9. RESULTS OF OPERATIONS
As of November 30, 2010, we had cash on hand of $20; a LOC remaining balance of $512,491 and a working capital deficit of $(948,177).
Convertible Notes Payable
On November 21, 2008, Westmont acquired 100% of Avalon International Inc. (“Avalon”). In connection with the acquisition of Avalon International, Westmont assumed a convertible note payable previously issued by Avalon (the “Note”) totaling $387,896, bearing interest based on Libor plus 2% per annum. The Note holder has the option to convert the entire outstanding balance at any time to the equivalent of Twenty-Five Percent of the total authorized shares of Westmont provided the conversion would not cause Westmont to issue more shares than Westmont has authorized less the actual shares issued and obligations to issue shares under any outstanding agreement. Westmont evaluated the embedded conversion option to determine if it was within the scope of ASC 815-15 “Accounting for Derivative Instruments and Hedging Activities”. Westmont concluded that the conversion option should be classified as equity under ASC 815-15. Westmont also evaluated the convertible note to determine if it was within the scope of ASC 470-20 “Accounting for Convertible Securities with Beneficial Conversion Features or Contingently Adjustable Conversion Ratios” and determined there was no intrinsic value associated with the conversion option.
On June 3, 2010, Westmont formalized a “Letter of Credit” with the Avalon Group Ltd. The advances made by the Avalon Group Ltd as of November 30, 2010 are $487,508 plus accrued interest of $20,386, and are associated with a $1,000,000 Line of Credit with an interest rate of Libor +2.5% and a maturity date of May 31, 2015. The Note holder has the option to convert the outstanding balance at any time after June 15, 2011, into shares of common stock of the Company on a 75% discount to market price on the day of conversion. During the six months ended November 30, 2010, $137,852 was advanced and $12,826 of interest was accrued on this loan.
(a)
$200,000 in the form of a promissory note bearing interest at 8%, payable in 20 equal monthly installments. Payments will commence in March of 2011. The note is secured by an interest in the wells purchased.
AI
