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Friday, June 08, 2012 5:13:56 PM
All the derivative liabilities and most of interest expenses are non-cash items. If you look at the Supplemental disclosure of cash flow information, you will find cash paid for interest of $101,706. Take a look at the note
Beneficial Conversion feature: "For conventional convertible debt where the rate of conversion is below market value, the Company records a "beneficial conversion feature"("BCF") and related debt discount.When the Company records a BCF, the relative fair value of the BCF would be recorded as a debt discount against the face amount of the respective debt instrument. The discount would be amortized to interest expense over the life of the debt."
and
Debt Issue Costs and Debt Discount
The Company may pay debt issue costs, and record debt discounts in connection with raising funds through the issuance of convertible debt. These costs are amortized over the life of the debt to interest expense. If a conversion of the underlying debt occurs, a proportionate share of the unamortized amounts is immediately expensed.
(E) Debt Discount
During the three months ended March 31, 2012 and 2011, the Company recorded debt discounts totaling $2,347,672 and $1,087,971, respectively.The debt discounts recorded in 2012 and 2011 pertain to convertible debt and warrants that contain embedded conversion options that are required to bifurcated and reported at fair value.The Company amortized $2,357,490 and $3,237,219 to interest expense in the three months ended March 31, 2012 and year ended December 31,
2011 as follows:
2012 2011
Debt discount $ 4,915,006 5,804,552
Amortization of debt discounts (2,357,490) (3,237,219)
Debt discount – net $ 2,557,516 2,567,333
Funded debt is pretty low, no need to worry about. The interest expense item is high due to conversion of convertible debt, which we are not likely to see beyond Q2-12.
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