Notes to the Unaudited Financial Statements
1.
Nature of Operations and Continuance of Business
The unaudited interim financial statements included herein have been prepared by Net Savings Link, Inc. (“NSL” or the “Company”) in accordance with accounting principles generally accepted in the United States of America and the rules of the Securities and Exchange Commission. We suggest that these interim financial statements be read in conjunction with the audited financial statements and notes thereto included in our Form 10-K for the year ended November 30, 2012, as filed with the SEC. We believe that all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the interim periods presented have been reflected herein and that the disclosures made are adequate to make the information not misleading. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year. Notes to the financial statements which would substantially duplicate the disclosure contained in the audited financial statements for the most recent fiscal year as reported in Form 10-K have been omitted.
2. Going Concern
NSL’s financial statements are prepared using Generally Accepted Accounting Principles applicable to a going concern that contemplates the realization of assets and liquidation of liabilities in the normal course of business. However, NSL has generated minimal revenue and accumulated significant losses since inception. As of May 31, 2013, company has accumulated deficit of $4,068,773 and a working capital deficit of $420,215. All of these items raise substantial doubt about its ability to continue as a going concern. Management’s plans with respect to alleviating the adverse financial conditions that caused management to express substantial doubt about the NSL’s ability to continue as a going concern are as follows:
In order to fund the start-up of operations during the year ended November 30, 2012, NSL entered into several financing transactions and NSL plans to continue to try to raise funds in fiscal 2013. The continuation of NSL as a going concern is dependent upon its ability to generating profitable operations that produce positive cash flows. If NSL is not successful, it may be forced to raise additional debt or equity financing.
There can be no assurance that NSL will be able to achieve its business plans, raise any more required capital or secure the financing necessary to achieve its current operating plan. The ability of NSL to continue as a going concern is dependent upon its ability to successfully accomplish the plan described in the preceding paragraph and eventually attain profitable operations. The accompanying financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
3. Related Party Transactions
As of May 31, 2013 and November 30, 2012, the Company owed $98,828 and $50,828, respectively, to the President and CEO of the Company for back due wages.
As of May 31, 2013 and November 30, 2012, the Company owed $125,427 and $77,427, respectively, to the Vice President and director of the Company for back due wages.
NET SAVINGS LINK, INC.
Notes to the Unaudited Financial Statements
4. Convertible Promissory Notes Payable
On March 8, 2013, the Company received funding from an Unsecured Convertible Promissory Note in the amount of $42,500. The Convertible Promissory Note is unsecured, due November 4, 2013, accrued interest at 8% per annum and is convertible, at the option of the holder, into shares of the Company’s common stock after 180 days from issuance at forty one percent (41%) of the fair market value of one share of the Company’s common stock based on the average of the three lowest bid prices of the Company’s common stock during the ten trading days prior to the conversion date.
On April 8, 2013, the Company received funding from a Unsecured Convertible Promissory Note in the amount of $10,900. The Convertible Promissory Note is unsecured, due January 10, 2014 accrued interest at 8% per annum and is convertible, at the option of the holder, into shares of the Company’s common stock after 180 days from issuance at thirty five percent (35%) of the fair market value of one share of the Company’s common stock based on the average of the two lowest bid prices of the Company’s common stock during the ninety trading days prior to the conversion date.
Due to their being no explicit limit to the number of shares to be delivered upon settlement of the above conversion options embedded in the Convertible Promissory Notes, the conversion options, once available, will be deemed and classified as derivative liabilities and recorded at fair value.
During the six months ended May 31, 2013, holders of three Convertible Promissory Notes elected to convert a total of $90,600 in principal and $5,083 in interest into 30,380,108 shares of the Company’s common stock at an average conversion price of $0.003 per share.
5. Derivative Liabilities
NSL analyzed the conversion options embedded in the Convertible Promissory Notes for derivative accounting consideration under ASC 815,
Derivatives and Hedging
, and determined that the instruments embedded in the above referenced convertible promissory notes should be classified as liabilities and recorded at fair value due to their being no explicit limit to the number of shares to be delivered upon settlement of the conversion options. Additionally, the above referenced convertible promissory notes contain dilutive issuance clauses. Under these clauses, based on future issuances of NSL’s common stock or other convertible instruments, the conversion price of the above referenced convertible promissory notes can be adjusted downward. Because the number of shares to be issued upon settlement of the above referenced convertible promissory notes cannot be determined under this instrument, NSL cannot determine whether it will have sufficient authorized shares at a given date to settle any other future share instruments.
During the six months ended May 31, 2013, a Convertible Promissory Note became convertible into shares of the Company’s common stock. The fair value of the conversion option was determined to be $64,739 using a Black-Scholes option-pricing model. Upon the date the Convertible Promissory Notes became convertible, $50,000 was recorded as debt discount, $64,739 was recorded as day one derivative liability and $14,739 was recorded as day one loss on derivative liability.
During the six months ended May 31, 2013, $90,600 in principal and $5,083 in accrued interest amounts of Convertible Promissory Notes were converted into common stock (see Notes 4 and 6), $136,930 in related derivative liability was extinguished through a charge to paid-in capital and $75,146 was recorded as a net loss on mark-to-market of the conversion options and warrants.
NET SAVINGS LINK, INC.
Notes to the Unaudited Financial Statements
5. Derivative Liabilities - continued
The following table summarizes the derivative liabilities included in the balance sheet at May 31, 2013:
Derivative liabilities November 30, 2012
|
$
|
54,062
|
Addition of new derivative
|
|
64,739
|
Reclassification of derivative liability to additional paid-in capital due to
promissory note conversions
|
|
(136,930)
|
Losses on change in fair value
|
|
60,407
|
Balance at May 31, 2013
|
$
|
42,278
|
The following table summarizes the loss on derivative liabilities included in the income statement for the three months ended May 31, 2013:
Excess of fair value of conversion option derivative liabilities over the related
notes payable
|
$
|
83,716
|
Day-one loss on addition of new derivative
|
|
14,739
|
Gains on change in fair value
|
|
(23,309)
|
Loss on derivative liabilities
|
$
|
75,146
|
NSL valued its derivatives liabilities using the Black-Scholes option-pricing model. Assumptions used during the three months ended May 31, 2013 include (1) risk-free interest rates between 0.11% to 1.06%, (2) lives of between 0 and 6 years, (3) expected volatility of between 74% to 837%, (4) zero expected dividends, (5) conversion prices as set forth in the related instruments, and (6) the common stock price of the underlying share on the valuation dates.
6. Common Stock
Common Stock Reverse Split
Effective March 15, 2013, the Company executed at 15-for-1 reverse split of its common stock. The effect of the reverse split has been shown retrospectively for all references to issuances of common stock in the financial statements and these footnotes.
Common Stock Issuances
On December 12, 2012, the Company issued 2,648,430 shares of common stock for $3,585 of debt and $2,970 of accrued interest, or $0.0025 per share.
On January 7, 2013, the Company issued 712,644 shares of common stock for $3,100 of debt, or $0.0043 per share.
On January 10, 2013, the Company issued 1,540,231 shares of common stock for $5,200 of debt and $1,500 of accrued interest, or $0.0043 per share.
On January 13, 2013, the Company issued 2,820,075 shares of common stock for $11,315 of debt and $318 of accrued interest, or $0.0043 per share.
On January 15, 2013, the Company issued 1,586,207 shares of common stock for $6,900 of debt, or $0.0041 per share.
NET SAVINGS LINK, INC.
Notes to the Unaudited Financial Statements
6. Common Stock - continued
On January 16, 2013, the Company issued 3,590,249 shares of common stock for $16,225 of debt and $66 of accrued interest, or $0.0043 per share.
On January 29, 2013, the Company issued 3,592,881 shares of common stock for $11,725 of debt and $132 of accrued interest, or $0.0033 per share.
On January 30, 2013, the Company issued 1,565,218 shares of common stock for $5,400 of debt, or $0.0034 per share.
On February 13, 2013, the Company issued 2,928,740 shares of common stock for $7,150 of debt and $98 of accrued interest, or $0.0025 per share.
On February 20, 2013, the Company issued 1,568,628 shares of common stock for $4,000 of debt, or $0.0025 per share.
On March 20, 2013, the Company issued 2,549,027 shares of common stock for $6,500 of debt, or $0.0026 per share.
On April 2, 2013, the Company issued 2,500,000 shares of common stock for $4,500 of debt, or $0.0018 per share.
On April 22, 2013, the Company issued 2,777,778 shares of common stock for $5,000 of debt, or $0.0018 per share.
7. Financial Instruments
ASC 820,
Fair Value Measurements
(ASC 820) and ASC 825,
Financial Instruments
(ASC 825)
,
requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. It establishes a fair value hierarchy based on the level of independent, objective evidence surrounding the inputs used to measure fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. It prioritizes the inputs into three levels that may be used to measure fair value:
Level 1 -
Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.
Level 2 -
Level 2 applies to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.
Level 3
- Level 3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities.
NET SAVINGS LINK, INC.
Notes to the Unaudited Financial Statements
7. Financial Instruments - continued
NSL’s financial instruments consist principally of cash, accounts payable, and accrued liabilities. Pursuant to ASC 820 and 825, the fair value of cash is determined based on “Level 1” inputs, which consist of quoted prices in active markets for identical assets. The recorded values of all other financial instruments approximate their current fair values because of their nature and respective maturity dates or durations.
The following table sets forth by level with the fair value hierarchy the Company’s financial assets and liabilities measured at fair value on May 31, 2013:
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
Assets
|
|
|
|
|
|
|
|
|
None
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
Liabilities
|
|
|
|
|
|
|
|
|
Derivative financial instruments
|
$
|
-
|
$
|
-
|
$
|
42,278
|
$
|
42,278
|
The following table sets forth by level with the fair value hierarchy the Company’s financial assets and liabilities measured at fair value on November 30, 2012:
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
Assets
|
|
|
|
|
|
|
|
|
None
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
Liabilities
|
|
|
|
|
|
|
|
|
Derivative financial instruments
|
$
|
-
|
$
|
-
|
$
|
54,062
|
$
|
54,062
|
8. Subsequent Events
On June 13, 2013, the Company issued 1,454,545 shares of common stock for $100 of debt, or $0.0011 per share.
On June 13, 2013, the Company issued 1,454,545 shares of common stock for $1,600 of debt, or $0.0011 per share.
On June 21, 2013, the Company issued 2,933,333 shares of common stock for the conversion of debt.
On July 8, 2013, the Company issued 3,000,000 shares of common stock for $3,600 of debt, or $0.0012 per share.