This excerpt taken from the MSTR 10-K filed Mar 16, 2005.
(b) Promissory Notes Issued to Former Preferred Stockholders
In connection with the refinancing of its series B, C and D preferred stock in August 2002, the Company issued to preferred stockholders, among other consideration, $5.0 million in promissory notes which accrued interest at a rate of 7.5% per annum, payable semi-annually, and matured on July 31, 2003. Based upon market conditions and an estimated market borrowing rate of 18%, a discount of $500,000 was computed on these promissory notes at the time of issuance. The discount was amortized to interest expense over the term of such promissory notes, using the effective interest method.
Upon maturity of the promissory notes on July 31, 2003, the Company paid $5.2 million to repay in full the principal and interest due under the promissory notes issued to former preferred stockholders. During the year ended December 31, 2003, the Company made total interest payments on the promissory notes of $369,000, including the interest payment made upon maturity. The Company did not make any interest payments during the year ended December 31, 2002.
As the promissory notes had been repaid in full during 2003, the Company incurred no interest expense on the promissory notes during 2004. For the years ended December 31, 2003 and 2002, total interest expense on the promissory notes issued to former preferred stockholders was $518,000 and $350,000, respectively, including stated interest expense of $216,000 and $152,000, respectively, and discount amortization expense of $302,000 and $198,000, respectively.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)