If they can survive financing, they might be OK.
"As of December 31, 2011, our long-term liabilities were $73,519, which consisted of a loan owing to East West Bank with a balance of
$60,220 and the remaining obligations of a capital lease in the amount of $13,299. The principal amount outstanding on the East West Bank
loan accrues annual interest at the bank's variable index rate. The East West Bank loan is collateralized by all business assets.
In September 2011, we entered a lease- to- own purchase agreement. We evaluated the lease at the time of purchase and determined that the
agreement contained a beneficial by-out option wherein we have the option to buy the equipment for $1 at the end of the lease term. Under the
guidance in ASC 840, we have classified the lease as a capital lease. We used the discounted value of future payments as the fair value of this
asset and have recorded the discounted value of the remaining payments as a liability. As of December 31, 2012 the capital leases payable
outstanding was $13,677, with $2,781 due within the next year.
In addition, we have received debt financing from Asher Enterprises, Inc. under a series of Convertible Promissory Notes. The notes, both
converted and currently outstanding, are as follows:
As amended, the remaining Note issued to Asher Enterprises, Inc. bears interest at a rate of 8% per year and is convertible at a conversion price
equal to 40% of the Market Price of our common stock on the conversion date. For purposes of the Notes, “Market Price” is defined as the
average of the 3 lowest closing prices for our common stock on the 10 trading days immediately preceding the conversion date. The number of
shares issuable upon conversion of the Notes is limited so that the holder’s total beneficial ownership of our common stock may not exceed
4.99% of the total issued and outstanding shares. This condition may be waived at the option of the holder upon not less than 61 days notice.
In addition, we have also recently received debt financing from Tonaquint, Inc. in the amount of $200,000 under a Convertible Promissory
Note as follows:
As amended, the note issued to Tonaquint, Inc. bears interest at a rate of 8% per year and is convertible at a conversion price equal to 50% of
the Market Price of our common stock on the conversion date. For purposes of the Note, “Market Price” is defined as the average of the 3
lowest closing prices for our common stock on the 10 trading days immediately preceding the conversion date. The number of shares issuable
upon conversion of the Note is limited so that the holder’s total beneficial ownership of our common stock may not exceed 9.99% of the total
issued and outstanding shares. This condition may be waived at the option of the holder upon not less than 61 days notice.
Table of Contents
Convertible Notes Issued To Asher Enterprises, Inc.
Amount Issue date Due date
Shares issued upon
conversion
(split adjusted)
Principal amount
outstanding
as of December 31, 2012
$ 100,000 01/07/11 10/7/11 31,305 $ 0
$ 100,000 04/06/11 1/4/12 82,741 $ 0
$ 100,000 07/21/11 4/17/12 104,370 $ 0
$ 75,000 10/03/11 6/27/12 188,627 $ 0
$ 75,000 10/26/11 7/20/12 506,920 $ 0
$ 78,500 02/22/12 8/24/13 4,920,034 $ 56,500
Convertible Notes Issued To Tonaquint, Inc.
Amount
Issue
date Due date
Shares issued upon
conversion
Principal amount
outstanding as of
December 31, 2012
$ 200,000 10/28/11 12/06/13 10,298,484 $ 66,186
16
On November 10, 2011, we entered into a Factoring and Security Agreement (the “Agreement”) with CapFlow Funding Group Managers LLC
(“CapFlow”). The Agreement is a credit facility for the purpose of factoring our accounts receivable. The cost of this funding is a discount of
1.85% of the gross amount of each receivable factored for the first 30 days, and an additional 0.95% for each additional 15 day period
thereafter until the factored account receivable is closed. Under the Agreement, 20% to 25% of the amount of the purchased invoices is
reserved. Our obligations to CapFlow under the Agreement are secured by substantially all of our assets. The total available credit line under
the Agreement is $1,000,000.
In order to move forward with our business development plan set forth above, we will require additional financing in the approximate amount
of $4,500,000, to be allocated as follows:
We will require substantial additional financing in the approximate amount of $4,500,000 in order to execute our business expansion and
development plans and we may require additional financing in order to sustain substantial future business operations for an extended period of
time. We currently do not have any firm arrangements for financing and we may not be able to obtain financing when required, in the amounts
necessary to execute on our plans in full, or on terms which are economically feasible.
We are currently seeking additional financing through the sale of common equity, including the sale of common equity to Auctus Private
Equity Fund, LLC through an existing Draw-Down Equity Financing Agreement, and/or the issuance of short-term debt convertible to
common equity as discussed above. If we are unable to obtain the necessary capital to pursue our strategic plan, we may have to reduce the
planned future growth of our operations."
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