Florida
(State
of or Other Jurisdiction of Incorporation or Organization)
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20-1167761
(IRS
Employer I.D. No.)
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Large
Accelerated filer r
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Accelerated
filer r
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Non-accelerated
filer r
(Do
not check if a smaller reporting company)
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Smaller
reporting company þ
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Page
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PART
I.
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FINANCIAL
INFORMATION
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Item
1.
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3
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3
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4
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5
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6
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Item
2.
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18
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Item
4T.
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23
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PART
II.
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OTHER
INFORMATION
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Item
1.
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24
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Item
2.
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24
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Item
3.
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24
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Item
4.
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24
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Item
5.
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24
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Item
6.
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24
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25
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June
30,
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December
31,
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|||||||
ASSETS
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2008
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2007
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||||||
Current
assets
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(UNAUDITED)
|
|||||||
Cash
and cash equivalents
|
$ | 28,461 | $ | 74,610 | ||||
Accounts
receivable, net.
|
141,823 | 243,148 | ||||||
Interest
receivable
|
7,147 | 7,147 | ||||||
Loan
receivable, net
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285,000 | 285,000 | ||||||
Prepaid
expenses
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1,600 | 7,030 | ||||||
Total
current assets
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464,031 | 616,935 | ||||||
Property
and equipment, net
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67,805 | 83,823 | ||||||
Total
assets
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$ | 531,836 | $ | 700,758 | ||||
LIABILITIES
AND STOCKHOLDERS' DEFICIENCY
|
||||||||
Current
liabilities
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||||||||
Accounts
payable and accrued liabilities
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$ | 721,736 | $ | 765,614 | ||||
Accrued
interest, net
|
378,767 | 316,058 | ||||||
Accrued
interest - related parties, net
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157,440 | 142,621 | ||||||
Notes
payable , current portion, net of discount
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767,618 | 927,870 | ||||||
Notes
payable - related parties, current portion, net of
discount
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305,000 | 278,000 | ||||||
Warrant
liability
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1,595,299 | 580,648 | ||||||
Conversion
option liability
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1,793,899 | 612,429 | ||||||
Penalty
for late registration of shares
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882,236 | 330,840 | ||||||
Total
current liabilities
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6,601,995 | 3,954,080 | ||||||
Note
payable
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13,470 | 16,083 | ||||||
Total
liabilities
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6,615,465 | 3,970,163 | ||||||
Stockholder's
deficiency
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||||||||
Common
stock, $0.0001 par value; 500,000,000 shares authorized
|
||||||||
181,787,638
shares issued 171,787,638 outstanding at June 30, 2008 and December 31,
2007
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18,179 | 18,179 | ||||||
Additional
paid-in capital
|
841,890 | 737,462 | ||||||
Accumulated
deficit
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(6,943,698 | ) | (4,025,046 | ) | ||||
Total
stockholder's deficiency
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(6,083,629 | ) | (3,269,405 | ) | ||||
Total
liabilities and (deficiency in) stockholders' equity
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$ | 531,836 | $ | 700,758 |
For
the Three
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For
the Three
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For
the Six
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For
the Six
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|||||||||||||
Months
Ended
|
Months
Ended
|
Months
Ended
|
Months
Ended
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|||||||||||||
June
30
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June
30
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June
30
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June
30
|
|||||||||||||
2008
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2007
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2008
|
2007
|
|||||||||||||
Revenue
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$ | 1,681,854 | $ | 1,704,209 | $ | 3,285,232 | $ | 3,304,408 | ||||||||
Cost
of goods sold
|
1,292,741 | 1,260,890 | 2,579,634 | 2,406,112 | ||||||||||||
Gross
margin
|
389,113 | 443,319 | 705,598 | 898,296 | ||||||||||||
Selling,
general and administrative expenses
|
534,271 | 427,873 | 865,348 | 827,764 | ||||||||||||
Total
operating expenses
|
534,271 | 427,873 | 865,348 | 827,764 | ||||||||||||
Operating
income (loss)
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(145,158 | ) | 15,446 | (159,750 | ) | 70,532 | ||||||||||
Other
(income) expense:
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||||||||||||||||
Interest
(income) expense
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149,231 | 81,859 | 265,625 | 158,133 | ||||||||||||
Cost
of penalty for late registration of shares
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- | 14,280 | - | 51,712 | ||||||||||||
Change
in fair value of warrant liability
|
396,136 | 2,076 | 760,407 | (27,753 | ) | |||||||||||
Change
in fair value of conversion option liability
|
469,846 | (20,259 | ) | 1,181,470 | 92,744 | |||||||||||
(Gain)
loss from marking to market - registration penalty
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220,560 | (11,280 | ) | 551,400 | (38,464 | ) | ||||||||||
Total
other (income) expense
|
1,235,773 | 66,676 | 2,758,902 | 236,372 | ||||||||||||
Loss
before income taxes
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(1,380,931 | ) | (51,230 | ) | (2,918,652 | ) | (165,840 | ) | ||||||||
Income
tax expense
|
- | - | - | - | ||||||||||||
Net
loss
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$ | (1,380,931 | ) | $ | (51,230 | ) | $ | (2,918,652 | ) | $ | (165,840 | ) | ||||
Net
loss per share - basic (post reverse-splits)
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$ | (0.01 | ) | $ | (0.00 | ) | $ | (0.02 | ) | $ | (0.00 | ) | ||||
Weighted
average shares outstanding - basic (post reverse-splits)
|
171,787,638 | 148,666,209 | 171,787,638 | 148,595,605 |
For
the Six
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For
the Six
|
|||||||
Months
Ended
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Months
Ended
|
|||||||
June
30
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June
30
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|||||||
2008
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2007
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|||||||
Cash
flows from operating activities:
|
||||||||
Net
loss
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$ | (2,918,652 | ) | $ | (165,840 | ) | ||
Adjustments
to reconcile net loss to net
|
||||||||
cash
used in operating activities:
|
||||||||
Depreciation
and amortization
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20,397 | 29,967 | ||||||
Stock
issued as bonuses to employee and board members
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- | 8,125 | ||||||
Amortization
of discount on notes payable and interest on notes payable
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189,175 | 27,000 | ||||||
Cost
of penalty due to late registration of shares
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- | 51,712 | ||||||
Change
in fair value of warrant liability
|
760,411 | (27,753 | ) | |||||
Change
in fair value of conversion option liability
|
1,181,470 | 92,744 | ||||||
(Gain)
loss from marking to market-penalty
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551,396 | (38,464 | ) | |||||
Changes
in assets and liabilities:
|
||||||||
Accounts
receivable, net
|
101,325 | 125,190 | ||||||
Prepaids
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- | (2,730 | ) | |||||
Accounts
payable and accrued expenses
|
75,080 | (164,909 | ) | |||||
Net
cash used in operating activities
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(39,398 | ) | (64,958 | ) | ||||
Cash
flows from investing activities:
|
||||||||
Acquisition
of property and equipment
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(4,379 | ) | (13,138 | ) | ||||
Net
cash used in investing activities
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(4,379 | ) | (13,138 | ) | ||||
Cash
flows from financing activities:
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||||||||
Principal
payments on debt
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(2,372 | ) | (3,348 | ) | ||||
Net
cash used in financing activities
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(2,372 | ) | (3,348 | ) | ||||
Decrease
in cash and cash equivalents
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(46,149 | ) | (81,444 | ) | ||||
Cash
and cash equivalents at beginning of period
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74,610 | 118,518 | ||||||
Cash
and cash equivalents at end of period
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$ | 28,461 | $ | 37,074 | ||||
Supplemental
disclosure of cash flow information:
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||||||||
Cash
paid during the period for:
|
||||||||
Interest
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$ | - | $ | - | ||||
Taxes
|
$ | - | $ | - | ||||
Revaluation
of conversion option liability
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$ | 1,181,470 | $ | 92,744 | ||||
Revaluation
of warrant liability
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$ | 760,411 | $ | (27,753 | ) | |||
Cost
of penalty for late registration of shares
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$ | - | $ | 51,712 | ||||
Revaluation
of penalty for late registration of shares
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$ | 551,396 | $ | (38,464 | ) | |||
Cancellation
of shares of common stock
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$ | - | $ | 557 | ||||
Issuance
of warrants for the extension of notes payable
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$ | 254,240 | $ | - | ||||
Common
stock issued to employees as bonus
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$ | - | $ | 8,125 | ||||
Common
stock issued for conversion of accrued interest
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$ | - | $ | 4,000 |
Weighted
|
||||||||
Average
|
||||||||
Number
of
|
Exercise
|
|||||||
Shares
|
Price
|
|||||||
Options
outstanding at December 31, 2007
|
15,500,000
|
$
|
0.0.21
|
|||||
Granted
|
20,000,000
|
0.007
|
||||||
Exercised
|
-
|
-
|
||||||
Cancelled
/ Expired
|
-
|
-
|
||||||
Options
outstanding at March 31, 2008
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35,500,000
|
$
|
0.013
|
|||||
Exercisable
|
15,300,000
|
$
|
0.015
|
|||||
Not
exercisable
|
20,200,000
|
$
|
0.012
|
|||||
Granted
|
-
|
-
|
||||||
Exercised
|
-
|
-
|
||||||
Cancelled/
Expired
|
-
|
-
|
||||||
Options
outstanding at June 30, 2008
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35,500,000
|
$
|
0.013
|
|||||
Exercisable
|
15,400,000
|
$
|
0.018
|
|||||
Not
Exercisable
|
20,100,000
|
$
|
0.009
|
June
30, 2008
|
December
31, 2007
|
|||||||
Accounts
receivable from customers
|
$ | 151,823 | $ | 253,148 | ||||
Allowance
for doubtful accounts
|
(10,000 | ) | (10,000 | ) | ||||
Accounts
receivable, net
|
$ | 141,823 | $ | 243,148 |
June
30, 2008
|
December
31, 2007
|
|||||||
Computer
equipment
|
$ | 292,608 | $ | 288,229 | ||||
Furniture
and fixtures
|
63,564 | 63,564 | ||||||
356,172 | 351,793 | |||||||
Less
accumulated depreciation and amortization
|
(288,367 | ) | (267,970 | ) | ||||
Total
|
$ | 67,805 | $ | 83,823 |
Gross
|
Discount
|
Net
|
||||||||||
Non-related
parties
|
$
|
378,767
|
$
|
-
|
$
|
378,767
|
||||||
Related
parties
|
157,440
|
-
|
157,440
|
|||||||||
Total
|
$
|
536,207
|
$
|
-
|
$
|
536,207
|
June
30, 2008
|
December
31, 2007
|
|||||||
Convertible
note payable in the original amount of $350,000 to Alpha Capital
Aktiengesselschaft (“Alpha Capital”), dated February 25, 2005. This note
consists of $100,000 outstanding under a previous note payable which was
cancelled on February 25, 2005, and $250,000 of new borrowings. We did not
meet certain of our obligations under the loan documents relating to this
issuance. These lapses include not reserving the requisite
number of treasury shares, selling subsequent securities without offering
a right of first refusal, not complying with reporting obligations, not
having our common shares quoted on the OTC:BB and not timely registering
certain securities. This note is entered technical default
status on May 16, 2005. The note originally
carried interest at the rate of 8% per annum, and is due in
full on February 24, 2007. Upon default, the note’s interest
rate increased to 15% per annum, and the note became immediately due. The
note is convertible into common stock of the Company at a conversion price
of $0.005 per share (post-reverse split). A beneficial conversion feature
in the amount of $250,000 was recorded as a discount to the note, and was
amortized to interest expense during the twelve months ended December 31,
2005. Accrued interest is convertible into common stock of the
Company at a conversion price of $0.005 per share (post-reverse
split). During the twelve months ended December 31, 2006 the note holder
converted $5,000 into shares of common stock. During the twelve months
ended December 31, 2006 the holder of the note converted $27,865 of
accrued interest into common stock. This note is in
default at June 30, 2008. Interest in the amount of $12,901 was accrued on
this note during the three months ended June 30, 2008, and 2007,
respectively.
|
$ | 345,000 | $ | 345,000 | ||||
Convertible
note payable in the original amount of $100,000 to Joel Gold, a board
member and related party, dated October 12, 2004. The note bears interest
at the rate of 8% per annum, and was due in full on October 12, 2006. The
note is convertible by the holder into common stock of the Company at a
conversion price of $0.005 per share (post-reverse split). A
beneficial conversion feature in the amount of $100,000 was recorded as a
discount to the note, and was amortized to interest expense during the
twelve months ended December 31, 2004. Accrued interest is convertible by
the holder into common stock of the Company at maturity of the note at a
price of $0.005 per share (post-reverse split) . During
the twelve months ended December 31, 2006, $75,000 of the principal amount
was converted into common stock. Interest in the amount of $498 was
accrued on this note during the three months ended June 30, 2008, and
2007, respectively. This note is in default at June 30,
2008.
|
25,000 | 25,000 |
Convertible
note payable in the amount of $85,000 to Briolette Investments, Ltd, dated
March 11, 2004. The note bears interest at the rate of 8% per annum, and
is due in Full on March 11, 2006. The note is convertible into common
stock of the Company at a conversion of $0.005 per share (post-reverse
split). A beneficial conversion feature in the amount of
$85,000 was recorded as a discount to the note, and was amortized to
interest expense during the twelve months ended December 31, 2004 Accrued
interest is convertible by the holder into common stock of the Company at
a price of $0.005 per share (post-reverse split). During the twelve months
ended December 31, 2005, the note holder converted $44,000 of the note
payable into common stock. During the twelve months ended December 31,
2007, the Company made a $3,000 cash payment on the principal amount of
the note. Interest in the amount of $774 was accrued on this note during
the three months ended June 30, 2008, and 2007, respectively. This note is
in default at June 30, 2008.
|
38,000 | 38,000 | ||||||
Convertible
note payable in the amount of $80,000 to Brown Door, Inc., dated March 11,
2004. The note bears interest at the rate of 8% per annum, and was due in
full on March 11, 2006. The note is convertible into common stock of the
Company at a conversion of $0.005 per share (post-reverse
split). A beneficial conversion feature in the amount of $80,000 was
recorded as a discount to the note, and was amortized to interest expense
during the twelve months ended December 31, 2004. Accrued interest is
convertible by the holder into common stock of the Company at maturity of
the note at a price of $0.005 per share (post-reverse
split) Interest in the amount of $1,596 was accrued on
this note during each of the three months ended June 30,
2008, and 2007, respectively. This note is in default at June
30, 2008.
|
80,000 | 80,000 |
Convertible
note payable in the amount of $50,000 to Whalehaven Capital Fund, Ltd.
(“Whalehaven Capital”) dated February 25, 2005. We did not meet certain of
our obligations under the loan documents relating to this
issuance. These lapses include not reserving the requisites
numbers of treasury shares, selling subsequent securities without offering
a right of first refusal, not complying with reporting obligations, not
having our common shares quoted on the OTC:BB and not timely registering
certain securities. This note is in technical default as of May
16, 2005. The note originally carried interest at
the rate of 8% per annum, and was due in Full on February 24, 2007. Upon
default, the note’s interest rate increased to 15% per annum, and the note
became due immediately. The note is convertible into common stock of the
Company at a conversion of $0.005 per share (post-reverse
split). A beneficial conversion feature in the amount of
$50,000 was recorded as a discount to the note, and was amortized to
interest expense during the three months ended March 31, 2005. Accrued
interest is convertible into common stock of the Company at a price of
$0.005 per share (post-reverse split). During the twelve months ended
December 31, 2006, $10,000 of principal and $589 of accrued interest into
shares of common stock. Interest in the amount of $1,496 was accrued
on this note during the three months ended June 30, 2008 and 2007,
respectively. This note is in default at June 30,
2008.
|
40,000
|
40,000
|
||
Convertible
note payable in the amount of $50,000 to Oppenheimer & Co., /
Custodian for Joel Gold IRA, a related party, dated March 14, 2004. The
note bears interest at the rate of 8% per annum, and was due in full on
October 12, 2006. The note is convertible into common stock of the
Company at a conversion of $0.005 per share (post-reverse
split). A beneficial conversion feature in the amount of $50,000 was
recorded as a discount to the note, and was amortized to interest expense
during the twelve months ended December 31, 2005. Accrued
interest is convertible into common stock of the Company at a price of
$0.005 per share (post-reverse split). Interest in the amount of $998
was accrued on this note during each of the three months ended
June 30, 2008, and 2007. This note is in default at June 30,
2008.
|
50,000
|
50,000
|
||
Convertible
note payable in the original amount of $30,000 to Huo Hua dated May 9,
2005. The note bears interest at the rate of 8% per annum, and was due in
full on October 12, 2006. The note is convertible into common
stock of the Company at a conversion of $0.005 per share
(post-reverse split). A beneficial conversion feature in the amount of
$30,000 was recorded as a discount to the note, and was amortized to
interest expense during the twelve months ended December 31, 2005. Accrued
interest is convertible into common stock of the Company at a price of
$0.005 per share(post-reverse split) During the twelve months
ended December 31, 2006, the note holder converted $10,000 of principal
into common stock. Interest in the amount of $400 was accrued
on this note during the three months ended June 30, 2008, and 2007. This
note is in default at June 30, 2008.
|
20,000
|
20,000
|
||
Convertible
note payable in the amount of $25,000 to Joel Gold a board member and
related party, dated January 25, 2005. The note bears interest at the rate
of 8% per annum, and is due in full on January 25, 2007. The
note is convertible into common stock of the Company at a
conversion of $0.025 per share. A beneficial conversion feature in the
amount of $25,000 was recorded as a discount to the note, and was
amortized to interest expense during the twelve months ended December 31,
2005. Accrued interest is convertible into common stock of the Company at
a price of $0.025 per share. Interest in the amount of $498, was accrued
on this note during the three months ended June 30, 2008, and
2007. This note is in default at June 30, 2008.
|
25,000
|
25,000
|
||
Convertible
note payable in the amount of $25,000 to The Jay & Kathleen Morren
Trust dated January 25, 2005. The note bears interest at the
rate of 6% per annum, and is due in full on January 25,
2007. The note is convertible into common stock of the
Company at a conversion of $0.005 per share (post-reverse
split). A beneficial conversion feature in the amount of $25,000 was
recorded as a discount to the note, and was amortized to interest expense
during the twelve months ended December 31, 2005. Accrued interest is
convertible into common stock of the Company at a price of $0.005 per
share (post-reverse split) Interest in the amount of $373 was accrued on
this note during the three months ended June 30, 2008, and 2007. This note
is in default at June 30, 2008.
|
25,000
|
25,000
|
Convertible
note payable in the amount of $10,000 to Lauren M. Ferrone, a relative of
a board member and related party, dated October 12, 2004. The note bears
interest at the rate of 8% per annum, and was originally due in full on
October 12, 2005. On February 25, 2005, an amendment to the convertible
notes was signed which extended the term, which resulted in a new maturity
date of October 12, 2006. The note is convertible into common stock of the
Company at a conversion of $0.01 per share (post-reverse
split). A beneficial conversion feature in the amount of $10,000 was
recorded as a discount to the note, and was amortized to interest expense
during the twelve months ended December 31, 2004. Accrued interest is
convertible into common stock of the Company at a price of $0.01 per share
(post-reverse split). Interest in the amount of $200, was accrued on this
note during the three months ended June 30, 2008, and
2007. This note is in default at June 30,
2008.
|
10,000 | 10,000 | |||
Convertible
note payable in the amount of $10,000 to Richard D. Ferrone, a relative of
a board member and related party, dated October 12, 2004. The note bears
interest at the rate of 8% per annum, and was originally due in full on
October 12, 2005. On February 25, 2005, an amendment to the convertible
notes was signed which extended the term, which resulted in a new maturity
date of October 12, 2006. The note is convertible into common stock of the
Company at a conversion of $0.01 per share (post-reverse
split). A beneficial conversion feature in the amount of $10,000 was
recorded as a discount to the note, and was amortized to interest expense
during the twelve months ended December 31, 2004. Accrued interest is
convertible into common stock of the Company at a price of $0.01 per share
(post-reverse split) . Interest in the amount of $200 was accrued on this
note during the three months ended June 30, 2008, and
2007. This note is in default at June 30, 2008.
|
10,000 | 10,000 | |||
Convertible
note payable in the amount of $10,000 to Christian D. Ferrone, a relative
of a board member and related party, dated October 12, 2004. The note
bears interest at the rate of 8% per annum, and was originally
due in full on October 12, 2005. On February 25, 2005, an amendment to the
convertible notes was signed which extended the term, which resulted in a
new maturity date of October 12, 2006. The note is convertible into common
stock of the Company at a conversion of $0.01 per share
(post-reverse split). A beneficial conversion feature in the amount of
$10,000 was recorded as a discount to the note, and was amortized to
interest expense during the twelve months ended December 31, 2004. Accrued
interest is convertible into common stock of the Company at a price of
$0.01 per share (post-reverse split). Interest in the amount of
$200 was accrued on this note during the three months ended June 30, 2008,
and 2007. This note is in default at June 30,
2008.
|
10,000 | 10,000 | |||
Convertible
note payable in the amount of $10,000 to Andrew I. Ferrone, a relative of
a board member and related party, dated October 12, 2004. The note bears
interest at the rate of 8% per annum, and was originally due in full on
October 12, 2005. On February 25, 2005, an amendment to the convertible
notes was signed which extended the term, which resulted in a new maturity
date of October 12, 2006. The note is convertible into common stock of the
Company at a conversion of $0.01 per share (post-reverse
split). A beneficial conversion feature in the amount of $10,000 was
recorded as a discount to the note, and was amortized to interest expense
during the twelve months ended December 31, 2004. Accrued interest is
convertible into common stock of the Company at a price of $0.01 per
share (post-reverse split). Interest in the amount of $200 was
accrued on this note during the three months ended June 30, 2008, and
2007. This note is in default at June 30,
2008.
|
10,000 | 10,000 | |||
Convertible
note payable in the amount of $8,000 to Adrian Neilan dated March 11,
2004. The note bears interest at the rate of 8% per annum, and is due in
full on October 12, 2006. The note is convertible into common stock of the
Company at a conversion of $0.005 per share (post-reverse
split). A beneficial conversion feature in the amount of $8,000 was
recorded as a discount to the note, and was amortized to interest expense
during the twelve months ended December 31, 2004.. Accrued interest is
convertible into common stock of the Company at a price of $0.005 per
share (post-reverse split). Interest in the amount of $160 was accrued on
this note during the each of the three months ended June 30, 2008, and
2007. This note is in default at June 30, 2008.
|
8,000 | 8,000 | |||
Convertible
note payable in the amount of $5,000 to Matthias Mueller dated March 11,
2004. The note bears interest at the rate of 8% per annum, and was due in
full on October 12, 2006. The note is convertible into common stock of the
Company at a conversion of $0.005 per share (post-reverse
split). A beneficial conversion feature in the amount of $5,000 was
recorded as a discount to the note, and was amortized to interest expense
during the twelve months ended December 31, 2005. Accrued interest is
convertible into common stock of the Company at a price of $0.005 per
share (post-reverse split). Interest in the amount of $100 was
accrued on this note during the each of the three months ended June 30,
2008, and 2007. This note is in default at June 30, 2008.
|
5,000 | 5,000 | |||
Convertible
note payable in the amount of $120,000 to Alpha Capital dated August 25,
2005. We did not meet certain of our obligations under the loan documents
relating to this issuance. These lapses include not reserving
the requisite number of treasury shares, selling subsequent securities
without offering a right of first refusal, not complying with reporting
obligations, not having our common shares quoted on the OTC:BB and not
timely registering certain securities. This note is in
technical default as of November 13, 2005. The note originally
carried interest at the rate of 8% per annum, and was due in
full on August 25, 2007. Upon default, the note’s interest rate increased
to 15% per annum and the note became immediately due. The note is
convertible into common stock of the Company at a conversion of
$0.005 per share (post-reverse split). A beneficial conversion feature in
the amount of $120,000 was recorded as a discount to the note, and was
amortized to interest expense during the twelve months ended December 31,
2005. Accrued interest is convertible into common stock of the Company at
a price of $0.005 per share (post-reverse split). Interest in the amount
of $4,487 was accrued on this note during the three months ended June 30,
2008, and 2007. This note is in default at June 30,
2008.
|
120,000 | 120,000 |
Convertible
note payable in the amount of $30,000 to Whalehaven Capital dated August
25, 2005. We did not meet certain of our obligations under the
loan documents relating to this issuance. These lapses include
not reserving the requisite number of treasury shares, selling subsequent
securities without offering a right of first refusal, not complying with
reporting obligations, not having our common shares quoted on the OTC:BB
and not timely registering certain securities. This note was in
technical default as of November 13, 2006. The note originally
carried interest at the rate of 8% per annum, and was due in
full on August 25, 2007. Upon default, the note’s interest rate increased
to 15% per annum and the note became immediately due. The note is
convertible into common stock of the Company at a conversion of
$0.005 per share (post-reverse split). A beneficial conversion feature in
the amount of $30,000 was recorded as a discount to the note, and was
amortized to interest expense during the twelve months ended December 31,
2005. Accrued interest is convertible into common stock of the Company at
a price of $0.005 per share (post-reverse split). Interest in the amount
of $1,122 was accrued on this note during the three months ended June 30,
2008 and 2007, respectively. This note is in default at June
30, 2008.
|
30,000
|
30,000
|
||
Convertible
note payable in the original amount of $25,000 to Asher Brand, dated
August 25, 2005. We did not meet certain of our obligations under the loan
documents relating to this issuance. These lapses include not
reserving the requisite number of treasury shares, selling subsequent
securities without offering a right of first refusal, not complying with
reporting obligations, not having our common shares quoted on the OTC:BB
and not timely registering certain securities. This note was in
technical default as of November 13, 2006. The note originally
carried interest at the rate of 8% per annum, and was due in
full on August 25, 2007. Upon default, the note’s interest rate increased
to 15% per annum and the note became immediately due The note is
convertible into common stock of the Company at a conversion of
$0.005 per share (post-reverse split). A beneficial conversion feature in
the amount of $25,000 was recorded as a discount to the note, and was
amortized to interest expense during the twelve months ended December 31,
2005. Accrued interest is convertible into common stock of the Company at
a price of $0.005 per share (post-reverse split) Interest in the amount of
$861 was accrued on this note during the three months ended June 30, 2008
and 2007, respectively. During the three months ended March 31, 2007, the
holder of the note converted $2,000 of principal and $3,667 of accrued
interest into common stock. This note is in default at
June 30, 2008.
|
23,000
|
23,000
|
||
Convertible
note payable in the original amount of $25,000 to Momona Capital, dated
August 25, 2005. We did not meet certain of our obligations under the loan
documents relating to this issuance. These lapses include not
reserving the requisite number of treasury shares, selling subsequent
securities without offering a right of first refusal, not complying with
reporting obligations, not having our common shares quoted on the OTC:BB
and not timely registering certain securities. This note was in
technical default at November 13, 2005. The note originally
carried interest at the rate of 8% per annum, and was due in
full on August 25, 2007. Upon default, the note’s interest rate increased
to 15% per annum and the note became immediately due The note is
convertible into common stock of the Company at a conversion of
$0.005 per share (post-reverse split). A beneficial conversion feature in
the amount of $25,000 was recorded as a discount to the note, and was
amortized to interest expense during the twelve months ended December 31,
2005. Accrued interest is convertible into common stock of the Company at
a price of $0.005 per share (post-reverse split. Interest in
the amount of $861 was accrued on this note during the three months ended
June 30, 2008 and 2006. During the twelve months ended December 31, 2007,
the holder of the note converted $2,000 of principal and $3,667 of accrued
interest into common stock. This note is in default at June 30,
2008.
|
23,000
|
23,000
|
||
Convertible
note payable in the amount of $10,000 to Lane Ventures dated August 25,
2005. We did not meet certain of our obligations under the loan documents
relating to this issuance. These lapses include not reserving
the requisite number of treasury shares, selling subsequent securities
without offering a right of first refusal, not complying with reporting
obligations, not having our common shares quoted on the OTC:BB and not
timely registering certain securities. This note was in
technical default at November 13, 2005. The note originally
carried interest at the rate of 8% per annum, and was due in
full on August 25, 2007. Upon default, the note’s interest rate increased
to 15% per annum and the note became immediately due. The note is
convertible into common stock of the Company at a conversion of
$0.005 per share (post-reverse split). A beneficial conversion feature in
the amount of $10,000 was recorded as a discount to the note, and was
amortized to interest expense during the twelve months ended December 31,
2005. Accrued interest is convertible into common stock of the Company at
a price of $0.005 per share (post-reverse split). Interest in the amount
of $224 was accrued on this note during the three months ended
June 30, 2008 and 2007, respectively. During the twelve
months ended December 31, 2007, the holder of the note converted $4,000 of
principal and $1,467 of accrued interest into common
stock. This note is in default at June 30,
2008.
|
6,000
|
6,000
|
||
Note
payable in the amount of $120,000 to Alpha Capital, dated February 7,
2006. The originally carried interest at the rate of 15% per annum, and
was originally due in full on February 7, 2007. The Company is not in
compliance with various terms of this note, including making timely
payments of interest, and this note was in technical default at May 8,
2006. At this time, the interest rate increased to 20% and the note became
immediately due and payable. During the year ended December 31,
2007, the Company extended the due dates of the notes one month to October
31, 2007, at the same time the Company added a convertibility feature,
allowing the note holders to convert the notes and accrued interest into
common stock of the company at a rate of $0.005 per
share. During the three months ended March 31, 2008, the
Company extended the note one year, to March 4, 2009. Interest in the
amount of $5,984 was accrued on this note during the three months ended
June 30, 2008 and 2007.
|
120,000
|
120,000
|
||
Note
payable in the amount of $30,000 to Whalehaven Capital dated February 7,
2006. The note originally carried interest at the rate of 15%
per annum, and was due in full on February 7, 2007. The Company is not in
compliance with various terms of this note, including making timely
payments of interest, and this note was in technical default at May 8,
2006. At this time, the interest rate increased to 20% and the note became
immediately due and payable. During the year ended December 31, 2007,
the Company extended the due dates of the notes one month to October 31,
2007, at the same time the Company added a convertibility feature,
allowing the note holders to convert the notes and accrued interest into
common stock of the company at a rate of $0.005 per
share. During the three months ended March 31, 2008, the
Company extended the note one year, to March 4, 2009. Interest in the
amount of $1,496 was accrued on this note during the three months
ended June 30, 2008 and 2007.
|
30,000
|
30,000
|
Note
payable in the amount of $75,000 to Michael Ferrone, dated August 2, 2004.
The note bears interest at the rate of 8% per annum, and was due in full
on February 2, 2005. Interest in the amount of $1,497 and $1,513, was
accrued on this note during the three months ended June
30, 2008 and 2007, respectively. This note is in
default at June 30, 2008.
|
75,000
|
75,000
|
||
Note
payable in the amount of $10,000 to Alpha Capital, dated May 19, 2006. The
note bears interest at the rate of 15% per annum, and was due in full on
November 19, 2006. During the year ended December 31, 2007, the Company
extended the due dates of the notes one month to October 31, 2007, at the
same time the Company added a convertibility feature, allowing the note
holders to convert the notes and accrued interest into common stock of the
company at a rate of $0.005 per share. During the three months
ended March 31, 2008, the Company extended the due date of the notes for
one year to March 4, 2009. Interest in the amount of $498 was
accrued on this note during the three months ended June 30,
2008 and 2007.
|
10,000
|
10,000
|
Twenty
convertible notes payable in the amount of $4,500 each to Sam Klepfish,
the Company’s Chief Executive Officer and a related party, dated the first
of every month starting on November 1, 2006. Pursuant to the
Company’s employment agreement with Mr. Klepfish, the amount of $4,500 in
salary is accrued each month to a note payable. These notes
bear interest at a rate of 8% per annum. These notes and
accrued interest are convertible into common stock as a rate of $0.005 per
share. Interest in the aggregate amount of $1,652 and $611 was
accrued on these notes during the three months ended June 30, 2008 and
2007.
|
90,000
|
63,000
|
|||
Six
convertible notes payable in the amount of $1,500 each to a
consultant. These notes do not bear interest. The
notes are convertible into shares of the Company common stock at a price
of $0.005 per share.
|
9,000
|
-
|
|||
Note
payable in the original amount of $25,787 to Microsoft Corporation dated
May 3, 2006. The note bears interest at the rate of 9.7% per annum, and is
payable in 60 monthly payments of $557 beginning October 1, 2006. Payment
of principal and interest were made on theses notes in the amount of
$1,202 and $470 during the three months ended June 30, 2008 and $2,375 and
$969 during the six months ended June 30, 2008.
|
|
18,581
|
20,953
|
$ | 1,255,581 | $ | 1,221,953 | |||||
Less:
discount to note payable
|
(169,493 | ) | - | |||||
$ | 1,086,088 | $ | 1,221,953 | |||||
Less:
Current maturities
|
(1,072,618 | ) | (1,205,870 | ) | ||||
Long-term
portion
|
$ | 13,470 | $ | 16,083 | ||||
Total
Non-related parties
|
$ | 781,088 | $ | 943,953 | ||||
Total
related parties
|
305,000 | 278,000 | ||||||
$ | 1,086,088 | $ | 1,221,953 |
Risk
Free
|
Expected
|
Expected
|
||||||||||||||
Interest
|
Dividend
|
Option
|
||||||||||||||
Rate
|
Yield
|
Life
|
Volatility
|
|||||||||||||
March
31, 2008
|
3.50
|
%
|
-
|
10
|
213.70
|
%
|
Range
of
exercise
prices
|
Number
of
shares
outstanding
|
Weighted
average
remaining
contractual
life
(years)
|
Weighted
average
exercise
price
of
outstanding
warrants
|
Number
of
shares
exercisable
|
||||||||||||||
$
|
0.0005
|
139,700,000
|
1.78
|
$
|
0.005
|
139,700,000
|
||||||||||||
$
|
0.0110
|
18,500,000
|
3.24
|
$
|
0.110
|
18,500,000
|
||||||||||||
$
|
0.0115
|
74,000,000
|
3.24
|
$
|
0.115
|
74,000,000
|
||||||||||||
232,200,000
|
2.36
|
$
|
232,200,000
|
Number
of
Shares
|
Weighted
Average
Exercise
Price
|
|||||||
Warrants
exercisable at December 31, 2007
|
189,000,000
|
$
|
0.027
|
|||||
Granted
|
43,200,000
|
0.011
|
||||||
Exercised
|
-
|
|||||||
Cancelled
/ Expired
|
-
|
-
|
||||||
Warrants
exercisable at March 31, 2008
|
232,200,000
|
$
|
0.024
|
|||||
Granted
|
-
|
-
|
||||||
Exercised
|
-
|
-
|
||||||
Cancelled/exercised
|
-
|
-
|
||||||
Warrants
exercisable at June 30, 2008
|
232,200,000
|
$
|
0.024
|
Weighted
|
Weighted
|
|||||||||||||||||||||
Weighted
|
average
|
average
|
||||||||||||||||||||
Average
|
exercise
|
exercise
|
||||||||||||||||||||
Range
of
|
Number
of
|
remaining
|
price
of
|
Number
of
|
price
of
|
|||||||||||||||||
exercise
|
Options
|
contractual
|
Outstanding
|
Options
|
exercisable
|
|||||||||||||||||
prices
|
outstanding
|
life
(years)
|
Options
|
exercisable
|
options
|
|||||||||||||||||
$
|
0.005
|
15,000,000
|
3.39
|
$
|
0.005
|
15,000,000
|
$
|
0.005
|
||||||||||||||
0.007
|
20,000,000
|
4.75
|
0.007
|
-
|
0.007
|
|||||||||||||||||
0.500
|
500,000
|
0.88
|
0.500
|
400,000
|
0.500
|
|||||||||||||||||
35,500,000
|
4.12
|
15,400,000
|
$
|
0.018
|
Weighted
|
||||||||
Average
|
||||||||
Number
of
|
Exercise
|
|||||||
Options
|
Price
|
|||||||
Options
outstanding at December 31, 2007
|
15,500,000
|
$
|
0.0.21
|
|||||
Granted
|
20,000,000
|
0.007
|
||||||
Exercised
|
-
|
-
|
||||||
Cancelled
/ Expired
|
-
|
-
|
||||||
Options
outstanding at March 31, 2008
|
35,500,000
|
$
|
0.013
|
|||||
Exercisable
|
15,300,000
|
$
|
0.015
|
|||||
Not
exercisable
|
20,200,000
|
$
|
0.012
|
|||||
Granted
|
-
|
-
|
||||||
Exercised
|
-
|
-
|
||||||
Cancelled/
Expired
|
-
|
-
|
||||||
Options
outstanding at June 30, 2008
|
35,500,000
|
$
|
0.013
|
|||||
Exercisable
|
15,400,000
|
$
|
0.018
|
|||||
Not
Exercisable
|
20,100,000
|
$
|
0.009
|
s
|
Our
ability to raise capital necessary to sustain our anticipated operations
and implement our proposed business
plan,
|
s
|
Our
ability to implement our proposed business
plan,
|
s
|
The
ability to successfully integrate the operations of businesses we have
acquired, or may acquire in the future, into our
operations,
|
s
|
Our
ability to generate sufficient cash to pay our lenders and other
creditors,
|
s
|
Our
ability to employ and retain qualified management and
employees,
|
s
|
Our
dependence on the efforts and abilities of our current employees and
executive officers,
|
s
|
Changes
in government regulations that are applicable to our
current clients or anticipated
business,
|
s
|
Changes
in the demand for our services,
|
s
|
The
degree and nature of our
competition,
|
s
|
The
lack of diversification in our business
plan,
|
s
|
The
general volatility of the capital markets and the establishment of an
active trading market for our
shares,
|
s
|
Our
ability to generate sufficient cash to pay our creditors,
and
|
s
|
Disruption
in the economic and financial conditions from the impact of past terrorist
attacks in the United States, threats of future attacks, police and
military activities domestically and overseas and other disruptive
domestic and worldwide political and economic events and natural
disasters.
|
SIGNATURE
|
TITLE
|
DATE
|
||
/s/ Sam
Klepfish
Sam
Klepfish
|
Chief Executive Officer
|
August 14, 2008
|
||
/s/ John
McDonald
John
McDonald
|
Principal Financial Officer
|
August 14,
2008
|
a.
|
designed such
disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision,
to ensure that material information relating to the registrant,
including its consolidated subsidiaries, is made known
to us by others within those entities, particularly during the period
in
which this report is being prepared;
|
|
b.
|
designed such
internal control over financial reporting, or caused such
internal control over financial reporting to be designed under
our
supervision, to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements
for external purposes in accordance with generally accepted
accounting principles;
|
|
c.
|
evaluated
the effectiveness of the registrant's disclosure controls and procedures
and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the
end
of the period covered by this report based on such evaluation;
and
|
|
d.
|
disclosed
in this report any change in the registrant's internal control over
financial reporting that occurred during the
registrant's most recent fiscal quarter (the small business
issuer's fourth quarter in the case of an annual
report) that
has materially affected, or is reasonably likely
to materially affect,
the registrant's internal control over financial reporting;
and
|
a.
|
all significant
deficiencies and material weaknesses in the design or operation
of internal control over financial reporting which are reasonably
likely to adversely affect the registrant's ability to
record, process, summarize and report financial information;
and
|
|
b.
|
any fraud, whether
or not material, that involves management or other employees
who have a significant role in the registrant's internal
control over financial
reporting.
|
Date: August 14, 2008 | /s/ Sam Klepfish |
Sam Klepfish, Chief Executive Officer and Director |
a.
|
designed such
disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision,
to ensure that material information relating to the registrant,
including its consolidated subsidiaries, is made known
to us by others within those entities, particularly during the period
in
which this report is being prepared;
|
|
b.
|
designed such
internal control over financial reporting, or caused such
internal control over financial reporting to be designed under
our
supervision, to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements
for external purposes in accordance with generally accepted
accounting principles;
|
|
c.
|
evaluated
the effectiveness of the registrant's disclosure controls and procedures
and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the
end
of the period covered by this report based on such evaluation;
and
|
|
d.
|
disclosed
in this report any change in the registrant's internal control over
financial reporting that occurred during the
registrant's most recent fiscal quarter (the small business
issuer's fourth quarter in the case of an annual report) that
has materially affected, or is reasonably likely to materially
affect,
the registrant's internal control over financial reporting;
and
|
a.
|
all significant
deficiencies and material weaknesses in the design or operation
of internal control over financial reporting which are
reasonably likely
to adversely affect the registrant's ability to
record, process, summarize and report financial information;
and
|
|
b.
|
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. |
Date: August 14, 2008 | /s/ John McDonald |
John
McDonald
Principal
Financial Officer
|