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10QSB 8/22/2005
Issuance of Stock Related to Capital
On August 9, 2004, the Company entered into a Standby Equity Distribution Agreement with Cornell. Pursuant to the Standby Equity Distribution Agreement, the Company may, at its discretion, periodically issue and sell shares of our common stock for a total purchase price of $15 million. If the Company requests advances under the Standby Equity Distribution Agreement, Cornell will purchase shares of common stock of the Company for 98% of the lowest volume weighted average price on the Over-the-Counter Bulletin Board or other principal market on which the Company common stock is traded for the 5 days immediately following the advance notice date. Cornell will retain 5% of each advance under the Standby Equity Distribution Agreement. The Company may not request advances in excess of a total of $15 million. The maximum of each advance is equal to $400,000. In connection with the Standby Equity Distribution Agreement, the Company issued 8,315,789 shares of its common stock valued at $790,000 to Cornell as a commitment fee and we issued 105,263 shares of our common stock valued at $10,000 to Newbridge Securities as a placement agent fee. Such amounts have been recorded as deferred offering costs on the consolidated balance sheet at December 31, 2004. In April 2005, the Company and Cornell agreed to terminate this agreement and all related shares of common stock are to be returned to the Company. In May 2005 the 8,315,789 shares of common stock issued to Cornell were returned and cancelled. The Company has requested but, has not received the 105,263 shares of common stock issued to Newbridge Securities.
Conversion of Notes Payable
In January 2005, the Company issued 747,044 of common stock to Gamma for the conversion of $25,000 of its promissory notes as requested in December 2004. The conversion has been recorded in January 2005.
In January 2005, Cornell, holders of convertible promissory notes, had $10,000 of its promissory notes converted into 332,226 shares of the Company's common stock.
In January 2005, Latitude, holders of convertible promissory notes, had $135,000 promissory notes converted into 5,500,000 shares of the Company's common stock.
In May 2005, Cornell, holders of convertible promissory notes, had $15,000 of its promissory notes converted into 707,225 shares of the Company's common stock.
In May 2005, Cornell, holders of convertible promissory notes, had $11,000 of its promissory notes converted into 825,206 shares of the Company's common stock.
In June 2005, Alpha, holders of convertible promissory notes, had $50,000 of its promissory notes converted into 3,125,000 shares of the Company's common stock.
NOTE 7 - CONVERTIBLE NOTES PAYABLE
Convertible notes at June 30, 2005, consist of promissory notes to four entities. Some of the owners of the entities are also shareholders of the Company. A note exists with Advantage Fund, LLC ("Advantage") which was originated in January 2003. Advantage, is the holder of a Series A Convertible Note from the Company which has been amended at various times from January 7, 2003 to March 2004. In August 2004, Advantage sold a total of $400,000 worth of such convertible note to Cornell Capital Partners, LLP ("Cornell"). The Note bears interest at a rate of 6.5% per annum and is convertible into shares of the Company's common stock with a conversion price per share equal to the lesser of the average of the lowest of three day trading prices during the five trading days immediately prior to the conversion date multiplied by .70 or, the average of the lowest of three day trading prices during the five trading dates immediately prior to the funding dates. On May 12, 2005 as part of the proceeds from the financing arrangement with Highgate House, LLC ("Highgate"), the Company elected to redeem $257,006 of the notes at a rate of 125% of the principal balance of the note. The additional redemption costs, less interest, has been recorded as a financing expense. The convertible notes matured in December 2004 and as of June 30, 2005 are in default. The Company has not been notified of any actions related to this default from Advantage or Cornell.
During the six months ended June 30, 2005, Advantage funded the Company and the note increased by $60,000. During the six months ended June 30, 2005, Cornell elected to convert $26,000 of its promissory notes into 1,532,431 shares of the Company's common stock.
The Company has promissory notes with two unrelated third parties ("Alpha and Gamma"), representing the $225,000 assigned to them. The notes matured on December 31, 2004 and bear interest at a rate of 6.5% per annum. The notes are convertible into shares of the Company's common stock at a conversion price equal to the lesser of (1) the average of the lowest of the three day trading price during the five trading days immediately prior to the conversion date, multiplied by .80%, or (2) the average of the lowest of three day trading prices during the five trading days immediately prior to the funding date. During the six months ended June 30, 2005, Gamma converted $25,000 of its note into 747,004 shares of the Company's common stock and Alpha converted $50,000 of its note into 3,125,000 shares of the Company's common stock. As of June 30, 2005 the promissory notes are in default. The Company has not been notified of any action related to this default by either Alpha or Gamma.
Pursuant to the terms of the notes, the Company entered into a Security Agreement with a collateral agent, on behalf of Advantage, Cornell, Alpha and Gamma, the holders' granting the collateral agent a security interest in the Company's inventory, equipment and fixtures.
In June 2004, the Company received $50,000 from Triple Crown Consulting, Inc. ("Triple Crown"), and entered into a $50,000 Series B 6.5% Convertible Promissory Note. The note provides the holder with the right at any time to convert into common stock of the Company as follows: The Conversion Price per share shall be equal to the lesser of (1) the average of the lowest of three-day trading prices during the five trading days immediately prior to the Conversion Date multiplied by .70, or (2) the average of the lowest of three-day trading prices during the five trading days immediately prior to the funding date(s). In May, 2005, Triple Crown elected to convert this promissory note into Series IV preferred stock.
In April, 2005, the Company entered into a Convertible Promissory Note for repayment of funds due to a former Company officer that were advanced to the Company in the amount of $86,790. The note has a 3-year term with an interest rate of 8%. The Company has an option on the three year anniversary of the debenture to pay the debenture in full or convert into the Company's shares of common stock.
A note with Latitude, a related party for $135,000, was settled in January 31, 2005, through the issuance of 5,500,000 shares of the Company's common stock.
In summary, the following are represented on the consolidated balance sheet.
Advantage Funds $ 530,002
Cornell Capital 75,163
Alpha and Gamma 152,500
David Goldberg 86,790
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Total: $ 844,455
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10QSB 11/21/2005
NOTE 7 - CONVERTIBLE NOTES PAYABLE
Convertible notes at September 30, 2005, consist of promissory notes to four entities. Some of the owners of the entities are also shareholders of the Company. A note exists with Advantage Fund, LLC ("Advantage") which was originated in January 2003. Advantage, is the holder of a Series A Convertible Note from the Company which has been amended at various times from January 7, 2003 to March 2004. In August 2004, Advantage sold a total of $400,000 worth of such convertible note to Cornell Capital Partners, LLP ("Cornell"). The Note bears interest at a rate of 6.5% per annum and is convertible into shares of the Company's common stock with a conversion price per share equal to the lesser of the average of the lowest of three day trading prices during the five trading days immediately prior to the conversion date multiplied by .70 or, the average of the lowest of three day trading prices during the five trading dates immediately prior to the funding dates. The convertible notes matured in December 2004 and as of September 30, 2005 are in default. The Company has not been notified of any actions related to this default from Advantage or Cornell.
During the three months ended September 30, 2005, there were elections to convert $93,222 of its promissory notes into 9,893,730 shares of the Company's common stock.
The Company has promissory notes with two unrelated third parties ("Alpha and Gamma"), representing the $225,000 assigned to them. The notes matured on December 31, 2004 and bear interest at a rate of 6.5% per annum. The notes are convertible into shares of the Company's common stock at a conversion price equal to the lesser of (1) the average of the lowest of the three day trading price during the five trading days immediately prior to the conversion date, multiplied by .80%, or (2) the average of the lowest of three day trading prices during the five trading days immediately prior to the funding date. As of September 30, 2005 the promissory notes are in default. The Company has not been notified of any action related to this default by either Alpha or Gamma. During the three months ended September 30, 2005, there were elections to convert $105,000 of its Promissory Notes into 23,646,411 shares of the Company's Common Stock.
Pursuant to the terms of the notes, the Company entered into a Security Agreement with a collateral agent, on behalf of Advantage, Cornell, Alpha and Gamma, the holders' granting the collateral agent a security interest in the Company's inventory, equipment and fixtures.
In summary, the following are represented on the consolidated balance sheet.
Amount
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Advantage Funds $ 487,002
Cornell Capital 24,941
Alpha and Gamma 47,500
David Goldberg 86,790
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Total: $ 646,233
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