Convertible debt - from the last 10Q. It is a little complicated but explains exactly how it works:
Convertible Notes
Delaware Partnership Investor
During the nine months ended May 31, 2011, the Company issued 16 convertible notes under multiple funding arrangements with the Delaware Partnership Investor, totaling $853,978, which bear interest at 6.25% per annum and mature at various dates between November 2, 2011, and May 13, 2012. The notes are convertible at any time, at the option of the holder, into shares of Class A common stock of the Company at a conversion rate of 60% or 70% of the average of the two lowest volume-weighted average closing prices of the Company’s Class A common stock for the ten trading days immediately prior to the date a conversion notice is received by the Company. The Company recorded a debt discount in the amount of $853,978 related to the conversion features on the notes. During the nine months ended May 31, 2011, $583,707 of the convertible notes were converted into common stock (unamortized debt discount related to the converted notes was immediately charged to interest expense on the day the notes were converted). During the nine months ended May 31, 2011, the Company recorded $180,661 of debt discount amortization and the carrying value of the notes was $58,630 (net of unamortized discounts of $291,370) as of May 31, 2011. The terms of the agreement require the Company to, at all times, have authorized and reserved, a sufficient number of shares to provide for full conversion of the outstanding notes, 799,319,728 shares at May 31, 2011.
Subsequent to May 31, 2011, the Delaware Partnership Investor converted an additional $150,000 of the convertible notes into Class A common stock, and the Company entered into an additional convertible note in the amount of $150,000, which bears interest at 6.25% per annum and matures one year from issuance. This note is convertible at any time, at the option of the holder, into shares of Class A common stock of the Company at a conversion rate of 60% of the average of the two lowest volume-weighted average closing prices of the Company’s Class A common stock for the ten trading days immediately prior to the date a conversion notice is received by the Company.
New York Private Investors
During the nine months ended May 31, 2011, the Company issued two $32,500 and one $60,000 convertible notes under funding arrangements with a group of New York Private Investors, which bear interest at 8% per annum and mature on August 17, 2011 and December 7, 2011, respectively. The notes are convertible at any time after 180 days from the date of the note’s execution, at the option of the holder, into shares of Class A common stock of the Company at a conversion rate of 58% of the average of the three lowest volume-weighted average closing prices of the Company’s Class A common stock for the ten trading days immediately prior to the date a conversion notice is received by the Company. During the nine months ended May 31, 2011, $82,500 of the convertible notes were converted into common stock ( unamortized debt discount related to the converted notes was immediately charged to interest expense on the day the notes were converted). The Company recorded a debt discount of $123,574 relating to the conversion features of the notes. For the nine months ended May 31, 2011, the Company recorded debt discount amortization of $96,492 and the carrying value of the notes as of May 31, 2011 was $43,012 (net of unamortized discounts of $49,488). The terms of the agreement require the Company to, at all times, have authorized and reserved five times the number of shares that are actually issuable upon full conversion of the outstanding notes 1,083,227,856 at May 31, 2011, and 1,028,727,856 shares at July 7, 2011.
Subsequent to May 31, 2011, the Company issued a $40,000 convertible note under funding arrangements with these New York Private Investors, which bear interest at 8% per annum and mature on March 20, 2012. The terms of the agreement require the Company to, at all times, have authorized and reserved five times the number of shares that are actually issuable upon full conversion of the outstanding notes. The notes are convertible at any time after 180 days from the date of the note’s execution, at the option of the holder, into shares of Class A common stock of the Company at a conversion rate of 58% of the average of the three lowest volume-weighted average closing prices of the Company’s Class A common stock for the ten trading days immediately prior to the date a conversion notice is received by the Company. Subsequent to May 31, 2011, the New York Private Investors converted $33,800 of the convertible notes into Class A common stock.
Conversion of accounts payable
During the nine months ended May 31, 2011, the Company entered into an agreement with a vendor whereby the balance owed to the vendor for past services of $28,661 was exchanged for a convertible promissory note bearing interest at 6.5% per annum. The Company is required to make monthly payments under the terms of the note; however, the note holder has the right at its election to convert all or part of the outstanding principal and interest into the Company’s Class A common stock at a conversion rate of 70% of the average of the two lowest volume-weighted average closing prices of the Company’s Class A common stock for the ten trading days immediately prior to the date a conversion notice is received by the Company. The Company recorded a debt discount of $27,550 relating to the conversion feature of the note. For the nine months ended May 31, 2011, the Company recorded debt discount amortization of $14,351 and the carrying value of the note as of May 31, 2011 was $12,748 (net of unamortized discount of $7,042).
AI
