Principal lender:	Feb. 28, 2013		Nov. 30, 2012		Interest Rate

Note dated November 30, 2005	$	281,792	$	986,271		5.25	%(1)
Note dated May 31, 2006		204,583		716,041		5.25	%(1)
Note dated September 28, 2007		679,638		2,378,733		9.75	%(1)
Note dated May 28, 2008		328,072		1,148,254		20.00	%(1)
Note dated October 29, 2008		202,572		709,001		15.00	%(1)
Note date February 15, 2009		115,085		402,797		20.00	%(1)
Note dated October 6, 2009		1,086		3,802		5.25	%(1)
Note dated November, 2009		6,623		23,179		5.25	%(1)

Total principal lender debt		1,819,451		6,368,078

Short-term borrowings		939,418		1,068,867		0.00% - 24.00	%
Capital lease obligations		6,430		7,545		12.00% - 17.00	%

Total short-term debt		2,765,299		7,444,490
Long-term debt		2,027,142		358,614
Total	$	4,792,441	$	7,803,104

As of February 28, 2013 and November 30, 2012 the Company owed its principal lender (“Lender”) $1,819,451 and $6,368,078 respectively. All of such debt became due by its terms on September 30, 2010. We have not made payments of principal or interest when due, and we are not in compliance with our agreements with the Lender. The Lender has not issued a default notice, and as described below, has signed agreements to sell such debt to third party investors.

On February 3, 2012, the Lender entered into a contract to sell such debt to JDM Group, LLC (“JDM”). JDM agreed to pay the Lender in installments over time, $1,500,000 to acquire all of the debt from the Lender. The first installment of $600,000 was due on February 15, 2012, and the balance of $900,000 was payable on the 30th day of each month in installments of $100,000 beginning on March 30, 2012. For each $100,000 paid to the Lender, $930,000 in debt would be reduced to the Lender. In conjunction with this agreement, the Lender agreed to not charge any interest on the debt owed, beginning on February 1, 2012. JDM also entered into an agreement with the Company that required the Company to pay JDM $1,700,000, without interest, in August 2013, to repay such debt to JDM assuming that JDM had paid the full $1,500,000 to the Lender. The debt to JDM was convertible by JDM into shares of the Company’s common stock at a conversion rate equal to a 10% discount to the volume weighted average trading price of the Company common stock for the three trading days prior to such conversion. The conversion price was subject to a minimum conversion price of $.02 per share.

When the first payment of $600,000 by JDM was due to the Lender in February 2012, JDM sold the required installment payment of $600,000 of such debt to other parties in exchange for cash, which was then paid to the Lender. The Company then issued 15,833,713 shares of common stock to settle $350,000 of such debt with the other parties, and the Company issued two new convertible notes aggregating $300,000 to such other parties. As a result of the first $600,000 payment to the Lender, the liability to the Lender was reduced by approximately $5,580,000.

The Company made the $100,000 payment due to the Lender on March 30, 2012 on behalf of JDM, and JDM signed over to the Company a $930,000 debt reduction that was assigned to JDM by the Lender. JDM assigned the $100,000 payment due on April 30, 2012 to a third-party investor for a payment to the lender of $100,000, and an additional $930,000 of debt reduction was achieved with the Lender. The Company granted the new investor the ability to convert the debt into stock at a 37.5% discount to the market price of the Company’s common stock, as defined in the agreement. Subsequent to such assignment, JDM asked the lender for a deferral of the monthly payments and did not make any of the monthly payments due on May 30, 2012 or thereafter, leaving $700,000 remaining to pay to the Lender under this agreement. As a result of the $800,000 in payments to the Lender under this agreement, the Company achieved a reduction in the debt to the Lender of $7,340,000.

As the Company is experiencing financial difficulties and JDM granted the Company a concession by extending the term of the debt and reducing the amount of debt the Company was required to pay, the Company accounted for such transaction as a troubled debt restructuring under ASC 470-60. As the total future cash payments to JDM are less than the carrying value, an adjustment was made to the carrying value of the debt to reflect the portion of the debt that had been cancelled due to the cash payments made during the three-month period ended February 29, 2012 and a gain from troubled debt restructuring was recognized of $4,779,634.

On February 6, 2013, the Lender cancelled its agreement with JDM and entered into a contract to sell all remaining debt due by the Company to another party, NetCapital.com, LLC. (“NCC”) for a price of $350,000 on the condition that the Company also issue three-year warrants to the Lender to purchase 10 million shares of common stock of the Company at a price of $0.01 per share. The Company issued such warrants on February 15, 2013 and valued them at approximately $35,000 using the Black-Scholes method with an interest rate of 1%, volatility of 264%, zero dividends and expected term of three years.

Effective February 15, 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, in exchange for the Fund’s assumption and payment of the Assignment Agreement, payment to the Company of $150,000, the agreement to cancel the remainder of the Debt that was assigned by the Lender to the Fund, and the agreement to purchase and cancel an existing convertible debenture in the amount of approximately $35,000.

Principal and interest payments on Amended Note 1 can be made at any time by the Company, 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 market price (as defined) subject to a limit of 4.99% of the Company’s outstanding shares of common stock. In February 2013 the Fund converted $78,690 of principal into 39,345,576 shares of common stock. 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, or 9.99% of the then-current issued and outstanding shares of common stock. Any principal or interest amount can be paid in cash.

The conversion features embedded in the Amended Notes were evaluated to determine if such conversion features should be bifurcated from its host instrument and accounted for as a freestanding derivative. The conversion feature in Amended Note 1 is accounted for as a derivative liability. The Company estimated the fair value of this derivative based on information from sources knowledgeable in the area. The fair value of the derivative liability associated with Amended Note 1 was recognized as a discount to the debt instrument and the discount is being amortized over the expected life of the note. Amended Note 2 is convertible into common stock at a determinable number of shares and the conversion option is not a derivative liability. The Amended Notes are classified as long-term debt with a carrying value of $1,656,105 at February 28, 2013.

The Amended Notes 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 or the Amended Notes, 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.

As the Company is experiencing financial difficulties and the Fund granted the Company a concession by extending the term of the debt and reducing the amount of debt the Company was required to pay, the Company accounted for such transaction as a troubled debt restructuring under ASC 470-60. As the total future cash payments to the Fund are less than the carrying value, an adjustment was made to the carrying value of the debt to reflect the portion of the debt that had been cancelled due to the cash payments made during the three-month period ended February 28, 2013 and a gain from troubled debt restructuring was recognized of $2,714,461.

In connection with the financings, the Company has agreed, so 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.

Short-term borrowings at February 28, 2013 also include eight convertible notes (the “Convertible Notes”) at annual interest rates ranging from 0% to 8%, totaling $298,684. The Convertible Notes consist of five notes totaling $192,948 that we issued in exchange for cash payments to our Company, one note of $19,000 that we issued in exchange for services rendered, and two notes totaling $86,736 that we issued in exchange for existing non-convertible notes payable. Conversion features allow the holders of the Convertible Notes to convert into shares of our common stock at a discount to the trading price of our common stock, as defined, ranging from 38% to 55%. For a limited period of time before a conversion notice is submitted, the Company has the right to pre-pay some or all of the Convertible Notes at a 15% to 50% premium to the principal amount that is retired.

Short-term borrowings at November 30, 2012 also include eleven convertible notes (the “2012 Convertibles”) at annual interest rates ranging from 0% to 12%, totaling $447,799. The 2012 Convertibles consist of six notes totaling $239,499 that we issued in exchange for cash payments to our Company, one note of $19,000 that we issued in exchange for services rendered, and four notes totaling $189,300 that we issued in exchange for existing non-convertible notes payable. Conversion features allow the holders of the 2012 Convertibles to convert into shares of our common stock at a discount to the trading price of our common stock, as defined, ranging from 10% to 55%. For a limited period of time before a conversion notice is submitted, the Company has the right to pre-pay some or all of the 2012 Convertibles at a 15% to 50% premium to the principal amount that is retired.

The conversion features embedded in the convertible notes were evaluated to determine if such conversion feature should be bifurcated from its host instrument and accounted for as a freestanding derivative. In five of the eight Convertible Notes outstanding at February 28, 2013, and in six of the eleven 2012 Convertibles, the conversion feature was accounted for as a derivative liability. The derivatives associated with the Convertible Notes and the 2012 Convertibles were recognized as a discount to the debt instrument and the discount is amortized over the expected life of the notes with any excess of the derivative value over the note payable value recognized as additional interest expense at the issuance date. Three of the eight Convertible Notes and five of the eleven 2012 Convertibles are convertible into common stock at a fixed price and the conversion option is not a derivative liability.

The derivative liability for the convertible notes was calculated using the Black Scholes method over the expected terms of the convertible debentures, with a risk free rate of 1% and volatility of 264% as of February 28, 2013 and a risk free rate of 1% and volatility of 243% as of November 30, 2012. In accordance with authoritative guidance, the embedded derivatives are revalued at each balance sheet date and marked to fair value with the corresponding adjustment as a gain or loss on the change in the fair value of the derivatives, which were recorded as other income or expense in our consolidated statement of income. As of February 28, 2013 and November 30, 2012, the fair value of such derivatives, including derivatives associated with long-term debt, totaled $601,953 and $361,760. During the three-month periods ended February 28, 2013 and February 29, 2012, the Company recognized (expense)/income arising from the change in fair value of the derivatives of $(54,087) and $89,671 respectively.

On November 23, 2011, the Company entered into an agreement with an unsecured lender under which the Company assigned a total of six unsecured convertible notes (the “Notes”) with a carrying value of $292,148 and a face value of $400,004 to a new unsecured third-party lender. The Notes had a stated 6% interest rate and were due at various dates during 2012. Such notes also contained embedded beneficial conversion features for an undeterminable number of shares, which was bifurcated and accounted for as a derivative liability calculated using the Black Scholes method described above and was valued at $497,667 on November 23, 2011.

Upon such assignment, the Company and the new lender restructured the terms of the outstanding notes, creating one new convertible note (the “New Note”) with a face value of $400,004, an interest rate of 6% and a three-year term stating that all principal and accrued interest shall be due on November 23, 2014. Additionally, the New Note contained a beneficial conversion feature allowing the new lender to convert any outstanding principal balance in to shares of the Company’s common stock at a rate of $0.006 per share.

As the Company is experiencing financial difficulties and the creditor has granted a concession by extending the term of the notes, the Company accounted for such transaction as a troubled debt restructuring under ASC 470-60. As the total future cash payments of the New Note are greater than the carrying value, no adjustment was made to the carrying value of the debt. The New Note bears interest under its new effective interest rate of 16.412% representing the rate that equates the present value of the total future cash payments to the carrying value of the debt. The New Note has a carrying value of $359,089 and $344,954 at February 28, 2013 and November 30, 2012, respectively. On March 15, 2013 the Company issued 67,260,000 shares of its common stock in full payment of the New Note, pursuant to a conversion notice received by the Company.

Capital Lease Obligation

The Company has one capital lease obligation that is payable in quarterly installments of $2,305, ending on February 2, 2016 of which $6,430 is classified as a short-term liability and $11,948 as long-term debt.