Nevada
|
7372
|
38-3378963
|
||
(State
or jurisdiction of
incorporation
or organization)
|
(Primary
Standard Industrial
Classification
Code Number)
|
(I.R.S.
Employer
I.D.
Number)
|
CALCULATION
OF REGISTRATION FEE
|
|||||||||||||
Title
of Each Class of
Securities
to be Registered
|
|
Amount
To
Be
Registered
|
|
Proposed
Maximum
Offering
Price Per Share
|
|
Proposed
Maximum
Aggregate
Offering Price (4)
|
|
Amount
of
Registration
Fee
(5)
|
|||||
Common
Stock, $0.004995 par value (1)
|
4,183,800
|
$
|
0.23
|
$
|
962,274
|
$
|
29.54
|
||||||
Common
Stock, $0.004995 par value (2)
|
1,745,000
|
$
|
0.23
|
$
|
401,350
|
$
|
12.32
|
||||||
Common
Stock, $0.004995 par value (3)
|
2,236,000
|
$
|
0.23
|
$
|
514,280
|
$
|
15.79
|
||||||
TOTAL
|
8,164,800
|
$
|
1,877,904
|
$
|
57.65
|
1) |
Shares
of the Registrant's common stock, $0.004995 par value per share,
are being
registered for resale on behalf of certain selling security holders.
The
common stock being registered is issuable to the selling security
holders
on their conversion of our 8% Convertible Debentures issued on June
20,
2006 through June 11, 2007 (the “Debentures”). The terms of the Debentures
fix the number of common shares that may be issuable upon conversion
of
the principal portion of the Debentures. The debentureholders have
elected
to receive interest either quarterly in cash or at the earlier of
conversion or maturity in common stock. For those debentureholders
electing to receive common stock, the maximum number of common shares
so
issuable have been included in this registration.
|
2) |
Shares
of the Registrant's common stock, $0.004995 par value per share,
are being
registered for resale on behalf of certain selling security holders.
The
common stock
being
registered was issued to the selling security holders on their
exercise of
common stock purchase warrants pursuant to a rights
offering.
|
(3) |
Shares
of the Registrant's common stock, $0.004995 par value per share,
are being
registered for resale on behalf of certain selling security holders.
The
common stock being registered is issuable to the selling security
holders
on their exercise of warrants comprised of 570,000 warrant shares
issued
for services, 700,000 warrant shares issued related to short term
financings and 966,000 warrant shares issuable as a result of price
protection provisions contained in certain short term financing
agreements.
|
(4) |
Estimated
solely for purposes of calculating the registration fee in accordance
with
Rule 457(c) under the Securities Act of 1933, as amended (the "Act"),
based on the average of the closing bid and asked prices for the
Registrant's Common Stock (the "Common Stock") as reported on the
OTC
Bulletin Board on April 9,
2008.
|
(5) |
Of
this amount $59.67 was paid with the initial filing of this registration
statement on Form SB2, Registration No. 333-147638.
|
·
|
up
to 4,183,800 shares issuable to certain selling shareholders upon
the
conversion of our 8% Convertible Debentures which are comprised of
4,055,000 shares issuable for principal and 128,800 shares issuable
as
interest payments under the
Debentures.
|
·
|
1,745,000
shares which were issued to certain selling shareholders upon their
exercise of common stock warrants under a rights offering.
|
·
|
up
to 2,236,000 shares issuable to certain selling shareholders upon
the
exercise of warrants comprised of 570,000 warrant shares issued
for
services, 700,000 warrant shares issued related to short term financings
and 966,000 warrant shares issuable as a result of price
protection provisions contained in certain short term financing
agreements.
|
Page
|
|
PROSPECTUS
SUMMARY
|
1
|
SUMMARY
FINANCIAL DATA
|
5
|
RISK
FACTORS
|
5
|
PLAN
OF DISTRIBUTION
|
11
|
SELLING
SHAREHOLDERS
|
11
|
THE
COMPANY
|
13
|
General
|
13
|
Background
|
14
|
Business
|
15
|
Marketing
and distribution
|
18
|
Dependence
upon single customers
|
18
|
Facilities
|
19
|
Employees
|
19
|
Government
regulation
|
19
|
USE
OF PROCEEDS
|
19
|
LITIGATION
|
|
MANAGEMENT'S
DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
|
20
|
CHANGES
IN ACCOUNTANTS
|
27
|
MANAGEMENT
|
28
|
PRINCIPAL
SHAREHOLDERS
|
|
CERTAIN
TRANSACTIONS
|
|
TRADING
MARKET AND RELATED MATTERS
|
|
DESCRIPTION
OF SECURITIES
|
|
LEGAL
MATTERS
|
|
EXPERTS
|
|
INDEX
TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE
|
F-1
|
·
|
570,000
warrant shares issuable for services,
|
·
|
700,000
warrant shares issuable to holders of short term financings
and,
|
·
|
966,000
warrant shares issuable to certain holders of short term financings
as a
result of price protection provisions contained in their financing
agreements.
|
Shares
being offered for resale to the public
|
8,164,800
(32% of our shares currently
|
|
outstanding,
82% of our shares currently
|
||
held
by non-affiliates)
|
||
Total
shares outstanding prior to the offering
|
25,450,594
as of April 15, 2008
|
|
Total
shares held by non-affiliates prior to the offering
|
9,918,016
as of April 15, 2008
|
Total
shares outstanding assuming conversion
|
31,870,394
|
||||
of
the debentures, including shares issuable as
|
|||||
interest
payments under the debentures, and
|
|||||
exercise
of the warrants
|
|||||
Total
shares that would be outstanding assuming
|
42,362,261
|
||||
conversion
of the debentures, including shares
|
|||||
issuable
as interest payments under the debentures,
|
|||||
and
exercise of all outstanding options and warrants
|
|||||
Total
proceeds raised by offering
|
None.
However we may receive proceeds
|
||||
of
up to $762,000 on the exercise of
|
|||||
warrants
|
|||||
Convertible
debentures
|
A
form of our convertible debenture was
|
||||
included
as Exhibit 4.8 to our Current
|
|||||
Report
on Form 8K filed as of July 18,
|
|||||
2006
|
|||||
Dividend
policy
|
We
have never paid a dividend and do not
|
||||
anticipate
paying a dividend in the
|
|||||
foreseeable
future
|
|||||
Payments
to selling shareholders
|
We
have made or anticipate to make
|
||||
payments
to the selling shareholders as
|
|||||
follows:
|
|||||
Convertible
debentures
|
|||||
Finders
fee (1)
|
$ |
120,000
|
|
||
Interest
payments (3)
|
324,400
|
|
|||
Short-term
financings
|
|||||
Finders
fee (1)
|
$ |
30,000
|
|||
Placement
agent fee (2)
|
60,000
|
|
|||
Interest
payments (3)
|
68,914
|
||||
Net
proceeds raised from financings
|
Convertible
debentures
|
||||
Gross
proceeds
|
$ |
2,027,500
|
|
||
Less
finders fee
|
120,000
|
|
|||
Less
interest (two years)
|
324,400
|
|
|||
Net
proceeds
|
$ |
1,583,100
|
Short-term
financings (4)
|
|||||
Gross
proceeds
|
$
|
700,000
|
|||
Less
finders fee
|
30,000
|
||||
Less
placement agent fee
|
60,000
|
||||
Less
interest (nine months)
|
68,914
|
||||
Net
proceeds
|
$
|
541,086
|
(1)
|
Paid
to Michael Morrisett
|
(2)
|
Paid
to Midtown Partners LLC
|
(3)
|
Interest
payments are based on 8% interest for the convertible debentures
and 12%
and 15% for the short-term financings and do not take into consideration
an election to receive common stock in lieu of cash for a group of
the
convertible debenture holders.
|
(4)
|
Short
term financings consist of a one month $100,000 bridge loan in
May 2007
and nine month bridge loans aggregating $600,000 in July 2007.
The holders
of the bridge loans received warrants exercisable into up to one
warrant
share for each $1 loaned with five year terms and an exercise price
of
$.60 per share subject to price protection provisions should equity
be
issued at less than $.60 per share. As a result of the rights offering
in
October 2007, the terms of the warrants were changed to reflect
the price
protection provisions. Also, in April 2008, we entered into a Forbearance
Agreement with the note holders whereby the maturity date of the
bridge
loans was extended to June 9, 2008, the default interest rate of
22% per
annum is being accrued from February 1, 2008 to the payment date,
and an
accumulative 225,000 shares of restricted common stock is to be
issued to
the note holders.
|
Six
Months Ended December 31,
|
Year
Ended June 30,
|
||||||||||||
|
2007
|
2006
|
2007
|
2006
|
|||||||||
Net
sales
|
$
|
366,807
|
$
|
222,648
|
$
|
521,330
|
$
|
681,337
|
|||||
Net
(loss)
|
$
|
(1,412,910
|
)
|
$
|
(964,701
|
)
|
$
|
(2,110,698
|
)
|
$
|
(845,393
|
)
|
|
Net
(loss) per basic share
|
$
|
(0.06
|
)
|
$
|
(0.04
|
)
|
$
|
(0.09
|
)
|
$
|
(0.06
|
)
|
|
Balance
Sheet Data:
|
|
December
31, 2007
|
June
30, 2007
|
|||||
Working
capital deficit
|
$
|
(3,418,193
|
)
|
$
|
(1,679,643
|
)
|
|
Total
assets
|
$
|
409,605
|
$
|
435,525
|
|||
Total
liabilities
|
$
|
4,116,440
|
$
|
3,311,490
|
|||
Stockholders'
deficit
|
$
|
(3,706,835
|
)
|
$
|
(2,875,965
|
)
|
· |
We
may not be able to raise enough money to develop our services and
bring
them to market;
|
· |
Our
projected capital needs may be inaccurate, and we may not have enough
money to develop our services and bring them to
market;
|
· |
We
may experience unanticipated development or marketing expenses, which
may
make it more difficult to develop our services and bring them to
market;
|
· |
Even
if we are able to develop our services and bring them to market,
we may
not earn enough revenues from the sales of our services to cover
the costs
of operating our business.
|
· |
If
we are unsuccessful in our development efforts, we are not likely
to ever
become profitable.
|
·
|
The
lack of readily available price quotations;
|
·
|
The
absence of consistent administrative supervision of “bid” and “ask”
quotations;
|
·
|
Lower
trading volume; and
|
·
|
Market
conditions.
|
|
·
|
A
standardized risk disclosure document identifying the risks inherent
in
investment in penny stocks;
|
|
·
|
All
compensation received by the broker-dealer in connection with the
transaction;
|
|
·
|
Current
quotation prices and other relevant market data; and
|
|
·
|
Monthly
account statements reflecting the fair market value of the securities.
In
addition, these rules require that a broker-dealer obtain financial
and
other information from a customer, determine that transactions in
penny
stocks are suitable for such customer and deliver a written statement
to
such customer setting forth the basis for this determination.
|
Beneficial
Ownership
|
Maximum
Number of
|
Amount
and Percentage of
|
||||||||||||||
|
of
Common Stock as
|
Shares
of Common
|
Common
Stock After the Sale
|
|||||||||||||
Name
|
of
April 15, 2008
|
Stock
Offered for Sale
|
Number
|
%
|
||||||||||||
Aladray,
Adnan
|
120,000
|
(1) |
|
120,000
|
-
|
*
|
||||||||||
Aladray,
Nazeah
|
60,000
|
(1) |
|
60,000
|
-
|
*
|
||||||||||
Belz,
Bruce Trustee
|
100,000
|
(1) |
|
100,000
|
-
|
*
|
||||||||||
Carter,
Shanon
|
21,600
|
(2) |
|
21,600
|
-
|
*
|
||||||||||
Chrobak,
Jerome
|
200,000
|
(1) |
|
200,000
|
-
|
*
|
||||||||||
Ciner,
Eugene and Natalie
|
24,000
|
(3) |
|
24,000
|
-
|
*
|
||||||||||
Daniels,
Richard
|
150,000
|
(1) |
|
150,000
|
-
|
*
|
||||||||||
Duchein,
Derek IRA
|
388,800
|
(2) |
|
388,800
|
-
|
*
|
||||||||||
Duchein,
Julie IRA
|
259,200
|
(2) |
|
259,200
|
-
|
*
|
||||||||||
Flannery,
Todd
|
100,000
|
(9) |
|
100,000
|
-
|
*
|
||||||||||
Flowers,
Tim
|
43,200
|
(2) |
|
43,200
|
-
|
*
|
||||||||||
Holland,
Bryan
|
58,000
|
(10) |
|
58,000
|
-
|
*
|
||||||||||
Garbourel,
Victor
|
800,000
|
(1) |
|
800,000
|
-
|
*
|
||||||||||
Giffhorn,
Jesse
|
113,500
|
(2) |
|
112,000
|
1,500
|
*
|
||||||||||
Giffhorn,
Lowell
|
577,000
|
(4) |
|
532,000
|
45,000
|
*
|
||||||||||
Griesel,
Dian
|
240,000
|
(5) (17) |
|
240,000
|
-
|
*
|
||||||||||
Iroquois
Master Fund Ltd.
|
600,000
|
(3) (11) |
|
600,000
|
-
|
*
|
||||||||||
Kybartai
Trust
|
240,000
|
(3) (12) |
|
240,000
|
-
|
*
|
||||||||||
Kincaid,
Doug
|
150,000
|
(9) |
|
150,000
|
-
|
*
|
||||||||||
Little
Bear Investments LLC
|
240,000
|
(3) (13) |
|
240,000
|
-
|
*
|
||||||||||
Luedloff,
Mitchell
|
43,200
|
(2) |
|
43,200
|
-
|
*
|
||||||||||
Midtown
Partners LLC
|
144,000
|
(5) (14) |
|
144,000
|
-
|
*
|
||||||||||
Morrisett,
Michael
|
512,000
|
(5) (16) |
|
312,000
|
200,000
|
*
|
||||||||||
Neilitz,
Jason
|
150,000
|
(9) |
|
150,000
|
-
|
*
|
||||||||||
Opperman,
Anthony Wayne
|
200,000
|
(1) |
|
200,000
|
-
|
*
|
||||||||||
Opperman,
Donald
|
43,200
|
(2) |
|
43,200
|
-
|
*
|
||||||||||
Prensky,
Zachary
|
336,000
|
(3) |
|
336,000
|
-
|
*
|
||||||||||
Potawatomi
Business Devel Corp
|
2,000,000
|
(8) |
|
2,000,000
|
-
|
*
|
||||||||||
Pratt,
Steven
|
23,200
|
(10) |
|
23,200
|
-
|
*
|
||||||||||
Shady
Beach Trust
|
108,000
|
(2) (15) |
|
108,000
|
-
|
*
|
||||||||||
Vermaelen,
Theo
|
740,759
|
(6) |
|
86,400
|
654,359
|
2.7
|
%
|
|||||||||
Zolin,
James and Josephine
|
280,000
|
(7) |
|
280,000
|
-
|
*
|
||||||||||
*
less than 1%
|
(1)
|
Includes
shares of common stock issuable upon the conversion of 8% convertible
debenture(s) plus shares of common stock currently outstanding issued
on
the exercise of the rights
offering.
|
(2)
|
Includes
shares of common stock issuable upon the conversion of 8% convertible
debenture(s) plus the payment of interest in common stock plus shares
of
common stock currently outstanding issued on the exercise of the
rights
offering.
|
(3)
|
Includes
shares of common stock issuable upon the exercise of common stock
purchase
warrants issued to Eugene and Natalie Ciner, the Iroquois Master
Fund
Ltd., the Kybarti Trust, Little Bear Investments LLC, and Zachary
Prensky
as a result of their participation in 15% short term bridge loans
entered
into in July 2007 of 10,000, 250,000, 100,000, 100,000 and 140,000
warrant
shares, respectively. Includes shares of common stock issuable
upon the
exercise of common stock purchase warrants issued as a result of
price
protection provisions contained in their warrant agreements which
were
triggered as a result of a rights offering of 14,000, 350,000,
140,000,
140,000, and 196,000,
respectively.
|
(4)
|
Mr.
Giffhorn, an affiliate, is a director and Chief Financial Officer
of the
Company. The number of shares includes 345,000 shares of common stock
and
232,000 shares of common stock issuable upon the conversion of 8%
convertible debentures, including
interest.
|
(5)
|
Includes
shares of common stock issuable upon the exercise of common stock
purchase
warrants issued to Dian Griesel, Midtown Partners LLC and Michael
Morrisett for services they provided of 240,000, 60,000 and 270,000,
respectively. Includes shares of common stock issuable upon the
exercise
of common stock purchase warrants issued as a result of price protection
provisions contained in certain of their warrant agreements which
were
triggered as a result of a rights offering of none, 84,000 and
42,000,
respectively.
|
(6)
|
Dr.
Vermaelen, an affiliate, is a director of the Company. The number
of
shares includes 694,359 shares of common stock and 46,400 shares
of common
stock issuable upon the conversion of an 8% convertible debenture,
including interest.
|
(7)
|
Includes
90,000 shares of common stock issuable upon the conversion of 8%
convertible debentures, including interest, 100,000 shares of common
stock
issuable upon the exercise of a common stock purchase warrant issued
for
their participation in a short term loan and 90,000 shares of common
stock
currently outstanding issued on the exercise of the rights
offering.
|
(8)
|
Includes
2,000,000 shares of common stock issuable upon the conversion of
an 8%
convertible debenture. The shares issuable to the Potawatomi Business
Development Corp. (PBDC) on the conversion of debentures or the exercise
of warrants would not be deemed beneficially owned (due to exercise
restrictions within the debenture and warrants) within the meaning
of
Sections 13(d) and 13(g) of the Exchange Act to the extent that their
acquisition in a debenture conversion or a warrant exercise by the
PBDC
would cause the PBDC to own in excess of 4.99% of our outstanding
common
stock immediately following such exercise. By the terms of the debenture
and warrants, the 4.99% limitation may be increased to a maximum
of 9.99%
if the Company accepts a tender offer and a change in control takes
place.
Therefore, it is expected that the PBDC will not beneficially own
more
than 9.99% of our outstanding common stock at any time. Carol Lease
has
the sole voting and/or dispositive powers with respect to the securities
owned by the PBDC.
|
(9)
|
Includes
shares of common stock issuable upon the conversion of 8% convertible
debenture(s).
|
(10)
|
Includes
shares of common stock issuable upon the conversion of 8% convertible
debenture(s) plus the payment of interest in common
stock.
|
(11) |
Iroquois
Capital Management, LLC is the trading manager of Iroquois Master
Fund
Ltd. and has voting and investment discretion over the securities
held by
Iroquois Master Fund Ltd. Joshua Silverman has control over Iroquois
Capital Management, LLC and, in turn, has voting and investment discretion
over the securities held by Iroquois Master Fund, Ltd. Both Iroquois
Capital Management, LLC and Joshua Silverman disclaim beneficial
ownership
of the securities held by Iroquois Master Fund.
|
(12) |
Wolf
Prensky has the sole voting and/or dispostive powers with respect
to the
securities owned by The K ybartai
Trust.
|
(13) |
Jeffrey
Mann and Zachary Prensky share the voting and/or dispositive powers
with
respect to the shares owned by Little Bear Investments LLC.
|
(14) |
Bruce
Jordan has the sole voting and/or dispostive powers with respect
to the
securities owned by Midtown Partners LLC. In February 2007, we
entered
into a Placement Agent Agreement with Midtown Partners LLC who
is a
registered broker-dealer. The shares offered for resale by Midtown
Partners LLC on the exercise of a warrant were acquired as
transaction-based compensation earned for investment banking services
per
the Placement Agent Agreement. The warrant was issued as a result
of
Midtown facilitating the 15% short term bridge loans in July
2007.
|
(15)
|
Nancy
Hughes has the sole voting and/or dispostive powers with respect
to the
securities owned by Shady Beach
Trust.
|
(16)
|
In
July 2006, Mr. Morrisett entered into a Consulting Service Agreement
with
us. The shares offered for resale by Mr. Morrisett on the exercise
of
warrants were acquired as a result of Mr. Morrisett introducing
us to the
Potawatomi Business Development Group and Midtown Partners
LLC.
|
(17)
|
Ms.
Griesel is a principal for Investor Relations Group, an investor
relations
firm. In September 2006, we entered into a Letter of Agreement
with
Investor Relations Group to provide services. The shares offered
for
resale by Ms. Griesel on the exercise of a warrant were acquired
as a
result of this agreement.
|
2007
|
2006
|
||||||
96.5
|
%
|
90.4
|
%
|
||||
Foreign
sales
|
|||||||
Europe
|
2.8
|
%
|
6.6
|
%
|
|||
Other
|
.7
|
%
|
3.0
|
%
|
|||
Total
sales
|
100.0
|
%
|
100.0
|
%
|
2007
|
2006
|
||||||
$
|
125,000
|
$
|
289,000
|
||||
Amgen
|
61,900
|
-
|
Three
Months Ended December 31,
|
Increase
|
||||||||||||
2007
|
2006
|
(Decrease)
|
%
|
||||||||||
Statements
of Operations
|
|||||||||||||
Revenues
|
$
|
206,981
|
$
|
135,253
|
$
|
71,728
|
53.0
|
%
|
|||||
Selling
expenses
|
35,734
|
24,756
|
10,978
|
44.3
|
%
|
||||||||
Research
and development
|
126,961
|
115,309
|
11,652
|
10.1
|
%
|
||||||||
General
and administrative
|
|||||||||||||
expenses
|
477,841
|
449,916
|
27,925
|
6.2
|
%
|
||||||||
Interest
expense
|
271,904
|
104,101
|
167,803
|
161.2
|
%
|
||||||||
Total
expenses
|
912,440
|
694,082
|
218,358
|
31.5
|
%
|
||||||||
Net
(loss)
|
$
|
(705,459
|
)
|
$
|
(558,829
|
)
|
$
|
146,630
|
26.2
|
%
|
|||
Net
(loss) per basic and
|
|||||||||||||
diluted
share
|
$
|
(0.03
|
)
|
$
|
(0.02
|
)
|
$
|
0.01
|
50.0
|
%
|
Six
Months Ended December 31,
|
|
Increase
|
|
|
|
||||||||
|
|
2007
|
|
2006
|
|
(Decrease)
|
|
%
|
|||||
Statements
of Operations
|
|||||||||||||
Revenues
|
$
|
366,807
|
$
|
222,648
|
$
|
144,159
|
64.7
|
%
|
|||||
Selling
expenses
|
78,422
|
47,961
|
30,461
|
63.5
|
%
|
||||||||
Research
and development
|
245,729
|
198,444
|
47,285
|
23.8
|
%
|
||||||||
General
and administrative
|
|||||||||||||
expenses
|
945,096
|
767,840
|
177,256
|
23.1
|
%
|
||||||||
Interest
expense
|
510,470
|
173,104
|
337,366
|
194.9
|
%
|
||||||||
Total
expenses
|
1,779,717
|
1,187,349
|
592,368
|
49.9
|
%
|
||||||||
Net
(loss)
|
$
|
(1,412,910
|
)
|
$
|
(964,701
|
)
|
$
|
448,209
|
46.5
|
%
|
|||
Net
(loss) per basic and
|
|||||||||||||
diluted
share
|
$
|
(0.06
|
)
|
$
|
(0.04
|
)
|
$
|
0.02
|
50.0
|
%
|
Year
Ended
|
|
Year
Ended
|
|
Increase
|
|
|
|
||||||
|
|
June
30, 2007
|
|
June
30, 2006
|
|
(Decrease)
|
|
%
|
|||||
Statements
of Operations
|
|||||||||||||
Revenues
|
$
|
521,330
|
$
|
681,337
|
$
|
(160,007
|
)
|
-23.5
|
%
|
||||
Selling
expenses
|
101,296
|
103,190
|
(1,894
|
)
|
-1.8
|
%
|
|||||||
General
and administrative
|
|||||||||||||
expenses
|
2,115,310
|
1,215,966
|
899,344
|
74.0
|
%
|
||||||||
Other
income
|
(38,121
|
)
|
-
|
(38,121
|
)
|
NM
|
|||||||
Interest
expense
|
453,543
|
207,574
|
245,969
|
118.5
|
%
|
||||||||
Total
expenses
|
2,632,028
|
1,526,730
|
1,105,298
|
72.4
|
%
|
||||||||
Net
(loss)
|
$
|
(2,110,698
|
)
|
$
|
(845,393
|
)
|
$
|
(1,265,305
|
)
|
149.7
|
%
|
||
Net
(loss) per basic and
|
|||||||||||||
diluted
share
|
$
|
(0.09
|
)
|
$
|
(0.06
|
)
|
$
|
(0.03
|
)
|
50.0
|
%
|
As
of
|
|
|
Increase
|
|
||||||
|
|
|
December
31, 2007
|
|
|
June
30, 2007
|
|
|
(Decrease)
|
|
Working
Capital
|
||||||||||
Current
assets
|
$
|
259,958
|
$
|
250,218
|
$
|
9,740
|
||||
Current
liabilities
|
3,678,151
|
1,929,861
|
1,748,290
|
|||||||
Working
capital deficit
|
$
|
(3,418,193
|
)
|
$
|
(1,679,643
|
)
|
$
|
1,738,550
|
||
Long-term
debt
|
$
|
438,289
|
$
|
1,381,629
|
$
|
(943,340
|
)
|
|||
Stockholders'
deficit
|
$
|
(3,706,835
|
)
|
$
|
(2,875,965
|
)
|
$
|
830,870
|
Six
Months Ended December 31,
|
Increase
|
|||||||||
2007
|
2006
|
(Decrease)
|
|
|||||||
Statements
of Cash Flows Select Information
|
||||||||||
Net
cash provided (used) by:
|
||||||||||
Operating
activities
|
$
|
(1,000,256
|
)
|
$
|
(804,297
|
)
|
$
|
195,959
|
||
Investing
activities
|
$
|
(9,956
|
)
|
$
|
(26,830
|
)
|
$
|
(16,874
|
)
|
|
Financing
activities
|
$
|
957,549
|
$
|
996,928
|
$
|
(39,379
|
)
|
As
of
|
Increase
|
|||||||||
December
31,2007
|
|
|
June
30, 2007
|
|
|
(Decrease)
|
|
|||
Balance
Sheet Select Information
|
||||||||||
Cash
and cash equivalents
|
$
|
32,353
|
$
|
85,016
|
$
|
(52,663
|
)
|
|||
Accounts
receivable
|
$
|
118,068
|
$
|
75,283
|
$
|
42,785
|
||||
Accounts
payable and accrued expenses
|
$
|
1,511,618
|
$
|
1,382,875
|
$
|
128,743
|
Name
|
|
Age
|
|
Position
|
John
R. Dunn II
|
|
56
|
|
Chairman,
Chief Executive Officer, President, and Director
|
George
Dunn
|
|
50
|
|
Secretary,
Chief Operating Officer
|
Lowell
W. Giffhorn
|
|
60
|
|
Chief
Financial Officer and Director
|
Theo
Vermaelen
|
|
53
|
|
Director
|
Stephen
Eisold
|
|
60
|
|
Director
|
Jason
Booth
|
41
|
Director
|
·
|
A
breach of the director’s duty of loyalty to our company or our
stockholders;
|
·
|
Acts
or omissions by the director not in good faith or which involve
intentional misconduct or a knowing violation of law;
|
·
|
Willful
or negligent declaration of an unlawful dividend, stock purchase
or
redemption; or
|
·
|
Transactions
from which the director derived an improper personal benefit.
|
Name
and Principal Position
|
Fiscal
Year
|
Salary
($)
|
Option
Awards ($)
|
Total
($)
|
|||||||||
[a]
|
[b]
|
[c]
|
[f]
|
[j]
|
|||||||||
John
R. Dunn II
|
2007
|
$
|
108,000
|
$
|
5,071
|
$
|
113,071
|
||||||
President,
CEO and
|
2006
|
$
|
108,000
|
$
|
27,427
|
$
|
135,427
|
||||||
Director
|
|||||||||||||
George
Dunn
|
2007
|
$
|
108,000
|
$
|
5,071
|
$
|
113,071
|
||||||
VP,
Secretary and
|
2006
|
$
|
102,000
|
$
|
24,565
|
$
|
126,565
|
||||||
COO
|
June
30, 2007
|
June
30, 2006
|
||||||
Dividend
yield
|
0
|
%
|
0
|
%
|
|||
Volatility
|
42
|
%
|
1%-30
|
%
|
|||
Risk-free
interest rates
|
5.10
|
%
|
2.76%-4.84
|
%
|
|||
Expected
life
|
5
years
|
5
years
|
Name
|
Number
of Securities Underlying Unexercised Options (#)
Exercisable
|
Option
Exercise Price ($)
|
Option
Expiration Date
|
|||||||
[a]
|
[b]
|
[e]
|
[f]
|
|||||||
John
R. Dunn II
|
40,000
|
$
|
0.75
|
April
6, 2011
|
||||||
President,
CEO and
|
60,000
|
$
|
0.64
|
April
6, 2011
|
||||||
Director
|
50,000
|
$
|
0.64
|
June
15, 2012
|
||||||
George
Dunn
|
400,000
|
$
|
0.125
|
April
6, 2011
|
||||||
VP,
Secretary and
|
400,000
|
$
|
0.025
|
April
6, 2011
|
||||||
COO
|
60,000
|
$
|
0.64
|
April
6, 2011
|
||||||
50,000
|
$
|
0.64
|
June
15, 2012
|
Name
|
Fees
Earned or Paid In Cash ($)
|
Option
Awards ($)
|
All
Other Compensation ($)
|
Total
($)
|
|||||||||
[a]
|
[b]
|
[d]
|
[g]
|
[h]
|
|||||||||
Lowell
W. Giffhorn
|
-
|
$
|
5,071
|
$
|
75,000
|
$
|
80,071
|
||||||
Theo
Vermaelen
|
-
|
$
|
5,071
|
-
|
$
|
5,071
|
|||||||
Stephen
Eisold
|
-
|
$
|
5,071
|
-
|
$
|
5,071
|
|||||||
Jason
Booth
|
-
|
$
|
9,043
|
-
|
$
|
9,043
|
Name
|
Postion
with the Company
|
|
|
Shares
of Common Stock Beneficially Owned (1) (2)
|
|
|
Percentage
of Outstanding Shares
|
|
||
Executive
Officers and Directors
|
||||||||||
John
R. Dunn II (3)
|
Chairman
of the Board, Chief Executive Officer, Chief Technical Officer
and
Director
|
5,005,000
|
21.0
|
%
|
||||||
George
Dunn (4)
|
Vice
President, Secretary and Chief Operating Officer
|
2,301,000
|
9.4
|
%
|
||||||
Lowell
W. Giffhorn (5)
|
Vice
President, Chief Financial Officer and Director
|
645,000
|
2.7
|
%
|
||||||
Theo
Vermaelen (6)
|
Director
|
859,359
|
3.6
|
%
|
||||||
Steven
Eisold (7)
|
Director
|
724,494
|
3.0
|
%
|
||||||
Jason
Booth (8)
|
Director
|
75,000
|
*
|
|||||||
All
Exective Officers and Directors as a Group (6 persons) (9)
|
9,609,853
|
37.3
|
%
|
|||||||
Greater
than 5% Owners
|
||||||||||
Potawatomi
Business Development Corp.
|
4,000,000
|
Note
10
|
||||||||
Robert
Tabor
|
4,730,589
|
20.0
|
%
|
|||||||
Massoud
Kharrazian
|
1,487,136
|
6.3
|
%
|
|||||||
*
Less than 1%
|
(1) |
Reflects
amounts as to which the beneficial owner has sole voting power and
sole
investment power.
|
(2) |
Includes
stock options, common stock purchase warrants and convertible debentures
exercisable within 60
days
from the date hereof.
|
(3) |
Comprised
of 4,880,000 shares and 125,000 stock options.
|
(4) |
Comprised
of 1,416,000 shares and 885,000 stock options.
|
(5) |
Comprised
of 345,000 shares, 125,000 stock options, and 200,000 shares issuable
on
the conversion of a debenture.
|
(6) |
Comprised
of 694,359 shares, 125,000 stock options and 40,000 shares issuable
on the
conversion of a debenture.
|
(7) |
Comprised
of 599,494 shares and 125,000 stock
options.
|
(8) |
Comprised
of 75,000 stock options.
|
(9) |
Comprised
of 7,889,853 shares, 1,460,000 stock options and 240,000 shares issuable
on the conversion of a debenture.
|
10)
|
The
shares issuable to Potawatomi Business Development Corp. (PBDC) on
the
conversion of debentures or the exercise of warrants would not be
deemed
beneficially owned (due to exercise restrictions within the debentures
and
warrants) within the meaning of Sections 13(d) and 13(g) of the Exchange
Act to the extent that their acquisition in a debenture conversion
or a
warrant exercise by PBDC would cause PBDC to own in excess of 4.99%
of our
outstanding common stock immediately following such conversion or
exercise. By the terms of the debentures and warrants, the 4.99%
limitation may be increased to a maximum of 9.99% if we accept a
tender
offer and a change in control takes place. Therefore, it is expected
that
PBDC will not beneficially own more than 9.99% of our outstanding
common
stock at any time. Carol Leese has ultimate voting and/or investment
control over the securities owned by
PBDC.
|
Closing
Price
|
|||||||
High
|
Low
|
||||||
Fiscal
Year Ended June 30, 2008
|
|||||||
First
Quarter
|
$
|
0.44
|
$
|
0.29
|
|||
Second
Quarter
|
$
|
0.33
|
$
|
0.20
|
|||
Third
Quarter
|
$
|
0.35
|
$
|
0.20
|
|||
Fiscal
Year Ended June 30, 2007
|
|||||||
First
Quarter
|
$
|
0.50
|
$
|
0.21
|
|||
Second
Quarter
|
$
|
1.01
|
$
|
0.40
|
|||
Third
Quarter
|
$
|
0.60
|
$
|
0.35
|
|||
Fourth
Quarter
|
$
|
0.51
|
$
|
0.37
|
|||
Fiscal
Year Ended June 30, 2006
|
|||||||
First
Quarter
|
$
|
1.85
|
$
|
1.36
|
|||
Second
Quarter
|
$
|
1.75
|
$
|
1.10
|
|||
Third
Quarter
|
$
|
1.20
|
$
|
0.60
|
|||
Fourth
Quarter
|
$
|
0.68
|
$
|
0.25
|
Report
of Independent Registered Public Accounting Firm
|
F-2
|
|||
Consolidated
Balance Sheets, June 30, 2007 and 2006
|
F-3
|
|||
Consolidated
Statements of Operation, for the years ended
|
||||
June
30, 2007 and 2006
|
F-4
|
|||
Consolidated
Statement of Stockholders' Deficit, for the years ended
|
||||
June
30, 2007 and 2006
|
F-5
|
|||
Consolidated
Statements of Cash Flows, for the years ended June 30,
|
||||
2007
and 2006
|
F-6
|
|||
Notes
to Consolidated Financial Statements
|
F-7-F-22
|
|||
Condensed
Consolidated Balance Sheets as of December 31, 2007
(unaudited)
|
||||
and
June 30, 2007
|
F-23
|
|||
Condensed
Consolidated Statements of Operations for the three and six months
ended
|
||||
December
31, 2007 and 2006 (unaudited)
|
F-24
|
|||
Condensed
Consolidated Statements of Cash Flows for the six months
ended
|
||||
December
31, 2007 and 2006 (unaudited)
|
F-25
|
|||
Notes
to Condensed Unaudited Consolidated Financial Statements
|
F-26-F-31
|
June
30,
|
2007
|
2006
|
|||||
ASSETS
|
|||||||
Current
assets:
|
|||||||
Cash
and cash equivalents
|
$
|
85,016
|
$
|
149,512
|
|||
Accounts
receivable, net
|
75,283
|
56,107
|
|||||
Prepaid
expenses
|
89,919
|
301
|
|||||
Total
current assets
|
250,218
|
205,920
|
|||||
Property
and equipment, net
|
157,356
|
72,740
|
|||||
Other
assests
|
27,951
|
8,190
|
|||||
$
|
435,525
|
$
|
286,850
|
||||
LIABILITIES
AND STOCKHOLDERS' DEFICIT
|
|||||||
Current
liabilities:
|
|||||||
Convertible
notes payable in default
|
$
|
130,000
|
$
|
255,000
|
|||
Accrued
interest in default
|
95,382
|
78,217
|
|||||
Note
payable
|
100,000
|
-
|
|||||
Accounts
payable
|
12,916
|
161,430
|
|||||
Accrued
wages and vacation
|
842,525
|
772,030
|
|||||
Accrued
interest
|
527,434
|
414,959
|
|||||
Deferred
revenue
|
98,394
|
77,651
|
|||||
Current
portion of lease obligations
|
7,388
|
6,442
|
|||||
Current
portion 8% convertible debentures net of debt discount
|
24,010
|
-
|
|||||
Current
portion 8% convertible debentures net of debt discount-
|
|||||||
related
parties
|
91,812
|
-
|
|||||
Total
current liabilities
|
1,929,861
|
1,765,729
|
|||||
Long
term portion of lease obligations
|
3,607
|
10,996
|
|||||
8%
Convertible debentures net of debt discount
|
1,343,868
|
23,002
|
|||||
8%
Convertible debentures net of debt discount - related
parties
|
34,154
|
83,652
|
|||||
Total
liabilities
|
3,311,490
|
1,883,379
|
|||||
Stockholders'
deficit
|
|||||||
Preferred
stock, $.004995 par value; 5,000,000 shares
|
|||||||
authorized:
none outstanding
|
-
|
-
|
|||||
Common
stock, $.004995 par value; 50,000,000 shares
|
|||||||
authorized:
23,705,594 and 25,498,794 issued and
|
|||||||
outstanding
at June 30, 2007 and 2006, respectively
|
118,409
|
127,366
|
|||||
Additional
paid in capital
|
5,358,033
|
4,517,814
|
|||||
Accumulated
deficit
|
(8,352,407
|
)
|
(6,241,709
|
)
|
|||
Total
stockholders' deficit
|
(2,875,965
|
)
|
(1,596,529
|
)
|
|||
$
|
435,525
|
$
|
286,850
|
Year
Ended June 30,
|
2007
|
2006
|
|||||
Revenue
|
$
|
521,330
|
$
|
681,337
|
|||
Selling
expenses
|
101,296
|
103,190
|
|||||
General
and administrative expenses
|
2,115,310
|
1,215,966
|
|||||
2,216,606
|
1,319,156
|
||||||
Income
(loss) from operations
|
(1,695,276
|
)
|
(637,819
|
)
|
|||
Other
income (expense)
|
|||||||
Other
income
|
38,121
|
-
|
|||||
Interest
expense
|
(453,543
|
)
|
(207,574
|
)
|
|||