Tuesday, August 21, 2007 8:56:31 AM
All you need to read and digest! The death spiral continues...
Note 7. Commitments and Contingencies
In October of 2005 the Company registered the sale by Dutchess Private Equities Fund II, L.P. of an aggregate of 8,000,000 shares of its common stock issuable to that company upon conversion of convertible debentures and upon exercise of warrants issued to it. On July 1, 2006, a portion of the shares covered by that registration statement remained unsold and the financial statements included in that registration statement's prospectus exceeded the maximum age for financial statements permitted under the SEC's regulations. The Company did not inform Dutchess, as it was required to do under its contract, that the prospectus could no longer be used. As a result, sales made by Dutchess after July 1, 2006 by means of the outdated prospectus were regarded as unregistered for purposes of the Securities Act of 1933, giving purchasers of those shares a right to rescind their purchases at any time within one year after the date of purchase. During the period from July 6, 2006 through October 20, 2006, Dutchess sold an aggregate of 5,434,138 shares using the updated prospectus, at prices ranging from $0.03 to $0.073. The aggregate sales price for all of those sales was $254,977. The Company is required under its agreement with Dutchess to indemnify Dutchess for any loss it might suffer as a result of any exercise of those rescission rights by purchasers. The Company is unable to predict whether any of those purchasers will seek rescission of their purchases. If they do, the Company will be obligated to indemnify Dutchess for an amount equal to the difference between the sales prices of those shares and the value of the shares it receives back from the purchasers upon rescission. If all of the purchasers were to rescind their purchases and if all of the shares taken back by Dutchess as a result or to become totally valueless, the Company would owe Dutchess $254,977 as a result of the rescission. As of June 30, 2007, we are unaware of any claims presented to Dutchess under this provision of our agreement with them. Any remaining contingency will expire one year from the last sale by Duchess of our shares, which will occur on October 20, 2007.
The Company has approximately $900,000 accrued for various payroll tax liabilities. In May 2006, the Company received notices from the IRS of tax liens that have been filed related to these accrued amounts, and in April, 2007 the Company received further notices of intent to levy by the Internal Revenue Service.
In February, 2007 the Company entered into an agreement with Charter Capital Partners, LLC to repay $184,100 in amounts that had been advanced by other companies during the course of 2006. As of April 30, 2007 the Company was in default on this note to the extent of approximately $107,000.
In the first quarter of 2006, a judgment was entered against the Company in a lawsuit brought on by one of the leaseholders, Edward Slagle. As part of the agreement, the plaintiff agreed to wait one year for payment. The Company has not yet been able to pay, and in February, 2007 the Company received notice from the plaintiff’s lawyer that the plaintiff intends to enforce the judgment. The amount owed is approximately $90,000 and has been accrued for in the financial statements.
During the first quarter of 2007, a previously accrued lawsuit was settled for 5,000,000 share of common stock, the value of these shares based upon the closing price of the Company’s common stock on the date of the agreement was $225,000. The Company has previously accrued approximately $498,000 for this litigation resulting in a gain during the six month period needed June 30, 2007 of approximately $273,000.
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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