See accompanying notes to unaudited consolidated financial statements.
See accompanying notes to unaudited consolidated financial statements.
See accompanying notes to unaudited consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2007
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
Union Dental Holdings, Inc., (f/k/a National Business Holdings, Inc.), (the
"Company") is a Florida corporation which conducts business from its
headquarters in Ft. Lauderdale, Florida. The Company was incorporated on
November 26, 1996. On December 27, 2004, the Company entered into a Share
Exchange and Reorganization Agreement ("Reorganization") with both Union Dental
Corp. ("UDC"), a Florida corporation and Direct Dental Services, Inc. ("DDS"), a
Florida corporation, whereby UDC and DDS became wholly-owned subsidiaries of the
Company in exchange for an aggregate of 17,500,000 shares of its common stock
and 1,000,000 shares of its preferred stock issued to Dr. George Green with each
share of preferred stock providing voting rights equal to 15 shares of the
Company's common stock. In addition, the Company agreed to recognize the
3,452,250 issued and outstanding options to purchase UDC common stock as options
to purchase the Company's common stock. Pursuant to the Reorganization
Agreement, 22,287,977 shares of the Company's common stock were canceled. As a
result, UDC's and DDS's former stockholders became the Company's majority
stockholders with the Company's former shareholders retaining 10,000,000 shares
of common stock.
On January 11, 2005, the Company amended its Articles of Incorporation to change
its name from National Business Holdings, Inc. to Union Dental Holdings, Inc.
The acquisition of UDC and DDS by the Company was accounted for as a reverse
merger because on a post-merger basis, the former UDC and DDS shareholders hold
a majority of the outstanding common stock of the Company on a voting and fully
diluted basis. As a result, UDC and DDS were deemed to be the acquirer for
accounting purposes. Accordingly, the consolidated financial statements
presented for the period ending December 31, 2005, are those of the combined
results of UDC and DDS for all periods prior to the acquisition, and the
financial statements of the consolidated companies from the acquisition date
forward. The historical stockholders' deficit of the combined results of UDC and
DDS prior to the acquisition have been retroactively restated (a
recapitalization) for the equivalent number of shares received in the
acquisition after giving effect to any differences in the par value of the
Company and the combined UDC and DDS common stock, with an offset to additional
paid-in capital. The restated consolidated retained earnings of the accounting
acquirer (UDC and DDS) are carried forward after the acquisition.
Through its wholly-owned subsidiaries, UDC and DDS, the Company operates two
distinct lines of business.
DDS operates a network of duly licensed dental providers, the Dental Referral,
who provide dental services through the network to union members in accordance
with arrangements between DDS and various labor unions. DDS is not limited as to
the type of labor union which it may solicit. DDS charges an annual management
services fee to the participating dentists to practice in an "area of
exclusivity" for union members. DDS currently has exclusive contracts with
several local unions.
UDC acquired the assets of George D. Green, DDS, PA and manages the operation of
that general dental practice.
7
UNION DENTAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2007
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Basis of presentation
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB and Item 310(b)
of Regulation S-B. Accordingly, the consolidated financial statements do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments considered necessary for a fair presentation have
been included and such adjustments are of a normal recurring nature. These
consolidated financial statements should be read in conjunction with the
consolidated financial statements for the year ended December 31, 2006 and notes
thereto and other pertinent information contained in Form 10-KSB of Union Dental
Holdings, Inc. (the "Company") as filed with the Securities and Exchange
Commission (the "Commission"). The results of operations for the nine months
ended September 30, 2007 are not necessarily indicative of the results for the
full fiscal year ending December 31, 2007.
The consolidated financial statements are prepared in accordance with generally
accepted accounting principles in the United States of America ("US GAAP"). The
consolidated financial statements of the Company include the Company and its
wholly-owned subsidiaries. All material intercompany balances and transactions
have been eliminated.
Use of estimates
The preparation of financial statements in conformity with US GAAP requires
management to make estimates and assumptions that affect certain reported
amounts and disclosures. Accordingly, actual results could differ from those
estimates. Significant estimates in 2007 and 2006 include the allowance for
doubtful accounts, stock-based compensation, valuation of derivative
liabilities, and the useful life of property and equipment.
Fair value of financial instruments
The carrying amounts reported in the balance sheet for cash, accounts
receivable, accounts payable and accrued expenses, debenture and loans payable
approximate their fair market value based on the short-term maturity of these
instruments.
Accounts receivable
The Company has a policy of reserving for uncollectible accounts based on its
best estimate of the amount of probable credit losses in its existing accounts
receivable. The Company periodically reviews its accounts receivable to
determine whether an allowance is necessary based on an analysis of past due
accounts and other factors that may indicate that the realization of an account
may be in doubt. Account balances deemed to be uncollectible are charged to the
allowance after all means of collection have been exhausted and the potential
for recovery is considered remote. At September 30, 2007, the Company has
established, based on a review of its outstanding balances, an allowance for
doubtful accounts in the amount of $109,600.
Inventory of dental supplies
The Company values inventory of dental supplies at the lower of cost or market,
using the specific unit cost method.
Reclassifications
Certain prior periods' balances have been reclassified to conform to the current
period's financial statement presentation. These reclassifications had no impact
on previously reported results of operations or stockholders' equity.
8
UNION DENTAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2007
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Property and equipment
Property and equipment are carried at cost. The cost of repairs and maintenance
is expensed as incurred; major replacements and improvements are capitalized.
When assets are retired or disposed of, the cost and accumulated depreciation
are removed from the accounts, and any resulting gains or losses are included in
income in the year of disposition. In accordance with Statement of Financial
Accounting Standards (SFAS) No. 144, "Accounting for the Impairment or Disposal
of Long-Lived Assets", the Company examines the possibility of decreases in the
value of fixed assets when events or changes in circumstances reflect the fact
that their recorded value may not be recoverable.
Impairment of long-lived assets
In accordance with Statement of Financial Accounting Standards (SFAS) No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets," The Company
periodically reviews its long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of the assets may not
be fully recoverable. The Company recognizes an impairment loss when the sum of
expected undiscounted future cash flows is less than the carrying amount of the
asset. The amount of impairment is measured as the difference between the
asset's estimated fair value and its book value. The Company did not consider it
necessary to record any impairment charges during the nine months ended
September 30, 2007.
Income taxes
The Company was taxed as an S-Corporation combination until December 31, 2004,
when the Company changed its form of ownership to a C corporation. As a result
of the change of ownership, the Company accounts for income taxes under the
liability method in accordance with Statement of Financial Accounting Standards
No. 109, "Accounting for Income Taxes". Under this method, deferred income tax
assets and liabilities are determined based on differences between the financial
reporting and tax bases of assets and liabilities and are measured using the
enacted tax rates and laws that will be in effect when the differences are
expected to reverse.
Had income taxes been determined based on an effective tax rate of 37.6%
consistent with the method of SFAS 109, the Company's net losses for all periods
presented would not materially change.
Loss per common share
In accordance with SFAS No. 128 "Earnings Per Share," Basic earnings per share
is computed by dividing net income by the weighted average number of shares of
common stock outstanding during the period. Diluted earnings per share is
computed by dividing net income by the weighted average number of shares of
common stock, common stock equivalents and potentially dilutive securities
outstanding during each period. Diluted loss per common share is not presented
during the nine months ended September 30, 2007 and 2006 because it is
anti-dilutive. The Company's common stock equivalents at September 30, 2007
include the following:
Convertible debentures 27,553,304
Derivatives options 110,276,680
Options 1,508,000
Warrants 1,304,348
--------------
140,642,332
==============
|
9
UNION DENTAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2007
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Loss per common share (continued)
The following table presents a reconciliation of basic and diluted earnings per
share:
For the three Months Ended
September 30,
2007 2006
--------------- ---------------
Net income (loss) $ 38,988 $ (680,477)
Weighted average shares outstanding - basic 73,902,128 40,385,304
Income (loss) per share - basic $ 0.00 $ (0.02)
=============== ===============
Net income (loss) 38,988 (680,477)
Impact of assumed conversions
Derivative (income) expense (209,345)
---------------- ----------------
Net loss - diluted $ (170,357)$ (680,477)
Weighted average shares outstanding - basic 73,902,128 40,385,304
Effect of dilutive securities
Convertible debentures 27,553,304 -
Derivatives options 110,276,680 -
---------------- ----------------
Weighted average shares outstanding- diluted 211,732,112 40,385,304
================ ================
Income (loss) per share - diluted $ 0.00 $ (0.01)
================ ================
|
Revenue recognition
The Company follows the guidance of the Securities and Exchange Commission's
Staff Accounting Bulletin 104 for revenue recognition. In general, the Company
records revenue when persuasive evidence of an arrangement exists, services have
been rendered or product delivery has occurred, the sales price to the customer
is fixed or determinable, and collectibility is reasonably assured. The
following policies reflect specific criteria for the various revenues streams of
the Company:
DDS selects certain dentists in selected geographical areas to represent the
Company. The dentist enters into an exclusive agreement with DDS for an annual
management services fee, which is based on each specialty the dentist provides
to the patients on a per office basis. DDS receives a yearly membership fee from
each dentist in order for him/her to maintain the exclusive area of each
specialty that the dentist provides. Revenues from membership fees are
recognized over the term of the contract. Unearned membership fees at September
30, 2007 amounted to $260,781 and will be recognized as revenues over their
respective term of contract.
The Company recognizes revenue from its dental practice when dental services are
provided.
Concentrations of credit risk
The Company maintains its cash in bank deposit accounts, which, at times, exceed
federally insured limits. During the nine month period ended September 30, 2007,
the Company has reached bank balances exceeding the FDIC insurance limit. The
Company has not experienced any losses in such accounts through September 30,
2007.
10
UNION DENTAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2007
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Stock-based compensation
Effective January 1, 2006, the Company adopted Statement of Financial Accounting
Standards No. 123 (revised 2004), Share Based Payment ("SFAS No. 123R"). SFAS
No. 123R establishes the financial accounting and reporting standards for
stock-based compensation plans. As required by SFAS No. 123R, the Company
recognized the cost resulting from all stock-based payment transactions
including shares issued under its stock option plans in the financial
statements.
Prior to January 1, 2006, the Company accounted for stock-based employee
compensation plans (including shares issued under its stock option plans) in
accordance with APB Opinion No. 25 and followed the pro forma net income, pro
forma income per share, and stock-based compensation plan disclosure
requirements set forth in the Statement of Financial Accounting Standards No.
123, Accounting for Stock-Based Compensation ("SFAS No. 123"). For the nine
months ended September 30, 2007, the Company did not grant any stock options.
Non-Employee Stock Based Compensation
The cost of stock based compensation awards issued to non-employees for services
are recorded at either the fair value of the services rendered or the
instruments issued in exchange for such services, whichever is more readily
determinable, using the measurement date guidelines enumerated in Emerging
Issues Task Force Issue ("EITF") 96-18, "Accounting for Equity Instruments That
Are Issued to Other Than Employees for Acquiring, or in Conjunction with
Selling, Goods or Services" ("EITF 96-18").
Common stock purchase warrants
The Company accounts for common stock purchase warrants in accordance with the
provisions of Emerging Issues Tack Force Issue ("EITF") issue No. 00-19
"Accounting for Derivative Financial Instruments Indexed to, and Potentially
Settled in, a Company's Own Stock" ("EITF 00-19"). Based on the provisions of
EITF 00-19, the Company classifies as equity any contracts that (i) require
physical settlement or net-share settlement, or (ii) gives the company a choice
of net-cash settlement or settlement in its own shares (physical settlement or
net-share settlement). The Company classifies as assets or liabilities any
contracts that (i) require net-cash settlement (including a requirement to net
cash settle the contract if an event occurs and if that event is outside the
control of the company), or (ii) give the counterparty a choice of net-cash
settlement or settlement in shares (physical settlement or net-share
settlement).
Recent accounting pronouncements
In July 2006, the Financial Accounting Standards Board (FASB) issued FASB
Interpretation (FIN) No. 48, "Accounting for Uncertainty in Income Taxes-an
interpretation of FASB Statement No. 109." This interpretation provides guidance
for recognizing and measuring uncertain tax positions, as defined in SFAS No.
109, "Accounting for Income Taxes." FIN No. 48 prescribes a threshold condition
that a tax position must meet for any of the benefit of an uncertain tax
position to be recognized in the financial statements. Guidance is also provided
regarding de-recognition, classification, and disclosure of uncertain tax
positions. FIN No. 48 is effective for fiscal years beginning after December 15,
2006. The Company does not expect that this interpretation will have a material
impact on its financial position, results of operations, or cash flows.
In September 2006, the FASB issued Statement of Financial Accounting Standards
No. 157, "Fair Value Measurements" ("FAS 157"). This Statement defines fair
value as used in numerous accounting pronouncements, establishes a framework for
measuring fair value in generally accepted accounting principles and expands
disclosure related to the use of fair value measures in financial statements.
The Statement is to be effective for the Company's financial statements issued
in 2008; however, earlier application is encouraged. The Company is currently
evaluating the timing of adoption and the impact that adoption might have on its
financial position or results of operations.
11
UNION DENTAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2007
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Recent accounting pronouncements (continued)
In September 2006, the SEC issued Staff Accounting Bulletin No. 108, Considering
the Effects of Prior Year Misstatements when quantifying Misstatements in
Current Year Financial Statements ("SAB 108"). SAB 108 requires companies to
evaluate the materiality of identified unadjusted errors on each financial
statement and related financial statement disclosure using both the rollover
approach and the iron curtain approach, as those terms are defined in SAB 108.
The rollover approach quantifies misstatements based on the amount of the error
in the current year financial statement, whereas the iron curtain approach
quantifies misstatements based on the effects of correcting the misstatement
existing in the balance sheet at the end of the current year, irrespective of
the misstatement's year(s) of origin. Financial statements would require
adjustment when either approach results in quantifying a misstatement that is
material. Correcting prior year financial statements for immaterial errors would
not require previously filed reports to be amended. If a Company determines that
an adjustment to prior year financial statements is required upon adoption of
SAB 108 and does not elect to restate its previous financial statements, then it
must recognize the cumulative effect of applying SAB 108 in fiscal 2006
beginning balances of the affected assets and liabilities with a corresponding
adjustment to the fiscal 2006 opening balance in retained earnings. SAB 108 is
effective for interim periods of the first fiscal year ending after November 15,
2006. The adoption of SAB 108 did not have an impact on the Company's
consolidated financial statements.
In December 2006, FASB Staff Position No. EITF 00-19-2, "Accounting for
Registration Payment Arrangements," was issued. The FSP specifies that the
contingent obligation to make future payments or otherwise transfer
consideration under a registration payment arrangement, whether issued as a
separate agreement or included as a provision of a financial instrument or other
agreement, should be separately recognized and measured in accordance with SFAS
No. 5, "Accounting for Contingencies." The Company believes that its current
accounting is consistent with the FSP.
In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for
Financial Assets and Financial Liabilities, Including an Amendment of FASB
Statement No. 115", under which entities will now be permitted to measure many
financial instruments and certain other assets and liabilities at fair value on
an instrument-by-instrument basis. This Statement is effective as of the
beginning of an entity's first fiscal year that begins after November 15, 2007.
Early adoption is permitted as of the beginning of a fiscal year that begins on
or before November 15, 2007, provided the entity also elects to apply the
provisions of SFAS 157. The Company is currently assessing the impact, if any,
the adoption of SFAS 159 will have on its financial statements.
Other accounting standards that have been issued or proposed by the FASB or
other standards-setting bodies that do not require adoption until a future date
are not expected to have a material impact on the consolidated financial
statements upon adoption.
12
UNION DENTAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2007
NOTE 2 - PROPERTY AND EQUIPMENT
At September 30, 2007, property and equipment consist of the following:
Useful Life
-----------
Computer equipment 5 Years $ 9,695
Office equipment 5 years 424,747
Office furniture and fixtures 7 Years 62,128
Leasehold improvements 10 Years 30,593
----------
527,163
Less accumulated depreciation (345,953)
----------
$ 181,210
==========
|
For the nine months ended September 30, 2007 and 2006, depreciation expense
amounted to $50,777 and $50,707, respectively.
NOTE 3 - CONVERTIBLE DEBENTURES PAYABLE
On August 17, 2005, the Company entered into a Debenture Agreement with Dutchess
Private Equity Fund II, LLP ("Dutchess"), an accredited investor, for the
issuance and sale of $600,000 of 10% secured convertible debentures in a private
transaction exempt from registration under the Securities Act of 1933 in
reliance on exemptions provided by Section 4(2) and Regulation D of that act. On
August 17, 2005, the Company issued Dutchess a $600,000 principal amount 10%
secured convertible debenture due August 17, 2010. At the time of signing the
Debenture Agreement, the Company also issued Dutchess five-year common stock
purchase warrants to purchase 1,304,348 shares of the Company's common stock at
$.092 per share. Interest is payable on the secured convertible debentures at
the rate of 10% per year. Amortizing payments will be made by the Company in
satisfaction of this Debenture. Payments shall be made monthly on the first day
of each business day of each month while there is an outstanding balance on the
Debenture, to the Holder, in the amounts outlined below on the following
schedule:
Payment for Month 1 (due within three (3) days of the Issuance Date) $4,951
Payments for Months 2 and 3, respectively $4,951 Payment for Month 4 and each
month thereafter $62,716
The principal amount of the Debenture plus accrued interest may be converted at
the option of the Dutchess into shares of the Company's common stock, anytime
following the closing date, at a conversion price equal to the lesser of (i) the
lowest closing bid price during the 15 days of full trading, as defined, prior
to the conversion date; or (ii) $0.092. In addition, in the event that any
portion of the debenture remains outstanding on the maturity date of August 17,
2010, such outstanding amount shall be automatically converted into shares of
the Company's common stock. In the event that the Company does not make delivery
of the common stock as instructed by Dutchess, the Company shall be obligated to
pay to Dutchess 3% in cash of the dollar value of the debentures being
converted, compounded daily, per each day after the 3rd business day following
the conversion date that the common stock is not delivered to Dutchess.
13
UNION DENTAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2007
NOTE 3 - CONVERTIBLE DEBENTURES PAYABLE (continued)
In the Event of default as defined in the Debenture Agreement, Dutchess may
among other things:
(a) elect to secure a portion of the Company's assets not to exceed 200% of the
Face Amount of the Note, in Pledged Collateral;
(b) elect to garnish revenue from the Company in an amount that will repay the
Holder on the payment schedule set forth above;
(c) exercise its right to increase the Face Amount of the debenture by ten
percent (10%) as an initial penalty and for each Event of Default under the
Debenture;
(d) elect to increase the Face Amount by two and one-half percent (2.5%) per
month (pro-rata for partial periods) paid as a penalty for liquated damages
which will be compounded daily;
The debenture provides that Dutchess shall not be entitled to convert that
amount of Debenture into common stock, which when added with the sum of the
number of shares beneficially owned by Dutchess would exceed 4.99% of the number
of shares of our common stock outstanding on the conversion date.
In order to secure its obligations under the secured convertible debenture and
related documents, the Company has granted the debenture holder a security
interest in all of its assets and property.
In accordance with Statement of Financial Accounting Standards No. 133,
`Accounting for Derivative Instruments and Hedging Activities', ("FASB 133"),
the Company determined that the conversion feature of the Debentures met the
criteria of an embedded derivative and therefore the conversion feature of the
debt needed to be bifurcated and accounted for as a derivative. Due to the reset
provisions of the Debentures, the debt does not meet the definition of
"conventional convertible debt" because the number of shares which may be issued
upon the conversion of the debt is not fixed. Therefore, the conversion feature
fails to qualify for equity classification under EITF 00-19, and must be
accounted for as a derivative liability.
The $600,000 face amount of the debenture was stripped of its conversion feature
due to the accounting for the conversion feature as a derivative, which was
recorded using the residual proceeds method, whereby any remaining proceeds
after allocating the proceeds to the warrants and conversion option were
attributed to the debt. At September 30, 2007, the Company revalued this
derivative liability. For the nine months ended September 30, 2007, after
adjustment, the Company recorded a gain on revaluation of this derivative
liability of $142,910. For the nine months ended September 30, 2007 and 2006,
amortization of the discount on debenture amounted to $0 and $223,548.
Additionally, during the year ended December 31, 2006, the Company issued 75,000
shares of its common stock for settlement of $6,900 of the debenture.
The convertible debenture liability is as follows at September 30, 2007:
Convertible debentures payable $ 275,533
Less: unamortized discount on debentures -
---------------
Convertible debentures, net $ 275,533
===============
|
14
UNION DENTAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2007
NOTE 4 - EQUITY CREDIT LINE
On August 17, 2005, the Company entered into an Investment Agreement with
Dutchess Private Equities Fund II, LLP ("Dutchess"). Pursuant to this Agreement,
Dutchess committed to purchase up to $5,000,000 (the "Line") of the Company's
common stock over the course of 36 months ("Line Period"), after the
registration statement was declared effective by the SEC in September 2005 (the
"Effective Date"). The amount that the Company shall be entitled to request from
each of the purchase "Puts", shall be equal to either (1) $100,000 or (2) 200%
of the averaged daily volume (US market only) ("ADV") of the Company's common
stock for the 20 trading days prior to the "Put" notice, multiplied by the
average of the 3 daily closing prices immediately preceding the Put Date. The
Pricing Period shall be the five (5) consecutive trading days immediately after
the Put Date. The Market Price shall be the lowest closing bid price of the
Company's common stock during the Pricing Period. The Purchase Price shall be
set at 95% of the Market Price. This Investment Agreement establishes what is
sometimes termed an equity line of credit or an equity drawdown facility.
In general, the drawdown facility operates as follows: Dutchess, has committed
to provide the Company up to $5,000,000 as it requests over a 36 month period,
in return for common stock the Company issues to Dutchess. The Company, at its
sole discretion, may during the Open Period deliver a "put notice" (the "Put
Notice") to Dutchess which states the dollar amount which the Company intends to
sell to Dutchess on the Closing Date. The Open Period is the period beginning on
the trading after the Effective Date and which ends on the earlier to occur of
36 months from the Effective Date or termination of the Investment Agreement in
accordance with its terms. The Closing Date shall mean no more than 7 trading
days following the Put Notice Date. The Put Notice Date shall mean the Trading
Day immediately following the day on which Dutchess receives a Put Notice, as
defined in the agreement. During the Open Period, the Company shall not be
entitled to submit a Put Notice until after the previous Closing has been
completed. Additionally, Dutchess shall not be obligated to honor any Put Notice
if at the time of the Put Notice Dutchess would own more than 4.99% of the
Company's issued and outstanding common stock.
Upon the receipt by Dutchess of a validly delivered Put Notice, Dutchess shall
be required to purchase from the Company, during the period beginning on the Put
Notice Date and ending on and including the date that is 5 trading days after
such Put Notice, that number of shares having an aggregate purchase price equal
to the lesser of (a) the Put Amount set forth in the Put Notice, or (b) 20% of
the aggregate trading volume of the Company's common stock during the applicable
Pricing Period times (x) the lowest closing bid price of the Company's common
stock during the specified Pricing period, but only if such said shares bear no
restrictive legend and are not subject to stop transfer instructions, prior to
the applicable Closing Date.
For the nine months ended September 30, 2007, the Company delivered Put Notices
to draw on the equity line of credit. In connection with these puts, the Company
issued 1,691,360 shares of common stock for net proceeds of $50,025.
NOTE 5 - CONVERTIBLE NOTE PAYABLE
On December 22, 2005, the Company signed a promissory note (the "Note") in favor
of Dutchess Private Equities Fund, LP (the "Investor"), in the amount of
$960,000 (the "Face Amount") and received gross proceeds in the amount of
$800,000 less $60,075 in fees associated with the financing for net proceeds of
$739,925. The Company is obligated to repay the Investor the Face Amount on or
before December 23, 2006. There is no stated interest rate on the Note and
interest has been imputed at a rate of 32% per annum. Payments are to be made by
the Company from each Put from the Company's Equity Credit Line (see note 4)
with the Investor. The Company is obligated to pay the Investor the greater of
15
UNION DENTAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2007
NOTE 5 - CONVERTIBLE NOTE PAYABLE (continued)
a) 50% of each Put to the Investor or b) $80,000 until the face Amount minus any
fees have been paid. The first payment was due on February 15, 2006 and all
subsequent payments will be made at the Closing of every Put to the Investor
thereafter. The Put Amount will be the maximum amount allowed under the
Investment Agreement with the Investor. The Company has not received any written
notice of default in connection with this note.
As described in note 4, the Investment Agreement provides in part that the
maximum amount of each Put is either $100,000 or 200% of the average daily
volume multiplied by the average of the three daily closing prices immediately
preceding the Put Date. Payments made by the Company in satisfaction of this
Note shall be made from each Put from the Equity Line of Credit with the
Investor given by the Company to the Investor. Additionally, in connection with
Note, the Company issued 1,500,000 shares of common stock. The shares were
valued at fair market value at date grant of $135,000 or $.09 per share and is
reflected as a discount on the Note, which will be amortized over the term.
The Company agreed to issue 50 signed Put Notices to the Investor to use as
collateral. In the event, the Investor uses the collateral in full, the Company
shall immediately deliver to the Investor additional Put Sheets as requested by
the Holder. In the event that on the maturity date the Company has any remaining
amounts unpaid on this Note (the "Residual Amount"), the Holder can exercise its
right to increase the Face Amount by ten percent (10%) as an initial penalty and
an additional 2.5% per month paid, pro rata for partial periods, compounded
daily, as liquated damages ("Liquidated Damages").
Additionally, in the event of a default as defined in the agreement, the Holder
shall have the right, but not the obligation, to 1) switch the Residual Amount
to a three-year ("Convertible Maturity Date"), interest-bearing convertible
debenture. If the Holder chooses to convert the Residual Amount to a Convertible
Debenture, the Company shall have 20 business days after notice of the same (the
"Notice of Convertible Debenture") to file a registration statement covering an
amount of shares equal to 300% of the Residual Amount. Such registration
statement shall be declared effective under the Securities Act of 1933, as
amended (the "Securities Act"), by the Securities and Exchange Commission (the
"Commission") within 40 business days of the date the Company files such
Registration Statement. In the event the Company does not file such registration
statement within 20 business days of the Holder's request, or such registration
statement is not declared by the Commission to be effective under the Securities
Act within the time period described above, the Residual Amount shall increase
by $5,000 per day.
The Holder is entitled to convert the Debenture Residual Amount, plus accrued
interest, anytime following the Convertible Maturity Date, at the lesser of (i)
50% of the lowest closing bid price during the 15 trading immediately preceding
the Convertible Maturity Date or (ii) 100% of the lowest bid price for the 20
trading days immediately preceding the Convertible Maturity Date ("Fixed
Conversion Price").
In accordance with Statement of Financial Accounting Standards No. 133,
`Accounting for Derivative Instruments and Hedging Activities', ("FASB 133"),
the Company determined that the conversion feature of the Note met the criteria
of an embedded derivative and therefore the conversion feature of this debt
needed to be bifurcated and accounted for as a derivative. Due to the conversion
features of the Note which is convertible based on draws from the equity credit
line, the debt does not meet the definition of "conventional convertible debt"
because the number of shares which may be issued upon the conversion of the debt
is not fixed. Therefore, the conversion feature fails to qualify for equity
classification under EITF 00-19, and must be accounted for as a derivative
liability.
16
UNION DENTAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2007
NOTE 5 - CONVERTIBLE NOTE PAYABLE (continued)
The $960,000 face amount of the debenture was stripped of its conversion feature
due to the accounting for the conversion feature as a derivative, which was
recorded using the residual proceeds method, whereby any remaining proceeds
after allocating the proceeds to the 1,500,000 common shares and conversion
option would be attributed to the debt. The beneficial conversion feature (an
embedded derivative) included in this Note resulted in a note discount of
$665,000 in 2005. In accordance with EITF No. 00-19, EITF No. 00-27, Application
of Issue No. 98-5 to Certain Convertible Instruments, the values assigned to
both the Note, and conversion feature were allocated based on their fair values.
The amount allocated as a discount on the Note for the value of the conversion
option is being amortized to interest expense, using the effective interest
method, over the term of the Note.
The holders of the Note and the underlying shares on the equity credit line have
registration rights that required the Company to file a registration statement
with the Securities and Exchange Commission to register the resale of the common
stock issuable upon conversion of the debenture or the exercise of the warrants.
Under EITF No. 00-19, Accounting for Derivative Financial Instruments Indexed
to, and Potentially Settled in, a Company's Own Stock, the ability to register
stock was deemed to be outside of the Company's control. Accordingly, in 2005,
the initial aggregate fair value of the derivatives (embedded and free-standing)
of $1,002,049 was recorded as a derivative liability in the consolidated balance
sheet, and is marked to market at the end of each reporting period. During the
nine months ended September 30, 2007, the Company revalued this derivative
liability. For the nine months ended September 30, 2007, after adjustment, the
Company recorded a loss on revaluation of this derivative liability of $253,464
and reclassified $220,819 of the derivative liability to paid-in capital due to
the payment of the debenture. For the nine months ended September 30, 2007,
amortization of the discount on the note amounted to $2,463.
The note payable is as follows at September 30, 2007:
Note payable $ 586,408
Less: unamortized discount on note -
-------------
Note payable, net $ 586,408
=============
|
NOTE 6 - NOTES PAYABLE
In December 2004, the Company agreed to assume the debt obligation of the
principal stockholder for a bank loan utilized to purchase 50% of DDS from its
founder and former owner and the remaining balance owed on the original 50%
acquisition. The original note was in the amount $1,215,000. On May 17, 2005,
the Company entered into an Amended and Restated Promissory Note in the amount
of $1,384,000. The interest rate on this note is the LIBOR Fixed Rate plus 255
basis points (6.92% at September 30, 2006) calculated by using the 365/360 day
method. The note requires monthly principal payments of $23,067 plus accrued
interest payable monthly, and is secured by all of the assets of the Company.
The principal stockholder is also the guarantor of this loan. In addition, the
Company, on a consolidated basis, must maintain a minimum Global Debt Service
Ratio, as defined by the bank, which is calculated annually, based on the
Company's year end financial statements. The Company must also maintain property
and casualty insurance on the business as well as a minimum of $700,000 of life
insurance on the principal stockholder, assigned to the bank. In October 2005,
as a result of a hurricane relief program, the bank extended the due date on the
November and December 2005 payments, thereby extending the Note due date to July
17, 2010. As of September 30, 2007, the Company is in default of loan covenants
and other terms of the agreement. Accordingly, the Company has shown the entire
principal balance in current liabilities. At September 30, 2007, the principal
amount outstanding on this note amounts to $783,524.
17
UNION DENTAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2007
NOTE 6 - NOTES PAYABLE (continued)
On August 11, 2006, the Company entered into a Promissory Note in the amount of
$50,000 with a bank. The interest rate on this promissory note is 8% per annum
calculated by using the 365/360 day method. The note requires 60 monthly
principal and interest payments of approximately $1,017 and is secured by
certain assets of the Company. This note is personally guaranteed by the
Company's CEO. At September 30, 2007, the principal amount outstanding on this
note amounts to $40,816.
On October 20, 2006, the Company entered into a Promissory Note in the amount of
$250,000 with a third party. The interest rate on this promissory note is 10%
per annum calculated by using a 360 day year. The principal balance and all
accrued and unpaid interest is due on June 19, 2007. This note is personally
guaranteed by the Company's CEO. The note is secured by certain assets of the
Company. In connection with this note, on March 7, 2007 the Company received a
loan amounting to $270,000 from the Company's CEO for a full payment of the
principal and accrued interest of the 10% promissory note which amounted to
approximately $261,000 (see Note 8).
NOTE 7 - LINE OF CREDIT
On May 16, 2007, the Company was issued a $100,000 line of credit with SunTrust
Bank. The line of credit bears an annual interest rate of 8.25% and interest is
payable monthly. The balance of the line of credit was $650 as of September 30,
2007.
NOTE 8 - RELATED PARTY TRANSACTIONS
On March 20, 2004, UDC, a wholly owned subsidiary of the Company, entered into
an employment agreement with the principal stockholder, the sole officer of UDC,
with a term of 7 years. This contract provides for a base salary to the
principal stockholder of $225,000 in year 1, $125,000 in year 2, $185,500 in
year 3, $196,630 in year 4, $208,427 in year 5, $220,932 in year 6 and $234,187
in year 7. This contract also provides for the issuance of options to the
principal stockholder upon signing , 750,000 options, (1 share per option), with
an exercise price of $0.60 per share, half vested immediately and half vesting
after two years , having an exercise life of five years. This contract also
provides for the issuance of options to the principal stockholder as well, if
certain revenue milestones are reached: at $3,000,000 in gross revenue for any
calendar year he receives 332,500 options, (1 share per option), with an
exercise price at the market price of the underlying common stock at issue date
and the same again at $4,000,000 and $5,000,000 in gross revenue for a calendar
year.
On March 7, 2007, the Company received a loan amounting to $270,000 from the
Company's CEO for a full payment of the principal and accrued interest of the
10% promissory note which amounted to approximately $261,000 (see Note 6). The
Company's CEO individually signed a 30 year promissory note in the amount of
$270,000 with SunTrust Bank, which requires 360 monthly principal and interest
payments at the rate of 8.4% per annum until March 7, 2037 and is secured by a
personal asset owned by the Company's CEO. The loan from the Company's CEO calls
for the Company to make equal monthly payments. In the event of a default, all
payments under the loan shall become immediately due and payable. The loan
represents an unsecured obligation of the Company. At September 30, 2007, the
principal amount outstanding on this loan amounts to $268,978.
18
UNION DENTAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2007
NOTE 9 - SHAREHOLDERS' DEFICIT
Preferred Stock
On January 24, 2007, the Company issued 2,000,000 shares of class A Preferred
Stock to a director/officer, in exchange for personally guaranteeing the loans
of the Company. Each share of Class A Preferred shall have 15 votes per share.
The Preferred shareholder is entitled to vote on any and all matters brought to
a vote of shareholders of Common Stock. The Company recorded the issuance of
2,000,000 shares of class A Preferred Stock at par value.
Common Stock
On January 4, 2007, the Company issued 250,000 shares of common stock for
services rendered. The Company valued these common shares at the fair market
value on the date of grant at $.044 per share or $11,000. In connection with the
issuance of these shares, the Company recorded consulting fees of $11,000 for
business development services performed.
On January 5, 2007, the Company issued 250,000 shares of common stock for
services rendered. The Company valued these common shares at the fair market
value on the date of grant at $.045 per share or $11,250. In connection with the
issuance of these shares, the Company recorded professional fees of $11,250 for
professional services performed.
On January 5, 2007, the Company issued 400,000 shares of common stock for
services rendered to three employees of the Company. The Company valued these
common shares at the fair market value on the date of grant at $.045 per share
or $18,000. In connection with the issuance of these shares, the Company
recorded stock based compensation expense of $18,000.
On January 5, 2007, the Company issued 62,700 shares of common stock for accrued
accounting services during 2006. The Company valued these common shares at the
fair market value on the date of grant at $.05 per share or $3,135. In
connection with issuance of these shares, the Company offset the value against
accounts payable.
On January 12, 2007, the Company issued 300,000 shares of common stock for
services rendered. The Company valued these common shares at the fair market
value on the date of grant at $.045 per share or $13,500. In connection with
issuance of these shares, the Company recorded consulting fees of $13,500 for
business development services performed.
On January 24, 2007, the Company issued an aggregate 1,750,000 shares of common
stock for services rendered to an officer/director and an employee of the
Company. The Company valued these common shares at the fair market value on the
date of grant at $.045 per share or $78,750. In connection with issuance of
these shares, the Company recorded stock based compensation expense of $78,750.
On January 24, 2007, the Company issued 500,000 restricted shares of common
stock for advisory and business development services in connection with a
240-day consulting agreement entered on October 20, 2006. The Company valued
these common shares at the fair market value on the date of grant at $.045 per
share or $22,500. In connection with the issuance of these shares, for the nine
months ended September 30, 2007, the Company recorded consulting expense of
$22,500.
19
UNION DENTAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2007
NOTE 9 - SHAREHOLDERS' DEFICIT (continued)
Common Stock (continued)
On January 24, 2007, the Company issued 250,000 shares of common stock for
services rendered. The Company valued these common shares at the fair market
value on the date of grant at $.045 per share or $11,250. In connection with
issuance of these shares, the Company recorded consulting fees of $11,250 for
business development services performed.
On January 24, 2007, the Company issued 250,000 shares of common stock for
services rendered. The Company valued these common shares at the fair market
value on the date of grant at $.045 per share or $11,250. In connection with
issuance of these shares, the Company recorded consulting fees of $11,250 for
business development services performed.
On February 1, 2007, the Company issued 92,850 shares of common stock for
accrued accounting services during 2006. The Company valued these common shares
at the fair market value on the date of grant at $.05 per share or $4,643. In
connection with issuance of these shares, the Company offset the value against
accounts payable.
On February 6, 2007, the Company issued 200,000 shares of common stock for legal
services rendered. The Company valued these common shares at the fair market
value on the date of grant at $.045 per share or $9,000. In connection with
issuance of these shares, the Company recorded professional fees of $9,000 for
professional services performed.
On February 16, 2007, the Company issued an aggregate 4,000,000 shares of common
stock for services rendered to an officer/director and an employee of the
Company. The Company valued these common shares at the fair market value on the
date of grant at $.042 per share or $168,000. In connection with issuance of
these shares, the Company recorded stock based compensation expense of $168,000.
During February 2007, the Company exercised a put notice in accordance with its
Investment Agreement with Dutchess (see note 4) and repaid principal balance on
its notes payable of $9,456 for which the Company issued 247,000 shares of its
common stock to Dutchess.
During February 2007, the Company exercised a put notice in accordance with its
Investment Agreement with Dutchess (see note 4) and received proceeds of $35,025
for which the Company issued 900,000 shares of its common stock to Dutchess.
On March 12, 2007, the Company issued 700,000 shares of common stock for
services rendered. The Company valued these common shares at the fair market
value on the date of grant at $.039 per share or $27,300. In connection with
issuance of these shares, the Company recorded consulting fees of $27,300 for
business development services performed.
During March 2007, the Company exercised a put notice in accordance with its
Investment Agreement with Dutchess (see note 4) and repaid principal balance on
its notes payable of $15,528 for which the Company issued 453,300 shares of its
common stock to Dutchess.
The Company agreed to issue 3,000,000 shares of common stock for investor
relation services in connection with a 60-day consulting agreement entered on
May 14, 2007. The Company issued 2,000,000 shares at the date of agreement and
the 1,000,000 shares were issued in September 2007. The Company valued these
common shares at the fair market value on the date of grant at $.025 per share
or $75,000. In connection with the issuance of these shares, for the nine months
ended September 30, 2007, the Company recorded consulting expense of $56,250 and
deferred consulting fees of $18,750 to be amortized over the service period.
20
UNION DENTAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2007
NOTE 9 - SHAREHOLDERS' DEFICIT (continued)
Common Stock (continued)
On June 19, 2007, the Company issued an aggregate 3,821,750 shares of common
stock for services rendered to an officer/director and an employee of the
Company. The Company valued these common shares at the fair market value on the
date of grant at $.02 per share or $76,435. In connection with issuance of these
shares, the Company recorded stock based compensation expense of $76,435.
On June 20, 2007, the Company issued 2,000,000 restricted shares of common stock
for investor relation services in connection with a 30-day consulting agreement.
The Company valued these common shares at the fair market value on the date of
grant at $.021 per share or $42,000. In connection with the issuance of these
shares, for the nine months ended September 30, 2007, the Company recorded
consulting expense of $42,000.
On June 26, 2007, the Company issued 502,700 shares of common stock for
accounting services rendered. The Company valued these common shares at the fair
market value on the date of grant at $.025 per share or $12,568. In connection
with issuance of these shares, the Company recorded professional fees of $12,568
for professional services performed.
On June 28, 2007, the Company issued 300,000 shares of common stock for legal
services rendered. The Company valued these common shares at the fair market
value on the date of grant at $.024 per share or $7,200. In connection with
issuance of these shares, the Company recorded professional fees of $7,200 for
professional services performed.
In June 2007, the Company issued 220,000 shares of common stock for legal
services rendered. The Company valued these common shares at the fair market
value on the date of grant at $.022 per share or $4,855. In connection with
issuance of these shares, the Company recorded professional fees of $4,855 for
professional services performed.
During June 2007, the Company exercised a put notice in accordance with its
Investment Agreement with Dutchess (see note 4) and received proceeds of $15,000
for which the Company issued 791,360 shares of its common stock to Dutchess.
During the three months ended June 30, 2007, the Company exercised a put notice
in accordance with its Investment Agreement with Dutchess (see note 4) and
repaid principal balance on its notes payable of $94,896 for which the Company
issued 4,020,740 shares of its common stock to Dutchess.
21
UNION DENTAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2007
NOTE 9 - SHAREHOLDERS' DEFICIT (continued)
Common Stock (continued)
On September 27, 2007, the Company issued an aggregate 4,000,000 shares of
common stock for services rendered to an officer/director and an employee of the
Company. The Company valued these common shares at the fair market value on the
date of grant at $.01 per share or $40,000. In connection with issuance of these
shares, the Company recorded stock based compensation expense of $40,000.
In September 2007, the Company issued 1,518,554 shares of common stock for legal
services rendered. The Company valued these common shares at the fair market
value on the date of grant at $.01 per share or $15,489. In connection with
issuance of these shares, the Company recorded professional fees of $15,489 for
professional services performed.
During the three months ended September 30, 2007, the Company exercised a put
notice in accordance with its Investment Agreement with Dutchess (see note 4)
and repaid principal balance on its notes payable of $36,144 for which the
Company issued 2,853,000 shares of its common stock to Dutchess.
Stock Options
In October 2004, the Company adopted a Stock Option Plan that allows for both
incentive based options as well as non-qualified options. As part and parcel to
the reorganization on December 27, 2004, UDHI adopted this Plan. Under the terms
of the Plan, the Plan Committee will set the option term and the exercise price.
The Plan limits the ability to exercise incentive options for a first time
holder in any one calendar year to $100,000 aggregate fair market value, based
on grant date. The Plan also allows for the issuance of Stock Appreciation
Rights to allow for cash-less exercise of underlying issued options.
A summary of the stock options as of September 30, 2007 and changes during the
periods is presented below:
Weighted Average
Number of Options Exercise Price
----------------- -----------------
Balance at beginning of year 1,508,000 $ 0.16
Granted - -
Exercised - -
Forfeited - -
---------------- -----------------
Balance at end of the period 1,508,000 $ 0.16
================ =================
Options exercisable at end of the
period 1,508,000 $ 0.16
================ =================
Weighted average fair value of
options granted during the year $ -
|
22
UNION DENTAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2007
NOTE 9 - SHAREHOLDERS' DEFICIT (continued)
Stock Options (continued)
The following information applies to options outstanding at September 30, 2007:
Options Outstanding Options Exercisable
--------------------------------------------- --------------------------------
Weighted
Average Weighted Weighted
Range of Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Price Outstanding Life (Years) Price Exercisable Price
----------- ------------ ------------ --------- ------------ --------
$ 0.13-0.15 950,000 3.25 $ 0.14 950,000 $ 0.14
$0.20-.0.25 525,000 1.00 $ 0.21 525,000 $ 0.21
$ 0.50 33,000 2.25 $ 0.50 33,000 $ 0.50
------------- --------- ------------ --------
1,508,000 $ 0.16 1,508,000 $ 0.16
============= ========= ============ ========
|
Common Stock Warrants
In November and December 2005, in connection with a debenture payable, the
Company granted 1,304,348 warrants to purchase 1,304,348 shares of common stock
at $0.092 per share. The warrants expire on the three-year anniversary of the
date of issuance.
NOTE 10 - GOING CONCERN
As reflected in the accompanying consolidated financial statements, the Company
had an accumulated deficit of $4,642,508 and a working capital deficit of
$2,735,229 at September 30, 2007 and net losses for the nine months ended
September 30, 2007 of $809,001. While the Company is attempting to increase
sales, the growth has not been significant enough to support the Company's daily
operations. In order to raise funds, on August 2005, the Company entered into an
Investment Agreement and a Debenture Agreement (See Note 3 and 4), and a note
payable agreement (See note 5), and has notes payable to a bank and a third
party. Additionally, during the nine months ended September 30, 2007, the
Company has a loan payable with the Company's CEO (see Note 8). Management may
attempt to raise additional funds by way of a public or private offering. While
the Company believes in the viability of its strategy to improve sales volume
and in its ability to raise additional funds, there can be no assurances to that
effect. The Company's limited financial resources have prevented the Company
from aggressively advertising its products and services to achieve consumer
recognition. The ability of the Company to continue as a going concern is
dependent on the Company's ability to further implement its business plan and
generate increased revenues. The consolidated financial statements do not
include any adjustments that might be necessary if the Company is unable to
continue as a going concern. Management believes that the actions presently
being taken to further implement its business plan and generate additional
revenues provide the opportunity for the Company to continue as a going concern.
NOTE 11 - COMMITMENTS AND CONTINGENCIES
During the second quarter of 2005, the Company was sued by another dentist who
was previously a Direct Dental member. The suit was filed in Dade County,
Florida (Case No. 05-0077-99) and alleges tortuous interference with a business
relationship and libel. The Company filed a counterclaim against the Plaintiff.
In April 2007, the Company was successful with the counterclaim and settled the
litigation for payment of $190,000 and was included in the total revenues as
other revenue in the accompanying consolidated statements of operations.
23
UNION DENTAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2007
NOTE 12 - SUBSEQUENT EVENTS
In October, 2007, the Company exercised a put notice in accordance with its
Investment Agreement with Dutchess (see note 4) and repaid principal balance on
its notes payable of $44,129 for which the Company issued in aggregate 4,879,000
shares of its common stock to Dutchess.
In October 2007, the Company issued 700,000 shares of common stock for
accounting services rendered. The Company valued these common shares at the fair
market value on the date of grant at $.01 per share or $7,000. In connection
with issuance of these shares, the Company recorded professional fees of $7,000
for professional services performed.
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24