Debt

12 Months Ended

Nov. 30, 2013

Debt Disclosure [Abstract]

Debt

5. Debt

The following table summarizes components of debt as of November 30, 2013 and 2012:

	2013			2012
Debt due to Laurus	$	2,108,498		$	6,368,078
Convertible debt due to Factor Fund		2,182,690			—
Convertible debt due to various lenders		243,250			736,318
Other short-term debt due to various lenders		248,592			291,720
Total debt		4,783,030			7,396,116
Less: current portion of long-term debt		(3,766,468	)		(6,944,064	)
Less: discount on debt		(1,002,902	)		(93,420	)
Total long-term debt, net of discounts	$	13,660		$	358,632

Debt due to Laurus

As of November 30, 2013 and 2012, the Company owed to a third party lender, LV Administrative Services, Ltd., as agent for Laurus Master Fund, Ltd. and various affiliates (“Laurus”), $2,108,498 and $6,368,078, respectively.   All of such debt became due by its terms on September 28, 2010.  Pursuant to two assignment agreements, in which the Company and Laurus agreed to assign the debt to a third party, the interest rate on the debt was changed to zero percent from January 31, 2012 to April 12, 2013. Beginning on April 12, 2013, the interest rate on the Laurus debt reverted to the rate charged in the original note agreements, which ranges from 5.25% to 20% per annum. The Company has not made payments of principal or interest when due, and is not in compliance with its agreements with Laurus. Laurus has not issued a default notice and has signed an agreement, on two separate occasions, to sell all of its debt at a discount to a third party, however the third parties have not fulfilled all of their terms of the agreements and $2,108,498 and $6,368,078 of debt remains due to Laurus at November 30, 2013 and 2012, respectively.

During the years ended November 30, 2013 and 2012, the Company recorded a troubled debt restructuring gain of $2,714,461 and $6,338,601, respectively. The Company recorded this troubled debt restructuring gain as a result of debt forgiveness by Laurus in exchange for repayments of reduced amounts from other lenders.

Convertible debt due to Factor Fund

In March 2013, 112359 Factor Fund, LLC (the “Fund”) was assigned the $6,368,078 of outstanding debt owed to Laurus, which the Fund could satisfy in full by making certain payments to Laurus. Factor Fund has not met the contractual terms of the assignment agreement. Therefore, at November 30, 2013, the Company is still obligated to Laurus as noted above.

During February 2013, the Company entered into a securities purchase agreement with the Fund pursuant to which the Company issued to the Fund (i) an amended convertible debenture in the principal amount of $1,000,000 (“Amended Note 1”) and (ii) a second amended convertible debenture in the principal balance of $1,000,000 (“Amended Note 2” and together with Amended Note 1, the “Amended Notes”).  The Amended Notes were sold to the Fund by the Company in exchange for the Fund’s assumption and payment of the Laurus assignment agreement (which required the Fund to make payments totaling $350,000, of which $250,000 was paid, to Laurus), payment to the Company of $150,000, and the agreement to purchase from another lender and cancel an existing convertible debenture in the amount of approximately $35,000.

Absent earlier redemption, the Amended Notes mature on December 31, 2014.  Interest accrues on the unpaid principal and interest on the notes at a rate per annum equal to 6% for Amended Note 1 and 2% for Amended Note 2.

Principal and interest payments on Amended Note 1 can be made at any time by the Company, with a 30% prepayment premium, or the Fund can elect at any time to convert any portion of Amended Note 1 into shares of common stock of the Company at 100% of the volume weighted average price of the common stock for the 45 trading days immediately prior to the conversion date.  During the year ended November 30, 2013, the Fund converted $592,310 of principal into 279,958,599 shares of common stock of the Company.

The conversion price of Amended Note 1 is based on a variable that is not an input to the fair value of a “fixed-for-fixed” option as defined under FASB ASC Topic No. 815 - 40. The fair value of the note was recognized as a derivative instrument at the issuance date and was measured at fair value at each reporting period. The Company determined that the fair value of the notes was $1,874,169 at the issuance dates. The value of the debt of $1,000,000 was recorded as a debt discount and is amortized to interest expense over the term of the Notes. The variance to the fair value of $874,169 was recognized as an initial loss and recorded to change in fair value of derivative liabilities.

Amended Note 2 converts into shares of common stock of the Company in an amount equal to the lesser of the outstanding balance of Amended Note 2 divided by $0.01. Any principal or interest amount can be paid in cash.

During the year ended November 30, 2013, the Fund also loaned the Company amounts of $50,000, $35,000 and $12,000 (the “Bridge Notes”). In June 2013, the Fund refinanced the Bridge Notes with additional funding into another note for $665,000 (the “New Note”). The additional funding under the New Note provided cash to purchase two outstanding convertible debentures for an aggregate price of $99,360; cash for operations of $60,000 in June 2013; and $40,000 in cash each month for the months of July 2013 through December 2013. The Company incurred $68,640 in finder fees and legal fees in connection with the New Note, and a $100,000 original issuance discount. The New Note bears interest at 6% per annum and is due December 31, 2014. The Fund can elect at any time to convert any portion of the New Note into shares of common stock of the Company at 60% of the volume weighted average price of the common stock for the 20 trading days immediately prior to the conversion date. The Company received an aggregate of $260,000 in cash under the New Note in the months of June through November 2013 under the New Note.

The conversion price of the $665,000 of variable conversion price note is based on a variable that is not an input to the fair value of a “fixed-for-fixed” option as defined under FASB ASC Topic No. 815 - 40. The fair value of the conversion feature was recognized as a derivative instrument at the issuance date and is measured at fair value at each reporting period. The Company determined that the fair value of the conversion feature was $1,103,940 at the issuance date. Debt discount was recorded up to the $625,000 face amount of the note and is amortized to interest expense over the term of the note. The fair value of the conversion feature in excess of the principal amount allocated to the notes in the aggregate amount of $478,940 was expensed immediately as additional interest expense

In conjunction with the New Note, the Company agreed to implement a salary deferral plan to reduce the cash expenditures for personnel, to limit its cash expenditures to certain pre-approved items, and to accrue an additional fee to the Fund of $150,000, which is included in interest expense and has been added to the principal balance of Amended Note 1.   The Fund agreed to limit its sales of the Company’s common stock, to not engage in any short transactions involving the Company’s common stock, and to not require the Company to increase its authorized shares of common stock for a certain time period, even though the financing documents require the Company to reserve authorized shares for issuance to the Fund, if the Fund desires to convert existing debt into shares of common stock.

The Amended Notes and New Note are secured by a blanket lien on substantially all of the Company’s assets pursuant to the terms of security agreements executed by the Company and its subsidiaries in favor of the Fund.  In addition, the Company’s chief executive officer and chief information officer pledged their combined voting control of the Company pursuant to a stock pledge agreement executed by the two officers in favor of the Fund, to further secure the Company’s obligations under the Amended Notes.  If an event of default occurs under the security agreement, the stock pledge agreement, the Amended Notes or the New Note, the secured parties have the right to accelerate payments under such promissory notes and, in addition to any other remedies available to them, to foreclose upon the assets securing such promissory notes.

In connection with the financings, the Company has agreed, for as long as 25% of the principal amount of the financings are outstanding, to certain restrictive covenants, including, among others, that the Company will not declare or pay any dividends, issue any preferred stock that is subject to mandatory redemption prior to the one year anniversary of the maturity date as defined in the agreement, redeem any of its preferred stock or other equity interests, dissolve, liquidate or merge with any other party unless, in the case of a merger, the Company is the surviving entity, materially alter or change the scope of the Company’s business incur any indebtedness except as defined in the agreement, or assume, guarantee, endorse or otherwise become directly or contingently liable in connection with any other party’s obligations.  To secure the payment of all obligations to the lender, the Company entered into a Master Security Agreement that assigns and grants to the lender a continuing security interest and first lien on all of the assets of the Company and its subsidiaries.

During the year ended November 30, 2013, the Fund converted $592,310 of principal into 279,958,599 shares of common stock of the Company and recorded a gain of $1,292,816 on the conversions.

At November 30, 2013, the Company owed the Fund $2,182,690.

Convertible Debt due to various lenders

Convertible debt with a fixed conversion rate

During the years ended November 30, 2013 and 2012, the Company received $0 and $138,000, respectively, in cash in exchange for convertible notes due between July and October 2013, bearing no interest, with a fixed rate conversion of between $0.015 and $0.02 per common share. At November 30, 2013, and 2012, the Company owed the lender $138,000 in connection with these notes which are in default.

During the years ended November 30, 2013 and 2012, lenders were assigned $0 and $400,994, respectively, of debt in the aggregate from other third party lenders which was converted to convertible debt with a conversion rate of $0.015 - $0.03 per common share and a 0% interest rate due between February 2012 and February 2013. During the year ended November 30, 2012, $325,994 of convertible debt was converted into 14,899,595 shares of common stock of the Company. During the year ended November 30, 2013, lenders converted $475,000 of debt and $6,427 of interest into 69,736,000 shares of common stock of the Company. At November 30, 2013 and 2012, $0 and $475,004 of this debt was outstanding, respectively.

In addition, during fiscal years 2012 and 2013, lenders were assigned $48,500 and $31,000 of debt previously owed to the CEO of the Company which was modified to be convertible debt with a conversion rate of $0.001 to $0.005 per common share and a 0% to 24% interest rate. During the year ended November 30, 2012, $36,000 of this debt and $2,385 of interest was converted into 7,251,639 shares of common stock of the Company. During the year ended November 30, 2013, $43,500 of debt was converted to 16,000,000 shares of common stock of the Company. At November 30, 2013 and 2012, $0 and $12,500 of this debt was outstanding, respectively.

Convertible debt with a variable conversion rate issued for cash

During the year ended November 30, 2012, the Company received a total of $188,500 in cash from lenders for convertible debt. The convertible debt bears interest at 0% - 8% and was due between November 2012 and August 2013. The lender can elect at any time to convert any portion of the debt into shares of common stock of the Company at a volume weighted average price discount ranging from 37.5% to 42% of the price of the common stock as defined in the agreements.

The conversion price of the $188,500 of variable conversion price notes is based on a variable that is not an input to the fair value of a “fixed-for-fixed” option as defined under FASB ASC Topic No. 815 - 40. The fair value of the notes was recognized as a derivative instrument at the issuance date and is measured at fair value at each reporting period. The Company determined that the fair value of the conversion feature was $242,618 at the issuance dates. Debt discount was recorded up to the $188,500 face amount of the note and is amortized to interest expense over the term of the note. The fair value of the conversion feature in excess of the principal amount allocated to the notes in the aggregate amount of $54,118 was expensed immediately as additional interest expense.

During the year ended November 30, 2013, the Company received a total of $135,000 in cash from a lender for convertible debt. The convertible debt bears interest at 8% and was due between November 2013 and August 2014. The lender can elect at any time to convert any portion of the debt into shares of common stock of the Company at a volume weighted average price discount of 42% of the price of the common stock as defined in the agreement.

The conversion price of the $135,000 of variable conversion price notes is based on a variable that is not an input to the fair value of a “fixed-for-fixed” option as defined under FASB ASC Topic No. 815 - 40. The fair value of the notes was recognized as a derivative instrument at the issuance date and is measured at fair value at each reporting period. The Company determined that the fair value of the note was $287,860 at the issuance dates. Debt discount was recorded up to the $135,000 face amount of the note and is amortized to interest expense over the term of the note. The fair value of the conversion feature in excess of the principal amount allocated to the notes in the aggregate amount of $152,860 was expensed immediately as additional interest expense.

Convertible debt with a variable conversion rate assigned to lenders.

During the year ended November 30, 2012, various lenders were assigned $619,200 of debt that was previously not convertible and had a 0% interest rate. The lenders entered into settlement agreements with the Company whereby the debt was reclassified as convertible debt with a variable rate conversion feature. The convertible debt bears interest at 0% and was due between November 2012 and October 2013. The lender can elect at any time to convert any portion of the debt into shares of common stock of the Company at a volume weighted average price discount ranging from 37.5% to 55% of the price of the common stock as defined in the agreements.

The conversion price of the $619,200 of variable conversion price notes is based on a variable that is not an input to the fair value of a “fixed-for-fixed” option as defined under FASB ASC Topic No. 815 - 40. The fair value of the conversion feature was recognized as a derivative instrument at the issuance date and is measured at fair value at each reporting period. The Company determined that the fair value of the note was $1,003,207 at the issuance dates. Debt discount was recorded up to the $619,200 face amount of the note and is amortized to interest expense over the term of the note. The fair value of the conversion feature in excess of the principal amount allocated to the notes in the aggregate amount of $384,007 was expensed immediately as additional interest expense.

During the year ended November 30, 2013, $107,064 of debt and $3,123 of interest was converted into 79,995,485 shares of common stock of the Company. During the year ended November 30, 2012, $510,386 of this debt converted into 76,558,221 shares of common stock of the Company.

At December 31, 2013 and 2012, $105,250 and $229,814 of convertible debt with a variable conversion rate was outstanding, respectively.

Other short-term debt due to various lenders

During the years ended November 30, 2013 and 2012, the Company received $50,000 and $175,000, respectively from lenders in exchange for notes payable. The note payable issued during the year ended November 30, 2012 was payable to a lender on demand and bore interest at 0%. The notes payable issued during the year ended November 30, 2013 are payable to various lenders with interest rates between 36% and 176% and was due between November 2013 and May 2014. At December 31, 2013 and 2012, the Company owes various lenders $208,142 and $32,642, respectively, for notes payable issued for cash at interest rates between 8% and 12.75%, all of which is in default as of November 30, 2013. Certain of this debt is secured by the assets of the Company.