Stockholders' Equity

12 Months Ended

Nov. 30, 2011

Notes to Financial Statements

Stockholders' Equity

8 Stockholders’ Equity

The Company is authorized to issue 1,000,000 shares of preferred stock, par value $0.001 per share, with rights and privileges to be determined by the Board of Directors. The Company is authorized to issue up to 250,000,000 shares of its common stock, par value $0.001.

On May 13, 2009, the shareholders of the Company approved a proposed amendment to the Certificate of Incorporation of the Company to effect a reverse split of the Company’s common stock and authorized the Board of Directors (“Board”) to file the amendment at any time prior to the next annual meeting. On February 4, 2010, the Board authorized a reverse split of the common stock on a 1-for-10 basis, whereby the Company issued to each of its stockholders one share of common stock for every 10 shares of common stock held by such stockholder. The reverse split was effective on September 22, 2010.

On October 20, 2011, the Board authorized a series C of the Company’s previously authorized preferred stock and designated a par value per share of $0.001 (the “Series C Preferred”). The number of shares of Series C Preferred was set at 51 shares, with no dividend rights and no liquidation rights. The shares were issued to the Company’s Chief Executive and Information Officers. Unless otherwise voted on by the disinterested members of the Board, the Company shall redeem all shares of Series C Preferred, in cash, for the aggregate amount of $1.00 on November 21, 2013. All shares of Series C Preferred rank senior to the Company’s (i) common stock, par value $0.001, (ii) Series A Convertible Preferred Stock, par value $.001 per share, (iii) Series B Convertible Preferred Stock, par value $.001 per share, and any other class or series of capital stock of the Company creates, except for stock created (a) pari passu with any class or series of capital stock of the Company hereafter created and specifically ranking, by its terms, on par with the Series C Preferred (the “Pari Passu Shares”) and (b) junior to any class or series of capital stock of the Company hereafter created specifically ranking, by its terms, senior to the Series C Preferred (the “Senior Shares”), in each case as to distribution of assets upon liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary.

Each one (1) share of the Series C Preferred has voting rights equal to (x) 0.019607 multiplied by the total issued and outstanding shares of Common Stock eligible to vote at the time of the respective vote (the “Numerator”), divided by (y) 0.49, minus (z) the Numerator.

With respect to all matters upon which stockholders are entitled to vote or to which stockholders are entitled to give consent, the holders of the outstanding shares of Series C Preferred Stock shall vote together with the holders of Common Stock without regard to class, except as to those matters on which separate class voting is required by applicable law or the Certificate of Incorporation or by-laws.

So long as any shares of Series C Preferred are outstanding, the Company shall not, without first obtaining the unanimous written consent of the holders of Series C Preferred, (i) alter or change the rights, preferences or privileges of the Series C Preferred so as to affect adversely the holders of Series C Preferred or (ii) create Pari Passu Shares or Senior Shares.

On October 20, 2011, the Board approved a change in the authorized shares to 250,000,000 and a change in the par value of the common stock to $0.001 (together, the “Actions”). On November 28, 2011, the Series C Preferred shareholders, representing 51% of the voting equity of the Company, approved each of the Actions by written consent in lieu of a meeting. A certificate of amendment to the Company’s certificate of incorporation, reflecting such Actions, was filed with the State of New York Department of State on January 23, 2012.

The financial statements as of and for the year ended November 30, 2010 have been retroactively adjusted to give effect to the change in par value of the Company’s common stock.

The following is a summary of outstanding options:

	Number of Shares			Exercise Price Per Share		Weighted-Average Exercise Price
Outstanding December 1, 2009		1,334,151			$1.60 - $5.80	$2.50
Granted during year ended November 30, 2010		956,147			$.10 - $5.80	$.63
Exercised/canceled during year ended November 30, 2010		(1,070,104	)		$.10 - $.36	$.23
Outstanding November 30, 2010		1,220,194			$.10 - $3.30	$2.09
Granted during year ended November 30, 2011		14,100,000			$.01 - $.10	$.02
Exercised/canceled during year ended November 30, 2010		(165,000	)		$.10 - $1.00	$1.00
Outstanding November 30, 2011		15,155,194			$.01 – 3.30	$.17
Options exercisable, November 30, 2011		353,233			$.10 – 3.30	$1.53

The following table summarizes information about the options outstanding at November 30, 2011 and 2010:

Options Outstanding				Options Exercisable
		Weighted-
		Average	Weighted-		Weighted-
Range of		Remaining	Average		Average
Exercise	Number	Contractual	Exercise	Number	Exercise
Prices	Outstanding	Life (Years)	Price	Outstanding	Price
As of November 30, 2011
$0.01 - $3.30	15,155,194	4.92	$0.17	353,233	$1.53
As of November 30, 2010
$0.10 - $3.30	1,220,194	2.1	$2.09	424,533	$1.61

On October 24, 1996, the shareholders of the Company adopted the eLEC Communications Corp. 1996 Restricted Stock Award Plan (the “Restricted Stock Award Plan”). An aggregate of 40,000 shares of common stock of the Company have been reserved for issuance in connections with awards granted under the Restricted Stock Award Plan. Such shares may be awarded from either authorized and unissued shares or treasury shares. The maximum number of shares that may be awarded under the Restricted Stock Award Plan to any individual officer or key employee is 10,000. No shares were awarded during fiscal 2011 and 2010.

In fiscal 2010, the Company issued 25,000 shares of common stock in a private placement to an accredited investor at $1.00 a share and incurred a finder’s fee payable of $2,500 plus a four-year warrant to purchase 2,500 shares of our common stock at $1.20 per share.

In fiscal 2010, the Company issued 21,700 shares of common stock in a private placement to an accredited investor at $1.00 a share plus a two-year warrant to purchase 43,400 shares of our common stock at $1.00 per share.

In fiscal 2010, the Company issued an aggregate of 582,014 shares of common stock to five employees who elected to accept stock in lieu of cash compensation of $132,014

In fiscal 2010, the Company issued 109,500 shares of common stock in conjunction with the exercise of stock options, at a price of $1.00 per shares for aggregate proceeds of $109,500.

In fiscal 2010 the Company issued 693,009 shares of common stock for services rendered to independent contractors is exchange for services valued at $372,409.

In fiscal 2010, the Company issued 685,761 shares of common stock with a fair market value of $138,474 to settle accounts payable of $49,822, resulting in a loss of $88,652, which is included in the other income (expense) caption on the consolidated statement of loss.

In fiscal 2010, the company issued 1,025,000 shares of common stock and ten-year warrants to purchase 160,000 shares at $1.00 and 1,890,000 shares at $0.10 in private placements to its chief financial officer at an aggregate price of $189,000.

In December 2010, the Company issued 75,000 shares of common stock, at a price of $0.10 per share, in conjunction with the exercise of stock options granted under our equity incentive plans.

During the first quarter of fiscal 2011, the Company issued stock and warrants to purchase stock in conjunction with a private placement of securities. In December 2010, we issued 200,000 shares of common stock and a warrant to purchase 400,000 shares of common stock at a price of $0.10 per share, to an employee for an aggregate purchase price of $20,000.

In fiscal 2011, the Company issued 1,900,000 shares of common stock and warrants to purchase 800,000 shares of common stock at a price of $0.10 per share, to our chief executive officer for an aggregate purchase price of $190,000.

As discussed in Note 3, the Company entered into various transactions during the years ended November 31, 2011 and 2010 where it issued convertible notes to third-parties in exchange for existing notes payable with various lenders.  Such convertible notes allowed the new debt holders to convert outstanding debt principal into shares of the Company’s common stock at a discount to the trading price of the common stock. To the extend, if any, that there was a beneficial conversion feature associated with these debts, the beneficial conversion feature was bifurcated from the host instrument and accounted for as a free standing derivative. As a result of such conversions, during the course of fiscal 2011 a total of $1,313,480 of outstanding debt principal was converted into 86,688,055 shares of the Company’s common stock with a value of $2,150,802 at the time of conversion.  During 2010, a total of $29,000 of outstanding debt principal was converted into 880,785 shares of the Company’s common stock with a value of $58,050 at the time of conversion.

Additionally, during fiscal 2011, one debt holder settled outstanding debt principal of $148,522 for 594,088 shares of the Company’s common stock, which was valued at $41,586 at the time of conversion, resulting in a gain on the settlement of liabilities of $106,929.

In fiscal 2011, the Company issued 3,161,000 shares of common stock, valued at $43,750, in exchange for services rendered by independent contractors.

Subsequent to the end of the fiscal year, the Company issued 2,650,000 shares of common stock for proceeds of $47,313 in conjunction with a private placement of securities.

From December 1, 2011, through March 14, 2012, the Company issued 34,962,221 shares of stock to settle debts of $676,063.