Convertible Notes Payable

9 Months Ended

May 31, 2012

Convertible Notes Payable [Abstract]

Note 8 Convertible Notes Payable

On February 6, 2012, in connection with an asset acquisition, the Company issued secured convertible notes in the aggregate principal amount of $1,000,000 to three members of Zizzaz, LLC. (See Note 4)

Each convertible note has a term of twenty- four months and accrues interest at 10% per annum. The holder of the convertible note has the right from and after the issuance thereof until such time as the convertible note is fully paid, to convert any outstanding and unpaid principal portion thereof into shares of common stock at a conversion price of $0.007 per share. The conversion price and number and kind of shares to be issued upon conversion of the convertible notes are subject to adjustment from time to time as more fully described in the convertible notes.

Due to the fact that these convertible notes have full reset adjustments based upon the issuance of equity securities by the Company in the future, they are subject to derivative liability treatment under Section 815-40-15 of the Codification (formerly FASB Emerging Issues Task Force 07-5). The convertible notes have been measured at fair value using a black-scholes model at period end with gains and losses from the change in fair value of derivative liabilities recognized on the statements of operations.

The convertible notes, when issued, gave rise to a derivative liability which was recorded as a discount to the notes of $812,318.

The embedded derivative of the convertible notes was re-measured at May 31, 2012 yielding a gain on change in fair value of the derivatives of $31,561 for the period ended May 31, 2012. The derivative value of the convertible notes at May 31, 2012 yielded a derivative liability at fair value of $780,756.

As of May 31, 2012, accrued and unpaid interest under the Notes was $31,421.

On February 6, 2012, the Company entered into Subscription Agreements with Whalehaven Capital Fund LTD and Whalehaven Opportunities Fund L.P. (collectively, the “Subscribers”), pursuant to which the Subscribers purchased secured convertible notes in the aggregate principal amount of $350,000, which are convertible into shares of the Company’s common stock.

The convertible notes, when issued, gave rise to a derivative liability which was recorded as a discount to the notes of $284,311.

The embedded derivative of the convertible notes was re-measured at May 31, 2012 yielding a gain on change in fair value of the derivatives of $11,046 for the period ended May 31, 2012. The derivative value of the convertible notes at May 31, 2012 yielded a derivative liability at fair value of $273,265.

As of May 31, 2012, accrued and unpaid interest under the Notes was $10,997.

Restricted Cash

$162,805 of the proceeds raised in this offering are to be held in escrow and disbursed as follows:

a.	$50,000 on March 1, 2012

b.	$50,000 on April 2, 2012

c.	$62,805 on May 1, 2012

Convertible notes payable consisted of the following at May 31, 2012 and August 31, 2011:

	May 31, 2012			August 31, 2011
Convertible notes payable, entered into on February 6, 2012 for a term of 24 months maturing on February 6, 2014, with interest at 10% per annum with interest due semi-annually.	$	1,000,000		$	-

Discount on note payable		(812,318	)		-

Accumulated amortization of discount		127,792			-

Convertible notes payable, entered into on February 6, 2012 for a term of 24 months maturing on February 6, 2014, with interest at 10% per annum due semi-annually.		350,000			-

Discount on note payable		(284,311	)		-

Accumulated amortization of discount		44,728			-

	$	425,891		$	-

The Company recorded $172,520 and $0 amortization of the discount to the notes for the nine months ended May 31, 2012 and 2011, respectively. The Company recorded $42,418 interest expense on the convertible notes for the nine months ended May 31, 2012.

Premier Brands, Inc. 10-Q