senior Secured Convertible Note (including all Senior Secured Convertible Notes issued in exchange, transfer or replacement hereof, this "Note") is being issued in connection with the Holder's delivery of $100,000 to the Company on December __, 2008. Certain capitalized terms used herein are defined in Section 29.
 
 
1

 
 
PAYMENTS OF PRINCIPAL. On the Maturity Date, the Company shall pay to the Holder an amount in cash representing all outstanding Principal, accrued and unpaid Interest and accrued and unpaid Late Charges, if any, on such Principal and Interest. The "Maturity Date" shall be December __, 2009, as may be extended at the option of the Holder (i) in the event that, and for so long as, an Event of Default (as defined in Section 4(a)) shall have occurred and be continuing on the Maturity Date (as may be extended pursuant to this Section 1) or any event that shall have occurred and be continuing that with the passage of time and the failure to cure would result in an Event of Default and (ii) through the date that is ten (10) Business Days after the consummation of a Change of Control in the event that a Change of Control is publicly announced or a Change of Control Notice (as defined in Section 5(b)) is delivered prior to the Maturity Date. The Company may prepay any portion of the outstanding Principal, accrued and unpaid Interest or accrued and unpaid Late Charges, if any, on such Principal and Interest, without penalty for early payment.
 
INTEREST; INTEREST RATE. Interest on this Note shall commence accruing on the Issuance Date at a rate of ten percent (10.0%) per annum ("Interest Rate") and shall be computed on the basis of a 360-day year comprised of twelve (12) thirty (30) day months and shall be payable in cash on the Maturity Date (an "Interest Date"). Prior to the payment of Interest on the Interest Date, Interest on this Note shall accrue at the Interest Rate and be payable by way of inclusion of the Interest in the Conversion Amount in accordance with Section 3(b)(i), provided a conversion occurs. From and after the occurrence of an Event of Default, the Interest Rate shall be increased to twenty percent (20.0%) ("Default Interest Rate"). In the event that such Event of Default is subsequently cured, the adjustment referred to in the preceding sentence shall cease to be effective as of the date of such cure; provided that the Interest as calculated at the Default Interest Rate during the continuance of such Event of Default shall continue to apply to the extent relating to the days after the occurrence of such Event of Default through and including the date of cure of such Event of Default.
 
 
2

 
 
CONVERSION OF NOTES. This Note shall be convertible into shares of the Company's common stock, par value $0.001 per share (the "Common Stock"), on the terms and conditions set forth in this Section 3.
 
Conversion Right. Subject to the provisions of Section 3(d), at any time or times on or after the date hereof, the Holder shall be entitled to convert any portion of the outstanding and unpaid Conversion Amount (as defined below) into fully paid and nonassessable shares of Common Stock in accordance with Section 3(c), at the Conversion Rate (as defined below). The Company shall not issue any fraction of a share of Common Stock upon any conversion. If the issuance would result in the issuance of a fraction of a share of Common Stock, the Company shall round such fraction of a share of Common Stock up to the nearest whole share. The Company shall pay any and all taxes that may be payable with respect to the issuance and delivery of Common Stock upon conversion of any Conversion Amount.
 
Conversion Rate. The number of shares of Common Stock issuable upon conversion of any Conversion Amount pursuant to Section 3(a) shall be determined by dividing (x) such Conversion Amount by (y) the Conversion Price (the "Conversion Rate").
 
"Conversion Amount" means the sum of (A) the portion of the Principal to be converted, redeemed or otherwise with respect to which this determination is being made, (B) accrued and unpaid Interest with respect to such Principal and (C) accrued and unpaid Late Charges with respect to such Principal and Interest.
 
"Conversion Price" means, as of any Conversion Date (as defined below) or other date of determination, $006, subject to adjustment as provided herein.
 
Mechanics of Conversion.
 
Optional Conversion. To convert any Conversion Amount into shares of Common Stock on any date (a "Conversion Date"), the Holder shall (A) transmit by facsimile (or otherwise deliver), for receipt on or prior to 11:59 p.m., New York Time, on such date, a copy of an executed notice of conversion in the form attached hereto as Exhibit I (the "Conversion Notice") to the Company and (B) if required by Section 3(c)(iii), surrender this Note to a common carrier for delivery to the Company as soon as practicable on or following such date (or an indemnification undertaking with respect to this Note in the case of its loss, theft or destruction). On or before the first (1st) Trading Day following the date of receipt of a Conversion Notice, the Company shall transmit by facsimile a confirmation of receipt of such Conversion Notice to the Holder and the Company's transfer agent (the "Transfer Agent"). On or before the second (2nd) Trading Day following the date of receipt of a Conversion Notice (the "Share Delivery Date"), the Company shall (x) provided that the Transfer Agent is participating in the Depository Trust Company ("DTC") Fast Automated Securities Transfer Program, credit such aggregate number of shares of Common Stock to which the Holder shall be entitled to the Holder's or its designee's balance account with DTC through its Deposit Withdrawal Agent Commission system or (y) if the Transfer Agent is not participating in the DTC Fast Automated Securities Transfer Program, issue and deliver to the address as specified in the Conversion Notice, a certificate, registered in the name of the Holder or its designee, for the number of shares of Common Stock to which the Holder shall be entitled. If this Note is physically surrendered for conversion as required by Section 3(c)(iii) and the outstanding Principal of this Note is greater than the Principal portion of the Conversion Amount being converted, then the Company shall as soon as practicable and in no event later than three (3) Business Days after receipt of this Note and at its own expense, issue and deliver to the holder a new Note (in accordance with Section 18(d)) representing the outstanding Principal not converted. The Person or Persons entitled to receive the shares of Common Stock issuable upon a conversion of this Note shall be treated for all purposes as the record holder or holders of such shares of Common Stock on the Conversion Date.
 
 
3

 
 
Company's Failure to Timely Convert. If within three (3) Trading Days after the Company's receipt of the facsimile copy of a Conversion Notice the Company shall fail to issue and deliver a certificate to the Holder or credit the Holder's balance account with DTC for the number of shares of Common Stock to which the Holder is entitled upon conversion of any Conversion Amount (a "Conversion Failure"), then (A) the Company shall pay damages to the Holder for each day of such Conversion Failure in an amount equal to 1.5% of the product of (I) the sum of the number of shares of Common Stock not issued to the Holder on or prior to the Share Delivery Date and to which the Holder is entitled, and (II) the Closing Sale Price of the Common Stock on the Share Delivery Date and (B) the Holder, upon written notice to the Company, may void its Conversion Notice with respect to, and retain or have returned, as the case may be, any portion of this Note that has not been converted pursuant to such Conversion Notice; provided that the voiding of a Conversion Notice shall not affect the Company's obligations to make any payments which have accrued prior to the date of such notice pursuant to this Section 3(c)(ii) or otherwise. In addition to the foregoing, if within three (3) Trading Days after the Company's receipt of the facsimile copy of a Conversion Notice the Company shall fail to issue and deliver a certificate to the Holder or credit the Holder's balance account with DTC for the number of shares of Common Stock to which the Holder is entitled upon such holder's conversion of any Conversion Amount, and if on or after such Trading Day the Holder purchases (in an open market transaction or otherwise) Common Stock to deliver in satisfaction of a sale by the Holder of Common Stock issuable upon such conversion that the Holder anticipated receiving from the Company (a "Buy-In"), then the Company shall, within three (3) Trading Days after the Holder's request and in the Holder's discretion, either (i) pay cash to the Holder in an amount equal to the Holder's total purchase price (including brokerage commissions and other out-of-pocket expenses, if any) for the shares of Common Stock so purchased (the "Buy-In Price"), at which point the Company's obligation to issue and deliver such certificate or to credit the Holder's balance account with DTC for the number of shares of Common Stock to which the Holder is entitled upon such Holder's conversion of any Conversion Amount shall terminate, or (ii) promptly honor its obligation to deliver to the Holder a certificate or certificates representing such Common Stock and pay cash to the Holder in an amount equal to the excess (if any) of the Buy-In Price over the product of (A) such number of shares of Common Stock, times (B) the Closing Bid Price on the Conversion Date.
 
4

 
 
Registration; Book-Entry. The Company shall maintain a register (the "Register") for the recordation of the names and addresses of the holders of each Note and the principal amount of the Notes held by such holders (the "Registered Notes"). The entries in the Register shall be conclusive and binding for all purposes absent manifest error. The Company and the holders of the Notes shall treat each Person whose name is recorded in the Register as the owner of a Note for all purposes, including, without limitation, the right to receive payments of principal and interest hereunder, notwithstanding notice to the contrary. A Registered Note may be assigned or sold in whole or in part only by registration of such assignment or sale on the Register. Upon its receipt of a request to assign or sell all or part of any Registered Note by a Holder, the Company shall record the information contained therein in the Register and issue one or more new Registered Notes in the same aggregate principal amount as the principal amount of the surrendered Registered Note to the designated assignee or transferee pursuant to Section 18. Notwithstanding anything to the contrary set forth herein, upon conversion of any portion of this Note in accordance with the terms hereof, the Holder shall not be required to physically surrender this Note to the Company unless (A) the full Conversion Amount represented by this Note is being converted or (B) the Holder has provided the Company with prior written notice (which notice may be included in a Conversion Notice) requesting reissuance of this Note upon physical surrender of this Note. The Holder and the Company shall maintain records showing the Principal, Interest and Late Charges, if any, converted and the dates of such conversions or shall use such other method, reasonably satisfactory to the Holder and the Company, so as not to require physical surrender of this Note upon conversion.
 
 
5

 
 
Limitations on Conversions. The Company shall not effect any conversion of this Note, and the Holder of this Note shall not have the right to convert any portion of this Note pursuant to Section 3(a), to the extent that after giving effect to such conversion, the Holder (together with the Holder's affiliates) would beneficially own in excess of 4.99% (the "Maximum Percentage") of the number of shares of Common Stock outstanding immediately after giving effect to such conversion. For purposes of the foregoing sentence, the number of shares of Common Stock beneficially owned by the Holder and its affiliates shall include the number of shares of Common Stock issuable upon conversion of this Note with respect to which the determination of such sentence is being made, but shall exclude the number of shares of Common Stock which would be issuable upon (A) conversion of the remaining, nonconverted portion of this Note beneficially owned by the Holder or any of its affiliates and (B) exercise or conversion of the unexercised or nonconverted portion of any other securities of the Company (including, without limitation, any Other Notes) subject to a limitation on conversion or exercise analogous to the limitation contained herein beneficially owned by the Holder or any of its affiliates. Except as set forth in the preceding sentence, for purposes of this Section 3(d)(i), beneficial ownership shall be calculated in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). For purposes of this Section 3(d)(i), in determining the number of outstanding shares of Common Stock, the Holder may rely on the number of outstanding shares of Common Stock as reflected in (x) the Company's most recent Form 10-K, Form 10-Q or Form 8-K, as the case may be, (y) a more recent public announcement by the Company or (z) any other notice by the Company or the Transfer Agent setting forth the number of shares of Common Stock outstanding. For any reason at any time, upon the written or oral request of the Holder, the Company shall within one (1) Business Day confirm orally and in writing to the Holder the number of shares of Common Stock then outstanding. In any case, the number of outstanding shares of Common Stock shall be determined after giving effect to the conversion or exercise of securities of the Company, including this Note, by the Holder or its affiliates since the date as of which such number of outstanding shares of Common Stock was reported. By written notice to the Company, the Holder may from time to time increase or decrease the Maximum Percentage to any other percentage not in excess of 9.99% specified in such notice; provided that (i) any such increase will not be effective until the sixty-first (61st) day after such notice is delivered to the Company, and (ii) any such increase or decrease will apply only to the Holder and not to any other holder of Notes.
 
RIGHTS UPON EVENT OF DEFAULT.
 
Event of Default. Each of the following events shall constitute an "Event of Default":
 
the failure of the Company to timely file its SEC reports on Form 10-Q or Form 10-K;
 
the suspension from trading or failure of the Common Stock to be listed on an Eligible Market for a period of five (5) consecutive Trading Days or for more than an aggregate of ten (10) Trading Days in any 365-day period;
 
 
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the failure of the Company to redeem all outstanding Principal and Interest of the Note upon its completion of a Qualified Financing.
 
the Company's (A) failure to cure a Conversion Failure by delivery of the required number of shares of Common Stock within ten (10) Business Days after the applicable Conversion Date or (B) notice, written or oral, to any holder of the Notes, including by way of public announcement or through any of its agents, at any time, of its intention not to comply with a request for conversion of any Notes into shares of Common Stock that is tendered in accordance with the provisions of the Notes;
 
at any time following the tenth (10th) consecutive Business Day that the Holder's Authorized Share Allocation is less than the number of shares of Common Stock that the Holder would be entitled to receive upon a conversion of the full Conversion Amount of this Note (without regard to any limitations on conversion set forth in Section 3(d) or otherwise);
 
the Company's failure to pay to the Holder any amount of Principal, Redemption Price, Interest, Late Charges or other amounts when and as due under this Note or any other agreement, document, certificate or other instrument delivered in connection with the transactions contemplated hereby and thereby to which the Holder is a party, except, in the case of a failure to pay Interest and Late Charges when and as due, in which case only if such failure continues for a period of at least three (3) Business Days;
 
any default under, redemption of or acceleration prior to maturity of any Indebtedness of the Company or any of its subsidiaries ("Subsidiaries");
 
the Company or any of its Subsidiaries pursuant to or within the meaning of Title 11, U.S. Code, or any similar Federal, foreign or state law for the relief of debtors (collectively, "Bankruptcy Law"), (A) commences a voluntary case, (B) consents to the entry of an order for relief against it in an involuntary case, (C) consents to the appointment of a receiver, trustee, assignee, liquidator or similar official (a "Custodian"), (D) makes a general assignment for the benefit of its creditors or (E) admits in writing that it is generally unable to pay its debts as they become due;
 
a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that (A) is for relief against the Company or any of its Subsidiaries in an involuntary case, (B) appoints a Custodian of the Company or any of its Subsidiaries or (C) orders the liquidation of the Company or any of its Subsidiaries;
 
a final judgment or judgments for the payment of money aggregating in excess of $75,000 are rendered against the Company or any of its Subsidiaries and which judgments are not, within sixty (60) days after the entry thereof, bonded, discharged or stayed pending appeal, or are not discharged within sixty (60) days after the expiration of such stay; provided, however, that any judgment which is covered by insurance or an indemnity from a creditworthy party shall not be included in calculating the $75,000 amount set forth above so long as the Company provides the Holder a written statement from such insurer or indemnity provider (which written statement shall be reasonably satisfactory to the Holder) to the effect that such judgment is covered by insurance or an indemnity and the Company will receive the proceeds of such insurance or indemnity within thirty (30) days of the issuance of such judgment;
 
the Company breaches any representation, warranty, covenant or other term or condition of the Note, except, in the case of a breach of a covenant which is curable, only if such breach continues for a period of at least ten (10) consecutive Business Days; or
 
any breach or failure in any respect to comply with Section 14 of this Note.
 
 
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Redemption Right. Upon the occurrence of an Event of Default with respect to this Note, the Company shall within one (1) Business Day deliver written notice thereof via facsimile and overnight courier (an "Event of Default Notice") to the Holder. At any time after the earlier of the Holder's receipt of an Event of Default Notice and the Holder becoming aware of an Event of Default, the Holder may require the Company to redeem all or any portion of this Note by delivering written notice thereof (the "Event of Default Redemption Notice") to the Company, which Event of Default Redemption Notice shall indicate the portion of this Note the Holder is electing to redeem. Each portion of this Note subject to redemption by the Company pursuant to this Section 4(b) shall be redeemed by the Company at a price equal to the greater of (i) the product of (A) the Conversion Amount to be redeemed and (B) the Redemption Premium and (ii) the product of (A) the Conversion Rate with respect to such Conversion Amount in effect at such time as the Holder delivers an Event of Default Redemption Notice and (B) the greater of (I) the Closing Sale Price of the Common Stock on the date immediately preceding such Event of Default, (II) the Closing Sale Price of the Common Stock on the date immediately after such Event of Default and (III) the Closing Sale Price of the Common Stock on the date the Holder delivers the Event of Default Redemption Notice (the "Event of Default Redemption Price"). Redemptions required by this Section 4(b) shall be made in accordance with the provisions of Section 12. To the extent redemptions required by this Section 4(b) are deemed or determined by a court of competent jurisdiction to be prepayments of the Note by the Company, such redemptions shall be deemed to be voluntary prepayments. The parties hereto agree that in the event of the Company's redemption of any portion of the Note under this Section 4(b), the Holder's damages would be uncertain and difficult to estimate because of the parties' inability to predict future interest rates and the uncertainty of the availability of a suitable substitute investment opportunity for the Holder. Accordingly, any Redemption Premium due under this Section 4(b) is intended by the parties to be, and shall be deemed, a reasonable estimate of the Holder's actual loss of its investment opportunity and not as a penalty.
 
 
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Mandatory Redemption. In the event that the Company raises gross proceeds in the amount of $1,000,000 or more at anytime while this Note is outstanding, the Company shall be required to immediately redeem all of the then outstanding Principal, Interest and Penalties, if any, then due under this Note.
 
RIGHTS UPON FUNDAMENTAL TRANSACTION AND CHANGE OF CONTROL.
 
Assumption. The Company shall not enter into or be party to a Fundamental Transaction unless (i) the Successor Entity assumes in writing all of the obligations of the Company under this Note and the other Transaction Documents in accordance with the provisions of this Section 5(a) pursuant to written agreements in form and substance satisfactory to the Holder and approved by the Holder prior to such Fundamental Transaction, including agreements to deliver to each holder of Notes in exchange for such Notes a security of the Successor Entity evidenced by a written instrument substantially similar in form and substance to the Notes, including, without limitation, having a principal amount and interest rate equal to the principal amounts then outstanding and the interest rates of the Notes held by such holder, having similar conversion rights as the Notes and having similar ranking to the Notes, and satisfactory to the Holders and (ii) the Successor Entity (including its Parent Entity) is a publicly traded corporation whose common stock is quoted on or listed for trading on an Eligible Market (specifically excluding the Principal Market). Upon the occurrence of any Fundamental Transaction, the Successor Entity shall succeed to, and be substituted for (so that from and after the date of such Fundamental Transaction, the provisions of this Note referring to the "Company" shall refer instead to the Successor Entity), and may exercise every right and power of the Company and shall assume all of the obligations of the Company under this Note with the same effect as if such Successor Entity had been named as the Company herein. Upon consummation of the Fundamental Transaction, the Successor Entity shall deliver to the Holder confirmation that there shall be issued upon conversion or redemption of this Note at any time after the consummation of the Fundamental Transaction, in lieu of the shares of Common Stock (or other securities, cash, assets or other property) issuable upon the conversion or redemption of the Notes prior to such Fundamental Transaction, such shares of the publicly traded common stock (or their equivalent) of the Successor Entity, as adjusted in accordance with the provisions of this Note. The provisions of this Section shall apply similarly and equally to successive Fundamental Transactions and shall be applied without regard to any limitations on the conversion or redemption of this Note.
 
 
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Redemption Right. No sooner than fifteen (15) days nor later than ten (10) days prior to the consummation of a Change of Control, but not prior to the public announcement of such Change of Control, the Company shall deliver written notice thereof via facsimile and overnight courier to the Holder (a "Change of Control Notice"). At any time during the period beginning on the date of the Holder's receipt of a Change of Control Notice and ending twenty (20) Trading Days after the consummation of such Change of Control, the Holder may require the Company to redeem all or any portion of this Note by delivering written notice thereof ("Change of Control Redemption Notice") to the Company, which Change of Control Redemption Notice shall indicate the Conversion Amount the Holder is electing to redeem. The portion of this Note subject to redemption pursuant to this Section 5 shall be redeemed by the Company in cash at a price equal to the greater of (i) the product of (x) the Conversion Amount being redeemed and (y) the quotient determined by dividing (A) the greater of the Closing Sale Price of the Common Stock immediately prior to the consummation of the Change of Control, the Closing Sale Price immediately following the public announcement of such proposed Change of Control and the Closing Sale Price of the Common Stock immediately prior to the public announcement of such proposed Change of Control by (B) the Conversion Price and (ii) 125% of the Conversion Amount being redeemed (the "Change of Control Redemption Price"). Redemptions required by this Section 5 shall be made in accordance with the provisions of Section 12 and shall have priority to payments to stockholders in connection with a Change of Control. To the extent redemptions required by this Section 5(b) are deemed or determined by a court of competent jurisdiction to be prepayments of the Note by the Company, such redemptions shall be deemed to be voluntary prepayments. Notwithstanding anything to the contrary in this Section 5, but subject to Section 3(d), until the Change of Control Redemption Price (together with any interest thereon) is paid in full, the Conversion Amount submitted for redemption under this Section 5(c) may be converted, in whole or in part, by the Holder into shares of Common Stock, or in the event the Conversion Date is after the consummation of the Change of Control, shares of publicly traded common stock (or their equivalent) of the Successor Entity pursuant to Section 3. The parties hereto agree that in the event of the Company's redemption of any portion of the Note under this Section 5(b), the Holder's damages would be uncertain and difficult to estimate because of the parties' inability to predict future interest rates and the uncertainty of the availability of a suitable substitute investment opportunity for the Holder. Accordingly, any redemption premium due under this Section 5(b) is intended by the parties to be, and shall be deemed, a reasonable estimate of the Holder's actual loss of its investment opportunity and not as a penalty.
 
 
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RIGHTS UPON ISSUANCE OF PURCHASE RIGHTS AND OTHER CORPORATE EVENTS.
 
Purchase Rights. If at any time the Company grants, issues or sells any Options, Convertible Securities or rights to purchase stock, warrants, securities or other property pro rata to the record holders of any class of Common Stock (the "Purchase Rights"), then the Holder will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which the Holder could have acquired if the Holder had held the number of shares of Common Stock acquirable upon complete conversion of this Note (without taking into account any limitations or restrictions on the convertibility of this Note) immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights, or, if no such record is taken, the date as of which the record holders of Common Stock are to be determined for the grant, issue or sale of such Purchase Rights.
 
Other Corporate Events. In addition to and not in substitution for any other rights hereunder, prior to the consummation of any Fundamental Transaction pursuant to which holders of shares of Common Stock are entitled to receive securities or other assets with respect to or in exchange for shares of Common Stock (a "Corporate Event"), the Company shall make appropriate provision to insure that the Holder will thereafter have the right to receive upon a conversion of this Note, at the Holder's option, (i) in addition to the shares of Common Stock receivable upon such conversion, such securities or other assets to which the Holder would have been entitled with respect to such shares of Common Stock had such shares of Common Stock been held by the Holder upon the consummation of such Corporate Event (without taking into account any limitations or restrictions on the convertibility of this Note) or (ii) in lieu of the shares of Common Stock otherwise receivable upon such conversion, such securities or other assets received by the holders of shares of Common Stock in connection with the consummation of such Corporate Event in such amounts as the Holder would have been entitled to receive had this Note initially been issued with conversion rights for the form of such consideration (as opposed to shares of Common Stock) at a conversion rate for such consideration commensurate with the Conversion Rate. Provision made pursuant to the preceding sentence shall be in a form and substance satisfactory to the Holder. The provisions of this Section shall apply similarly and equally to successive Corporate Events and shall be applied without regard to any limitations on the conversion or redemption of this Note.
 
 
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RIGHTS UPON ISSUANCE OF OTHER SECURITIES.
 
Adjustment of Conversion Price upon Issuance of Common Stock. If and whenever on or after the Issuance Date, the Company issues or sells, or in accordance with this Section 7(a) is deemed to have issued or sold, any shares of Common Stock (including the issuance or sale of shares of Common Stock owned or held by or for the account of the Company, but excluding shares of Common Stock deemed to have been issued or sold by the Company in connection with any Excluded Security) for a consideration per share (the "New Issuance Price") less than a price (the "Applicable Price") equal to the Conversion Price in effect immediately prior to such issue or sale (the foregoing a "Dilutive Issuance"), then immediately after such Dilutive Issuance, the Conversion Price then in effect shall be reduced to an amount equal to the New Issuance Price. For purposes of determining the adjusted Conversion Price under this Section 7(a), the following shall be applicable:
 
Issuance of Options. If the Company in any manner grants or sells any Options and the lowest price per share for which one share of Common Stock is issuable upon the exercise of any such Option or upon conversion or exchange or exercise of any Convertible Securities issuable upon exercise of such Option is less than the Applicable Price, then each such share of Common Stock underlying such Option shall be deemed to be outstanding and to have been issued and sold by the Company at the time of the granting or sale of such Option for such price per share. For purposes of this Section 7(a)(i), the "lowest price per share for which one share of Common Stock is issuable upon the exercise of any such Option or upon conversion or exchange or exercise of any Convertible Securities issuable upon exercise of such Option" shall be equal to the sum of the lowest amounts of consideration (if any) received or receivable by the Company with respect to any one share of Common Stock upon granting or sale of the Option, upon exercise of the Option and upon conversion or exchange or exercise of any Convertible Security issuable upon exercise of such Option. No further adjustment of the Conversion Price shall be made upon the actual issuance of such share of Common Stock or of such Convertible Securities upon the exercise of such Options or upon the actual issuance of such Common Stock upon conversion or exchange or exercise of such Convertible Securities.
 
 
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Issuance of Convertible Securities. If the Company in any manner issues or sells any Convertible Securities and the lowest price per share for which one share of Common Stock is issuable upon such conversion or exchange or exercise thereof is less than the Applicable Price, then each such share of Common Stock underlying such Convertible Securities shall be deemed to be outstanding and to have been issued and sold by the Company at the time of the issuance or sale of such Convertible Securities for such price per share. For the purposes of this Section 7(a)(ii), the "lowest price per share for which one share of Common Stock is issuable upon such conversion or exchange or exercise" shall be equal to the sum of the lowest amounts of consideration (if any) received or receivable by the Company with respect to any one share of Common Stock upon the issuance or sale of the Convertible Security and upon the conversion or exchange or exercise of such Convertible Security. No further adjustment of the Conversion Price shall be made upon the actual issuance of such share of Common Stock upon conversion or exchange or exercise of such Convertible Securities, and if any such issue or sale of such Convertible Securities is made upon exercise of any Options for which adjustment of the Conversion Price had been or are to be made pursuant to other provisions of this Section 7(a), no further adjustment of the Conversion Price shall be made by reason of such issue or sale.
 
Change in Option Price or Rate of Conversion. If the purchase price provided for in any Options, the additional consideration, if any, payable upon the issue, conversion, exchange or exercise of any Convertible Securities, or the rate at which any Convertible Securities are convertible into or exchangeable or exercisable for Common Stock changes at any time, the Conversion Price in effect at the time of such change shall be adjusted to the Conversion Price which would have been in effect at such time had such Options or Convertible Securities provided for such changed purchase price, additional consideration or changed conversion rate, as the case may be, at the time initially granted, issued or sold. For purposes of this Section 7(a)(iii), if the terms of any Option or Convertible Security that was outstanding as of the Subscription Date are changed in the manner described in the immediately preceding sentence, then such Option or Convertible Security and the Common Stock deemed issuable upon exercise, conversion or exchange thereof shall be deemed to have been issued as of the date of such change. No adjustment shall be made if such adjustment would result in an increase of the Conversion Price then in effect.
 
 
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Calculation of Consideration Received. In case any Option is issued in connection with the issue or sale of other securities of the Company, together comprising one integrated transaction, (x) the Options will be deemed to have been issued for a value determined by use of the Black Scholes Option Pricing Model (the "Option Value") and (y) the other securities issued or sold in such integrated transaction shall be deemed to have been issued for the difference of (I) the aggregate consideration received by the Company, less (II) the Option Value. If any Common Stock, Options or Convertible Securities are issued or sold or deemed to have been issued or sold for cash, the consideration received therefor will be deemed to be the net amount received by the Company therefor. If any Common Stock, Options or Convertible Securities are issued or sold for a consideration other than cash, the amount of the consideration other than cash received by the Company will be the fair value of such consideration, except where such consideration consists of securities, in which case the amount of consideration received by the Company will be the Closing Sale Price of such securities on the date of receipt. If any Common Stock, Options or Convertible Securities are issued to the stockholders of the non-surviving entity in connection with any merger in which the Company is the surviving entity, the amount of consideration therefor will be deemed to be the fair value of such portion of the net assets and business of the non-surviving entity as is attributable to such Common Stock, Options or Convertible Securities, as the case may be. The fair value of any consideration other than cash or securities will be determined jointly by the Company and the Holder. If such parties are unable to reach agreement within ten (10) days after the occurrence of an event requiring valuation (the "Valuation Event"), the fair value of such consideration will be determined, at the Company's expense, within five (5) Business Days after the tenth (10th) day following the Valuation Event by an independent, reputable appraiser jointly selected by the Company and the Holder. The determination of such appraiser shall be deemed binding upon all parties absent manifest error.
 
Record Date. If the Company takes a record of the holders of Common Stock for the purpose of entitling them (A) to receive a dividend or other distribution payable in Common Stock, Options or in Convertible Securities or (B) to subscribe for or purchase Common Stock, Options or Convertible Securities, then such record date will be deemed to be the date of the issue or sale of the Common Stock deemed to have been issued or sold upon the declaration of such dividend or the making of such other distribution or the date of the granting of such right of subscription or purchase, as the case may be.
 
Adjustment of Conversion Price upon Subdivision or Combination of Common Stock. If the Company at any time on or after the Subscription Date subdivides (by any stock split, stock dividend, recapitalization or otherwise) one or more classes of its outstanding shares of Common Stock into a greater number of shares, the Conversion Price in effect immediately prior to such subdivision will be proportionately reduced. If the Company at any time on or after the Subscription Date combines (by combination, reverse stock split or otherwise) one or more classes of its outstanding shares of Common Stock into a smaller number of shares, the Conversion Price in effect immediately prior to such combination will be proportionately increased.
 
 
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Other Events. If any event occurs of the type contemplated by the provisions of this Section 7 but not expressly provided for by such provisions (including, without limitation, the granting of stock appreciation rights, phantom stock rights or other rights with equity features), then the Company's Board of Directors will make an appropriate adjustment in the Conversion Price so as to protect the rights of the Holder under this Note; provided that no such adjustment will increase the Conversion Price as otherwise determined pursuant to this Section 7.
 
De Minimis Adjustments. No adjustment in the Conversion Price shall be required unless such adjustment would require an increase or decrease of at least $0.01 in such price; provided, however, that any adjustment which by reason of this Section 7(d) is not required to be made shall be carried forward and taken into account in any subsequent adjustments under this Section 7. All calculations under this Section 7 shall be made by the Company in good faith and shall be made to the nearest cent or to the nearest one hundredth of a share, as applicable. No adjustment need be made for a change in the par value or no par value of the Company's Common Stock.
 
Voluntary Adjustment By Company. The Company may at any time during the term of this Note reduce the then current Conversion Price to any amount and for any period of time deemed appropriate by the Board of Directors of the Company.
 
Reserved.
 
SECURITY. This Note is secured to the extent and in the manner set forth in the Security Agreement dated as of even date herewith.
 
NONCIRCUMVENTION. The Company hereby covenants and agrees that the Company will not, by amendment of its Certificate of Incorporation, Bylaws or through any reorganization, transfer of assets, consolidation, merger, scheme of arrangement, dissolution, issue or sale of securities, or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Note, and will at all times in good faith carry out all of the provisions of this Note and take all action as may be required to protect the rights of the Holder of this Note.
 
 
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RESERVATION OF AUTHORIZED SHARES.
 
Reservation. The Company shall initially reserve out of its authorized and unissued Common Stock a number of shares of Common Stock for each of the Notes equal to 130% of the Conversion Rate with respect to the Conversion Amount of each such Note as of the Issuance Date. So long as any of the Notes are outstanding, the Company shall take all action necessary to reserve and keep available out of its authorized and unissued Common Stock, solely for the purpose of effecting the conversion of the Notes, 130% of the number of shares of Common Stock as shall from time to time be necessary to effect the conversion of all of the Notes then outstanding; provided that at no time shall the number of shares of Common Stock so reserved be less than the number of shares required to be reserved by the previous sentence (without regard to any limitations on conversions) (the "Required Reserve Amount"). The initial number of shares of Common Stock reserved for conversions of the Notes and each increase in the number of shares so reserved shall be allocated pro rata among the holders of the Notes based on the principal amount of the Notes held by each holder at the Closing (as defined in the Securities Purchase Agreement) or increase in the number of reserved shares, as the case may be (the "Authorized Share Allocation"). In the event that a holder shall sell or otherwise transfer any of such holder's Notes, each transferee shall be allocated a pro rata portion of such holder's Authorized Share Allocation. Any shares of Common Stock reserved and allocated to any Person which ceases to hold any Notes shall be allocated to the remaining holders of Notes, pro rata based on the principal amount of the Notes then held by such holders.
 
Insufficient Authorized Shares. If at any time while any of the Notes remain outstanding the Company does not have a sufficient number of authorized and unreserved shares of Common Stock to satisfy its obligation to reserve for issuance upon conversion of the Notes at least a number of shares of Common Stock equal to the Required Reserve Amount (an "Authorized Share Failure"), then the Company shall immediately take all action necessary to increase the Company's authorized shares of Common Stock to an amount sufficient to allow the Company to reserve the Required Reserve Amount for the Notes then outstanding. Without limiting the generality of the foregoing sentence, as soon as practicable after the date of the occurrence of an Authorized Share Failure, but in no event later than sixty (60) days after the occurrence of such Authorized Share Failure, the Company shall hold a meeting of its stockholders for the approval of an increase in the number of authorized shares of Common Stock. In connection with such meeting, the Company shall provide each stockholder with a proxy statement and shall use its best efforts to solicit its stockholders' approval of such increase in authorized shares of Common Stock and to cause its board of directors to recommend to the stockholders that they approve such proposal.
 
 
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HOLDER'S REDEMPTIONS. The Company shall deliver the applicable Event of Default Redemption Price to the Holder within five (5) Business Days after the Company's receipt of the Holder's Event of Default Redemption Notice. If the Holder has submitted a Change of Control Redemption Notice in accordance with Section 5(b), the Company shall deliver the applicable Change of Control Redemption Price to the Holder concurrently with the consummation of such Change of Control if such notice is received prior to the consummation of such Change of Control and within five (5) Business Days after the Company's receipt of such notice otherwise. The Company shall deliver the Holder Optional Redemption Price to the Holder within five (5) Business Days after the Company's receipt of the Holder Redemption Notice. In the event of a redemption of less than all of such Conversion Amount of this Note, the Company shall promptly cause to be issued and delivered to the Holder a new Note (in accordance with Section 18(d)) representing the outstanding Principal which has not been redeemed. In the event that the Company does not pay the applicable Redemption Price to the Holder within the time period required, at any time thereafter and until the Company pays such unpaid Redemption Price in full, the Holder shall have the option, in lieu of redemption, to require the Company to promptly return to the Holder all or any portion of this Note representing such Conversion Amount that was submitted for redemption and for which the applicable Redemption Price (together with any Late Charges thereon) has not been paid. Upon the Company's receipt of such notice, (x) the Redemption Notice shall be null and void with respect to such Conversion Amount, (y) the Company shall immediately return this Note, or issue a new Note (in accordance with Section 18(d)) to the Holder representing such Conversion Amount and (z) the Conversion Price of this Note or such new Notes shall be adjusted to the lesser of (A) the Conversion Price as in effect on the date on which the applicable Redemption Notice is voided and (B) the lowest Closing Bid Price of the Common Stock during the period beginning on and including the date on which the applicable Redemption Notice is delivered to the Company and ending on and including the date on which the applicable Redemption Notice is voided. The Holder's delivery of a notice voiding a Redemption Notice and exercise of its rights following such notice shall not affect the Company's obligations to make any payments of Late Charges which have accrued prior to the date of such notice with respect to the Conversion Amount subject to such notice.
 
 
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VOTING RIGHTS. The Holder shall have no voting rights as the holder of this Note, except as required by law, including, but not limited to, the Delaware General Corporation Law of theF State of Delaware and as expressly provided in this Note.
 
COVENANTS.
 
Rank. All payments due under this Note shall rank senior to all other Indebtedness of the Company and its Subsidiaries, other than Permitted Indebtedness secured by Permitted Liens.
 
Incurrence of Indebtedness. So long as this Note is outstanding, the Company shall not, and the Company shall not permit any of its Subsidiaries to, directly or indirectly, incur or guarantee, assume or suffer to exist any Indebtedness, other than (i) the Indebtedness evidenced by this Note and (ii) Permitted Indebtedness.
 
Right of First Refusal to Participate in any Future Financings. So long as this Note is outstanding, the Company shall first offer to the Holder the right to participate in 100% of any subsequent financing through its sale and issuance of equity, debt or any combination thereof. The Company shall deliver a term sheet describing the material terms of any such transaction to the Holder at least 10 days prior to the proposed closing of such transaction and the Holder shall have 5 days to indicate to the Company how much, if any, of such subsequent financing Holder intends to purchase. If the terms of such subsequent financing are changed materially after the Holder determines not to participate in any such subsequent financing, then the Holder shall be notified of any such change at least 10 days prior to the proposed closing of such modified transaction and shall have 5 days to indicate to the Company its willingness to participate and to what extent. This right shall not be extinguished if the Company subsequently raises additional funds if the Holder either does or does not participate in any previous transaction to which it was entitled to pursuant to its right of participation herein.
 
Existence of Liens. So long as this Note is outstanding, the Company shall not, and the Company shall not permit any of its Subsidiaries to, directly or indirectly, allow or suffer to exist any mortgage, lien, pledge, charge, security interest or other encumbrance upon or in any property or assets (including accounts and contract rights) owned by the Company or any of its Subsidiaries (collectively, "Liens") other than Permitted Liens.
 
 
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Restricted Payments. The Company shall not, and the Company shall not permit any of its Subsidiaries to, directly or indirectly, redeem, defease, repurchase, repay or make any payments in respect of, by the payment of cash or cash equivalents (in whole or in part, whether by way of open market purchases, tender offers, private transactions or otherwise), all or any portion of any Indebtedness (other than this Note and the Other Notes), whether by way of payment in respect of principal of (or premium, if any) or interest on such Indebtedness, if at the time such payment is due or is otherwise made or, after giving effect to such payment, an event constituting, or that with the passage of time and without being cured would constitute, an Event of Default has occurred and is continuing; provided that notwithstanding the foregoing, no principal (or any portion thereof) of any Subordinated Indebtedness may be paid (whether upon maturity, redemption, acceleration or otherwise) so long as this Note is outstanding.
 
Restriction on Redemption and Cash Dividends. Until all of the Notes have been converted, redeemed or otherwise satisfied in accordance with their terms, the Company shall not, directly or indirectly, redeem, repurchase or declare or pay any cash dividend or distribution on its capital stock without the prior express written consent of the Holder.
 
Intellectual Property. So long as any Note is outstanding, the Company shall not, and shall not permit any Subsidiary to, directly or indirectly, (i) assign, transfer or otherwise encumber or allow any other Person to have any rights or license any intellectual property rights of the Company or its Subsidiaries other than Permitted Indebtedness and Permitted Liens, (ii) grant any royalties and other Indebtedness with respect to any of the Intellectual Property Rights other than Permitted Indebtedness or (ii) take any action or inaction to impair the value of their Intellectual Property Rights.
 
Creation of New Subsidiaries. So long as the obligations of the Company under this Note are outstanding, if the Company shall create or acquire any Subsidiary, simultaneous with the creation or acquisition of such Subsidiary, the Company shall (i) promptly cause such Subsidiary to become a guarantor by executing a guaranty in favor of the Holder in form and substance reasonably acceptable to the Company, the Subsidiary and the Holder, (ii) promptly cause such Subsidiary to become a grantor under the Security Agreement by executing a joinder to the Security Agreement in form and substance reasonably acceptable to the Company, the Subsidiary and the Holder, (iii) promptly cause such Subsidiary to become a pledgor by the Company and such Subsidiary executing a pledge agreement in form and substance reasonably acceptable to the Company, the Subsidiary and the Holder, and (iv) promptly cause such Subsidiary to duly execute and/or deliver such opinions of counsel and other documents, in form and substance reasonable acceptable to the Holder, as the Holder shall reasonably request with respect thereto.
 
 
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Transactions with Affiliates. The Company shall not, nor shall it permit any of its Subsidiaries to, enter into, renew, extend or be a party to, any transaction or series of related transactions (including, without limitation, the purchase, sale, lease, transfer or exchange of property or assets of any kind or the rendering of services of any kind) with any Affiliate, except (i) in the ordinary course of business in a manner and to an extent consistent with past practice and necessary or desirable for the prudent operation of its business, for fair consideration and on terms no less favorable to it or its Subsidiaries than would be obtainable in a comparable arm's length transaction with a Person that is not an Affiliate thereof.
 
Change in Nature of Business. The Company shall not make, or permit any of its Subsidiaries to make, any change in the nature of its business as described in the Company's most recent annual report filed on Form 10-K with the SEC. The Company shall not modify its corporate structure or purpose.
 
Preservation of Existence, Etc. The Company shall maintain and preserve, and cause each of its Subsidiaries to maintain and preserve, its existence, rights and privileges, and become or remain, and cause each of its Subsidiaries to become or remain, duly qualified and in good standing in each jurisdiction in which the character of the properties owned or leased by it or in which the transaction of its business makes such qualification necessary.
 
Maintenance of Properties, Etc. The Company shall maintain and preserve, and cause each of its Subsidiaries to maintain and preserve, all of its properties which are necessary or useful in the proper conduct of its business in good working order and condition, ordinary wear and tear excepted, and comply, and cause each of its Subsidiaries to comply, at all times with the provisions of all leases to which it is a party as lessee or under which it occupies property, so as to prevent any loss or forfeiture thereof or thereunder.
 
 
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Maintenance of Insurance. The Company shall maintain, and cause each of its Subsidiaries to maintain, insurance with responsible and reputable insurance companies or associations (including, without limitation, comprehensive general liability, hazard, rent and business interruption insurance) with respect to its properties (including all real properties leased or owned by it) and business, in such amounts and covering such risks as is required by any governmental authority having jurisdiction with respect thereto or as is carried generally in accordance with sound business practice by companies in similar businesses similarly situated and in any event in amount, adequacy and scope reasonably satisfactory to the Holder.
 
PARTICIPATION. The Holder, as the holder of this Note, shall be entitled to receive such dividends paid and distributions made to the holders of Common Stock to the same extent as if the Holder had converted this Note into Common Stock (without regard to any limitations on conversion herein or elsewhere) and had held such shares of Common Stock on the record date for such dividends and distributions. Payments under the preceding sentence shall be made concurrently with the dividend or distribution to the holders of Common Stock.
 
VOTE TO ISSUE, OR CHANGE THE TERMS OF, NOTES. The affirmative vote at a meeting duly called for such purpose or the written consent without a meeting of the Holder shall be required for any change or amendment to this Note or the Other Notes. No consideration shall be offered or paid to any holder of Notes to amend or consent to a waiver or modification of the Notes unless the same consideration also is offered to all of the holders of Notes.
 
TRANSFER. This Note may be offered, sold, assigned or transferred by the Holder without the consent of the Company.
 
REISSUANCE OF THIS NOTE.
 
Transfer. If this Note is to be transferred, the Holder shall surrender this Note to the Company, whereupon the Company will forthwith issue and deliver upon the order of the Holder a new Note (in accordance with Section 18(d)), registered as the Holder may request, representing the outstanding Principal being transferred by the Holder and, if less then the entire outstanding Principal is being transferred, a new Note (in accordance with Section 18(d)) to the Holder representing the outstanding Principal not being transferred. The Holder and any assignee, by acceptance of this Note, acknowledge and agree that, by reason of the provisions of Section 3(c)(iii) and this Section 18(a)following conversion or redemption of any portion of this Note, the outstanding Principal represented by this Note may be less than the Principal stated on the face of this Note.
 
 
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Lost, Stolen or Mutilated Note. Upon receipt by the Company of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Note, and, in the case of loss, theft or destruction, of any indemnification undertaking by the Holder to the Company in customary form and, in the case of mutilation, upon surrender and cancellation of this Note, the Company shall execute and deliver to the Holder a new Note (in accordance with Section 18(d)) representing the outstanding Principal.
 
Note Exchangeable for Different Denominations. This Note is exchangeable, upon the surrender hereof by the Holder at the principal office of the Company, for a new Note or Notes (in accordance with Section 18(d) and in principal amounts of at least $100,000) representing in the aggregate the outstanding Principal of this Note, and each such new Note will represent such portion of such outstanding Principal as is designated by the Holder at the time of such surrender.
 
Issuance of New Notes. Whenever the Company is required to issue a new Note pursuant to the terms of this Note, such new Note (i) shall be of like tenor with this Note, (ii) shall represent, as indicated on the face of such new Note, the Principal remaining outstanding (or in the case of a new Note being issued pursuant to Section 18(a) or Section 18(c), the Principal designated by the Holder which, when added to the principal represented by the other new Notes issued in connection with such issuance, does not exceed the Principal remaining outstanding under this Note immediately prior to such issuance of new Notes), (iii) shall have an issuance date, as indicated on the face of such new Note, which is the same as the Issuance Date of this Note, (iv) shall have the same rights and conditions as this Note, and (v) shall represent accrued and unpaid Interest and Late Charges on the Principal and Interest of this Note, if any, from the Issuance Date.
 
REMEDIES, CHARACTERIZATIONS, OTHER OBLIGATIONS, BREACHES AND INJUNCTIVE RELIEF. The remedies provided in this Note shall be cumulative and in addition to all other remedies available under this Note and any of the other Transaction Documents at law or in equity (including a decree of specific performance and/or other injunctive relief), and nothing herein shall limit the Holder's right to pursue actual and consequential damages for any failure by the Company to comply with the terms of this Note. Amounts set forth or provided for herein with respect to payments, conversion and the like (and the computation thereof) shall be the amounts to be received by the Holder and shall not, except as expressly provided herein, be subject to any other obligation of the Company (or the performance thereof). The Company acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Holder and that the remedy at law for any such breach may be inadequate. The Company therefore agrees that, in the event of any such breach or threatened breach, the Holder shall be entitled, in addition to all other available remedies, to an injunction restraining any breach, without the necessity of showing economic loss and without any bond or other security being required.
 
 
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PAYMENT OF COLLECTION, ENFORCEMENT AND OTHER COSTS. If (a) this Note is placed in the hands of an attorney for collection or enforcement or is collected or enforced through any legal proceeding or the Holder otherwise takes action to collect amounts due under this Note or to enforce the provisions of this Note or (b) there occurs any bankruptcy, reorganization, receivership of the Company or other proceedings affecting Company creditors' rights and involving a claim under this Note, then the Company shall pay the costs incurred by the Holder for such collection, enforcement or action or in connection with such bankruptcy, reorganization, receivership or other proceeding, including, but not limited to, financial advisory fees and attorneys' fees and disbursements.
 
CONSTRUCTION; HEADINGS. This Note shall be deemed to be jointly drafted by the Company and all the Purchasers and shall not be construed against any person as the drafter hereof. The headings of this Note are for convenience of reference and shall not form part of, or affect the interpretation of, this Note.
 
FAILURE OR INDULGENCE NOT WAIVER. No failure or delay on the part of the Holder in the exercise of any power, right or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other right, power or privilege.
 
 
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DISPUTE RESOLUTION. In the case of a dispute as to the determination of the Closing Bid Price, the Closing Sale Price or the Weighted Average Price or the arithmetic calculation of the Conversion Rate or any Redemption Price, the Company shall submit the disputed determinations or arithmetic calculations via facsimile within one (1) Business Day of receipt, or deemed receipt, of the Conversion Notice or Redemption Notice or other event giving rise to such dispute, as the case may be, to the Holder. If the Holder and the Company are unable to agree upon such determination or calculation within one (1) Business Day of such disputed determination or arithmetic calculation being submitted to the Holder, then the Company shall, within one (1) Business Day submit via facsimile (a) the disputed determination of the Closing Bid Price, the Closing Sale Price or the Weighted Average Price to an independent, reputable investment bank selected by the Company and approved by the Holder or (b) the disputed arithmetic calculation of the Conversion Rate or any Redemption Price to the Company's independent, outside accountant. The Company, at the Company's expense, shall cause the investment bank or the accountant, as the case may be, to perform the determinations or calculations and notify the Company and the Holder of the results no later than five (5) Business Days from the time it receives the disputed determinations or calculations. Such investment bank's or accountant's determination or calculation, as the case may be, shall be binding upon all parties absent demonstrable error.
 
NOTICES; PAYMENTS.
 
Notices. Whenever notice is required to be given under this Note, unless otherwise provided herein, such notice shall be given Emerald Asset Advisors, LLC, 425 Broadhollow Road, Melville, NY 11747, Attention: Michael Xirinachs. The Company shall provide the Holder with prompt written notice of all actions taken pursuant to this Note, including in reasonable detail a description of such action and the reason therefore. Without limiting the generality of the foregoing, the Company will give written notice to the Holder (i) immediately upon any adjustment of the Conversion Price, setting forth in reasonable detail, and certifying, the calculation of such adjustment and (ii) at least twenty (20) days prior to the date on which the Company closes its books or takes a record (A) with respect to any dividend or distribution upon the Common Stock, (B) with respect to any pro rata subscription offer to holders of Common Stock or (C) for determining rights to vote with respect to any Fundamental Transaction, dissolution or liquidation, provided in each case that such information shall be made known to the public prior to or in conjunction with such notice being provided to the Holder.
 
 
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Payments. Whenever any payment of cash is to be made by the Company to any Person pursuant to this Note, such payment shall be made in lawful money of the United States of America by a check drawn on the account of the Company and sent via overnight courier service to such Person at such address as previously provided to the Company in writing (which address, in the case of each of the Purchasers, shall initially be as set forth on the Schedule of Buyers attached to the Securities Purchase Agreement); provided that the Holder may elect to receive a payment of cash via wire transfer of immediately available funds by providing the Company with prior written notice setting out such request and the Holder's wire transfer instructions. Whenever any amount expressed to be due by the terms of this Note is due on any day which is not a Business Day, the same shall instead be due on the next succeeding day which is a Business Day and, in the case of any Interest Date which is not the date on which this Note is paid in full, the extension of the due date thereof shall not be taken into account for purposes of determining the amount of Interest due on such date. Any amount of Principal or other amounts due under the Transaction Documents which is not paid when due shall result in a late charge being incurred and payable by the Company in an amount equal to interest on such amount at the rate of twenty percent (20.0%) per annum from the date such amount was due until the same is paid in full ("Late Charge").
 
CANCELLATION. After all Principal, accrued Interest and other amounts at any time owed on this Note have been paid in full, this Note shall automatically be deemed canceled, shall be surrendered to the Company for cancellation and shall not be reissued.
 
WAIVER OF NOTICE. To the extent permitted by law, the Company hereby waives demand, notice, protest and all other demands and notices in connection with the delivery, acceptance, performance, default or enforcement of this Note and the Securities Purchase Agreement.
 
 
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GOVERNING LAW; JURISDICTION; JURY TRIAL. This Note shall be construed and enforced in accordance with, and all questions concerning the construction, validity, interpretation and performance of this Note shall be governed by, the internal laws of the State of New York, without giving effect to any choice of law or conflict of law provision or rule (whether of the State of New York or any other jurisdictions) that would cause the application of the laws of any jurisdictions other than the State of New York. The Company hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in The City of New York, Borough of Manhattan, for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is brought in an inconvenient forum or that the venue of such suit, action or proceeding is improper. The Company hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof to such party at the address it set forth on the signature page hereto and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law. Nothing contained herein shall be deemed or operate to preclude the Holder from bringing suit or taking other legal action against the Company in any other jurisdiction to collect on the Company's obligations to the Holder, to realize on any collateral or any other security for such obligations, or to enforce a judgment or other court ruling in favor of the Holder. THE COMPANY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF THIS NOTE OR ANY TRANSACTION CONTEMPLATED HEREBY.
 
 
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SEVERABILITY. If any provision of this Note is prohibited by law or otherwise determined to be invalid or unenforceable by a court of competent jurisdiction, the provision that would otherwise be prohibited, invalid or unenforceable shall be deemed amended to apply to the broadest extent that it would be valid and enforceable, and the invalidity or unenforceability of such provision shall not affect the validity of the remaining provisions of this Note so long as this Note as so modified continues to express, without material change, the original intentions of the parties as to the subject matter hereof and the prohibited nature, invalidity or unenforceability of the provision(s) in question does not substantially impair the respective expectations or reciprocal obligations of the parties or the practical realization of the benefits that would otherwise be conferred upon the parties. The parties will endeavor in good faith negotiations to replace the prohibited, invalid or unenforceable provision(s) with a valid provision(s), the effect of which comes as close as possible to that of the prohibited, invalid or unenforceable provision(s).
 
CERTAIN DEFINITIONS. For purposes of this Note, the following terms shall have the following meanings:
 
 
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"Approved Stock Plan" means any employee benefit plan which has been approved by the Board of Directors of the Company, pursuant to which the Company's securities may be issued to any employee, officer or director for services provided to the Company.
 
"Bloomberg" means Bloomberg Financial Markets.

"Business Day" means any day other than Saturday, Sunday or other day on which commercial banks in The City of New York are authorized or required by law to remain closed.

"Calendar Quarter" means each of: the period beginning on and including January 1 and ending on and including March 31; the period beginning on and including April 1 and ending on and including June 30; the period beginning on and including July 1 and ending on and including September 30; and the period beginning on and including October 1 and ending on and including December 31.
 
"Change of Control" means any Fundamental Transaction other than (i) any reorganization, recapitalization or reclassification of the Common Stock in which holders of the Company's voting power immediately prior to such reorganization, recapitalization or reclassification continue after such reorganization, recapitalization or reclassification to hold publicly traded securities and, directly or indirectly, the voting power of the surviving entity or entities necessary to elect a majority of the members of the board of directors (or their equivalent if other than a corporation) of such entity or entities, or (ii) pursuant to a migratory merger effected solely for the purpose of changing the jurisdiction of incorporation of the Company.

"Closing Bid Price" and "Closing Sale Price" means, for any security as of any date, the last closing bid price and last closing trade price, respectively, for such security on the Principal Market, as reported by Bloomberg, or, if the Principal Market begins to operate on an extended hours basis and does not designate the closing bid price or the closing trade price, as the case may be, then the last bid price or last trade price, respectively, of such security prior to 4:00:00 p.m., New York Time, as reported by Bloomberg, or, if the Principal Market is not the principal securities exchange or trading market for such security, the last closing bid price or last trade price, respectively, of such security on the principal securities exchange or trading market where such security is listed or traded as reported by Bloomberg, or if the foregoing do not apply, the last closing bid price or last trade price, respectively, of such security in the over-the-counter market on the electronic bulletin board for such security as reported by Bloomberg, or, if no closing bid price or last trade price, respectively, is reported for such security by Bloomberg, the average of the bid prices, or the ask prices, respectively, of any market makers for such security as reported in the "pink sheets" by Pink Sheets LLC (formerly the National Quotation Bureau, Inc.). If the Closing Bid Price or the Closing Sale Price cannot be calculated for a security on a particular date on any of the foregoing bases, the Closing Bid Price or the Closing Sale Price, as the case may be, of such security on such date shall be the fair market value as mutually determined by the Company and the Holder. If the Company and the Holder are unable to agree upon the fair market value of such security, then such dispute shall be resolved pursuant to Section 23. All such determinations to be appropriately adjusted for any stock dividend, stock split, stock combination or other similar transaction during the applicable calculation period.
 
 
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"Common Stock Deemed Outstanding" means, at any given time, the number of shares of Common Stock outstanding at such time, plus the number of shares of Common Stock deemed to be outstanding pursuant to Sections 7(a)(i) and 7(a)(ii) hereof regardless of whether the Options or Convertible Securities are actually exercisable at such time, but excluding any Common Stock owned or held by or for the account of the Company or issuable upon conversion or exercise, as applicable, of the Notes.

"Contingent Obligation" means, as to any Person, any direct or indirect liability, contingent or otherwise, of that Person with respect to any indebtedness, lease, dividend or other obligation of another Person if the primary purpose or intent of the Person incurring such liability, or the primary effect thereof, is to provide assurance to the obligee of such liability that such liability will be paid or discharged, or that any agreements relating thereto will be complied with, or that the holders of such liability will be protected (in whole or in part) against loss with respect thereto.

"Convertible Securities" means any stock or securities (other than Options) directly or indirectly convertible into or exercisable or exchangeable for Common Stock.

"Eligible Market" means the Principal Market, The New York Stock Exchange, Inc., The NASDAQ Global Market, The NASDAQ Global Select Market, The Nasdaq Capital Market or the OTC Bulletin Board.

"Excluded Securities" means any Common Stock issued or issuable: (i) in connection with any Approved Stock Plan to the extent such Common Stock would not result in a Dilutive Issuance; (ii) upon conversion of the Notes; (iii) pursuant to a bona fide firm commitment underwritten public offering which generates gross proceeds to the Company in excess of $10,000,000 (other than an "at-the-market offering" as defined in Rule 415(a)(4) under the 1933 Act and"equity lines"); (iv) upon conversion, exercise or exchange of any Options or Convertible Securities which are outstanding on the day immediately preceding the date hereof, provided that the terms of such Options or Convertible Securities are not amended, modified or changed on or after the date hereof; and (v) in connection with mergers, acquisitions, strategic business partnerships or joint ventures, in each case with non-affiliated third parties and otherwise on an arm's-length basis, the primary purpose of which, in the reasonable judgment of the Company's Board of Directors, is not to raise additional capital.
 
 
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"Fiscal Quarter" means each of the fiscal quarters adopted by the Company for financial reporting purposes that correspond to the Company's fiscal year as of the date hereof that ends on December 31.
 
"Fundamental Transaction" means that the Company shall, directly or indirectly, in one or more related transactions, (i) consolidate or merge with or into (whether or not the Company is the surviving corporation) another Person or Persons, if the holders of the Voting Stock (not including any shares of Voting Stock held by the Person or Persons making or party to, or associated or affiliated with the Persons making or party to, such consolidation or merger) immediately prior to such consolidation or merger shall hold or have the right to direct the voting of less than 50% of the Voting Stock or such voting securities of such other surviving Person immediately following such transaction, or (ii) sell, assign, transfer, convey or otherwise dispose of all or substantially all of the properties or assets of the Company to another Person, or (iii) allow another Person to make a purchase, tender or exchange offer that is accepted by the holders of more than the 50% of the outstanding shares of Voting Stock (not including any shares of Voting Stock held by the Person or Persons making or party to, or associated or affiliated with the Persons making or party to, such purchase, tender or exchange offer), or (iv) consummate a stock purchase agreement or other business combination (including, without limitation, a reorganization, recapitalization, spin-off or scheme of arrangement) with another Person whereby such other Person acquires more than the 50% of the outstanding shares of Voting Stock (not including any shares of Voting Stock held by the other Person or other Persons making or party to, or associated or affiliated with the other Persons making or party to, such stock purchase agreement or other business combination), (v) reorganize, recapitalize or reclassify its Common Stock or (vi) any "person" or "group" (as these terms are used for purposes of Sections 13(d) and 14(d) of the Exchange Act) is or shall become the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of 50% of the aggregate ordinary voting power represented by issued and outstanding Common Stock.
 
 
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"GAAP" means United States generally accepted accounting principles, consistently applied.
 
"Indebtedness" of any Person means, without duplication (i) all indebtedness for borrowed money, (ii) all obligations issued, undertaken or assumed as the deferred purchase price of property or services, including (without limitation) "capital leases" in accordance with generally accepted accounting principles (other than trade payables entered into in the ordinary course of business), (iii) all reimbursement or payment obligations with respect to letters of credit, surety bonds and other similar instruments, (iv) all obligations evidenced by notes, bonds, debentures or similar instruments, including obligations so evidenced incurred in connection with the acquisition of property, assets or businesses, (v) all indebtedness created or arising under any conditional sale or other title retention agreement, or incurred as financing, in either case with respect to any property or assets acquired with the proceeds of such indebtedness (even though the rights and remedies of the seller or bank under such agreement in the event of default are limited to repossession or sale of such property), (vi) all monetary obligations under any leasing or similar arrangement which, in connection with generally accepted accounting principles, consistently applied for the periods covered thereby, is classified as a capital lease, (vii) all indebtedness referred to in clauses (i) through (vi) above secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any mortgage, lien, pledge, charge, security interest or other encumbrance upon or in any property or assets (including accounts and contract rights and intellectual property rights) owned by any Person, even though the Person which owns such assets or property has not assumed or become liable for the payment of such indebtedness, (viii) all royalties and related payment or prepayment or other obligations of the Company or any of its Subsidiaries relating to any Intellectual Property Rights of the Company or any of its Subsidiaries and (ix) all Contingent Obligations in respect of indebtedness or obligations of others of the kinds referred to in clauses (i) through (viii) above.
 
"Interest Rate" means ten percent (10.0%) per annum, subject to periodic adjustment pursuant to Section 2.
 
"Options" means any rights, warrants or options to subscribe for or purchase shares of Common Stock or Convertible Securities.
 
 
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"Parent Entity" of a Person means an entity that, directly or indirectly, controls the applicable Person and whose common stock or equivalent equity security is quoted or listed on an Eligible Market, or, if there is more than one such Person or Parent Entity, the Person or Parent Entity with the largest public market capitalization as of the date of consummation of the Fundamental Transaction.
 
"Permitted Indebtedness" means (i) Indebtedness incurred by the Company that is made expressly subordinate in right of payment to the Indebtedness evidenced by this Note, as reflected in a written agreement acceptable to the Holder andapproved by the Holder in writing, and which Indebtedness does not provide at any time for (1) the payment, prepayment, repayment, repurchase or defeasance, directly or indirectly, of any principal or premium, if any, thereon until ninety-one (91) days after the Maturity Date or later and (2) total interest and fees at a rate in excess of ten percent (10.0%) per annum (collectively, the "Subordinated Indebtedness"), (ii) Indebtedness secured by Permitted Lien (other than the Existing Liens), (iii) Indebtedness evidenced by this Note and the Other Notes, (iv) up to an additional $300,000 loaned to the Company by Holder or its Affiliates, and (v) extensions, refinancings and renewals of any items in clauses (i) through (iv) above, provided that the principal amount is not increased or the terms modified to impose more burdensome terms upon the Company or its Subsidiaries, as the case may be.
 
"Permitted Liens" means (i) any Lien for taxes not yet due or delinquent or being contested in good faith by appropriate proceedings for which adequate reserves have been established in accordance with GAAP, (ii) any statutory Lien arising in the ordinary course of business by operation of law with respect to a liability that is not yet due or delinquent, (iii) any Lien created by operation of law, such as materialmen's liens, mechanics' liens and other similar liens, arising in the ordinary course of business with respect to a liability that is not yet due or delinquent or that are being contested in good faith by appropriate proceedings, (iv) Liens (A) upon or in any equipment (as defined in the Security Agreement) acquired or held by the Company or any of its Subsidiaries to secure the purchase price of such equipment or indebtedness incurred solely for the purpose of financing the acquisition or lease of such equipment, or (B) existing on such equipment at the time of its acquisition, provided that the Lien is confined solely to the property so acquired and improvements thereon, and the proceeds of such equipment, (v) Liens incurred in connection with the extension, renewal or refinancing of the indebtedness secured by Liens of the type described in clauses (i) and (iv) above, provided that any extension, renewal or replacement Lien shall be limited to the property encumbered by the existing Lien and the principal amount of the being extended, renewed or refinanced does not increase, (vi) Liens securing the Company's obligations under the Notes; (vii) leases or subleases and licenses and sublicenses granted to others in the ordinary course of the Company's business, not interfering in any material respect with the business of the Company and its Subsidiaries taken as a whole, (viii) Liens in favor of customs and revenue authorities arising as a matter of law to secure payments of custom duties in connection with the importation of goods, and (ix) Liens arising from judgments, decrees or attachments in circumstances not constituting an Event of Default under Section 4(a)(ix), (x) Liens created in favor of certain financial institutions to secure the Company's obligations under its automated teller machine cash agreements.
 
 
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"Person" means an individual, a limited liability company, a partnership, a joint venture, a corporation, a trust, an unincorporated organization, any other entity and a government or any department or agency thereof.
 
"Principal Market" means the OTC Bulletin Board.
 
"Redemption Notices" means, collectively, the Event of Default Redemption Notices, the Change of Control Redemption Notices and the Holder Redemption Notice, each of the foregoing, individually, a Redemption Notice.
 
"Redemption Premium" means (i) in the case of the Events of Default described in Section 4(a)(i) - (vi) and (ix) - (xii), 125% or (ii) in the case of the Events of Default described in Section 4(a)(vii) - (viii), 100%.
 
"Redemption Prices" means, collectively, the Event of Default Redemption Price, Change of Control Redemption Price and the Holder Optional Redemption Price, each of the foregoing, individually, a Redemption Price.
 
"SEC" means the United States Securities and Exchange Commission.
 
"Security Agreement" means that certain security agreement dated even date herewith securing the obligations due pursuant to this Note.
 
"Successor Entity" means the Person, which may be the Company, formed by, resulting from or surviving any Fundamental Transaction or the Person with whichsuch Fundamental Transaction shall have been made, provided that if such Person is not a publicly traded entity whose common stock or equivalent equity security is quoted or listed for trading on an Eligible Market, Successor Entity shall mean such Person's Parent Entity.
 
 
33

 

"Trading Day" means any day on which the shares of Common Stock are traded on the Principal Market, or, if the Principal Market is not the principal trading market for the shares of Common Stock, then on the principal securities exchange or securities market on which the shares of Common Stock are then traded; provided that "Trading Day" shall not include any day on which the shares of Common Stock are scheduled to trade on any such exchange or market for less than 4.5 hours or any day that the shares of Common Stock are suspended from trading during the final hour of trading on such exchange or market (or if such exchange or market does not designate in advance the closing time of trading on any such exchange or market, then during the hour ending at 4:00:00 p.m., New York Time).
 
"Voting Stock" of a Person means capital stock of such Person of the class or classes pursuant to which the holders thereof have the general voting power to elect, or the general power to appoint, at least a majority of the board of directors, managers or trustees of such Person (irrespective of whether or not at the time capital stock of any other class or classes shall have or might have voting power by reason of the happening of any contingency).
 
"Weighted Average Price" means, for any security as of any date, the dollar volume-weighted average price for such security on the Principal Market during the period beginning at 9:30:01 a.m., New York Time (or such other time as the Principal Market publicly announces is the official open of trading), and ending at 4:00:00 p.m., New York Time (or such other time as the Principal Market publicly announces is the official close of trading) as reported by Bloomberg through its "Volume at Price" functions, or, if the foregoing does not apply, the dollar volume-weighted average price of such security in the over-the-counter market on the electronic bulletin board for such security during the period beginning at 9:30:01 a.m., New York Time (or such other time as such market publicly announces is the official open of trading), and ending at 4:00:00 p.m., New York Time (or such other time as such market publicly announces is the official close of trading) as reported by Bloomberg, or, if no dollar volume-weighted average price is reported for such security by Bloomberg for such hours, the average of the highest closing bid price and the lowest closing ask price of any of the market makers for such security as reported in the "pink sheets" by Pink Sheets LLC (formerly the National Quotation Bureau, Inc.). If the Weighted Average Price cannot be calculated for such security on such particular date on any of the foregoing bases, the Weighted Average Price of such security on such date shall be the fair market value as mutually determined by the Company and the Holders. If the Company and the Holder are unable to agree upon the fair market value of such security, then such dispute shall be resolved pursuant to Section 22. All such determinations to be appropriately adjusted for any stock dividend, stock split, stock combination or other similar transaction during the applicable calculation period.
 
 
34

 
 
MAXIMUM PAYMENTS. Nothing contained herein shall be deemed to establish or require the payment of a rate of interest or other charges in excess of the maximum permitted by applicable law. In the event that the rate of interest required to be paid or other charges hereunder exceed the maximum permitted by such law, any payments in excess of such maximum shall be credited against amounts owed by the Company to the Holder and thus refunded to the Company.
 
DISCLOSURE. Upon receipt or delivery by the Company of any notice in accordance with the terms of this Note, unless the Company has in good faith determined that the matters relating to such notice do not constitute material, nonpublic information relating to the Company or its Subsidiaries, the Company shall within one (1) Business Day after any such receipt or delivery publicly disclose such material, nonpublic information on a Current Report on Form 8-K or otherwise. In the event that the Company believes that a notice contains material, nonpublic information, relating to the Company or its Subsidiaries, the Company shall indicate to the Holder contemporaneously with delivery of such notice, and in the absence of any such indication, the Holder shall be allowed to presume that all matters relating to such notice do not constitute material, nonpublic information relating to the Company or its Subsidiaries.
 
[Signature Page Follows]
 
 
35

 
 
IN WITNESS WHEREOF, the Company has caused this Note to be duly executed as of the Issuance Date set out above.
 
  RED ROCK PICTURES HOLDINGS, INC.  
       
 
By:
/s/  
    Name:  
    Title:  
 
 
36

 
 
EXHIBIT I
 
RED ROCK PICTURES HOLDINGS, INC.
 
CONVERSION NOTICE
 
Reference is made to the Senior Secured Convertible Note (the "Note") issued to the undersigned by Red Rock Pictures Holdings, Inc. (the "Company"). In accordance with and pursuant to the Note, the undersigned hereby elects to convert the Conversion Amount (as defined in the Note) of the Note indicated below into shares of Common Stock par value $0.001 per share (the "Common Stock") of the Company, as of the date specified below.
 
Date of Conversion: ___________________________________________________
 
Aggregate Conversion Amount to be converted:___________________________
 
Please confirm the following information:
 
Conversion Price:______________________________________________________
 
Number of shares of Common Stock to be issued:_________________________
 
Please issue the Common Stock into which the Note is being converted in the following name and to the following address:
 
Issue to: ______________________________________________________________
 
______________________________________________________________
 
______________________________________________________________
Facsimile Number:_______________________________________________________
Authorization:__________________________________________________________
 
By:________________________________________________________
  Title:_________________________________________________
 
Dated:_______________________________________________________________________
 
  Account Number:_______________________________________________________
 (if electronic book entry transfer)
 
Transaction Code Number:_________________________________________________
(if electronic book entry transfer
 
 
37

 
 
ACKNOWLEDGMENT
 
The Company hereby acknowledges this Conversion Notice and hereby directs [____________________] [TRANSFER AGENT] to issue the above indicated number of shares of Common Stock in accordance with the Conversion Notice attached hereto.
 
  RED ROCK PICTURES HOLDINGS, INC.  
       
 
By:
   
    Name :  
    Title :  
       
 
 
38 

EX-10.16 12 f10k2012ex10xvi_oslholdings.htm AMENDMENT NO. 1 TO SENIOR SECURED CONVERTIBLE NOTE DATED AS OF OCTOBER 12, 2011 WITH THE EXCHANGE LLC Unassociated Document
Exhibit 10.16
 
AMENDMENT NO. 1 TO
 
SENIOR SECURED CONVERTIBLE NOTE
 
This AMENDMENT NO. 1 TO SENIOR SECURED CONVERTIBLE NOTE (this “Amendment”) dated as of October 12, 2011 (the “Effective Date”) is entered into by Red Rock Pictures Holdings, Inc., a Nevada corporation (the “Company”).
 
Recitals
 
WHEREAS, the Company and Emerald Asset Advisors, LLC, a Delaware company “Emerald”) entered into a Senior Secured Convertible Note, dated December 28, 2008 (the “Senior Secured Convertible Note”), in the original principal amount (the “Original Principal Amount”) of $100,000 in favor of Emerald;
 
WHEREAS, pursuant an Agreement, dated September 19, 2011, by and between Emerald and The Exchange LLC, a Nevada limited liability company, (the “Exchange LLC”) Emerald assigned the Senior Secured Convertible Note to the Exchange LLC;
 
WHEREAS, the Maturity Date of the Senior Secured Convertible Note is December 28, 2009 (subject to extension at the option of the Holder) and as of the date hereof the Original Principal Amount remains outstanding;
 
WHEREAS, Section 3(b)(ii) of the Senior Secured Convertible Note provides that the Conversion Price means $006;
 
WHEREAS, in consideration of the forgiveness by the Exchange LLC of an additional $100,000 of indebtedness (the “Additional Debt”) owed to by the Company, and extending the Maturity Date of the Senior Secured Convertible Note to October 5, 2012, the Company has agreed to amend the Conversion Price to $0.001; and
 
WHEREAS, the parties desire that, the Senior Secured Convertible Note be amended to reflect (i) the extension of the Maturity Date of the Senior Secured Convertible Note to October 5, 2012, and (ii) that the Conversion Price (as defined in the Senior Secured Convertible Note) be $0.001; and
 
NOW, THEREFORE, in consideration of the foregoing, and of the mutual representations, warranties, covenants, and agreements herein contained, the parties hereto agree as follows:
 
Agreement
 
Section 1.   Defined Terms. Unless otherwise indicated herein, all terms which are capitalized but are not otherwise defined herein shall have the meaning ascribed to them in the Senior Secured Convertible Note.
 
 
1

 
 
Section 2.   Amendment to Senior Secured Convertible Note.
 
(a)           The second sentence of Section (1) “Payment of Principal” of the Senior Secured Convertible Note is hereby amended and restated in its entirety as follows:
 
 “(ii)        “The “Maturity Date” shall be October 5, 2012, as may be extended at the option of the Holder (i) in the event that, and for so long as, an Event of Default (as defined in Section 4(a)) shall have occurred and be continuing on the Maturity Date (as may be extended pursuant to this Section 1) or any event that shall have occurred and be continuing that with the passage of time and the failure to cure would result in an Event of Default and (ii) through the date that is ten (10) Business Days after the consummation of a Change of Control in the event that a Change of Control is publicly announced or a Change of Control Notice (as defined in Section 5(b)) is delivered prior to the Maturity Date.”
 
(b)           Section (3)(b)(ii) of the Senior Secured Convertible Note is hereby amended and restated in its entirety as follows:
 
 “(ii)        “Conversion Price”   means, as of any Conversion Date (as defined below) or other date of determination, $0.001, subject to adjustment as provided herein.”
 
Section 3.   Forgiveness of Debt.  The Additional debt owed to the Exchange LLC by the Company is hereby forgiven and extinguished.
 
Section 4.            Board Consent for Conversion.  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.
 
Section 5.            Ratifications; Inconsistent Provisions. Except as otherwise expressly provided herein, the Senior Secured Convertible Note, is, and shall continue to be, in full force and effect and is hereby ratified and confirmed in all respects, except that on and after the Effective Date, all references in the Senior Secured Convertible Note to “this Agreement”, “hereto”, “hereof”, “hereunder” or words of like import referring to the Original Agreement shall mean the Senior Secured Convertible Note as amended by this Amendment.  Notwithstanding the foregoing to the contrary, to the extent that there is any inconsistency between the provisions of the Senior Secured Convertible Note and this Amendment, the provisions of this Amendment shall control and be binding.
 
Section 6.            Counterparts. This Amendment may be executed in any number of counterparts, all of which will constitute one and the same instrument and shall become effective when one or more counterparts have been signed by each of the parties and delivered to the other party.  Facsimile or other electronic transmission of any signed original document shall be deemed the same as delivery of an original.
 
 
2

 
 
IN WITNESS WHEREOF, the Company has caused this Amendment No. 1 to Senior Secured Convertible Note to be executed as of the date first written above by their respective officers thereunto duly authorized.
 
 
RED ROCK PICTURES HOLDINGS, INC.
 
       
 
By:
 /s/
 
 
Name:
Eric Kotch
 
 
Title:
Chief Financial Officer, Treasurer and Secretary
 
 
Acknowledged and Accepted as of
the date first written above:
 
THE EXCHANGE LLC
 
     
By:
/s/
 
Name:
Peter Schur
 
Title:
Member / President
 
 
[Signature Page to the Amendment No. 1]
 
 
3

EX-10.17 13 f10k2012ex10xvii_oslholdings.htm AMENDMENT NO. 2 TO SENIOR SECURED CONVERTIBLE NOTE DATED AS OF DECEMBER 4, 2012 WITH THE EXCHANGE LLC f10k2012ex10xvii_oslholdings.htm
Exhibit 10.17
 
AMENDMENT NO. 2 TO
 
SENIOR SECURED CONVERTIBLE NOTE
 
This AMENDMENT NO. 2 TO SENIOR SECURED CONVERTIBLE NOTE (this “Amendment”) dated as of December 4, 2012 (the “Effective Date”) is entered into by OSL Holdings Inc., a Nevada corporation (formerly Red Rock Pictures Holdings, Inc.) (the “Company”).
 
Recitals
 
WHEREAS, the Company and Emerald Asset Advisors, LLC, a Delaware company “Emerald”) entered into a Senior Secured Convertible Note, dated December 28, 2008 (the “Senior Secured Convertible Note”), in the original principal amount (the “Original Principal Amount”) of $100,000 in favor of Emerald;
 
WHEREAS, pursuant an Agreement, dated September 19, 2011, by and between Emerald and The Exchange LLC, a Nevada limited liability company, (the “Exchange LLC”), Emerald assigned the Senior Secured Convertible Note to the Exchange LLC;
 
WHEREAS, the Company and Exchange LLC entered into Amendment No. 1 to the Senior Secured Convertible Note dated October 12, 2011 (“Amendment No. 1”);
 
WHEREAS, the Maturity Date of the Senior Secured Convertible Note was October 5, 2012 and as of the date hereof the Original Principal Amount and all accrued interest remains outstanding;
 
WHEREAS, the Company intends to complete a 1,000 to 1 reverse stock split of its Common Stock;
 
WHEREAS, in consideration of Holder’s extension of the Maturity Date from October 5, 2012 to October 5, 2013, the Company has agreed to amend the Conversion Price to provide that it remain at $0.001 and not be adjusted in any manner in the event of any combination or reverse stock split of the Company’s common stock; and
 
WHEREAS, the parties desire that, the Senior Secured Convertible Note be amended to provide that the Conversion Price be remain at $0.001 and shall not be adjusted in any manner in the event of any combination or reverse stock split of the Company’s common stock; and
 
NOW, THEREFORE, in consideration of the foregoing consideration, the receipt and sufficiency of which is acknowledged, and of the mutual representations, warranties, covenants, and agreements herein contained, the parties hereto agree as follows:
 
Agreement
 
Section 1.   Defined Terms. Unless otherwise indicated herein, all terms which are capitalized but are not otherwise defined herein shall have the meaning ascribed to them in the Senior Secured Convertible Note and Amendment No. 1.
 
 
1

 
 
Section 2.            Amendment to Senior Secured Convertible Note.
 
(a)           The second sentence of Section (1) “Payment of Principal” of the Senior Secured Convertible Note and Amendment No. 1 is hereby amended and restated in its entirety as follows:
 
 “(ii)        “The “Maturity Date” shall be October 5, 2013, as may be extended at the option of the Holder in its sole discretion.”
 
(b)           Section (3)(b)(ii) of the Senior Secured Convertible Note and Amendment No. 1 is hereby amended and restated in its entirety as follows:
 
 “(ii)        “Conversion Price”   means, as of any Conversion Date (as defined below) or other date of determination, $0.001, and notwithstanding any other language contained in the Senior Secured Convertible Note, the Conversion Price shall not be subject to any adjustment (and shall at all times remain at $0.001) in the event the Company completes any combination or reverse stock split of its common stock.”
 
(c)           Section __ of the Senior Secured Convertible Note is hereby amended and restated in its entirety as follows:
 
Adjustment of Conversion Price upon Subdivision or Combination of Common Stock. If the Company at any time on or after the Subscription Date subdivides (by any stock split, stock dividend, recapitalization or otherwise) one or more classes of its outstanding shares of Common Stock into a greater number of shares, the Conversion Price in effect immediately prior to such subdivision will be proportionately reduced. If the Company at any time on or after the Subscription Date combines (by combination, reverse stock split or otherwise) one or more classes of its outstanding shares of Common Stock into a smaller number of shares, the Conversion Price in effect immediately prior to such combination will remain the same as before such combination.”
 
Section 3.   Ratifications; Inconsistent Provisions. Except as otherwise expressly provided herein, the Senior Secured Convertible Note and Amendment No. 1, are, and shall continue to be, in full force and effect and is hereby ratified and confirmed in all respects, except that on and after the Effective Date, all references in the Senior Secured Convertible Note to “this Agreement”, “hereto”, “hereof”, “hereunder” or words of like import referring to the Original Agreement shall mean the Senior Secured Convertible Note as amended by  Amendment No. 1 and this Amendment No. 2.  Notwithstanding the foregoing to the contrary, to the extent that there is any inconsistency between the provisions of the Senior Secured Convertible Note and this Amendment No. 2, the provisions of this Amendment No. 2 shall control and be binding.
 
Section 4.            Counterparts. This Amendment may be executed in any number of counterparts, all of which will constitute one and the same instrument and shall become effective when one or more counterparts have been signed by each of the parties and delivered to the other party.  Facsimile or other electronic transmission of any signed original document shall be deemed the same as delivery of an original.
 
 
2

 
 
IN WITNESS WHEREOF, the Company has caused this Amendment No. 2 to Senior Secured Convertible Note to be approved by all required corporate actions and to be executed as of the date first written above by its officer thereunto duly authorized by the Board of Directors of the Company.
 
 
OSL HOLDINGS INC.
 
       
 
By:
 /s/
 
 
Name:
 Eric Kotch
 
 
Title:
Chief Financial Officer, Treasurer and Secretary
 
 
Acknowledged and Accepted as of
the date first written above:
 
THE EXCHANGE LLC
 
     
By:
 /s/
 
Name:
 Peter Schur
 
Title:
 Member / President
 
 
[Signature Page to the Amendment No. 2]
 

3

EX-31.1 14 f10k2012ex31i_oslholdings.htm 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. f10k2012ex31i_oslholdings.htm
Exhibit 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
 
I, Eli Feder, certify that:
 
1. I have reviewed this Annual Report on Form 10-K of OSL Holdings, Inc.;
 
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
 
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
 
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reported (as defined in Exchange Act Rules 13a-15(f) and 15d - 15(f)) for the registrant and have:
 
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
 
(b) Designed such internal controls over financial reporting, or caused such internal controls over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
 
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
 
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
 
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
 
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
 
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
 
Date: December 14, 2012
 
/s/ Eli Feder
Eli Feder
Chief Executive Officer
(Principal Executive Officer)
EX-31.2 15 f10k2012ex31ii_oslholdings.htm 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. f10k2012ex31ii_oslholdings.htm
Exhibit 31.2
 
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
 
I, Eric Kotch, certify that:
 
1. I have reviewed this Annual Report on Form 10-K of OSL Holdings, Inc.;
 
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
 
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
 
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reported (as defined in Exchange Act Rules 13a-15(f) and 15d - 15(f)) for the registrant and have:
 
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
 
(b) Designed such internal controls over financial reporting, or caused such internal controls over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
 
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
 
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
 
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
 
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
 
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
 
Date: December 14, 2012
 
/s/ Eric Kotch
Eric Kotch
Chief Financial Officer
(Principal Financial Officer)
EX-32.1 16 f10k2012ex32i_oslholdings.htm 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. f10k2012ex32i_oslholdings.htm
Exhibit 32.1
 
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
 
In connection with the Annual Report of OSL Holdings, Inc. (the “Company”) on Form 10-K for the period ended August 31, 2012 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Eli Feder, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
 
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
 
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.
 
Dated: December 14, 2012
 
/s/ Eli Feder
Eli Feder
Chief Executive Officer
(Principal Executive Officer)
EX-32.2 17 f10k2012ex32ii_oslholdings.htm CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER, PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002. f10k2012ex32ii_oslholdings.htm
Exhibit 32.2
 
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
 
In connection with the Annual Report of OSL Holdings, Inc. (the “Company”) on Form 10-K for the period ended August 31, 2012 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Eric Kotch, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
 
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
 
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.
 
Dated: December 14, 2012
 
/s/ Eric Kotch
Eric Kotch
Chief Financial Officer
(Principal Financial Officer)
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Subsequent Events (Details) (USD $)
1 Months Ended 12 Months Ended 1 Months Ended 12 Months Ended 1 Months Ended 1 Months Ended 1 Months Ended
Nov. 30, 2012
Oct. 31, 2012
Sep. 30, 2012
Sep. 20, 2012
Aug. 31, 2012
Aug. 31, 2011
Sep. 30, 2012
Panache Capital, LLC [Member]
Aug. 31, 2012
Panache Capital, LLC [Member]
Aug. 31, 2012
Asher Enterprises [Member]
Oct. 31, 2012
Series Preferred Stock [Member]
Crisnic [Member]
Oct. 31, 2012
Convertible Note One [Member]
Oct. 08, 2012
Convertible Note One [Member]
Sep. 30, 2012
Convertible Note One [Member]
Panache Capital, LLC [Member]
Sep. 21, 2012
Convertible Note One [Member]
Panache Capital, LLC [Member]
Oct. 31, 2012
Convertible Notes Two [Member]
Sep. 30, 2012
Convertible Notes Two [Member]
Panache Capital, LLC [Member]
Oct. 31, 2012
Convertible Notes Three [Member]
Nov. 30, 2012
November 2012 Note [Member]
Asher Enterprises [Member]
Nov. 08, 2012
November 2012 Note [Member]
Asher Enterprises [Member]
Subsequent Events (Textual)                                      
Note principle amount               $ 250,000 $ 150,500         $ 30,000         $ 22,500
Convertible notes payable, Maturity date                         Sep. 21, 2013         Jul. 23, 2013  
Interest rate               10.00% 8.00%         10.00%         8.00%
Conversion term of convertible promissory note             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 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. 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       Valued at an agreed discount to market not to fall below a 49% discount to the average of the three lowest closing bid prices for the Company's common stock during the ten days immediately preceding a conversion date.     The Payee has the right to convert the Note, in its entirety or in part, into common stock of the Company. 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.   The November 2012 Note is convertible into shares of the Company's common stock (up to an amount that would result in Asher holding no more than 4.99% of the outstanding shares of common stock of the Company, subject to waiver by Asher) at any time beginning on the date that is 180 days following the date of the November 2012 Note and ending on the maturity date, valued at an agreed discount to market not to fall below a 59% discount to the average of the three lowest closing bid prices for the Company's common stock during the ten days immediately preceding a conversion date.,  
Increase in interest rate on default                         15.00%         22.00%  
Conversion penalty per day                         2,000         1,000  
Convertible promissory note, amendment description               For 90 days after September 21, 2012 (the "Outside Date"), to redeem the Panache Notes for 100% of their outstanding principal and interest         For 90 days after September 21, 2012 (the "Outside Date"), to redeem the Existing Notes for 100% of their outstanding principal and interest.            
Shares issued upon conversion of Convertible Note (Shares)       4,018,240         5,355,004   4,476,560       3,529,412   4,107,143    
Shares issued upon conversion of Convertible Note   4,923.11 0.001   124,101                   6,000   2,300    
Conversion price                 $ 0.007     $ 0.001              
Partial repayment of indebtness       $ 4,018         $ 39,000   $ 4,923                
Preferred stock, shares issued                     650,001                  
Convertible debt payment term                                   November 2012 Note shall become immediately due and payable and the Company shall pay to the holder, in full satisfaction of its obligations under the November 2012 Note, an amount equal to the Default Sum (as defined below), multiplied by 2.  
Reverse stock split description As a result of the reverse stock split, every one thousand shares of the common stock of the Company will be combined into one share of common stock.                                    
Reduction in common stock due to reverse stock split 117,121                                    
XML 28 R33.htm IDEA: XBRL DOCUMENT v2.4.0.6
Convertible Notes (Details 1) (USD $)
1 Months Ended 12 Months Ended 23 Months Ended 12 Months Ended 1 Months Ended 12 Months Ended 1 Months Ended 12 Months Ended 1 Months Ended
Sep. 20, 2012
Aug. 31, 2011
Aug. 31, 2012
Aug. 31, 2012
Aug. 31, 2012
Asher Enterprises [Member]
Note
Sep. 30, 2012
Panache Capital, LLC [Member]
Aug. 31, 2012
Panache Capital, LLC [Member]
Note
Sep. 21, 2012
Panache Capital, LLC [Member]
Aug. 31, 2012
Continental Equities, LLC [Member]
Oct. 31, 2012
Convertible Notes One [Member]
Sep. 30, 2012
Convertible Notes One [Member]
Panache Capital, LLC [Member]
Aug. 31, 2012
Convertible Notes One [Member]
Continental Equities, LLC [Member]
Aug. 13, 2012
Convertible Notes One [Member]
Continental Equities, LLC [Member]
Oct. 31, 2012
Convertible Notes Two [Member]
Feb. 20, 2012
Convertible Notes Payable [Member]
Continental Equities, LLC [Member]
Convertible Notes (Textual)                              
Number of Convertible notes issued         4   4                
Note principle amount         $ 150,500   $ 250,000           $ 67,000   $ 67,365
Convertible debt maturity period         1 year   1 year                
Due date                       Jun. 30, 2013      
Interest rate         8.00%   10.00%           8.00%   8.00%
Interest rate on past due amount         22.00%   15.00%           18.00%    
Conversion term of convertible promissory note         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 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 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 Payee has the right to convert the Note, in its entirety or in part, into common stock of the Company. 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. 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.      
Fair value of the embedded beneficial conversion feature of the Debentures         258,510   83,333                
Prepayment fee on debt             25.00%                
Discount on the average closing bid price         49.00%   25.00% 49.00% 49.00%            
Unamortized balance on debt discount             47,861                
Cost of offering      145,510 145,510 145,510                    
Valuation discount upon issuance of convertible debt         113,000                    
Fair value of Derivative Liability      250,970 250,970 250,970                    
Change in value of derivative liability      7,540 7,540 7,540                    
Amortization of debt discount      69,810 69,810 34,338                    
Debt discount offset against balance of notes         78,662                    
Convertible promissory note, amendment description             For 90 days after September 21, 2012 (the "Outside Date"), to redeem the Panache Notes for 100% of their outstanding principal and interest                
Conversion price         $ 0.007                    
Remaining balance outstanding         116,600   260,600           67,465    
Accrued interest on debt instrument         5,100   10,600           465    
Shares issued upon conversion of Convertible Note (Shares) 4,018,240       5,355,004         3,529,412       4,107,143  
Partial repayment of indebtness 4,018       39,000                    
Beneficial conversion cost         $ 69,101                    
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Going Concern (Details) (USD $)
12 Months Ended
Aug. 31, 2012
Going concern (Textual)  
Cash in hand Less than $1,000
Burn rate incurred by company per month $ 125,000
Fund requirement by second quarter of 2013 for continuation of business $ 500,000
XML 31 R37.htm IDEA: XBRL DOCUMENT v2.4.0.6
Capital Stock (Details) (USD $)
1 Months Ended 12 Months Ended 23 Months Ended 12 Months Ended 12 Months Ended
Oct. 31, 2012
Sep. 30, 2012
Sep. 20, 2012
May 31, 2012
Jan. 31, 2012
Dec. 31, 2011
Aug. 31, 2011
Aug. 31, 2012
Aug. 31, 2012
Jan. 06, 2012
Dec. 30, 2011
Aug. 31, 2011
Common Stock [Member]
Aug. 31, 2012
Common Stock [Member]
Jan. 17, 2012
Common Stock [Member]
Aug. 31, 2012
Series A Preferred Stock [Member]
Aug. 31, 2012
Senior Secured Convertible Note [Member]
Aug. 31, 2012
Senior Secured Convertible Note One [Member]
Capital Stock (Textual)                                  
Preferred stock, shares authorized             5,000,000 5,000,000 5,000,000                
Preferred stock, par value             $ 0.001 $ 0.001 $ 0.001                
Common stock, shares authorized             120,000,000 120,000,000 120,000,000                
Preferred stock issued as security                             650,001    
Preferred stock, voting rights                             100 times the number of common stock votes    
Preferred stock liquidation preference                             2    
Common stock issuable upon conversion of each share of convertible preferred stock                             100    
Common stock shares authorized, minimum requested capital                             500,000,000    
Common stock issued to related parties, shares                       220,000          
Common stock issued to related parties                       $ 22,000          
Common stock, par value             $ 0.001 $ 0.001 $ 0.001                
Shares issued upon conversion of Convertible Note (Shares)     4,018,240                   21,355,004     16,000,000 5,355,004
Shares issued upon conversion of Convertible Note 4,923.11 0.001           124,101         21,355     16,000 39,000
Conversion price                               $ 0.001 $ 0.007
Stock issued for services                         5,800,000        
Common stock shares issuable as per agreement       1,000,000 500,000 29,412                      
Price of sale of stock per share       $ 0.05           $ 0.10 $ 0.17            
Sale of Issued common stock       50,000 50,000 5,000                      
Shares issued to employees for services provided (Shares)                         8,041,662        
Shares issued to employees for services provided               316,250         8,042        
Fair value of stock issued for outside services received (Shares)                         5,800,000        
Fair value of stock issued for outside services received                         240,000        
Shares issued as stipulated in an employment agreement                         708,330        
Value of Shares issued as stipulated in employment agreement                         96,250        
Shares issued at signing of employment agreement                           500,000      
Monthly shares require to issued as per employment agreement                           42,000      
Total shares of common stock have not been issued                         124,998        
Average market price of common shares                         $ 0.04        
Common stock issuable as stipulated in employment agreement               124,998                  
Common stock issuable as stipulated in employment agreement, price per share               $ 0.02                  
Average market value of common stock issued as stipulated in an employment agreement               2,083                  
Stock issued for pre-incorporation services                       48,220,000          
Stock issued for pre-incorporation services, value                       48,000          
Stock issued for pre-incorporation services per share price                       $ 0.001          
Non cash interest expense on note conversions                69,101 69,101               69,101
Fair value of stock issued upon rescinded acquisition               $ 20,000         $ 400        
Fair value of stock issued upon rescinded acquisition (Shares)                         400,000        
XML 32 R9.htm IDEA: XBRL DOCUMENT v2.4.0.6
Summary of Significant Accounting Policies
12 Months Ended
Aug. 31, 2012
Summary Of Significant Accounting Policies [Abstract]  
Summary of Significant Accounting Policies
 
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 of the useful life of equipment and intangibles, the impairment of long-lived assets, intangibles and goodwill, the value of stock compensation and the estimates of revenue and costs related to film production. These estimates are reviewed periodically, and, as adjustments become necessary, they are reported in earnings in the period in which they become known.
 
Internal Website Development Costs
 
Under Accounting Standards Codification (“ASC”) 350-50 – Intangibles – Goodwill and Other – Website Development Costs, costs and expenses incurred during the planning and operating stages of the Company's web site development are expensed as incurred. Costs incurred in the web site application and infrastructure development stages are capitalized by the Company and amortized to expense over the web site's estimated useful life or period of benefit. In May 2012, the Company determined that the website under development was not going to be utilized and recorded a charge of $185,800 categorized as “Loss on Impairment of Website Development Costs” in the Consolidated Statement of Operations for the year ended August 31, 2012. Prior to this charge, no amortization was recorded and the website was in development and was not  yet placed into service.
 
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.
 
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 August 31, 2012.
 
   
Level 1
   
Level 2
   
Level 3
   
Total
 
Fair value of Derivative Liability
 
$
   
$
   
$
250,970
   
$
250,970
 
 
Vendor Concentration
 
As of August 31, 2012 and August 31, 2011, one vendor represented 32% and 70% 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 August 31, 2012 or August 31, 2011.
 
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 1,068,225 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.
 
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.
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Advances from Related Parties (Details) (USD $)
Aug. 31, 2012
Aug. 31, 2011
Advances from Related Parties (Textual)    
Advances from related parties $ 14,727 $ 4,508

XML 35 R28.htm IDEA: XBRL DOCUMENT v2.4.0.6
Rescinded Acquisition (Details) (USD $)
12 Months Ended 1 Months Ended 1 Months Ended
Aug. 31, 2012
Dec. 31, 2011
Employment Agreement [Member]
Dec. 15, 2011
Employment Agreement [Member]
Dec. 31, 2011
Corporate Diversity Solutions [Member]
Dec. 15, 2011
Corporate Diversity Solutions [Member]
Rescinded Acquisition (Textual)          
Percentage of equity interest acquired         48.00%
Share issued for acquisition 400,000 500,000   200,000  
Share issued for acquisition, Value     $ 25,000   $ 10,000
Business Acquisition, Share Price $ 0.05   $ 0.05    
Percentage of equity interest acquired by related individuals   2.00%      
Advance cash returned by unrelated shareholders 20,000        
Advance shares returned by unrelated shareholders 500        
Total cost of acquisition 27,297        
Aggregate value of common shares included in acquisition cost 20,000        
Cash advance for acquisition $ 7,297        
XML 36 R30.htm IDEA: XBRL DOCUMENT v2.4.0.6
Senior Secured Convertible Note (Details) (USD $)
1 Months Ended 12 Months Ended
Sep. 20, 2012
Dec. 31, 2012
Senior Secured Convertible Note [Member]
Oct. 31, 2011
Senior Secured Convertible Note [Member]
Aug. 31, 2012
Senior Secured Convertible Note [Member]
Oct. 12, 2011
Senior Secured Convertible Note [Member]
Sep. 19, 2011
Senior Secured Convertible Note [Member]
Senior Secured Convertible Note (Textual)            
Note principle amount           $ 100,000
Conversion price       $ 0.001 $ 1.00  
Extended maturity date under amendment one, Convertible debt     Oct. 05, 2012      
Extended maturity date under amendment two, Convertible debt   Oct. 05, 2013        
Partial repayment of indebtness 4,018     16,000    
Shares issued upon conversion of Convertible Note (Shares) 4,018,240     16,000,000    
Remaining balance outstanding       135,300    
Accrued interest on debt instrument       $ 51,300    
XML 37 R31.htm IDEA: XBRL DOCUMENT v2.4.0.6
Secured Promissory Note (Details) (USD $)
1 Months Ended 12 Months Ended
Aug. 31, 2012
Aug. 31, 2011
Dec. 31, 2011
Promissory Note [Member]
Aug. 31, 2012
Promissory Note [Member]
Jan. 03, 2012
Promissory Note [Member]
Nov. 08, 2011
Promissory Note [Member]
Aug. 08, 2011
Promissory Note [Member]
Oct. 10, 2011
Promissory Note [Member]
Share Cancellation Agreement [Member]
Secured Promissory Note (Textual)                
Number of common stock cancelled               14,130,000
Common stock cancelled for cash               $ 10,000
Note principle amount             24,000 240,000
Repayment of debt, initial amount paid           50,000    
Repayment of debt, periodic payment     25,000          
Repayment of debt, final amount paid         15,000      
Preferred stock issued as security       650,001        
Preferred stock, voting rights       100:1        
Secured Promissory Note $ 170,000               
XML 38 R8.htm IDEA: XBRL DOCUMENT v2.4.0.6
Going Concern
12 Months Ended
Aug. 31, 2012
Going Concern [Abstract]  
Going Concern
 
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.  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.
 
XML 39 R32.htm IDEA: XBRL DOCUMENT v2.4.0.6
Convertible Notes (Details) (USD $)
Aug. 31, 2012
Aug. 31, 2011
Components of Convertible notes payable    
Convertible notes payble $ 444,665   
Less: note discount (126,523)  
Convertible notes payable, net of discount 318,142   
Convertible notes payable, interest at 8% per annum (A) [Member]
   
Components of Convertible notes payable    
Convertible notes payble 116,600  
Convertible notes payable, net of discount 116,600  
Convertible notes payable, interest at 10% per annum (B) [Member]
   
Components of Convertible notes payable    
Convertible notes payble 260,600  
Convertible notes payable, net of discount 260,600  
Convertible notes payable, interest at 8% per annum, due June 30, 2013 (C) [Member]
   
Components of Convertible notes payable    
Convertible notes payble 67,465  
Convertible notes payable, net of discount $ 67,465  
XML 40 R2.htm IDEA: XBRL DOCUMENT v2.4.0.6
Consolidated Balance Sheets (USD $)
Aug. 31, 2012
Aug. 31, 2011
Current assets:    
Cash $ 202 $ 1,147
Prepaid and other assets 2,000 12,500
Total current assets 2,202 13,647
Website development costs    185,800
Total assets 2,202 199,447
Current liabilities:    
Accounts payable and accrued liabilities 659,001 301,393
Accrued officers compensation 270,000   
Advances from related parties 14,727 4,508
Senior secured convertible note, including accrued interest of $51,300 135,300   
Secured promissory note 170,000   
Convertible notes, including accrued interest of $18,800 318,142   
Promissory notes, including accrued interest of $2,000 26,000 24,000
Derivative liability 250,970   
Total current liabilities 1,844,140 329,901
Stockholders’ deficit:    
Preferred Stock, $.001 par value; 5,000,000 shares authorized; no shares issued and outstanding      
Common Stock, $.001 par value; 120,000,000 shares authorized; 86,694,333 and 50,000,000 shares issued and outstanding at August 31, 2012 and August 31, 2011, respectively 86,694 50,000
Additional paid-in capital 771,990 20,000
Common shares issuable (1,624,998 shares) 102,083   
Deficit accumulated during the development stage (2,802,705) (200,454)
Total stockholders’ deficit (1,841,938) (130,454)
Total liabilities and stockholders’ deficit $ 2,202 $ 199,447
XML 41 R6.htm IDEA: XBRL DOCUMENT v2.4.0.6
Condensed Consolidated Statements of Cash Flows (USD $)
12 Months Ended 23 Months Ended
Aug. 31, 2011
Aug. 31, 2012
Aug. 31, 2012
Cash flows from operating activities:      
Net loss $ (200,454) $ (2,602,251) $ (2,802,705)
Adjustments to reconcile net loss to cash used in operating activities:      
Cost of reverse merger    647,880 647,880
Impairment of website development    185,800 185,800
Fair value of stock issued upon rescinded acquisition    20,000 20,000
Fair value of stock issued for services    240,000 240,000
Stock issued to employees for compensation and services 48,000 98,333 146,333
Cost of offering    145,510 145,510
Change in value of derivative liability    (7,540) (7,540)
Amortization of note discount    69,810 69,810
Accrued interest    29,600 29,600
Non cash interest expense on note conversions    69,101 69,101
(Increase) decrease in:      
Prepaid and other assets    10,500 10,500
Accrued compensation    490,000 490,000
Accounts payable and accrued liabilities 127,093 92,228 219,320
Net cash used in operating activities (25,361) (511,029) (536,390)
Cash flows from financing activities:      
Advances from related parties 4,508 10,219 14,727
Payment of senior secured convertible note    (70,000) (70,000)
Payment of promissory note    (3,000) (3,000)
Cash received on issuance of convertible promissory notes    400,500 400,500
Cash received on issuance of a promissory note    67,365 67,365
Cash received on shares to be issued    100,000 100,000
Cash received on issuance of common stock 22,000 5,000 27,000
Net cash provided by financing activities 26,508 510,084 536,592
Change in cash:      
Net (decrease) increase 1,147 (945) 202
Balance at beginning of period    1,147   
Balance at end of period 1,147 202 202
Cash paid for:      
Income taxes         
Interest         
Non cash financing activities      
Fair value of common shares issued upon conversion of senior secured promissory note    16,000 16,000
Fair value of common shares issued upon conversion of convertible notes    39,000 39,000
Accounts payable assumed on reverse acquisition    265,380 265,380
Acquisition of website for accounts payable 185,800    185,800
Promissory notes assumed on reverse acquisition    142,500 142,500
Issuance of note payable on reverse merger    240,000 240,000
Fair value of common shares issued upon conversion of accrued compensation    220,000 220,000
Fair value of beneficial conversion feature of convertible notes    $ 358,333 $ 358,333
XML 42 R35.htm IDEA: XBRL DOCUMENT v2.4.0.6
Derivative Liability (Details) (USD $)
12 Months Ended
Aug. 31, 2012
Conversion feature :  
Risk-free interest rate 0.25%
Expected volatility 215.00%
Expected life (in years) 1 year
Expected dividend yield 0.00%
Fnancial assets measured and recorded at fair value  
Conversion feature $ 250,970
At date of issuance [Member]
 
Conversion feature :  
Risk-free interest rate 0.25%
Expected volatility 215.00%
Expected life (in years) 1 year
Expected dividend yield 0.00%
Fnancial assets measured and recorded at fair value  
Conversion feature $ 258,510
XML 43 R22.htm IDEA: XBRL DOCUMENT v2.4.0.6
Convertible Notes (Tables)
12 Months Ended
Aug. 31, 2012
Debt Disclosure [Abstract]  
Components of Convertible notes payable
 
 
         
Convertible notes payable, interest at 8% per annum (A)
 
$
116,600
 
Convertible notes payable, interest at 10% per annum (B)
   
260,600
 
Convertible notes payable, interest at 8% per annum, due June 30, 2013 (C)
   
67,465
 
Convertible notes payable
   
444,665
 
Less: note discount
   
(126,523)
 
Convertible notes payable, net of discount
 
$
318,142
 
XML 44 R36.htm IDEA: XBRL DOCUMENT v2.4.0.6
Derivative Liability (Details Textual) (USD $)
12 Months Ended
Aug. 31, 2012
Aug. 31, 2011
Derivative liability (Textual)    
Fair value of Derivative Liability $ 250,970   
Gain on change in fair value of derivative liabilty $ 7,540  
XML 45 R24.htm IDEA: XBRL DOCUMENT v2.4.0.6
Organization, Nature of Business and Basis of Presentation (Details) (USD $)
1 Months Ended 12 Months Ended
Nov. 30, 2012
Oct. 31, 2011
Jun. 30, 2008
Dec. 04, 2012
Aug. 31, 2012
Oct. 10, 2011
Aug. 31, 2011
Jun. 06, 2008
Aug. 31, 2012
Promissory Note [Member]
Aug. 08, 2011
Promissory Note [Member]
Oct. 10, 2011
Promissory Note [Member]
Share Cancellation Agreement [Member]
Organization Nature of Business and Basis of Presentation (Textual)                      
Pecentage of assets acquired of SSD pursuant to stock exchange agreement               100.00%      
Restricted stock issued in exchange of all issued and outstanding shares of SSD     11,000                
Number of shares exchanged by OSL under share exchange agreement with Company   50,000,000                  
Cancellation of stock that yet unissued   143,809                  
Number of shares due under employment agreement   5,000,000                  
Shares issued upon reverse acquisition (Shares)   1,068                  
Reverse merger cost   $ 649,000                  
Net liability assumed upon reverse merger           408,000          
Cost of share cancellation agreement   250,000                  
Reverse stock split description As a result of the reverse stock split, every one thousand shares of the common stock of the Company will be combined into one share of common stock.                    
Reduction in common stock due to reverse stock split 117,121                    
Common stock, shares authorized         120,000,000   120,000,000        
Total number of authorized shares available for issuance due to Company amended Articles of Incorporation       450,000,000              
Debt Instrument [Line Items]                      
Note principle amount                   24,000 240,000
Number of common stock cancelled                     14,130,000
Common stock cancelled for cash                     10,000
Preferred stock (Series A) issued into escrow as security for promissory note                 650,001    
Secured Promissory Note         $ 170,000             
Preferred stock, voting rights                 100:1    
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XML 47 R7.htm IDEA: XBRL DOCUMENT v2.4.0.6
Organization, Nature of Business and Basis of Presentation
12 Months Ended
Aug. 31, 2012
Organization, Nature Of Business and Basis Of Presentation [Abstract]  
Organization, Nature of Business and Basis of Presentation
 
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 50,000,000 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 14,130,000 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.
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 (143,809 shares that had not yet been issued) and Wiseman (5 million 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 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 will be combined into one share of common stock. The Company expects to receive approval from FINRA to effect the reverse split and has filed an amendment to its Articles of Incorporation to effect the reverse stock split as of January 2, 2013. Adoption of the reverse stock split, without taking into account the issuance of any additional shares of our common stock, will reduce the shares of common stock outstanding to approximately 117,121 shares of Common Stock (without taking into account adjustments for fractional shares).  All share and per share amounts will be retroactively adjusted for the reverse split in the Company’s financial statements when the reverse split become effective.
 
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.
 
XML 48 R3.htm IDEA: XBRL DOCUMENT v2.4.0.6
Consolidated Balance Sheets (Parenthetical) (USD $)
Aug. 31, 2012
Aug. 31, 2011
Consolidated Balance Sheets [Abstract]    
Accrued interest included in senior secured convertible note $ 51,300   
Accrued interest included in convertible notes 18,800   
Accrued interest included in promissory notes $ 2,000   
Preferred stock, par value $ 0.001 $ 0.001
Preferred stock, shares authorized 5,000,000 5,000,000
Preferred stock, shares issued      
Preferred stock, shares outstanding      
Common stock, par value $ 0.001 $ 0.001
Common stock, shares authorized 120,000,000 120,000,000
Common stock, shares issued 86,694,333 50,000,000
Common stock, shares outstanding 86,694,333 50,000,000
Common shares issuable 1,624,998   
XML 49 R17.htm IDEA: XBRL DOCUMENT v2.4.0.6
Capital Stock
12 Months Ended
Aug. 31, 2012
Capital Stock [Abstract]  
Capital Stock
 
Note 11 – Capital Stock
 
Preferred Stock
 
The Company’s articles of incorporation provide that it is authorized to issue up to 5,000,000 shares of preferred stock with a par value of $.001 per share. The Company’s Board of Directors has the authority, without further action by the shareholders, to issue from time to time the preferred stock in one or more series for such consideration and with such relative rights, privileges, preferences and restrictions that the Board may determine. The preferences, powers, rights and restrictions of different series of preferred stock may differ with respect to dividend rates, amounts payable on liquidation, voting rights, conversion rights, redemption provisions, sinking fund provisions and purchase funds and other matters. The issuance of preferred stock could adversely affect the voting power or other rights of the holders of common stock.
 
As security for the 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.
 
Common Stock
 
Common Stock Issued for Cash
 
On December 30, 2011, the Company entered into a private agreement to sell 29,412 shares of the Company’s common stock at $0.17 per share, or $5,000.   
 
From September 16, 2010 (inception) to August 31, 2011, the Company issued a total of 220,000 shares of common stock at a valuation based upon the par value of $.001 per common share, for $22,000 received from related parties.
 
Common Stock Issued for Employee Compensation and Services
 
During the twelve months ended August 31, 2012, the Company issued a total of 8,041,662 shares of common stock at the market price on date of issuance which averaged $0.04 per common share, or $316,250. Of the 8,041,662 shares issued, 708,330 common shares valued at $96,250 were issued as stipulated in an employment agreement dated January 17, 2012 with the Company’s President, Robert Rothenberg.  Per the employment agreement, the Company issued 500,000 shares on at signing of the agreement and is required to issue 42,000 shares per month.  As of August 31, 2012, a total of 124,998 shares of common stock have not been issued and are included in common shares issuable discussed below.
 
From September 16, 2010 (inception) to August 31, 2011, the Company issued a total of 48,220,000 shares of common stock at a valuation based upon the primarily the fair value of pre-incorporation services rendered which averaged $0.001 per common share, or $48,000.
 
Common Stock Issued for Outside Services
 
During the twelve months ended August 31, 2012, the Company issued a total of 5,800,000 shares of common stock valued at the closing market price on date of issuance for payment of investor relations services.  The total shares issued were value at the market price on the date of issuance which averaged $0.04 per common share, or $240,000.
 
Common Stock Issued for Partial Repayment of Senior Secured Convertible Notes
 
During the twelve months ended August 31, 2012, the Company issued a total of 16,000,000 shares of common stock at the conversion price of $0.001 or $16,000 representing partial repayment of the Senior Secured Convertible Note, as discussed in Note 6 above.
 
During the twelve months ended August 31, 2012, the Company issued a total of 5,355,004 shares of common stock at an average conversion price of $.007 or $39,000 in the aggregate, as partial repayment of outstanding indebtendess, as discussed in Note 8 above.   The Company additionally recorded interest expense of $69,101, representing the difference between the market price and the conversion price on the date of conversion.
 
Common Stock Issued Relating to Rescinded Acquisition
 
During the twelve months ended August 31, 2012, the Company issued a total of 400,000 shares of common stock to several CDS employees related to services performed prior to the Company’s decision to rescind the acquisition.  Based on the closing market price on date of issuance, the total value of services received was valued at $20,000.
 
Common Shares Issuable
 
On January 6, 2012, the Company entered into a private agreement to sell 500,000 shares of the Company’s common stock at $0.10 per share, or $50,000.   The Company has not issued the shares as of August 31, 2012.  The amount is classified as common shares issuable in the Balance Sheet at August 31, 2012.
 
On May 31, 2012, the Company entered into a private agreement to sell 1,000,000 shares of the Company’s common stock at $0.05 per share, or $50,000.   The Company has not issued the shares as of August 31, 2012.  The amount is classified as common shares issuable in the Balance Sheet at August 31, 2012.
 
As of August 31, 2012, one of our employees is owed 124,998 shares of common stock as stipulated in an employment agreement.  The common stock is valued at the average market price of $0.02 per share, or $2,083.  The amount is classified as common shares issuable in the Balance Sheet at August 31, 2012.
 
XML 50 R1.htm IDEA: XBRL DOCUMENT v2.4.0.6
Document and Entity Information (USD $)
12 Months Ended
Aug. 31, 2012
Dec. 01, 2012
Feb. 29, 2012
Document and Entity Information [Abstract]      
Entity Registrant Name OSL HOLDINGS INC.    
Entity Central Index Key 0001329957    
Document Type 10-K    
Document Period End Date Aug. 31, 2012    
Amendment Flag false    
Document Fiscal Year Focus 2012    
Document Fiscal Period Focus FY    
Current Fiscal Year End Date --08-31    
Entity Well-Known Seasoned Issuer Yes    
Entity Voluntary Filers No    
Entity Current Reporting Status Yes    
Entity Filer Category Smaller Reporting Company    
Entity Common Stock, Shares Outstanding   117,121,248  
Entity Public Float     $ 1,610,403
XML 51 R18.htm IDEA: XBRL DOCUMENT v2.4.0.6
Income Taxes
12 Months Ended
Aug. 31, 2012
Income Taxes [Abstract]  
Income Taxes
Note 12 – Income Taxes
 
As at August 31, 2012 and August 31, 2011, there were no differences between financial reporting and tax bases of assets and liabilities.  The Company will have tax losses available to be applied against future years' income as result of the losses incurred.  However, due to the losses incurred in the period and expected future operating results, management determined that it is more likely than not that the deferred tax asset resulting from the tax losses available for carry forward will not be realized through the reduction of future income tax payments.  Accordingly a 100% valuation allowance has been recorded for deferred income tax assets.
 
XML 52 R4.htm IDEA: XBRL DOCUMENT v2.4.0.6
Consolidated Statements of Operations (USD $)
12 Months Ended 23 Months Ended
Aug. 31, 2011
Aug. 31, 2012
Aug. 31, 2012
Revenues         
Operating expenses:      
General and administrative expenses 200,454 1,424,793 1,625,247
Impairment of website development costs    185,800 185,800
Operating loss (200,454) (1,610,593) (1,811,047)
Other:      
Reverse merger costs    (647,880) (647,880)
Costs of rescinded acquisition    (27,297) (27,297)
Interest expense    (178,511) (178,511)
Cost of offering    (145,510) (145,510)
Change in value of derivative liability    7,540 7,540
Other expense, net    (991,658) (991,658)
Net loss: $ (200,454) $ (2,602,251) $ (2,802,705)
Net loss per common share      
Net loss per common share – basic and diluted $ 0.00 $ (0.04)  
Weighted average common shares outstanding – basic and diluted 50,000,000 66,796,315  
XML 53 R12.htm IDEA: XBRL DOCUMENT v2.4.0.6
Senior Secured Convertible Note
12 Months Ended
Aug. 31, 2012
Debt Disclosure [Abstract]  
Senior Secured Convertible Note
Note 6 – 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 $1.00. 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.
 
During the twelve months ended August 31, 2012, the Company issued a total of 16,000,000 shares of common stock at the conversion price of $0.001, or $16,000, as partial repayment the Senior Secured Convertible Note.
 
As of August 31, 2012, the total remaining balance outstanding to Exchange LLC is $135,300, including accrued interest of $51,300.
XML 54 R11.htm IDEA: XBRL DOCUMENT v2.4.0.6
Advances from Related Parties
12 Months Ended
Aug. 31, 2012
Advances From Related Parties [Abstract]  
Advances from Related Parties
Note 5 – 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 August 31, 2012 and August 31, 2011 was $14,727 and $4,508, respectively. The loans are non-interest bearing, unsecured and due on demand.
XML 55 R23.htm IDEA: XBRL DOCUMENT v2.4.0.6
Derivative Liability (Tables)
12 Months Ended
Aug. 31, 2012
Derivative Liability [Abstract]  
Schedule of derivative liabilities valued probability weighted average Black-Scholes pricing mode
 
   
August 31, 2012
   
At Date of Issuance
 
Conversion feature :
               
Risk-free interest rate
   
0.25%
     
0.25%
 
Expected volatility
   
215%
     
215%
 
Expected life (in years)
   
1 year
     
1 year
 
Expected dividend yield
   
0%
     
0%
 
Fair Value :
               
Conversion feature
 
$
250,970
   
$
258,510
 
 
XML 56 R19.htm IDEA: XBRL DOCUMENT v2.4.0.6
Subsequent Events
12 Months Ended
Aug. 31, 2012
Subsequent Events [Abstract]  
Subsequent Events
Note 13 – Subsequent Events
 
On September 20, 2012, the Company issued an aggregate of 4,018,240 shares of its common stock at the conversion price of $0.001, or $4,018 as partial repayment of outstanding indebtedness due Asher (See Note 8).
 
On September 21, 2012, the Company issued a convertible promissory note to the Payee for the principal amount of $30,000, with a maturity date of September 21, 2013. The interest rate of the note is 10% per annum through the maturity date. The note is convertible into shares of the Company’s common stock at any time and from time to time, valued at an agreed discount to market not to fall below a 49% discount to the average of the three lowest closing bid prices for the Company’s common stock during the ten days immediately preceding a conversion date. In the event the Company fails to deliver to the Payee the common stock issuable upon conversion, the Company shall be required to pay to the Payee $2,000 per day for each day beyond the due date until the Company so delivers the common stock (the “Conversion Penalty”). In the event the Company shall default in the payment of the note, the interest rate shall be increased to 15% per annum. Furthermore, upon the occurrence and during the continuation of any event of default with respect to failure to pay principal or interest when due at the maturity date, the note shall become immediately due and payable and the Company shall pay to the Payee, in full satisfaction of its obligations under the note, an amount equal to the Default Sum. “Default Sum” is defined as (a) the then outstanding principal amount of the note to the date of payment, plus (b) the accrued and unpaid interest on the unpaid principal amount of the Note to the date of payment plus (c) default interest, if any, on the amounts referred to in clauses (a) and (b) plus (d) any amounts owed to the Payee pursuant to the Conversion Penalty.
 
On September 21, 2012, the Company entered into an amendment agreement (the “Amendment”) with the Payee, 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, the Payee 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 the Payee 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.
 
On October 8, 2012, the Company issued a total of 4,476,560 shares of common stock at the conversion price of $0.001 or $4,923 as partial repayment of outstanding indebtedness (See Note 8).
 
On October 17, 2012, the Company issued a total of 3,529,412 shares of common stock upon the conversion of an existing convertible promissory note amounting to $6,000 issued by the Company dated February 10, 2012.
 
On October 31, 2012, the Company issued a total of 4,107,143 shares of common stock upon the conversion of an existing convertible promissory note amounting to $2,300 issued by the Company dated January 20, 2012.
 
Crisnic notified OSL and the Company, by letter dated October 28, 2012 (the "Letter") but deemed delivered in accordance with the terms of the Promissory Note on November 1, 2012, that OSL remains in default under the Promissory Note (see Note 7), and that Crisnic has declared all sums due and owing under the Promissory Note immediately due and payable. The Company and OSL disagreed that any amount under the Promissory Note was immediately due and payable as neither of them had received appropriate notification from Crisnic to commence the Cure Period until receipt of the Letter. Accordingly, OSL and the Company believe that the date to cure the non-payment under the Promissory Note is December 1, 2012. At such time, the Promissory Note remained unpaid in full and, accordingly, all outstanding amounts are due and payable by OSL and the Company is obligated to issue 650,001 Preferred Shares to Crisnic. As of the filing of this Annual Report, the 650,001 Preferred Shares have not been issued.
 
On November 8, 2012, the Company entered into a Securities Purchase Agreement dated as of October 19, 2012, with Asher, pursuant to which Asher purchased, and the Company issued, a convertible promissory note issued by the Company as of the same date in the principal amount of $22,500 (the “November 2012 Note”) with a maturity date of July 23, 2013. The interest rate of the Note is 8% per annum through the maturity date. The November 2012 Note is convertible into shares of the Company’s common stock (up to an amount that would result in Asher holding no more than 4.99% of the outstanding shares of common stock of the Company, subject to waiver by Asher) at any time beginning on the date that is 180 days following the date of the November 2012 Note and ending on the maturity date, valued at an agreed discount to market not to fall below a 59% discount to the average of the three lowest closing bid prices for the Company’s common stock during the ten days immediately preceding a conversion date, subject to certain exceptions described in the November 2012 Note. In the event the Company fails to deliver to Asher the common stock issuable upon conversion, the Company shall be required to pay to Asher $1,000 per day for each day beyond the due date until the Company so delivers the common stock (the “Conversion Penalty”). Furthermore, upon the occurrence and during the continuation of a “Conversion Default” (as defined in the November 2012 Note), the November 2012 Note shall become immediately due and payable and the Company shall pay to the holder, in full satisfaction of its obligations under the November 2012 Note, an amount equal to the Default Sum (as defined below), multiplied by 2. In the event the Company shall default in the payment of the November 2012 Note, the interest rate shall be increased to 22% per annum. Furthermore, upon the occurrence and during the continuation of any event of default with respect to failure to pay principal or interest when due at the maturity date, the November 2012 Note shall become immediately due and payable and the Company shall pay to Asher, in full satisfaction of its obligations under the November 2012 Note, an amount equal to the Default Sum. “Default Sum” is defined as (a) the then outstanding principal amount of the November 2012 Note to the date of payment, plus (b) the accrued and unpaid interest on the unpaid principal amount of the November 2012 Note to the date of payment plus (c) default interest, if any, on the amounts referred to in clauses (a) and (b) plus (d) any amounts owed to Asher pursuant to the Conversion Penalty.
 
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 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 will be combined into one share of common stock. The Company expects to receive approval from FINRA to effect the reverse split and has filed an amendment to its Articles of Incorporation to effect the reverse stock split as of January 2, 2013. Adoption of the reverse stock split, without taking into account the issuance of any additional shares of our common stock, will reduce the shares of common stock outstanding to approximately 117,121 shares of Common Stock (without taking into account adjustments for fractional shares).
XML 57 R15.htm IDEA: XBRL DOCUMENT v2.4.0.6
Promissory Notes
12 Months Ended
Aug. 31, 2012
Debt Disclosure [Abstract]  
Promissory Notes
Note 9 – 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 August 31, 2012, the total remaining balance outstanding under the note is $26,000, including accrued interest of $2,000.
 
XML 58 R13.htm IDEA: XBRL DOCUMENT v2.4.0.6
Secured Promissory Note
12 Months Ended
Aug. 31, 2012
Debt Disclosure [Abstract]  
Secured Promissory Note
 
Note 7 – 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 14,130,000 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.
 
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.
XML 59 R14.htm IDEA: XBRL DOCUMENT v2.4.0.6
Convertible Notes
12 Months Ended
Aug. 31, 2012
Debt Disclosure [Abstract]  
Convertible Notes
 
Note 8 – Convertible Notes
 
Convertible notes payable consist of the following as of August 31, 2012:
 
         
Convertible notes payable, interest at 8% per annum (A)
 
$
116,600
 
Convertible notes payable, interest at 10% per annum (B)
   
260,600
 
Convertible notes payable, interest at 8% per annum, due June 30, 2013 (C)
   
67,465
 
Convertible notes payable
   
444,665
 
Less: note discount
   
(126,523)
 
Convertible notes payable, net of discount
 
$
318,142
 
__________
 
(A) Asher Enterprises
 
During the period November 15, 2011 to July 17, 2012, the Company issued four unsecured Convertible Notes (the “Convertible Notes”) to Asher Enterprises (“Asher”) in the aggregate amount of $150,500. 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 beneficial conversion feature of the Debentures to be $258,510. 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. As such, the Company recorded an $113,000 valuation discount upon issuance.  The Company determined the fair value of the derivative liabilities to be $250,970 as of August 31, 2012, and the Company recorded a gain for the change in fair value of derivative liabilities of $7,540 in the accompanying statement of operations for the year ended August 31, 2012.   During the year ended August 31, 2012, the Company amortized $34,338 of the discount and as of August 31, 2012, the total discount of $78,662 is offset against the balance of the notes for financial statement presentation.
  
During the twelve months ended August 31, 2012, the Company issued a total of 5,355,004 shares of common stock at an average conversion price of $0.007 or $39,000 as partial repayment to the Convertible Notes. Upon conversion, the Company recognized a beneficial conversion cost of $69,101 related to the difference between the conversion price and the market price of the stock at the date of conversion. As of August 31, 2012, the total remaining balance outstanding to Asher is $116,600, including accrued interest of $5,100.
 
(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.
 
As of August 31, 2012, the total remaining balance outstanding to Panache is $260,600, including accrued interest of $10,600.
 
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.
 
(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.
 
As of August 31, 2012, the total remaining balance outstanding to Continental is $67,465, including accrued interest of $465.
XML 60 R16.htm IDEA: XBRL DOCUMENT v2.4.0.6
Derivative Liability
12 Months Ended
Aug. 31, 2012
Derivative Liability [Abstract]  
Derivative Liability
 
Note 10 – 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 August 31, 2012, the derivative liabilities were valued using a probability weighted average Black-Scholes pricing model with the following assumptions:
 
   
August 31, 2012
   
At Date of Issuance
 
Conversion feature :
               
Risk-free interest rate
   
0.25%
     
0.25%
 
Expected volatility
   
215%
     
215%
 
Expected life (in years)
   
1 year
     
1 year
 
Expected dividend yield
   
0%
     
0%
 
Fair Value :
               
Conversion feature
 
$
250,970
   
$
258,510
 
 
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 Company determined the fair value of the derivative liabilities to be $250,970 as of August 31, 2012, and the Company recorded a gain for the change in fair value of derivative liabilities of $7,540 in the accompanying statement of operations for the year ended August 31, 2012.
 
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Promissory Notes (Details) (Promissory Note [Member], USD $)
Aug. 08, 2011
Promissory Note [Member]
 
Promissory Notes (Textual)  
Note principle amount $ 24,000
Interest rate 8.00%
Remaining balance outstanding 26,000
Accrued interest on debt instrument $ 2,000
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Summary of Significant Accounting Policies (Tables)
12 Months Ended
Aug. 31, 2012
Summary Of Significant Accounting Policies [Abstract]  
Schedule of derivative liabilities at fair value
 
   
Level 1
   
Level 2
   
Level 3
   
Total
 
Fair value of Derivative Liability
 
$
   
$
   
$
250,970
   
$
250,970
 
 
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Summary of Significant Accounting Policies (Details) (USD $)
Aug. 31, 2012
Aug. 31, 2011
Fnancial assets measured and recorded at fair value    
Fair value of Derivative Liability $ 250,970   
Fair Value, Measurements, Recurring [Member]
   
Fnancial assets measured and recorded at fair value    
Fair value of Derivative Liability 250,970  
Fair Value, Measurements, Recurring [Member] | Level 1 [Member]
   
Fnancial assets measured and recorded at fair value    
Fair value of Derivative Liability     
Fair Value, Measurements, Recurring [Member] | Level 2 [Member]
   
Fnancial assets measured and recorded at fair value    
Fair value of Derivative Liability     
Fair Value, Measurements, Recurring [Member] | Level 3 [Member]
   
Fnancial assets measured and recorded at fair value    
Fair value of Derivative Liability $ 250,970  
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Condensed Consolidated Statement of Shareholders' Equity (Deficit) (USD $)
Total
Common Stock
Additional Paid in Capital
Common Shares Issuable
Deficit
Balance, at Sep. 15, 2010           
Balance, (Shares) at Sep. 15, 2010           
Common stock issued for cash 22,000 2,000 20,000    
Common stock issued for cash (Shares)   2,000,000      
Stock based compensation expense 48,000 48,000      
Stock based compensation expense (Shares)   48,000,000      
Fair value of beneficial conversion feature of Convertible Notes           
Net loss (200,454)       (200,454)
Balance, at Aug. 31, 2011 (130,454) 50,000 20,000   (200,454)
Balance, (Shares) at Aug. 31, 2011   50,000,000      
Shares issued upon Reverse acquisition   1,068 (1,068)    
Shares issued upon reverse acquisition (Shares)   1,068,255      
Fair value of stock issued upon rescinded acquisition 20,000 400 19,600    
Fair value of stock issued upon rescinded acquisition (Shares)   400,000      
Shares issued to employees for services provided 316,250 8,042 308,208    
Shares issued to employees for services provided (Shares)   8,041,662      
Fair value of stock issued for outside services received   240,000 234,200    
Fair value of stock issued for outside services received (Shares)   5,800,000      
Common stock issued for cash 5,000 29 4,971    
Common stock issued for cash (Shares)   29,412      
Common stock to be issued 100,000     100,000  
Common stock to be issued for employee compensation 2,083     2,083  
Shares issued upon conversion of Convertible Note 124,101 21,355 102,746    
Shares issued upon conversion of Convertible Note (Shares)   21,355,004      
Fair value of beneficial conversion feature of Convertible Notes 83,333   83,333    
Net loss (2,602,251)       (2,602,251)
Balance, at Aug. 31, 2012 $ (1,841,938) $ 86,694 $ 771,990 $ 102,083 $ (2,802,705)
Balance, (Shares) at Aug. 31, 2012   86,694,333      
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Rescinded Acquisition
12 Months Ended
Aug. 31, 2012
Rescinded Acquisition [Abstract]  
Rescinded Acquisition
Note 4 – Rescinded Acquisition
 
On December 15, 2011, the Company acquired a 48% equity interest in Corporate Diversity Solutions, Inc., a New Jersey Corporation (“CDS”) and issued 200,000 shares of common stock valued at $10,000 in December 2011 to the shareholders of CDS to purchase this interest. The Company also entered into an employment agreement with an employee of CDS and issued 500,000 shares valued at $25,000 in accordance with this agreement. The shares issued were valued at $.05 per share, the trading price of the common stock on the date of the agreement. As part of the agreement, family members of the majority shareholders of the Company also acquired a 2% equity interest in CDS. For financial reporting purposes, the Company initially believed its 48% ownership and the ownership of the 2% interest of related individuals gave the Company effective control of CDS.
 
Pursuant to the terms of the Agreement, all the departing shareholders of CDS (the “Departing Shareholders”) cancelled their shares of CDS. In consideration for the cancelation of shares, CDS indemnified and relieved the Departing Shareholders from any liabilities incurred by CDS. Additionally, OSL requested that United Stationers Inc. (“United Stationers”), a supplier of CDS, release all Departing Shareholders from any liability and OSL and CDS indemnify all Departing Shareholders until such release is obtained. United Stationers also requested that each of Eric Kotch, the Company’s CFO, Eli Feder, the Company’s President and CEO, and OSL, guarantee the debt owed by CDS to United Stationers (the “Guarantee”).
 
On April 5, 2012, the Company announced that it was unable to complete a two year audit (the “Audit”) of CDS as required by the rules of the SEC and was therefore actively seeking to divest its ownership in CDS. The unrelated CDS shareholders returned $20,000 in cash advanced to CDS and 500 shares of OSLH previously issued to CDS employee Ken Scarpa had been returned. On June 5, 2012, United Stationers cancelled the personal guarantee of OSL, Eric Kotch and Eli Feder. For financial reporting purposes at August 31, 2012, the Company has determined that it never had effective control of the CDS, and the costs of the acquisition totaling $27,297, comprising the issuance of 400,000 shares of its common shares at $0.05 per share (aggregate value of $20,000) and cash advances of $7,297 made to CDS, have been reflected as a cost of abandoned acquisition on the accompanying statement of operations for the twelve months ended August 31, 2012.
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Summary of Significant Accounting Policies (Details Textual) (USD $)
12 Months Ended 23 Months Ended
Aug. 31, 2011
Aug. 31, 2012
Vendor
Aug. 31, 2011
Aug. 31, 2012
Summary of Significant Accounting Policies (Textual)        
Impairment of website development    $ 185,800   $ 185,800
Number of major vendor   1    
Dilutive financial instruments   $ 0 $ 0  
Shares issued to legal acquirer included in weighted average share calculation   1,068,225    
Accounts Payable [Member]
       
Summary of Significant Accounting Policies (Textual)        
Vendor concentration, Percentage   32.00% 32.00%  
Accrued Liabilities [Member]
       
Summary of Significant Accounting Policies (Textual)        
Vendor concentration, Percentage   70.00% 70.00%  
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Income Taxes (Details)
Aug. 31, 2012
Income Taxes (Textual)  
Deferred income tax assets, valuation allowance 100.00%

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Summary of Significant Accounting Policies (Policies)
12 Months Ended
Aug. 31, 2012
Summary Of Significant Accounting Policies [Abstract]  
Development Stage Company
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
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
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 of the useful life of equipment and intangibles, the impairment of long-lived assets, intangibles and goodwill, the value of stock compensation and the estimates of revenue and costs related to film production. These estimates are reviewed periodically, and, as adjustments become necessary, they are reported in earnings in the period in which they become known.
 
Internal Website Development Costs
Internal Website Development Costs
 
Under Accounting Standards Codification (“ASC”) 350-50 – Intangibles – Goodwill and Other – Website Development Costs, costs and expenses incurred during the planning and operating stages of the Company's web site development are expensed as incurred. Costs incurred in the web site application and infrastructure development stages are capitalized by the Company and amortized to expense over the web site's estimated useful life or period of benefit. In May 2012, the Company determined that the website under development was not going to be utilized and recorded a charge of $185,800 categorized as “Loss on Impairment of Website Development Costs” in the Consolidated Statement of Operations for the year ended August 31, 2012. Prior to this charge, no amortization was recorded and the website was in development and was not  yet placed into service.
 
Fair Value of Financial Instruments
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.
 
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 August 31, 2012.
 
   
Level 1
   
Level 2
   
Level 3
   
Total
 
Fair value of Derivative Liability
 
$
   
$
   
$
250,970
   
$
250,970
Vendor Concentration
 
Vendor Concentration
 
As of August 31, 2012 and August 31, 2011, one vendor represented 32% and 70% of the accounts payable and accrued liabilities balance, respectively.
Income Taxes
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
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 August 31, 2012 or August 31, 2011.
 
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 1,068,225 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
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
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.
ASU 2011-11, Disclosure about Offsetting Assets and Liabilities [Member]
 
New Accounting Pronouncements or Change in Accounting Principle [Line Items]  
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.
 
ASU No. 2012-02, Testing Indefinite-Lived Intangible Assets [Member]
 
New Accounting Pronouncements or Change in Accounting Principle [Line Items]  
Recent Accounting Pronouncements
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.