Debt

12 Months Ended

Nov. 30, 2015

Debt Disclosure [Abstract]

Debt

4. Debt

The following table summarizes components of debt as of November 30, 2015 and 2014:

	2015			2014
Debt due to Laurus	$	—		$	2,266,186
Senior secured convertible redeemable debenture due to TCA		600,000			—
Convertible subordinated debt		2,687,461			1,935,190
Convertible debt due to various lenders		320,750			448,520
Other short-term debt due to various lenders		224,448			170,496
Total debt		3,832,659			4,820,392
Less: current portion of long-term debt		(2,932,018	)		(4,631,122	)
Less: discount on debt		(491,027	)		(189,270	)
Total long-term debt, net of discounts	$	409,614		$	—

At November 30, 2015, future payments under long-term debt obligations over each of the next five years and thereafter were as follows:

Twelve months ended November 30:
2016	$	3,423,045
2017		—
2018		—
2019		—
2020		409,614
Minimum future payments of principal	$	3,832,659

Debt due to Laurus

As of November 30, 2014, the Company owed a third party lender, LV Administrative Services, Ltd., as agent for Laurus Master Fund, Ltd. and various affiliates (“Laurus”), a total of $2,266,186.   All of such debt became due by its terms on September 28, 2010 and carried an annual interest rate ranging from 5.25% to 20%.  The Company had not made payments of principal or interest when due, and was not in compliance with its agreements with Laurus. Laurus had not issued a default notice and had signed an agreement, on two separate occasions, to sell all of its debt at a discount to a third party, however the third parties did not fulfill all of the terms of the agreements. In January 2015, EXO Opportunity Fund, LLC (“EXO”) purchased the remaining Laurus debt and agreed to pay $100,000 to Laurus. EXO paid $30,000, but did not pay the remaining $70,000, despite repeated requests. On October 14, 2015, the Company closed a Securities Purchase Agreement and related agreements with TCA Global Credit Master Fund LP (“TCA”) whereby the Company sold to TCA a $500,000 senior secured convertible redeemable debenture (“TCA Debenture 1”). From the proceeds of the TCA Debenture 1, the Company paid $70,000 to Laurus in full settlement of the remaining balances owed to Laurus. Given that the Company is experiencing financial difficulties and Laurus granted a concession by accepting total payments of $100,000 for the remaining balance of the principal and interest due, the Company accounted for such transactions as a troubled debt restructuring and recognized a total gain of $2,299,986 from the debt settlement.

Convertible subordinated debt

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 did not abide by the contractual terms of the assignment agreement; therefore, at November 30, 2014 the Company was 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.

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.

The Amended Notes matured on December 31, 2014, and were modified in January 2015 to mature on December 31, 2015. The Company is in discussions to change the maturity dates again and to modify the notes.  Interest accrues on the unpaid principal at a rate per annum equal to 6% for Amended Note 1 and 2% for Amended Note 2.

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 was 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 $300,000 in cash under the New Note in the months of June through December 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

Effective January 20, 2015, the Company signed a debt modification agreement with the Fund. The modification reduced the outstanding balance on Amended Note 1 from $280,190 to $250,000, and provided that upon the completion of the payments required to retire Amended Note 1, the outstanding balance of Amended Note 2 would be reduced to from $1,000,000 to $0. The Fund subsequently assigned the remaining balance of Amended Note 1 and the related security agreements to EXO. The Company also received $25,000 in cash in February 2015, in conjunction with a variable rate convertible debenture payable to EXO (the “EXO Note 1”), which matured on December 31, 2015, bears interest at an annual rate of 6%, and is subject to the same security agreements as Amended Note 1. The Company is negotiating a new maturity date for EXO Note 1.

The conversion price of the EXO 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 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 $74,990 at the issuance date. Debt discount was recorded up to the $25,000 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 $49,990 was expensed immediately as additional interest expense.

On January 21, 2015, the Company signed a second debt modification agreement with the Fund. This modification provided for the reduction of the principal balance of the New Note from $634,600 to $250,000, subject to certain conditions precedent. The Fund assigned a $250,000 portion of the New Note and the related security agreements to two new debt holders in equal amounts of $125,000 each. On March 5, 2015, the Company met the conditions precedent in the debt modification agreement, and recognized a troubled debt restructuring gain of $1,568,335. For the year ended Novemebr 30, 2015, as a result of the debt modifications with the Fund and Laurus, the Company recognized a total gain on troubled debt restructuring of $3,868,321, or $0.00 per basic and fully diluted share.

On April 21, 2015, EXO purchased a $63,000 convertible note, with a minimum conversion price of $0.00005 per share, that the Company originally issued to Diamond Remark LLC (“Diamond”) on September 4, 2014. EXO can elect at any time to convert any portion of the debt into shares of common stock of the Company at a discount of 49% of the price of the common stock as defined in the agreement, subject to a minimum conversion price of $0.00005 per share. On March 3, 2015, Diamond notified the Company that the Company was in default and that in accordance with the default provisions of the lending agreement, the amount of money that the Company was required to pay back to Diamond had increased due to default fees. The note was due on June 26, 2015, and remains in default. EXO purchased the note for $97,675. In conjunction with the penalty clauses in the note and default fees due to EXO, on September 8, 2015, the Company issued an amended and restated convertible promissory note to EXO in the amount of $209,847, with the same conversion terms and conditions as the original note issued to Diamond. The note matures on March 31, 2016 and bears interest at a rate of 8% per annum.

On May 11, 2015, the Company signed a $140,000 convertible note agreement with FLUX Carbon Starter Fund (the “Flux Note 1”), which matured on December 31, 2015, and bears interest at an annual rate of 6%. The Flux Note 1 can be converted into the Company’s common stock at a price of $0.002 per share. In conjunction with the Flux Note, the Company received $68,000 in cash and recorded an original issuance discount of $72,000 as interest expense.

On July 1, 2015, in conjunction with the purchase of Plaid Canary Corporation (“PCC”) (see Note 14), the Company assumed a secured note payable to FLUX Carbon Starter Fund in the amount of $627,000, (the “Flux Note 2”) with an annual interest rate of 20%, that matured on January 31, 2016. The Flux Note 2 can convert into shares of common stock of PCC at the market price of PCC’s common stock. The market price is defined as the lowest closing bid price of PCC’s common stock during the previous 90 trading days. The Flux Note 2 contains an original issuance discount of $313,500, $260,393 of which has been expensed in fiscal 2015, and $53,107 which remains as a portion of the total debt discount at November 30, 2016.

The Amended Notes, New Note, Flux Note 1, Flux Note 2 and notes payable to EXO (the “Subordinated Debt”) are subordinated to any debt payable to TCA. In instances where the Subordinated Debt is past due, the Company is negotiating extended maturity dates. None of the Subordinated Debt holders have issued the Company a default notice. The Company contests the validity and enforceability of the Amended Notes because the asignees of the Amended Notes did not pay the full amount of consideration of $350,000 to Laurus to complete the assignment of the Amended Notes. As noted above, the Company paid $70,000 of the required $350,000 payment, in order to complete the settlement agreement with Laurus.

During the year ending November 30, 2015, the Subordinated Debt holders converted $240,400 of principal into 1,159,047,428 shares of common stock of the Company and recorded a gain of $1,419,661 on the conversions. During the year ending November 30, 2014, the Subordinated Debt holders converted $287,500 of principal into 253,000,000 shares of common stock of the Company and the Company recorded a gain of $1,059,464 on the conversions.

At November 30, 2015 and 2014, the Company owed the Subordinated Debt holders $2,687,461 and $1,935,190, respectively.

Debt due to TCA

On October 14, 2015 the Company entered into a Securities Purchase Agreement (“SPA”) with TCA , as lender, pursuant to which TCA agreed to loan the Company up to a maximum of $5 million for working capital and general operating expenses. An initial amount of $500,000 was funded by TCA on October 14, 2015.  Any additional funding to be provided to the Company under the SPA will be at the discretion of TCA.

Our obligation to repay the $500,000 borrowed pursuant to the SPA is evidenced by TCA Debenture 1. The repayment of TCA Debenture 1 is secured by a first position security interest in substantially all of the Company’s assets and in substantially all of the assets of the Company's subsidiaries, as evidenced by a security agreement between the Company and its subsidiaries and TCA, The Company also pledged the stock it owns in its subsidiaries.  TCA Debenture 1 matures on April 14, 2017 and bears interest at the rate of 18% per annum. Interest and principal payments are due in monthly installments beginning in November 2015 and February 2016, respectively.

Upon the occurrence of an event of default, TCA may convert all or any portion of the outstanding principal, accrued and unpaid interest, and any other sums due and payable under TCA Debenture 1 into shares of the Company’s common stock at a conversion price equal to 85% of the lowest daily volume weighted average price of the Company’s common stock during the five trading days immediately prior to the applicable conversion date, in each case subject to a provision that no conversion may result in TCA becoming the beneficial owner of more than 4.99% of the Company’s outstanding common stock.

The Company also borrowed $100,000 from TCA on November 18, 2015, under a debenture with similar terms, except that the $100,000 debenture will mature on November 18, 2016 (“TCA Debenture 2”).

Upon the sale of the TCA Debenture 1, the Company also signed an advisory agreement and issued to TCA, as an advisory fee, 27,500 shares of Pervasip Series I Preferred Stock. Each share of Series I Preferred Stock has a stated value of $10, which will be the share's priority interest in the Company's net assets in the event of liquidation. Each share may be converted by the holder into a number of shares of common stock equal to the stated value divided by the average of the five lowest closing bid prices during the ten trading days immediately preceding conversion. The holder of Series I Preferred Stock will have voting rights equivalent to those of the common stock into which the Series I shares are convertible. In the event that TCA does not realize net proceeds from the sale of these Series I preferred shares or the common shares upon conversion of the preferred shares (the “Advisory Fee shares”) equal to the $275,000 fee value by the maturity date of the credit facility, these Advisory fee shares will become subject to mandatory redemption by TCA, and the Company shall be liable to TCA for the net proceeds below an aggregate amount of $275,000. The Company also issued to TCA 51 shares of Series J Preferred Stock. The Series J Preferred Stock will give TCA voting control of the Company if the Company defaults on the note and TCA declares the voting control effective.

At November 30, 2015 and 2014, the Company owed TCA $600,000 and $0, respectively.

Convertible Debt due to various lenders

Convertible debt with a fixed conversion rate

At November 30, 2015 and November 30, 2014, the Company owed a lender $138,000 in connection two notes that are past due, are in default, bear a default interest rate of 18% per annum, and are convertible at prices of $0.015 and $0.02 cents per share.

During the year ended November 30, 2014, the Company received $63,000 in convertible debt with a minimum conversion price of $0.00005 per share. The lender can elect at any time to convert any portion of the debt into shares of common stock of the Company at a discount of 49% of the price of the common stock as defined in the agreement, subject to a minimum conversion price of $0.00005 per share. At November 30, 2014 the Company owed the lender $63,000. The lender sold this note to EXO, as noted above.

At November 30, 2014 and 2013, a total of $138,000 and $201,000 of convertible debt with a fixed conversion rate was outstanding, respectively

No conversions of debt with a fixed conversion rate occurred during fiscal 2015 and 2014.

Convertible debt with a variable conversion rate issued for cash

During the year ended November 30, 2014, the Company received $152,500 in cash from lenders for convertible debt. The convertible debt bears interest at 8% is due between June and October 2015. The lender can elect at any time to convert any portion of the debt into shares of common stock of the Company, subject to a limit of 4.99% of the outstanding shares, at a price discount ranging from 30% to 42% of the price of the common stock as defined in the agreements.

The conversion price of the $152,500 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 $163,714 at the issuance dates. The debt was recorded a debt discount of $152,102 and was amortized to interest expense over the term of the notes. The fair value of the conversion feature in excess of the principal amount allocated to the notes in the aggregate amount of $11,612 was expensed immediately as additional interest expense.

. 

At November 30, 2015 and 2014, a total of $115,000 and $179,770 of variable-rate convertible debt that had been issued for cash was outstanding, respectively. During the year ended November 30, 2015, $103,870 of debt was converted into 1,119,508,784 shares of common stock of the Company and the Company recorded a gain of $115,953 on the conversions. During the year ended November 30, 2014, $10,230 of this debt was converted into 137,000,000 shares of common stock of the Company.

 Convertible debt with a variable conversion rate assigned to lenders.

During the years ended November 30, 2015 and 2014, no other debt with a variable conversion rate was assigned to a lender. At November 30, 2015 and 2014, the Company owes one lender $67,750 as a result of an assignment in fiscal 2012. The convertible debt bears interest at 0% and is past due. The lender can elect at any time to convert any portion of the debt into shares of common stock of the Company at a price discount of 55% of the market price of the Company’s common stock as defined in the agreements.

During the years ended November 30, 2015 and 2014, none of this debt was converted into shares of common stock of the Company.

At November 30, 2015 and 2014, a total of $320,750 and $448,520 of other convertible debt was outstanding, respectively.

Other short-term debt due to various lenders

During the years ended November 30, 2015 and 2014, the Company received $75,000 and $114,000, respectively from lenders in exchange for notes payable that had no conversion features.

At November 30, 2015 and November 30, 2014, the Company owed various lenders $224,448 and $170,496, respectively, for non-convertible notes. Cash payments were made on these notes of $23,547 and $167,980 during the years ended November 30, 2015 and 2014, respectively. Other short-term debt carries an interest rate of 0% to 81% over the term of the loans. Assets of the Company secure certain of these notes. These notes are currently in default.