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Friday, August 29, 2003 2:01:11 PM
Notes payable consist of the following at December 31, 2002:
Notes payable to a bank, bearing interest ranging from the prime rate (4.75% at December 31, 2002) to the prime rate plus 2% per year and due in average monthly payments of approximately $31,000, including interest, through November 2002. These notes are collateralized by certain equipment, licensing rights and by the personal guarantees of officers/stockholders of the Company.
$427,980
Notes payable to banks, bearing interest from 6.75% to 9.5% per year, interest due monthly and principal due on demand. These notes are not collateralized but are guaranteed by officers/stockholders of the Company. Effective January 17, 2002, certain of these notes were refinanced into a single note which bears interest at the prime rate (4.75% at December 31, 2002) plus 1.5%, due in 36 monthly installments of $8,824 and collateralized by an office building owned by an officer/stockholder of the Company.
191,354
Notes payable to third party entities and individuals bearing interest at a stated rate of 10% payable semi-annually with principal due three years after issuance of the note, which ranges from October 2001 to March 2002. These notes are not collateralized. In connection with the funding of these notes, Ferris issued a total of 412,500 shares of its common stock as equity attachments to the note holders and to pay debt issuance costs. Accordingly, the actual weighted average interest rate on these notes, including the effect of the issuance of common stock and the payment of debt issuance costs, was approximately 16%. No interest or principal has been paid on these notes during the year ended December 31, 2002. 250,000
250,000
Note payable to a financing entity, due on demand, non-interest bearing. This note is not collateralized.
19,990
Total notes payable
$889,324
Certain notes payable to banks contain various financial and non-financial covenants, which require the Company, among other things, to maintain certain levels of stockholders’ equity and to comply with certain financial ratios. The Company was in violation of these covenants as of December 31, 2002 and the banks could demand full payment of all principal and interest.
7. Notes Payable-Stockholders
Notes payable to stockholders consisted of the following at December 31, 2002:
Convertible notes payable to stockholders, principal and interest due on demand, accruing interest at 12% per year. These notes are collateralized by certain equipment and contain a provision to convert the note to common stock.
$100,000
Note payable to a stockholder, principal and interest due on demand, interest accrues at 10% per year. This note is not collateralized.
194,031
Notes payable to stockholders, non-interest bearing with principal due on demand. These notes are not collateralized.
616,000
Total notes payable to stockholders
$910,031
All notes due to stockholders were in default as of December 31, 2002. Convertible notes payable to stockholders in the amount of $100,000 were issued by the Company in increments of $10,000 having an original maturity date of May 10, 1998. The holder of each $10,000 of convertible note has a non-assignable option to purchase 7,500 shares of common stock at par value. Alternately, each holder has the right to convert their convertible note to equity in the form of 12,500 shares of restricted common stock. None of the notes have been converted.
Of the $616,000 of notes payable without interest described above, a $103,500 note provides for a per diem issuance of common stock as penalty for late payments. As of December 31, 2002, the per diem issuance would be in excess of 5,800,000 shares of the Company’s common stock. The Company has received an opinion from counsel that the penalty provisions are unenforceable as illegal usury under applicable Texas law. However, there has not been any litigation between the Company and the holder of the note as to this issue, and in the absence of a court decision directly applicable to the parties, there remains at least some risk that the opinion of counsel could be wrong. According to legal counsel there is no likelihood of a sustainable assessment of the per diem late penalty. Therefore, no provision for such charges has been provided.
These are my personal comments, observations, opinions and should not be relied upon for any investment decisions, and as always read the SEC filings for the facts of the company
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