Perf-Go
Green Holdings, Inc. and Subsidiary
Notes to
Consolidated Financial Statements
September
30, 2009
(Unaudited)
Note 1 - Organization and
Nature of Operations
Perf-Go
Green Holdings, Inc. (“Holdings”), formerly known as ESYS Holdings, Inc.
(“ESYS”) and La Solucion, Inc. (the “Company”), was incorporated in Delaware in
April 2005. Its business was originally intended to provide assistance to the
non-English speaking Hispanic population in building and maintaining a life in
North Carolina but it did not establish operations in connection with its
business plan.
On May
13, 2008, Holdings, a then public shell corporation, in a share exchange
transaction with the stockholders of Perf-Go Green, Inc. (“Perf-Go Green”), a
privately-owned Delaware corporation pursuant to which Holdings
acquired all of the outstanding shares of common stock of Perf-Go Green. Perf-Go
Green was originally incorporated as a limited liability company on November 15,
2007 and converted to a “C” corporation on January 7, 2008. Upon the
consummation of the transaction, Perf-Go Green became a wholly-owned subsidiary
of Holdings.
Perf-Go
Green became the surviving corporation, in a transaction treated as a reverse
acquisition. Holdings did not have any operations and majority-voting control
was transferred to Perf-Go Green. The transaction also required a
recapitalization of Perf-Go Green.
Since
Perf-Go Green acquired a controlling voting interest, it was deemed the
accounting acquirer, while Holdings was deemed the legal acquirer. The
historical financial statements of the Company are those of Perf-Go Green, and
of the consolidated entities from the date of merger and
subsequent.
Since the
transaction was considered a reverse acquisition and recapitalization, the
presentation of pro-forma financial information was not required.
Pursuant
to the merger, Holdings issued 21,079,466 shares of common stock to Perf-Go
Green in exchange for Perf-Go Green’s 20,322,767 shares outstanding (1.03:1
exchange ratio). Upon the closing of the reverse acquisition, Perf-Go
Green and its stockholders held 65% of the issued and outstanding shares of
common stock. The remaining 11,200,004 shares of Holdings commons stock was a
deemed issuance to the former shareholders of Holdings.
The
Company is focused on the development and global marketing of eco-friendly,
non-toxic, food contact compliant, biodegradable plastic products. The Company’s
biodegradable plastic products offer a practical and viable solution for
reducing plastic waste from the environment. The Company believes that its
plastic products will break down in landfill environments within twelve (12) to
twenty four (24) months, leaving no visible or toxic residue. The Company’s
activities have included capital raising to support its business plan,
recruiting board of directors and management personnel and establishing sources
of supply and customer relationships. During the year ended March 31, 2009, the
Company commenced principal operations with the initiation of significant
revenues and exited the development stage.
Perf-Go
Green Holdings, Inc. and Subsidiary
Notes
to Consolidated Financial Statements
September
30, 2009
(Unaudited)
The
accompanying unaudited consolidated financial statements have been prepared in
accordance with the instructions to Form 10-Q and Articles 8 and 10 of
Regulation S-X for small business issuers and do not include all of the
information and disclosures required by accounting principles generally accepted
in the United States of America (“GAAP”). The unaudited consolidated financial
statements include the accounts of Perf-Go Green Holdings, Inc. and its
wholly-owned subsidiary, Perf-Go Green, Inc. (collectively, the "Company") and
all significant intercompany transactions and balances have been eliminated in
consolidation. All adjustments which are of a normal recurring nature and, in
the opinion of management, necessary for a fair presentation have been included.
These unaudited consolidated financial statements should be read in conjunction
with the more complete information and the Company's audited consolidated
financial statements as of March 31, 2009 and the related notes
thereto.
Note 2 - Summary of
Significant Accounting Policies
Principles
of Consolidation
All
significant intercompany accounts and transactions have been eliminated in
consolidation.
Use
of Estimates
The
preparation of financial statements in conformity with GAAP in the United States
of America requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported amounts
of revenue and expenses during the reporting period. Actual results could differ
from those estimates.
Significant
estimates in 2009 included the valuation of stock issued for compensation and
services, stock-based compensation arrangements with employees and third
parties, fair value of derivative financial instruments, estimated useful life
of equipment, and a 100% valuation allowance for deferred taxes due to the
Company’s continuing and expected future losses.
Perf-Go
Green Holdings, Inc. and Subsidiary
Notes
to Consolidated Financial Statements
September
30, 2009
(Unaudited)
Risks
and Uncertainties
The
Company operates in an industry that is subject to intense competition and rapid
technological change and is in a state of fluctuation as a result of the global
credit crisis. The Company's operations are subject to significant
risk and uncertainties including financial, operational, technological, and
regulatory risks including the potential risk of business failure.
The
Company has experienced, and in the future expects to continue to experience,
variability in sales and earnings. The factors expected to contribute to this
variability include, among others, (i) the cyclical nature of the
industries we sell and cater to, (ii) general economic conditions in the
various local markets in which the Company competes, including the general
downturn in the economy over the past year, and (iii) the volatility of
prices pertaining to our vendors and suppliers. These factors, among
others, make it difficult to project the Company’s operating results on a
consistent basis.
Cash
and Cash Equivalents
The
Company believes its current available cash along with anticipated revenues will
be insufficient to meet its cash needs for the near future and its ability to
continue as a going concern is in question. The Company has been
actively negotiating with a number of potential investors to obtain additional
financing to meet its cash flow needs for at least the next several
weeks. At the present time, these additional financings have not been
consummated and there can be no assurance that the Company will be able to
obtain sufficient financing on acceptable terms, if at all. In the
event the Company cannot obtain the needed financing within the next several
weeks, the Company may have to materially curtail or even cease its
operations. The Company is making every effort to remedy this
situation, but there can be no assurance such efforts will be successful, and
the Company is considering all options.
The
Company considers all highly liquid instruments purchased with a maturity of
three months or less to be cash equivalents. There were no cash
equivalents at September 30, 2009 and March 31, 2009, respectively.
The
Company minimizes its credit risk associated with cash by periodically
evaluating the credit quality of its primary financial institution. The balance
at times may exceed federally insured limits. At September 30, 2009 and March
31, 2009, there were no balances exceeding the insured limits.
Accounts
Receivable and Allowance for Doubtful Accounts
Accounts
receivable represents trade obligations from customers that are subject to
normal trade collection terms. The Company periodically evaluates the
collectability of its accounts receivable and considers the need to adjust an
allowance for doubtful accounts based upon historical collection experience and
specific customer information. Actual amounts could vary from the recorded
estimates.
At
September 30, 2009 and March 31, 2009, the Company recorded an allowance for
doubtful accounts receivable of $17,726 and $4,033, respectively.
Perf-Go Green Holdings, Inc. and
Subsidiary
Notes
to Consolidated Financial Statements
September
30, 2009
(Unaudited)
Due
(to) from Factor
On March
20, 2009, the Company entered into an agreement with a factor, which will
provide, on a discretionary basis, a combined credit facility of $10 million for
purchase order financing and factoring. Under the agreement, the
Company agreed to pay the factor a commission of 1.0% to 1.5% of the gross
amount of each receivable. In addition, the Company agreed that the
factor will receive a minimum of $100,000 in commissions in the first 12
months. As collateral for the Company’s obligations under this
agreement, the Company has granted the factor a security interest in all of the
company’s assets. The factor advances 80% of the factored receivables
and pays a percentage of the 20% when the factored receivable is
collected.
Deposits
The
manufacturing of the Company’s biodegradable plastic products is outsourced to a
sole supplier (“supplier”). In order to secure initial product
shipments expected, the Company has deposits of $1,309,966 and $1,533,047 with
the supplier at September 30, 2009 and March 31, 2009, respectively. In order to
secure full payment, the supplier retains title and risk of loss to the
related inventory until final payment which occurs before shipment to the
customer. The Company does not currently carry inventory for any significant
period of time and inventory balances at September 30, 2009 and March 31, 2009,
was $313,258 and $0, respectively.
Long-Lived
Assets
The
Company carries long-lived assets at the lower of the carrying amount or fair
value. Impairment is evaluated by estimating future undiscounted cash flows
expected to result from the use of the asset and its eventual disposition. If
the sum of the expected undiscounted future cash flow is less than the carrying
amount of the assets, an impairment charge is recognized. Fair value, for
purposes of calculating impairment, is measured based on estimated undiscounted
future cash flows, discounted at a market rate of interest. For the three and
six month periods ended September 30, 2009 and 2008, the Company did not record
any impairment charges.
Equipment
Equipment
is stated at cost, less accumulated depreciation computed on a straight-line
basis over the estimated useful life, which is three to seven
years.
Debt
Discount and Debt Issue Costs
These
amounts are amortized over the life of the debt to interest expense. If a
conversion of the underlying debt occurs, a proportionate share of these amounts
is immediately expensed.
Perf-Go Green Holdings, Inc. and
Subsidiary
Notes
to Consolidated Financial Statements
September
30, 2009
(Unaudited)
Fair
Value of Financial Instruments
The
carrying amounts of the Company’s short-term financial instruments, including
the Company’s current assets (exclusive of cash) and current liabilities,
approximate fair value due to the relatively short period to maturity for these
instruments.
Warrants
and Derivative Liabilities
The
Company reviews any common stock purchase warrants and other freestanding
derivative financial instruments at each balance sheet date and will classify on
the balance sheet as:
|
|
a)
|
Equity
if they (i) require physical settlement or net-share settlement, or
(ii) gives us a choice of net-cash settlement or settlement in our
own shares (physical settlement or net-share settlement), or
as
|
|
|
b)
|
Assets
or liabilities if they (i) require net-cash settlement (including a
requirement to net cash settle the contract if an event occurs and if that
event is outside our control), or (ii) give the counterparty a choice of
net-cash settlement or settlement in shares (physical settlement or
net-share settlement).
|
The
Company assesses classification of our common stock purchase warrants and other
freestanding derivatives at each reporting date to determine whether a change in
classification between assets and liabilities is required.
Segment
Information
During
2009 and 2008, the Company only operated in one segment; therefore, segment
information has not been presented.
Revenue
Recognition
The
Company records revenue when the risks and rewards of ownership have transferred
to customers which generally occurs when products are shipped and all of the
following have occurred; (1) persuasive evidence of an arrangement exists, (2)
product delivery has occurred, (3) the sales price to the customer is fixed or
determinable, and (4) collectability is reasonably assured. In arriving at net
sales, the Company estimates the amount of deductions that are likely to be
taken by customers and adjusts that periodically based on historical experience.
The Company records revenues upon shipment. In accordance with the revenue
recognition policy of the Company, the factor has held back $12,034 in factored
receivables. The Company has recorded a sales allowance reflecting this
holdback.
Perf-Go Green Holdings, Inc. and
Subsidiary
Notes
to Consolidated Financial Statements
September
30, 2009
(Unaudited)
Cost
of Sales
Cost of
sales represents the purchase of the Company’s products.
Advertising
Costs
incurred for producing and communicating advertising for the Company are charged
to operations as incurred.
Advertising
expense for the three and six month periods ended September 30, 2009, and 2008
was $36,045, $90,324, $653,000 and $947,000, respectively.
Earnings
Per Share
Basic
earnings (loss) per share is computed by dividing net income (loss) by weighted
average number of shares of common stock outstanding during each
period. Diluted earnings (loss) per share is computed by dividing net
income (loss) by the weighted average number of shares of common stock, common
stock equivalents and potentially dilutive securities outstanding during the
period.
At
September 30, 2009 and 2008 the Company’s common stock equivalents
consisted of the following:
|
|
|
2009
|
|
|
2008
|
|
|
Shares
underlying convertible debt
|
|
|
10,690,942
|
|
|
|
7,933,333
|
|
|
Stock
options
|
|
|
8,173,600
|
|
|
|
7,407,600
|
|
|
Warrants
|
|
|
40,488,340
|
|
|
|
22,929,999
|
|
|
Total
common stock equivalents
|
|
|
59,352,882
|
|
|
|
38,270,932
|
|
For the
three and six month periods ended September 30, 2009, all of the Company’s
common stock options and warrants had exercise prices in excess of the Company’s
average market price of the common stock into which they convert, accordingly,
there was no dilutive effect for these periods as it relates to the options and
warrants. Related to the Company’s convertible notes, for the three and six
month periods ended September 30, 2009, on an “as if” converted basis, the
Company had 10,690,942 dilutive common stock equivalents for both periods,
resulting in total dilutive common shares of 45,866,112 and 45,671,322,
respectively. Additionally, dilutive net income reflects the add back
of approximately $136,000 and $266,000 of interest expense related to the Senior
Secured Convertible Debentures for the three and six months ended September 30,
2009, respectively. For the six month period ended September
30, 2008, the Company reflected a net loss and the effect of considering any
common stock equivalents would have been anti-dilutive for this
period. For the three month period ended September 30, 2008, the
Company had 14,217,000 dilutive common stock equivalents, which resulted in
total dilutive shares of 47,392,000. Additionally, diluted income for the three
month period ended September 30, 2008 reflects the add back of approximately
$812,000 of interest expense and related amortization of the Senior Secured
Convertible Debentures.
Share
Based Payments
Generally,
all forms of share-based payments, including stock option grants, restricted
stock grants and stock appreciation rights, are measured at their fair value on
the awards’ grant date, and based on the estimated number of awards that are
ultimately expected to vest. Share-based payment awards issued to non-employees
for services rendered are recorded at either the fair value of the services
rendered or the fair value of the share-based payment, whichever is more readily
determinable. The expense resulting from share-based payments are recorded as a
component of general and administrative expense.
Perf-Go
Green Holdings, Inc. and Subsidiary
Notes
to Consolidated Financial Statements
September
30, 2009
(Unaudited)
Recent
Accounting Pronouncements
In April
2009, the FASB issued Accounting Standards Codification (“ASC”) Topic 805
(“Topic 805”),
Business
Combinations
. This topic requires that the acquisition method
of accounting be used for all business combinations and for an acquirer to be
identified for each business combination. The topic defines the acquirer as the
entity that obtains control of one or more businesses in the business
combination and establishes the acquisition date as the date that the acquirer
achieves control. The topic will require an entity to record
separately from the business combination the direct costs, where previously
these costs were included in the total allocated cost of the
acquisition. The topic will require an entity to recognize the assets
acquired, liabilities assumed, and any non-controlling interest in the acquired
at the acquisition date, at their fair values as of that
date. The
topic will require an entity to recognize as an asset or liability at fair value
for certain contingencies, either contractual or non-contractual, if certain
criteria are met. Finally, Topic 805 will require an entity to
recognize contingent consideration at the date of acquisition, based on the fair
value at that date. This Statement will be effective for business
combinations completed on or after the first annual reporting period beginning
on or after December 15, 2008. Early adoption of this standard is not
permitted and the standards are to be applied prospectively
only. Upon adoption of this standard, there would be no impact to the
Company’s results of operations and financial condition for acquisitions
previously completed. The adoption of Topic 805 is not expected to
have a material effect on its financial position, results of operations or cash
flows.
Perf-Go
Green Holdings, Inc. and Subsidiary
Notes
to Consolidated Financial Statements
September
30, 2009
(Unaudited)
In
December 2007, the FASB issued ASC Topic 810 (“Topic 810”), “
Noncontrolling Interests in
Consolidated Financial Statements, an amendment of Accounting Research Bulletin
No 51
”. Topic 810 establishes accounting and reporting standards for
ownership interests in subsidiaries held by parties other than the parent,
changes in a parent’s ownership of a noncontrolling interest, calculation and
disclosure of the consolidated net income attributable to the parent and the
noncontrolling interest, changes in a parent’s ownership interest while the
parent retains its controlling financial interest and fair value measurement of
any retained noncontrolling equity investment. Topic 810 is effective for
financial statements issued for fiscal years beginning after December 15, 2008,
and interim periods within those fiscal years. Early adoption is prohibited. The
adoption of Topic 810 is not expected to have a material effect on its financial
position, results of operations or cash flows.
In March
2008, the FASB issued ASC Topic 815 (“Topic 815”)
“Disclosures about Derivative
Instruments and Hedging Activities—An Amendment of FASB Statement No. 133.”
Topic 815 establishes the disclosure requirements for derivative
instruments and for hedging activities with the intent to provide financial
statement users with an enhanced understanding of the entity’s use of derivative
instruments, the accounting of derivative instruments and related hedged items,
and the effects of these instruments on the entity’s financial position,
financial performance, and cash flows. This statement is effective for
financial statements issued for fiscal years beginning after November 15,
2008. The Company does not expect its adoption of Topic 815 to have a material
impact on its financial position, results of operations or cash
flows.
In April
2008, the FASB issued ASC Topic 350 (“Topic 350”), “
Determination of the Useful Life of
Intangible Assets”
. This Topic amends the factors that should be
considered in developing renewal or extension assumptions used to determine the
useful life of a recognized intangible asset. The intent of this Topic is to
improve the consistency between the useful life of a recognized intangible
asset and the period of expected cash flows used to measure the fair
value of the asset. This Topic is effective for financial statements issued for
fiscal years beginning after December 15, 2008, and interim periods within
those fiscal years. Early adoption is prohibited. The Company does not expect
the adoption of Topic 350, to have a material impact on its financial position,
results of operations or cash flows.
In May
2008, the FASB issued ASC Topic 470 (“Topic 470”)
“Accounting for Convertible Debt
instruments That May Be Settled in Cash upon Conversion (Including Partial Cash
Settlement)”
. Topic 470 requires the issuer of certain
convertible debt instruments that may be settled in cash (or other assets) on
conversion to separately account for the liability (debt) and equity (conversion
option) components of the instrument in a manner that reflects the issuer’s
non-convertible debt borrowing rate. Topic 470 is effective for fiscal years
beginning after December 15, 2008 on a retroactive basis. The Company does not
expect the adoption of this Topic to have a material impact on its financial
position, results of operations or cash flows.
Perf-Go Green Holdings, Inc. and
Subsidiary
Notes
to Consolidated Financial Statements
September
30, 2009
(Unaudited)
In
October 2008, the FASB issued ASC Topic 820 (“Topic 820”), “
Determining the Fair Value of a
Financial Asset When the Market For That Asset Is Not Active”
with an
immediate effective date, including prior periods for which financial statements
have not been issued. Topic 820 clarifies the application of fair value in
inactive markets and allows for the use of management’s internal assumptions
about future cash flows with appropriately risk-adjusted discount rates when
relevant observable market data does not exist. The objectives of Topic
820 has not changed and continues to be the determination of the price that
would be received in an orderly transaction that is not a forced liquidation or
distressed sale at the measurement date. The adoption of Topic 820 is not
expected to have a material effect on the Company’s financial position, results
of operations or cash flows.
In April
2009, the FASB issued ASC Topic 820 (“Topic 820”),
“Determining Whether a Market Is Not
Active and a Transaction Is Not Distressed,”
which further clarifies the
principles established by previous GAAP. The guidance is effective for the
periods ending after June 15, 2009 with early adoption permitted for the periods
ending after March 15, 2009. The adoption of Topic 820 is not expected to have a
material effect on the Company’s financial position, results of operatio
ns, or
cash flows.
In May
2009, the FASB issued ASC Topic 855 (“Topic 855”) “
Subsequent Events
”. Topic 855
establishes general standards of accounting for and disclosure of events that
occur after the balance sheet date but before financial statements are issued or
are available to be issued. The Topic sets forth (1) The period after the
balance sheet date during which management of a reporting entity should evaluate
events or transactions that may occur for potential recognition or disclosure in
the financial statements, (2) The circumstances under which an entity should
recognize events or transactions occurring after the balance sheet date in its
financial statements and (3) The disclosures that an entity should make about
events or transactions that occurred after the balance sheet date. Topic 855 is
effective for interim or annual financial periods ending after June 15, 2009.
The Company is evaluating the impact the adoption of Topic 855 will have on its
financial statements.
In June
2009, the FASB issued ASC Topic 860 (“Topic 860”) “
Accounting for Transfers of
Financial Assets—an amendment of FASB Statement No.
140
”. Topic 860 improves the relevance, representational
faithfulness, and comparability of the information that a reporting entity
provides in its financial statements about a transfer of financial assets; the
effects of a transfer on its financial position, financial performance, and cash
flows; and a transferor’s continuing involvement, if any, in transferred
financial assets. Topic 860 is effective as of the beginning of each reporting
entity’s first annual reporting period that begins after November 15, 2009, for
interim periods within that first annual reporting period and for interim and
annual reporting periods thereafter. The Company is evaluating the impact the
adoption of Topic 860 will have on its financial statements.
Perf-Go Green Holdings, Inc. and
Subsidiary
Notes
to Consolidated Financial Statements
September
30, 2009
(Unaudited)
In June
2009, the FASB issued ASC Topic 810 (“Topic 810”) “
Amendments to FASB Interpretation
No. 46(R)
”. Topic 810 improves financial reporting
by enterprises involved with variable interest entities and to address (1) the
effects on certain provisions of FASB Interpretation No. 46 (revised December
2003), “Consolidation of Variable Interest Entities”, as a result of the
elimination of the qualifying special-purpose entity concept in SFAS 166 and (2)
constituent concerns about the application of certain key provisions of
Interpretation 46(R), including those in which the accounting and disclosures
under the Interpretation do not always provide timely and useful information
about an enterprise’s involvement in a variable interest entity. Topic 810 is
effective as of the beginning of each reporting entity’s first annual reporting
period that begins after November 15, 2009, for interim periods within that
first annual reporting period, and for interim and annual reporting periods
thereafter. The Company is evaluating the impact the adoption of Topic 810 will
have on its financial statements.
In
June 2009, the FASB issued ASC Topic 105 (“Topic 105”) “
The FASB Accounting Standards
Codification and the Hierarchy of Generally Accepted Accounting Principles—a
replacement of FASB Statement No. 162
”. The FASB Accounting Standards
Codification (“Codification”) will be the single source of authoritative
nongovernmental U.S. generally accepted accounting principles. Rules and
interpretive releases of the SEC under authority of federal securities laws are
also sources of authoritative GAAP for SEC registrants. Topic 105 is effective
for interim and annual periods ending after September 15, 2009. All existing
accounting standards are superseded as described in Topic 105. All other
accounting literature not included in the Codification is nonauthoritative. The
Codification is not expected to have a significant impact on the Company’s
financial statements.
Other
accounting standards have been issued or proposed by the FASB or other
standards-setting bodies that do not require adoption until a future date and
are not expected to have a material impact on the financial statements upon
adoption.
Note 3 - Going Concern and
Liquidity
As
reflected in the accompanying consolidated financial statements, the Company had
a net loss from operations of $4,161,304 and net cash used in operations of
$975,592 for the six month period ended September 30, 2009; and has a working
capital deficit of $7,451,745 and a stockholders’ deficit of
$7,697,379. The Company’s net income for this period reflects the
non-cash change in the unrealized gain related to derivative liabilities of
$9,961,831 as discussed in Note 6.
Further,
losses from operations are continuing subsequent to September 30, 2009 and the
Company anticipates that it will continue to generate significant losses from
operations for the near future. The Company believes its current available cash
along with anticipated revenues may be insufficient to meet its cash needs for
the near future. There can be no assurance that financing will be
available in amounts or terms acceptable to the Company, if at all.
Perf-Go
Green Holdings, Inc. and Subsidiary
Notes
to Consolidated Financial Statements
September
30, 2009
(Unaudited)
These
conditions raise substantial doubt about the Company’s ability to continue as a
going concern. The ability of the Company to continue its operations is
dependent on Management's plans, which include the raising of capital through
debt and/or equity markets with some additional funding from other traditional
financing sources, including term notes, until such time that funds provided by
operations are sufficient to fund working capital requirements. The
Company may need to incur additional liabilities with certain related parties to
sustain the Company’s existence.
The
accompanying financial statements have been prepared on a going concern basis,
which contemplates the realization of assets and the satisfaction of liabilities
in the normal course of business. These financial statements do not
include any adjustments relating to the recovery of the recorded assets or the
classification of the liabilities that might be necessary should the Company be
unable to continue as a going concern.
Note 4 Fair
Value
The
Company has categorized our assets and liabilities recorded at fair value based
upon the fair value hierarchy specified by GAAP.
The
levels of fair value hierarchy are as follows:
|
|
·
|
Level
1 inputs utilize unadjusted quoted prices in active markets for identical
assets or liabilities that the Company has the ability to
access;
|
|
|
·
|
Level
2 inputs utilize other-than-quoted prices that are observable, either
directly or indirectly. Level 2 inputs include quoted prices for similar
assets and liabilities in active markets, and inputs such as interest
rates and yield curves that are observable at commonly quoted intervals;
and
|
|
|
·
|
Level
3 inputs are unobservable and are typically based on our own assumptions,
including situations where there is little, if any, market
activity.
|
In
certain cases, the inputs used to measure fair value may fall into different
levels of the fair value hierarchy. In such cases, the Company categorizes such
financial asset or liability based on the lowest level input that is significant
to the fair value measurement in its entirety. Our assessment of the
significance of a particular input to the fair value measurement in its entirety
requires judgment and considers factors specific to the asset or
liability.
Both
observable and unobservable inputs may be used to determine the fair value of
positions that are classified within the Level 3 category. As a result, the
unrealized gains and losses for assets within the Level 3 category
presented in the tables below may include changes in fair value that were
attributable to both observable and unobservable inputs.
Perf-Go
Green Holdings, Inc. and Subsidiary
Notes
to Consolidated Financial Statements
September
30, 2009
(Unaudited)
The
following are the major categories of liabilities measured at fair value on a
nonrecurring basis during the year ended August 31, 2009, using quoted prices in
active markets for identical liabilities (Level 1); significant other
observable inputs (Level 2); and significant unobservable inputs
(Level 3):
|
|
|
Level
1:
Quoted
Prices in Active Markets for Identical Liabilities
|
|
|
Level
2:
Significant
Other Observable Inputs
|
|
|
Level
3:
Significant
Unobservable Inputs
|
|
|
Total
at September 30, 2009
|
|
|
Derivative
Liabilities
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
5,956,549
|
|
|
$
|
5,956,549
|
|
|
Total
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
5,956,549
|
|
|
$
|
5,956,549
|
|
There
were derivative liabilities of $15,381,809 requiring a Level 3 fair value
classification at September 30, 2008.
Note 5 - Due from
Factor
Due (to)
from factor at September 30, 2009 and March 31, 2009 is as follows:
|
|
|
September
30, 2009
|
|
|
March
31, 2009
|
|
|
Accounts
Receivable
|
|
$
|
134,674
|
|
|
$
|
253,272
|
|
|
Less:
Advances
|
|
|
(229,405)
|
|
|
|
(156,216
|
)
|
|
Less:
Commissions
|
|
|
(8,533)
|
|
|
|
(2,829
|
)
|
|
Less:
Other Factoring Expenses
|
|
|
(11,061)
|
|
|
|
(2,121
|
)
|
|
Due
(To) From Factor
|
|
$
|
(114,325)
|
|
|
$
|
92,106
|
|
Note 6 -
Equipment
Equipment
at September 30, 2009 and March 31, 2009 consist of the following:
|
|
|
September
30, 2009
|
|
|
March
31, 2009
|
|
|
Furniture
and fixtures
|
|
$
|
177,018
|
|
|
$
|
171,181
|
|
|
Computer
equipment
|
|
|
71,665
|
|
|
|
71,665
|
|
|
Software
|
|
|
83,392
|
|
|
|
83,392
|
|
|
|
|
|
332,075
|
|
|
|
326,238
|
|
|
Less:
accumulated depreciation
|
|
|
(78,129
|
)
|
|
|
(40,841
|
)
|
|
Equipment
– net
|
|
$
|
253,946
|
|
|
$
|
285,397
|
|
Perf-Go
Green Holdings, Inc. and Subsidiary
Notes
to Consolidated Financial Statements
September
30, 2009
(Unaudited)
Note 7 - Convertible Debt,
Warrants, Derivative Liabilities and Registration Rights
Liability
(A)
Senior Secured Convertible Debentures and Warrants
During
May and June 2008, the Company issued $5,950,000 of senior secured convertible
debentures with five-year detachable warrants to purchase shares of the
Company’s common stock. The convertible debt issued is secured by all assets of
the Company. The convertible debt accrues interest at 10%, and is payable
quarterly in arrears in cash or equity.
Additionally,
in August 2009, the Company issued $200,000 of senior secured convertible
debentures with 100,000 five year detachable warrants at an exercise price of
$.50 per share to purchase shares of the Company’s common stock. This debenture
is unsecured, accrues interest at 22%, and matures in November
2009. The detachable warrants have the same derivative features as
the other convertible debentures and warrants described below, and accordingly,
are recorded as derivative liabilities.
During
the six month period ended September 30, 2009, $45,000 of the
convertible debentures were converted into 90,000 shares of common stock,
respectively. There were no conversions for the six month period ended September
30, 2008. The remaining face amount of the debentures is $5,345,471 as of
September 30, 2009 and are due in May 2011, with respect to $2,250,000 of
principal amount, and in June 2011, with respect to $2,895,471 of principal
amount, and in December 2009, with respect to $200,000 of principal
amount. As discussed in Note 11, subsequent to September 30, 2009 a
significant amount of the convertible debentures were converted into common
stock.
The
Convertible Debentures contain various covenants which, among other things,
restrict the Company’s ability to incur additional debt or liens or engage in
certain transactions as specified therein. Additionally, the Convertible
Debentures define various events of default including non-payment of interest or
principal when due, failure to comply with covenants, breach of representations
or warranties, failure to obtain effective registration of the common stock
underlying the conversion feature or failure to deliver registered common stock,
when requested, within a specified timeframe as well as other matters discussed
therein. Various remedies exist for an event of default including the
acceleration of the maturity of the obligation, an increase in the interest rate
to 15% (related to the May and June 2008 notes), accrual of certain
costs of the debt holders and a reduction of the conversion rate, among other
things. The Convertible Debentures also provide that in the event of a
“fundamental transaction” such as a change in control, the holder may require
that such holder’s Convertible Note be redeemed at an “alternative
consideration” which can be, among other things, 135% of the principal amount of
the Convertible Note or 130% of the equity conversion value of the Convertible
Note.
The
Convertible Debentures are convertible at the option of the Investors into
shares of the Company’s common stock at the lower of the (a) “fixed conversion
price” of $0.50 per share. As of September 30, 2009, the debentures
can be converted into 10,690,942 shares of common stock based on the $0.50 per
share conversion price, subject to adjustment for stock splits, stock dividends,
or similar transactions, (b) “lowest conversion price” representing the lowest
price, conversion price or exercise price offered by the Company in a subsequent
equity financing, convertible security (subject to certain exceptions) or
derivative instruments or (c) “mandatory default amount” representing the amount
necessary to convert 110% of the face amount of the Convertible Debentures plus
accrued interest and costs at the lower of the price of the common stock on the
date of demand or the date of payment. The Company’s common stock price at the
time of issuance of both the May and June 2008 Convertible Debentures exceeded
the relevant conversion price (the fixed conversion price). As a result, the
Company determined that since the conversion feature can result in a variable
amount of shares being issued, the conversion feature is considered an embedded
derivative liability, not a beneficial conversion feature, that needs to be
separated from the “host contract” as described further below.
Perf-Go Green Holdings, Inc. and
Subsidiary
Notes
to Consolidated Financial Statements
September
30, 2009
(Unaudited)
The Company is obliged to
issue registered shares of common stock upon the exercise of all the above
warrants and if it cannot do so within three business days, it is obliged to pay
in cash the market value, plus brokerage commissions, of the common stock.
Because of the “pay in cash” feature and the variability of the exercise price,
the warrants above are considered to be a derivative liabilities as discussed
further below.
(B)
Derivative Liabilities
The
embedded conversion option discussed above in the Convertible Debentures and the
detachable Warrants are deemed “freestanding financial instruments” that cannot
be classified as equity instruments at the commitment date related to their
issuance and instead are classified as “derivative liabilities subject to fair
value accounting.”
Because
the Convertible Debentures were issued with a variable conversion feature and
with detachable Warrants with net cash settlement features described above, the
fair value of these attributes are calculated and assigned before a value is
assigned to the Convertible Debentures. These derivative liabilities
are re-measured every reporting period.
The fair
value of the conversion feature of the Convertible Debentures and the initial
warrants that is assigned to debt discount (originally $5,950,000) is being
amortized over the life of the Convertible Debentures (three
years). During the six months ended September 30, 2009, the Company
recorded a derivative liability of $47,439 related to the fair value of the
detachable warrants issued with the $200,000 convertible debenture.
The debt
discount is amortized to interest expense for any conversions of the debentures
based on the pro-rata amount of debenture converted to total
debt. For the three and six months ended September 30, 2009 and 2008,
the Company amortized $567,029, $1,182,079, $497,000, and $675,000,
respectively, to interest expense related to amortization of the debt
discount. These amounts include accelerated amortization for any
conversions during these periods.
During
the six-month period ended September 30, 2009, the Debt holders converted
$45,000 of Convertible Debentures into 90,000 shares of common stock of the
Company (the “Conversion”). In connection with the Conversion, the Company
recorded the face amount of these Convertible Debentures at the date of
conversion ($45,000) plus the proportionate share of the related derivative
liability, as remeasured on the conversion date, of $33,004 (for a total
recorded of $78,004) to stockholders equity.
Perf-Go Green Holdings,
Inc. and Subsidiary
Notes
to Consolidated Financial Statements
September
30, 2009
(Unaudited)
Convertible
debt at September 30, 2009 is as follows:
|
Convertible
debt – net at March 31, 2009
|
|
$
|
138,592
|
|
|
Conversion
of debt and accrued interest to common stock
|
|
|
(45,000
|
)
|
|
Add:
|
|
|
|
|
|
Debt
proceeds
|
|
|
200,000
|
|
|
Amortization
of debt discount
|
|
|
1,182,079
|
|
|
Convertible
debt – net at September 30, 2009
|
|
$
|
1,475,671
|
|
(C)
Placement Agent Warrants
In
connection with the issuance of the Convertible Debentures and Warrants during
fiscal year 2009, the Company paid a placement agent (the “Placement Agent”) a
cash fee of $595,000 and issued them warrants, that have an exercise price of
$.50 per share, and expire five years from issuance. These warrants have
the same anti-dilution provisions as the warrants issued to the convertible debt
investors. Because the above warrants have the same variable exercise price
feature, and cash settlement provisions as the Investor Warrants described
above, these warrants are also considered derivative liabilities. As such, their
fair value at inception of approximately $1,394,000 was charged to derivative
liability. During fiscal year 2009, the Company recorded the
aggregate of the cash and warrant compensation of approximately $1,989,000 as
debt issue costs. For the three and six months ended September 30, 2009 and
2008, amortization expense related to debt issuance costs was $138,802,
$296,880, $153,000 and $ 204,000, respectively.
(D)
Registration Rights Liability
The
Company also granted the Debt holders registration rights for the common stock
underlying the embedded conversion feature in the Convertible Debentures and the
Warrants. The Company can be assessed liquidated damages, as defined in the
related agreements, for the failure to file a registration statement in a
certain timeframe or for the failure to obtain or maintain effectiveness of such
registration statement. Such penalties shall not exceed, in the aggregate, 15%
of the aggregate Purchase Price (as defined in the Convertible Debentures). In
assessing the likelihood and amount of possible liability for liquidated
damages, the Company considered that obtaining and maintaining effectiveness of
the registration statement is not within the Company’s control, and concluded
that it is probable that a liability will be incurred and therefore recorded a
liability for $892,500 representing its estimate that such liability
will be 15% of the proceeds of the Convertible Debentures as registration rights
liability. The Company’s registration statement was declared effective on
February 10, 2009 and approximately $75,000, plus interest, of liquidated
damages had been incurred as of March 31, 2009 and approximately $225,000, plus
interest, as of
February
10, 2009
. The Company continues to be exposed to further registration
rights liquidated damages if it does not maintain the effectiveness of such
registration statement. At such time as it becomes clear that such effectiveness
can be maintained, the remaining liability would be reversed.
Perf-Go Green Holdings,
Inc. and Subsidiary
Notes
to Consolidated Financial Statements
September
30, 2009
(Unaudited)
(E) Derivative
Liabilities As Remeasured – Summary at September 30, 2009 and March 31,
2009
|
|
|
September 30,
2009
|
|
|
March 31,
2009
|
|
|
Fair
value of embedded conversion feature – convertible debt
|
|
$
|
832,158
|
|
|
$
|
2,738,529
|
|
|
Fair
value of warrants – convertible debt
|
|
|
1,024,089
|
|
|
|
2,588,093
|
|
|
Fair
value of warrants - placement agent – in convertible debt
offering
|
|
|
99,260
|
|
|
|
260,557
|
|
|
Fair
value of warrant issued in connection with reverse
acquisition
|
|
|
51,746
|
|
|
|
136,070
|
|
|
Fair
value of warrants issued related to reverse acquisition to
Investors
|
|
|
523,510
|
|
|
|
1,366,781
|
|
|
Fair
value of additional warrants issued to investors
|
|
|
1,435,338
|
|
|
|
3,668,806
|
|
|
Fair
value of bridge warrants
|
|
|
199,645
|
|
|
|
|
|
|
Fair
value of warrants issued to factoring agent
|
|
|
101,691
|
|
|
|
259,484
|
|
|
Fair
value of conversion feature and warrants - 2009
|
|
|
13,585
|
|
|
|
-
|
|
|
Fair
value of additional warrants to investors for anti-dilution
provision
|
|
|
1,675,527
|
|
|
|
4,363,489
|
|
|
Total
derivative liabilities
|
|
$
|
5,956,548
|
|
|
$
|
15,381,809
|
|
For the
three and six months ended September 30, 2009 and 2008, the Company
recorded income related to the total change in fair value due to remeasurement
of derivative liabilities of $8,711,815, $9,961,831, $10,564,000 and
$16,003,000, respectively. There was no derivative expense for any periods
presented, except for $26,310,00 for the six months ended September 30,
2008.
The
Company computed the fair value of the above derivatives as of September 30,
2009 and 2008 by using a Black-Scholes option pricing model calculation assuming
the following assumptions:
|
|
|
Septmeber 30, 2009
|
|
|
September 30,2008
|
|
|
Expected dividends
|
|
|
0
|
%
|
|
|
0
|
%
|
|
Expected
volatility
|
|
|
173.45
|
%
|
|
|
93
|
%
|
|
Expected
term – embedded conversion option
|
|
1.62
– 1.69 years
|
|
|
3
years
|
|
|
Expected
term – warrants
|
|
3.62
– 4.88 years
|
|
|
5
years
|
|
|
Risk
free interest rate
|
|
|
2.54
|
%
|
|
|
2.7%
- 3.2
|
%
|
Perf-Go
Green Holdings, Inc. and Subsidiary
Notes
to Consolidated Financial Statements
September
30, 2009
(Unaudited)
Note
8 - Bridge Notes and Warrants
In
January and February 2008 Perf-Go Green sold an aggregate $750,000 of secured
convertible notes, due in January 2009 (with respect to $350,000) and February
2009 (with respect to $400,000) and bearing interest at 10% per year, together
with warrants to purchase Perf-Go Green’s common stock. The notes were
convertible at $0.48 per share and, together with approximately $11,000 of
accrued interest, were converted into 1,579,466 shares of the Company’s common
stock on March 27, 2008.
The
detachable warrants permit the holders to purchase an aggregate of 1,500,000
shares of common stock of the Company at a price of $0.69 until January 2013
(with respect to 700,000 shares) or February 2013 (with respect to 800,000
shares). The Company concluded that these warrants met the definition of a
freestanding financial instrument that could be classified as equity. The
Company determined the fair value of these warrants based upon a Black Scholes
valuation calculation with the following assumptions: one and one half year
expected life, 150% volatility, 2.11% risk free interest rate and a market price
of $0.48 for the underlying common stock. The market price was determined based
on the ultimate conversion of these notes into common stock at that price
shortly after issuance. The fair value, $669,000 was recorded to deferred
finance costs and then, upon the conversion of the notes in March 2008, written
off.
On April
1, 2009, upon review of EITF 07-5 (ASC 815-40),
“Determining Whether an Instrument
(or Embedded Feature) Is Indexed to and Entity’s Own Stock”,
the Company
determined that the bridge warrants should have been recorded as derivative
liability. The impact to the Company’s March 31, 2009 financial
statements was immaterial. On April 1, 2009, the Company recorded a
charge to retained earnings for $522,135, and recorded a derivative liability
associated with the value of the bridge warrants. There is no debt discount
recorded since the underlying debt was converted in March 2008. At
September 30, 2009, the Company remeasured the bridge warrants (see Note 6), and
recorded an unrealized gain of $283,570.
The
Company computed the fair value of the bridge warrants at September 30, 2009 and
April 1, 2009 with the following assumptions:
|
|
|
September 30, 2009
|
|
|
April 1,2009
|
|
|
Expected dividends
|
|
|
0
|
%
|
|
|
0
|
%
|
|
Expected
volatility
|
|
|
173.45
|
%
|
|
|
149
|
%
|
|
Expected
term
|
|
3.62
years
|
|
|
|
3.87
|
|
|
Risk
free interest rate
|
|
|
1.45
|
%
|
|
|
1.39
|
%
|
Perf-Go
Green Holdings, Inc. and Subsidiary
Notes
to Consolidated Financial Statements
September
30, 2009
(Unaudited)
Note
9 - Stockholders’ Deficit
During the six months ended
September 30, 2009, the Company had the following equity
transactions:
(A)
Stock Issued for Future
Services
The
Company issued 300,000 shares of common stock for future consulting services,
having a fair value of $141,000 ($0.47/share). The value of these
services is being amortized over the requisite service period of the agreement,
which is two years. During the three and six months ended September
30, 2009, the Company amortized $17,625 and $23,500, respectively, of these
services.
(B)
Common Stock Payable
The
Company received $800,000 from certain investors. Related to $450,000 of the
$800,000, the Company has not accepted or formalized the related stock
subscriptions, and accordingly has not issued common shares until the terms of
the subscriptions become final. Accordingly, as of September 30, 2009, the
company has recorded a common stock payable of $550,000. During the
six months ended September 30, 2009, the Company issued 1,037,594 shares of
common stock related to the receipt of $350,000 in cash proceeds.
(C)
Stock Issued for Consulting
The
Company issued 493,776 shares of common stock for services rendered, having a
fair value of $192,499 (at share prices ranging from $0.22 to
$0.50).
(D) Stock
Options
In June
2008, the Company adopted the 2008 Share Incentive Plan (the “Plan”) which
permits the granting of stock options and other forms of stock-based
compensation to employees and consultants of the Company. Under the Plan, the
Company has reserved 10,000,000 shares of common stock for issuance under the
Plan.
The fair
value of each option grant is estimated on the date of the grant using the
Black-Scholes option pricing model with weighted average assumptions as
determined in part by management. The expected volatility for the current period
was developed by using historical volatility of the Company’s stock history
since the reverse acquisition. The risk-free interest rate was
developed using the U.S. Treasury yield curve for periods equal to the expected
term of the options grant date.
The total
grant date fair value of options issued to employees, directors, officers and
consultants during the six months ended September 30, 2009 and 2008 was $0.37
and $2.07 per share, respectively. For the three and six months ended
September 30, 2009 and 2008, the Company recognized $38,225, $1,827,752,
$2,534,000 and $9,304,000, respectively, in stock-based compensation for
employees, officer, directors, and consultants. Additionally,
for the six months ended September 30, 2009 and 2008, the Company recognized
$192,499 and $2,209,000, respectively, in compensation expense to consultants
for stock issued for past services.
Perf-Go
Green Holdings, Inc. and Subsidiary
Notes
to Consolidated Financial Statements
September
30, 2009
(Unaudited)
The
Company valued the stock options as of September 30, 2009 and 2008 based
upon the use of a Black-Scholes option-pricing model using the following
management assumptions:
|
|
|
September 30, 2009
|
|
|
Risk-free
interest rate
|
|
|
2.02%-
2.54
|
%
|
|
Expected
dividend yield
|
|
|
0
|
%
|
|
Expected
volatility
|
|
|
142.1%
- 173.5
|
%
|
|
Expected
term
|
|
5
years
|
|
|
Expected
forfeitures
|
|
|
0
|
%
|
The
following is a summary of the Company’s stock option activity:
|
|
|
Options
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Outstanding
– March 31, 2008
|
|
|
-
|
|
|
|
-
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
Granted
|
|
|
7,723,600
|
|
|
$
|
1.51
|
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
– March 31, 2009
|
|
|
7,723,600
|
|
|
$
|
1.51
|
|
|
Granted
|
|
|
450,000
|
|
|
$
|
.68
|
|
|
Exercised
|
|
|
—
|
|
|
$
|
—
|
|
|
Forfeited
|
|
|
—
|
|
|
$
|
—
|
|
|
Outstanding
– June 30, 2009
|
|
|
8,173,600
|
|
|
$
|
1.46
|
|
|
Exercisable
– June 30, 2009
|
|
|
8,159,143
|
|
|
$
|
1.46
|
|
|
Options Outstanding
|
|
|
|
|
|
|
Range of
Exercise price
|
|
|
Number
Outstanding
|
|
Weighted
Average
Remaining
Contractual
Life (in
years)
|
|
Weighted
Average
Exercise Price
|
|
|
|
|
|
|
|
|
|
|
|
|
$
0.50-$2.00
|
|
|
|
8,173,600
|
|
4.12
years
|
|
$
|
1.46
|
|
Perf-Go Green Holdings,
Inc. and Subsidiary
Notes
to Consolidated Financial Statements
September
30, 2009
(Unaudited)
|
Options Exercisable
|
|
|
|
|
|
|
Range
of
Exercise
price
|
|
|
Number
Exercisable
|
|
Weighted
Average
Remaining
Contractual
Life
(in
years)
|
|
Weighted
Average
Exercise
Price
|
|
|
|
|
|
|
|
|
|
|
|
|
$
0.50 - $2.00
|
|
|
|
8,159,143
|
|
4.12
years
|
|
$
|
1.46
|
|
At
September 30, 2009, the total intrinsic value of options outstanding and
exercisable was $0.
Total
unrecognized share-based compensation expense from stock options at
September 30, 2009 was $6,395, which is expected to be recognized over a
weighted average period of approximately 1.0 years.
The total
grant date fair value of warrants issued to investors and consultants during the
six-month period ended September 30, 2009 was $.37 per
share. For the six-months ended September 30, 2009 and 2008,
the Company recognized $60,810 and $0 in stock-based compensation,
respectively. The warrants granted during 2008 were valued as
derivative liabilities as described in Note 6.
The
Company valued the warrants as of September 30, 2009 utilizing the Black-Scholes
option-pricing model using the following management assumptions:
|
Risk-free
interest rate
|
|
|
1.39%- 2.54
|
%
|
|
Expected
dividend yield
|
|
|
0
|
%
|
|
Expected
volatility
|
|
|
142%
- 166
|
%
|
|
Expected
term
|
|
3 -
5 years
|
|
|
Expected
forfeitures
|
|
|
0
|
%
|
Perf-Go Green Holdings,
Inc. and Subsidiary
Notes
to Consolidated Financial Statements
September
30, 2009
(Unaudited)
The
following is a summary of the Company’s warrant activity:
|
|
|
Warrants
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Outstanding
– March 31, 2008
|
|
|
1,650,000
|
|
|
$
|
.69
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
Granted
|
|
|
38,688,340
|
|
|
$
|
.51
|
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
|
Outstanding
– March 31, 2009
|
|
|
40,338,340
|
|
|
$
|
. 51
|
|
|
Granted
|
|
|
250,000
|
|
|
$
|
.50
|
|
|
Exercised
|
|
|
—
|
|
|
$
|
—
|
|
|
Forfeited
|
|
|
—
|
|
|
$
|
—
|
|
|
Outstanding
– September 30, 2009
|
|
|
40,588,340
|
|
|
$
|
.51
|
|
|
Exercisable
– September 30 , 2009
|
|
|
40,588,340
|
|
|
$
|
.51
|
|
|
Warrants Outstanding and
Exercisable
|
|
|
|
|
|
Range
of
exercise
price
|
|
|
Number
Outstanding
and
Exercisable
|
|
Weighted
Average
Remaining
Contractual
Life
(in
years)
|
|
Weighted
Average
Exercise
Price
|
|
|
$
0.50-$.69
|
|
|
|
40,588,340
|
|
3.62
years
|
|
$
|
.51
|
|
At
September 30, 2009 and 2008, the total intrinsic value of warrants outstanding
and exercisable was $0.
Perf-Go Green Holdings,
Inc. and Subsidiary
Notes
to Consolidated Financial Statements
September
30, 2009
(Unaudited)
Note 10 -
Commitments
(A)
Litigations, Claims and Assessments
From time
to time, the Company may become involved in various lawsuits and legal
proceedings, which arise in the ordinary course of business. However, litigation
is subject to inherent uncertainties, and an adverse result in these or other
matters may arise from time to time that may harm its business. The Company is
currently not aware of any such legal proceedings or claims that they believe
will have, individually or in the aggregate, a material adverse affect on its
business, financial condition or operating results.
(B) Employment
Agreements
During
the period ended March 31, 2009, the Company entered into employment agreements
with four officers and four employees. The significant terms of the
agreements are as follows::
(1)
Officers
3 year terms
Aggregate annual base salaries of $575,000
Eligibility of bonus up to 20% of base compensation
Annual salary increase of 20%
(2)
Employees
1 to 2 year terms
Aggregate annual base salaries of $366,000
Eligibility of bonus up to 20% of base compensation
Annual
salary increase of 20%
Note 11 - Subsequent
Events
The
Company has evaluated for subsequent events between the balance sheet date of
September 30, 2009 and December 24, 2009, the date the financial statements
were issued.
In
October 2009, related to convertible debentures as described in Note 6, certain
investors converted $2,065,471 and $144,139 of principal and accrued interest,
respectively, into 22,096,108 shares of restricted common stock at a conversion
price of $.10 per share.
In August
2009, PGOG entered into a short term loan transaction with one of its
Noteholders in the principal amount of $200,000 in the form of an unsecured
convertible debenture to mature and be repaid in 90 days and to accrue an
interest rate of 22% per annum. The loan will be
convertible into 400,000 shares at a conversion price of $.50 per
share. In consideration for the loan, PGOG issued warrants to
purchase 100,000 shares of common stock at exercise price of $.50 per
share.
