TOWERSTREAM CORPORATION
UNAUDITED CONDENSED FINANCIAL STATEMENTS
For the Nine Months Ended September 30, 2006
TOWERSTREAM CORPORATION
CONTENTS
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Page
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UNAUDITED CONDENSED FINANCIAL STATEMENTS
Balance Sheet as of September 30, 2006 2
Statements of Operations for the nine months ended September 30, 2006 and 2005 3
Statement of Stockholders' Equity for the nine months ended September 30, 2006 4
Statements of Cash Flows for the nine months ended September 30, 2006 and 2005 5
NOTES TO FINANCIAL STATEMENTS 6 - 14
1
TOWERSTREAM CORPORATION
UNAUDITED CONDENSED BALANCE SHEET
September 30, 2006
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Assets
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Current Assets
Cash $ 405,640
Accounts receivable, net of allowance for doubtful accounts of $114,271 172,643
Prepaid expenses 19,386
-----------
Total Current Assets 597,669
Property and equipment, net 3,578,282
Other assets and security deposits 64,185
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TOTAL ASSETS $ 4,240,136
===========
Liabilities and Stockholders' Equity
- ------------------------------------
Current Liabilities
Revolving note, stockholder $ 250,000
Current maturities of long-term debt 11,784
Current maturities of capital lease obligations 31,407
Current maturities of notes payable, stockholders 1,471,352
Accounts payable and accrued expenses 464,854
Deferred compensation 180,000
Deferred revenues 386,127
-----------
Total Current Liabilities 2,795,524
Other Liabilities
Capital lease obligations, net of current maturities 80,136
Notes payable, stockholders, net of current maturities 230,368
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TOTAL LIABILITIES 3,106,028
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Commitments
Stockholders' Equity
Common stock, $0.001 par value; 30,000,000 shares authorized;
21,336,977 issued 21,337
Additional paid-in capital 8,786,139
Accumulated deficit (7,638,368)
-----------
1,169,108
Less treasury stock, at cost, 32,000 shares (35,000)
-----------
TOTAL STOCKHOLDERS' EQUITY 1,134,108
-----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 4,240,136
===========
The accompanying (unaudited) notes are an integral part of these condensed
financial statements.
2
TOWERSTREAM CORPORATION
UNAUDITED CONDENSED STATEMENTS OF OPERATIONS
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Nine Months Ended
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September 30, September 30,
2006 2005
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Revenues $ 4,732,678 $ 3,995,550
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Operating Expenses
Cost of revenues (exclusive of depreciation of $876,792 and
$686,908, respectively, shown separately below) 1,246,482 1,080,937
Depreciation 876,792 686,908
Customer support services 406,643 315,219
Selling, general and administrative expenses (includes stock-based
compensation expense of $61,298 in 2006) 2,384,145 2,334,246
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TOTAL OPERATING EXPENSES 4,914,062 4,417,311
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OPERATING LOSS (181,384) (421,761)
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Other Expense/(Income)
Interest expense, net 169,853 157,221
Gain on extinguishment of debt (114,339) --
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TOTAL OTHER EXPENSE 55,514 157,221
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NET LOSS $ (236,898) $ (578,982)
============ ============
Net loss per common share - basic and diluted $ (0.01) $ (0.03)
============ ============
Weighted average common shares outstanding 21,245,717 20,689,729
============ ============
The accompanying (unaudited) notes are an integral part of these condensed
financial statements.
3
TOWERSTREAM CORPORATION
UNAUDITED CONDENSED STATEMENT OF STOCKHOLDERS' EQUITY
For the Nine Months Ended September 30, 2006
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Common Stock Treasury Stock Additional
Paid-in Accumulated
Shares Amount Shares Amount Capital Deficit Total
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Balance as of January 1, 2006 21,070,310 $21,070 32,000 ($35,000) $8,491,455 ($7,401,470) $1,076,055
Issuance of common stock upon conversion
of notes payable 266,667 267 233,386 233,653
Amortization of deferred compensation
expense 61,298 61,298
Net Loss (236,898) (236,898)
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Balance at September 30, 2006 21,336,977 $21,337 32,000 ($35,000) $8,786,139 ($7,638,368) $1,134,108
========== ======= ====== ======== ========== =========== ==========
The accompanying (unaudited) notes are an integral part of these condensed
financial statements.
4
TOWERSTREAM CORPORATION
UNAUDITED CONDENSED STATEMENTS OF CASH FLOWS
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Nine Months Ended
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September 30, September 30,
2006 2005
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CASH FLOWS FROM OPERATING ACTIVITIES
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Net loss $(236,898) $ (578,982)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Provision for doubtful accounts receivable 65,983 41,554
Depreciation 876,792 686,908
Employee stock-based compensation 61,298 --
Changes in operating assets and liabilities:
Accounts receivable (64,976) (64,378)
Advances, net to officers 35,533 250
Prepaid expenses and other current assets (10,565) (13,222)
Bank overdraft -- (29,407)
Accounts payable and accrued expenses (12,956) 467,017
Deferred compensation 55,000 (23,000)
Deferred revenues (66,195) 89,624
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TOTAL ADJUSTMENTS 889,914 1,155,346
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NET CASH PROVIDED BY OPERATING ACTIVITIES 703,016 576,364
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CASH FLOWS FROM INVESTING ACTIVITIES
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Capital expenditures (734,560) (986,075)
Additional security deposits -- (8,500)
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NET CASH USED IN INVESTING ACTIVITIES (734,560) (994,575)
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CASH FLOWS FROM FINANCING ACTIVITIES
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Proceeds from notes payable, stockholders 575,000 (150,000)
Repayment of notes payable, stockholders (86,935) 220,120
Additional capital lease obligations 63,603 4,850
Principal repayments of long-term debt (317,533) (144,571)
Proceeds from sales of common stock -- 984,306
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NET CASH PROVIDED BY FINANCING ATIVITIES 234,135 914,705
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NET INCREASE IN CASH 202,590 496,493
CASH - BEGINNING OF PERIOD 203,050 --
- -------------------------- --------- ----------
CASH - END OF PERIOD $ 405,640 $ 496,493
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SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
- -------------------------------------------------
Cash paid during the period for:
Interest $ 170,505 $ 159,091
========= ==========
Non-cash investing and financing activities:
Conversion of deferred compensation into notes payable $ -- $ 195,312
Conversion of notes payable into common stock $ 233,653 $ 59,306
The accompanying (unaudited) notes are an integral part of these condensed
financial statements.
5
TOWERSTREAM CORPORATION
(UNAUDITED) NOTES TO CONDENSED FINANCIAL STATEMENTS
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Note 1 - Basis of Presentation
---------------------
The accompanying condensed financial statements are unaudited and have been
prepared in accordance with accounting principles generally accepted in the
United States of America for interim financial information. They should be read
in conjunction with the financial statements and related notes to the financial
statements of Towerstream Corporation (the "Company") included elsewhere in this
Form 8-K. The September 30, 2006 unaudited condensed interim financial
statements have been prepared pursuant to the rules and regulations of the
Securities and Exchange Commission ("SEC"). Certain information and note
disclosures normally included in the annual financial statements haven been
condensed or omitted pursuant to those rules and regulations, although the
Company's management believes the disclosures made are adequate to make the
information presented not misleading. In the opinion of management, all
adjustments, consisting of normal recurring accruals, necessary for a fair
statement of the result of operations for the interim periods presented have
been reflected herein. The results of operations for interim periods are not
necessarily indicative of the results to be expected for the entire year.
Note 2 - Organization and Nature of Business
-----------------------------------
TowerStream Corporation (herein after referred to as the "Company") was formed
on December 17, 1999 and was incorporated in Delaware. The Company operates as a
Sub Chapter S corporation with its corporate headquarters located in Rhode
Island.
The Company is a fixed wireless broadband provider. The Company serves several
major U.S. markets including: Los Angeles, San Francisco, New York City,
Chicago, Boston, Providence and Newport, Rhode Island.
Note 3 - Summary of Significant Accounting Policies
------------------------------------------
Revenue Recognition
- -------------------
Revenues are recognized at the time access to the Company's internet services is
made available to its customers. Contractual arrangements range from one to
three years. Deferred revenues are recognized as a liability when billings are
received in advance of the date when revenues are earned. Company revenue
arrangements with multiple deliverables under Emerging Issues Task Force Issue
("EITF") No. 00-21 are deemed to be immaterial.
Stock-Based Compensation
- ------------------------
Effective January 1, 2006, the Company adopted the fair value recognition
provisions of Statement of Financial Accounting Standards ("SFAS") No. 123
(Revised 2004), "Share-Based Payment," ("SFAS 123(R)"), using the
modified-prospective-transition method. For the nine months ended September 30,
2006, the Company recognized $61,298, of stock compensation expense. As of
September 30, 2006, there was $82,687 of total unrecognized compensation cost
related to non-vested stock-based compensation arrangements granted. The
deferred compensation is expected to be recognized over a weighted-average
period of 1.7 years.
Prior to January 1, 2006, the Company's stock-based employee compensation plans
were accounted for under the recognition and measurement provisions of
Accounting Principles Board Opinion ("APB") No. 25, "Accounting for Stock Issued
to Employees" ("APB 25"), and related Interpretations, as permitted by
6
TOWERSTREAM CORPORATION
(UNAUDITED) NOTES TO CONDENSED FINANCIAL STATEMENTS
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Note 3 - Summary of Significant Accounting Policies, continued
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financial Accounting Standards Board ("FASB") Statement No. 123, "Accounting for
Stock-Based Compensation," ("SFAS 123").
For the nine months ended September 30, 2005, as was permitted under SFAS No.
148, "Accounting for Stock-Based Compensation - Transition and Disclosure,"
which amended SFAS No. 123, "Accounting for Stock-Based Compensation," the
Company elected to continue to follow the intrinsic value method in accounting
for its stock-based employee compensation arrangements as defined by APB No. 25,
"Accounting for Stock Issued to Employees," and related interpretations
including FASB Interpretation No. 44, "Accounting for Certain Transactions
Involving Stock Compensation, an interpretation of APB No. 25." The following
table illustrates the effect on net loss per share as if the Company had applied
the fair value recognition provisions of SFAS No. 123 to stock-based employee
compensation for the nine months ended September 30, 2005:
Nine Months Ended
September 30, 2005
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Loss from operations $ (578,982)
Add: Stock-based employee compensation as
determined under the intrinsic value based method
and included in the statement of operations --
Deduct: Stock-based employee compensation as
determined under fair value based method (423,799)
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Pro forma loss from operations $(1,002,761)
=======================================================================
Amounts per share of common stock:
Loss from continuing operations - Basic and diluted: $ (.05)
===========
As reported $ (.03)
===========
The assumptions used during the nine months ended September 30, 2006 were as
follows:
---------------------------------------
Risk free interest rate 4.74% - 5.09%
Expected Dividend Yield --
Expected Lives 10 years
Expected Volatility 40.7%
A summary of the status of the Company's non-vested shares as of September 30,
2006 and changes during the nine months ended September 30, 2006 is presented as
follows:
7
TOWERSTREAM CORPORATION
(UNAUDITED) NOTES TO CONDENSED FINANCIAL STATEMENTS
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Note 3 - Summary of Significant Accounting Policies, continued
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Weighted Average
Grant-Date
Shares Fair Value
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Non-vested-beginning of period
12/31/05 289,917 $0.39
Granted 95,000 0.51
Vested (169,958) 0.36
Forfeited/Expired (37,792) 0.46
- -----------------------------------------------------------
Non-vested-end of period 9/30//06 177,167 $0.47
===========================================================
As of September 30, 2006, there remains approximately $83,000 of deferred
compensation costs related to the foregoing non-vested shares which will be
expensed over a weighted average period of 1.7 years.
Basic and Diluted Loss Per Share
- --------------------------------
Net loss per share is computed in accordance with Statement of Financial
Standards No. 128, "Earnings Per Share" ("SFAS No. 128"). SFAS No. 128 requires
the presentation of both basic and diluted earnings per share.
Basic net loss per common share is computed using the weighted average number of
common shares outstanding during the period. Diluted loss per share reflects the
potential dilution that could occur through the potential effect of common
shares issuable upon the exercise of stock options, warrants and convertible
securities. The calculation assumes (i) the exercise of stock options and
warrants based on the treasury stock method; and (ii) the conversion of
convertible preferred stock only if an entity records earnings from continuing
operations, as such adjustments would otherwise be anti-dilutive to earnings per
share from continuing operations. As a result of the Company recording a loss
during each of the nine months ended September 30 2006 and 2005, the average
number of common shares used in the calculation of basic and diluted loss per
share is identical and has not been adjusted for the effects of 3,892,500 and
3,754,000 potential common shares from unexercised stock options and warrants
for each of the nine months ended September 30, 2006 and 2005, respectively, or
for the potential issuance of 999,283 and 650,657 shares convertible under
stockholders' notes at September 30, 2006 and 2005, respectively. Such potential
common shares may dilute earnings per share in the future.
Note 4 - Revolving Note, Stockholder
---------------------------
The Company has a $250,000 secured revolving note with a trust, which is also a
stockholder in the Company. The note provides for revolving credit through April
2006. The note is due on demand and bears interest at 10% per annum. This note
was repaid in its entirety on October 1, 2006 (see Note 12).
8
TOWERSTREAM CORPORATION
(UNAUDITED) NOTES TO CONDENSED FINANCIAL STATEMENTS
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Note 5 - Notes Payable, Stockholders
---------------------------
On January 12, 2006, the Company borrowed an additional $250,000 under a demand
note from an officer who is also a stockholder. The note is unsecured, payable
in monthly installments of interest only computed at 10% per annum. The note
matures sixty days after payee demand. Proceeds of the note were used to pay-off
approximately $244,000 of certain equipment financing notes, prior to their
maturity dates. The early extinguishment of debt resulted in a gain of
approximately $114,000.
On July 12, 2006, the Company borrowed an additional $50,000 under a demand note
from an officer who is also a stockholder. The note is unsecured, payable in
monthly installments of interest only computed at 10% per annum. The note
matures sixty days after payee demand. Proceeds of the note were used for
general working capital purposes.
On September 30, 2006, the Company borrowed an additional $150,000 under a
demand note from an officer who is also a stockholder. The note is secured by
the assets of the Company, payable in monthly installments of interest only
computed at 10% per annum. The note matures sixty days after payee demand.
Proceeds of the note were used for general working capital purposes.
On September 30, 2006, the Company borrowed an additional $125,000 under a
demand note from an officer who is also a stockholder. The note is secured by
the assets of the Company, payable in monthly installments of interest only
computed at 10% per annum. The note matures sixty days after payee demand.
Proceeds of the note were used for general working capital purposes.
As of September 30, 2006, aggregate maturities of notes payable, stockholders
due in future years are as follows:
Year ending December 31,
-------------------------------------
2006 $1,354,709
2007 272,611
2008 74,400
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$1,701,720
==========
Note 6 - Capital Leases
--------------
The Company is the lessee of network base station equipment under various
capital leases expiring in 2008. The assets and liabilities under capital leases
are recorded at the fair market value of the assets. The assets are depreciated
over the lease term, which approximates their useful lives, using the
straight-line method. Depreciation of assets under capital leases charged to
expense in 2006 was approximately $36,000.
9
TOWERSTREAM CORPORATION
(UNAUDITED) NOTES TO CONDENSED FINANCIAL STATEMENTS
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Note 6 - Capital Leases, continued
-------------------------
Property held under capital leases as of September 30, 2006 consists of the
following:
Network base station equipment $158,143
Less accumulated depreciation (50,632)
--------
$107,512
========
As of September 30, 2006, the minimum future lease payments under these capital
leases are:
Year ending December 31,
------------------------
2006 (three months) $ 16,636
2007 66,542
2008 40,432
2009 14,095
--------
Total minimum lease payments 137,705
Less amount representing imputed interest (26,162)
--------
Present value of minimum capital lease
payments $111,543
========
Note 7 - Property and Equipment, net
---------------------------
As of September 30, 2006, the Company's property and equipment, net is comprised
of:
Network and base station equipment $3,761,913
Customer premise equipment 2,981,811
Furniture, fixtures and equipment 185,151
Computer equipment 176,926
System Software 135,209
----------
7,241,009
Less accumulated depreciation 3,662,726
----------
$3,578,282
==========
Depreciation expense for the nine months ended September 30, 2006 and 2005 was
$876,792 and $686,908, respectively.
Note 8 - Stock Option Plan
-----------------
During the nine month period ended September 30, 2006, the Board of Directors
issued 95,000 incentive stock options to employees under the 2000 Plan at an
exercise price of $1.00, the estimated market price of the common stock on the
date of the issuance.
10
TOWERSTREAM CORPORATION
(UNAUDITED) NOTES TO CONDENSED FINANCIAL STATEMENTS
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Note 8 - Stock Option Plan, continued
----------------------------
A summary of the status of the 2000 Plan and changes are as follows:
Options outstanding, January 1, 2006 2,116,000
Granted 95,000
Expired/Forfeited (157,500)
----------
Options outstanding, September 30, 2006 2,053,500
----------
Options exercisable - September 30, 2006 1,768,333
----------
Weighted average fair value of the options granted during the period $ 0.51
----------
Weighted average remaining contractual life of options outstanding
- September 30, 2006 7.42 Years
==========
The options were given to employees at exercisable prices ranging from $0.55 to
$1.00 per common share expiring at various periods through December 2016.
Note 9 - Common Stock
------------
On March 30, 2006, two equipment finance notes in the principal amounts of
$90,737 and $100,000 and related accrued interest of $42,916 were converted into
266,667 shares of common stock of the Company at the option of the debtor.
Note 10 - Deferred Compensation
---------------------
On January 1, 2005, the Company entered into a deferred compensation agreement
with another officer, who is also a stockholder. The officer agreed to defer
$125,000 of his salary for 2005 and $45,000 of his salary for 2006. The
agreement allows for the accrual of interest at 10% compounded monthly. The
amount deferred is due and payable upon either 1) the change of control of the
Company's voting stock or sale of substantially all the assets of the Company;
2) December 31, 2006; or 3) an earlier date if so elected by the Board of
Directors. The officer has the right to convert the deferred compensation costs
into shares of common stock at $1.00 per share. Interest accrued but not paid as
of September 30, 2006 was $18,385.
11
TOWERSTREAM CORPORATION
(UNAUDITED) NOTES TO CONDENSED FINANCIAL STATEMENTS
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Note 11 - Commitments
-----------
Lease Obligations:
The Company leases roof top rights, cellular towers and office space under
various non-cancelable agreements expiring through December 2019. As of
September 30, 2006, the total future lease payments are as follows:
Year ending December 31,
------------------------
2006 $ 267,069
2007 698,700
2008 529,700
2009 441,600
2010 385,300
Thereafter 892,100
----------
$3,214,469
==========
Rent expense for the nine months ended September 30, 2006 and 2005 totaled
approximately $556,000 and $515,000, respectively.
On August 26, 2006 the Company entered into a License Purchase Agreement for
certain spectrum in southern Florida. The purchase price is comprised of five
annual cash payments of $50,000 plus 100,000 shares of Towerstream stock. The
first payment of $50,000 and the 100,000 shares are to be issued upon FCC
approval of the transfer of the license (see Note 12).
Note 12 - Subsequent Events
-----------------
a) On October 1, 2006 the Company repaid in full and terminated its $250,000
revolving credit facility with a trust, who is also a stockholder.
b) On October 1, 2006 the Board of Directors issued 45,000 incentive stock
options to employees under the 2000 Plan at an exercise price of $1.00, the
estimated market price of the common stock on the date of issuance.
c) On October 24, 2006 the Board of Directors issued 50,000 incentive stock
options to a director under the 2000 Plan at an exercise price of $1.00, the
estimated market price of the common stock on the date of issuance.
12
TOWERSTREAM CORPORATION
(UNAUDITED) NOTES TO CONDENSED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 12 - Subsequent Events, continued
----------------------------
d) On November 2, 2006, an individual loaned the Company $250,000. The note is
unsecured, bears interest at 6% per annum, and all principal and accrued
interest is due on April 23, 2007. Subsequent to November 2, 2006, the
individual provided Towerstream with consulting services. As consideration
therefore, on January 4, 2007, Towerstream amended and restated the note in
order to make such note convertible into shares of common stock of the Company
immediately following the Merger at a conversion price of $1.60 per share.
e) On November 21, 2006 the Company received FCC approval on that certain
southern Florida spectrum license transfer. Accordingly, the Company issued
100,000 shares of Towerstream stock and made its first installment payment of
$50,000 on said date.
f) On November 30, 2006 the Company entered into an Asset Purchase Agreement to
purchase a fixed wireless network in Seattle, WA. The purchase included fixed
wireless equipment and related assets at five points of presence, as well as,
the assumption of certain operating leases at those locations. No customer
contracts were purchased or assumed in the transaction. In total, assets with a
Net Book Value of $236,000 were acquired for a purchase price of $200,000 in
cash.
g) On December 28, 2006, the Company entered into a capital lease arrangement
for equipment. The assets and liabilities under these capital leases shall be
recorded at the fair market value of the assets which aggregate approximately
$37,000. The lease terms require monthly rental payments of approximately $1,247
over the lease term of three years, which approximates their estimated useful
lives.
h) On January 4, 2007, certain stockholders collectively transferred an
aggregate of $1,616,753 in outstanding promissory notes and other payables due
from Towerstream to a group of third party investors. In connection with these
note transfers, Towerstream issued a new promissory note of approximately $1.6
million and cancelled the aforementioned obligations. As part of the
arrangement, Towerstream granted to the investors the right to automatically
convert the note into shares of common stock of a publicly traded shell company
(University Girls Calendar, Ltd. "UGC") into which Towerstream was merged (see i
below) at a conversion price of $1.50 per share. The note has a maturity date of
January 4, 2008 with interest at the rate of 10% per annum. In conjunction with
the above transaction, the Company will record a charge of approximately
$460,000 for the beneficial conversion feature granted to the holders of
approximately $924,000 of the stockholders' notes at $1.50 per share which did
not originally have conversion rights and were converted into shares of common
stock upon such merger. In addition, a stockholder with a $250,000 convertible
note exercised his right to convert the note into shares of common stock at
$1.43 per share in conjunction with the merger.
i) On January 12, 2007, Towerstream merged into a newly formed subsidiary of
UGC. In connection with the merger 1,900,000 of UGC common shares will remain
outstanding and all other shares of UGC outstanding were cancelled. Also, in
connection with the merger, UGC issued 15,000,000 shares of its common stock for
all the outstanding common stock of Towerstream. As a result of the transaction,
the former owners of Towerstream became the controlling stockholders of UGC and
UGC changed its name to Towerstream Corporation. Accordingly, the merger of
Towerstream and UGC (the "Merger") is a reverse merger that has been accounted
for as a recapitalization of Towerstream.
13
TOWERSTREAM CORPORATION
(UNAUDITED) NOTES TO CONDENSED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 12 - Subsequent Events, continued
----------------------------
j) Concurrent with the Merger, UGC sold 5,110,056 shares of common stock for
gross proceeds of $11,497,625 (at $2.25 per share). In addition, these investors
received warrants to purchase 2,555,028 shares of common stock for a period of
five years at an exercise price of $4.50 per share, collectively (the "Private
Placement"). In connection with the Private Placement, UGC incurred placement
agent fees totaling approximately $446,400, and issued 140,917 warrants with an
estimated fair value of approximately $77,000 to the placement agent at an
exercise price of $4.50 per share for a period of five years. In addition, UGC
incurred other professional fees and expenses totaling approximately $522,300 in
connection with the Merger.
k) On January 18, 2007, UGC sold $3,500,000 of senior convertible debentures
(the "Debentures"). The Debentures require quarterly interest only payments of
8% per annum and mature on December 31, 2009. The Debentures are convertible
into shares of common stock of UGC at $2.75 per share subject to limitations as
defined and registration rights. In addition, holders of the Debentures received
warrants to purchase 636,364 shares of common stock at an exercise price of
$4.00 per share and warrants to purchase 636,364 shares of common stock at an
exercise price of $6.00 per share, for a period of five years. In conjunction
with these warrants, the Company will record an additional debt discount of
approximately $527,000.
In connection with the Debentures, UGC incurred placement agent fees totaling
approximately $140,000, and issued 63,634 warrants with an estimated fair value
of $34,750 to the placement agent at an exercise price of $4.50 per share for a
period of five years.
In conjunction with the merger, on January 12, 2007 Towerstream Corporation,
formerly UGC, adopted the 2007 Equity Compensation Plan (the "2007 Plan"). The
Plan provides a means for our Company to award specific equity-based benefits to
officers and other employees, consultants and directors, of our Company and our
related companies and to encourage them to exercise their best efforts to
enhance the growth of our Company and our related companies. Under the Merger
agreement all options and warrants and their respective rights and obligations,
that were outstanding prior to the merger were transferred into the 2007 Plan
and totaled 2,645,062. The total number of shares of Common Stock that can be
delivered under the 2007 Plan is 3,200,000. As of January 12, 2007, the date of
the Merger, 554,938 shares remained available for issuance pursuant to the Plan.
14
