SEC Company Response from REED'S, INC. (REED) (CIK 0001140215) (REED) — Feb 22, 2005
REED'S, INC. (REED) (CIK 0001140215)
Date: Feb. 22, 2005 · CIK: 0001140215 · Accession: 0001144204-05-005695
AI Filing Summary & Sentiment
Reasoning
File numbers found in text: 333-120451
Letter
United States Securities and Exchange Commission Office of Small Business Washington, D.C. 20549 RE: REED’S, INC., a Delaware corporation Registration Statement on Form SB-2 SEC File No.: 333-120451 ~ Filed November 12, 2004
Dear Mr. Reynolds:
This correspondence is in response to the comment letter of the United States Securities and Exchange Commission (the “Commission”) dated December 10, 2004 directed to the Issuer, REED’S, INC., a Delaware corporation (the “Company”). We have underlined each of the Comments of the Commission for ease of reference and now respond as follows:
1. Please tell us what consideration you have given to naming Mr.. Sharma as an ''underwriter'' within the meaning the federal securities laws. As such, he appears to be engaged in the distribution of shares in this offering. We note in this regard that he is both one of your directors and a registered broker-dealer affiliated with your selling agent, Brookstreet. In fact, we note that Mr. Sharma will receive a substantial amount of the commissions and fees you will pay to Brookstreet as part of this offering. If Mr. Sharma is an underwriter, then he must be named as such on the prospectus cover page, in the Plan of Distribution, and elsewhere as appropriate.
Mr. Sharma is not an underwriter within the meaning of federal securities laws. While Mr. Sharma will be extensively involved in the offering, Section 2(11) expressly excludes from the definition of an underwriter: “a person whose interest is limited to a commission from an underwriter or dealer not in excess of the usual and customary distributor’s or selling commission.” Mr. Sharma is only receiving a portion of the commission to be paid to Brookstreet and as a result he would not be considered an underwriter. Mr. Sharma will be operating pursuant to the terms of the Underwriting Agreement between Brookstreet and the Company. Characterizing Mr. Sharma as an underwriter would not only be inaccurate, but it would not provide any additional information necessary to make a fully informed investment decision. The Registration Statement contains an extensive discussion regarding Brookstreet’s obligations and intentions regarding its role as the underwriter in the subject offering.
Mr. Sharma’s actions will be no more than what would be expected from a broker extensively involved in any public offering.
2. We note a number of blank spaces throughout your registration statement for information that you are not entitled to omit under Rule 430A, such as the anticipated price range. Please note that we may have additional comments once you have provided this disclosure. Therefore, please allow us sufficient time to review your complete disclosure prior to any distribution of preliminary prospectuses.
In this regard, we note you have assumed an offering price of $4.00 per share in certain sections such as the Use of Proceeds and Dilution sections. Other sections such as the Capitalization as of June 30, 2004 were -not fully updated to consider an offering price of $4.00.
In response to this Comment, we have revised the Registration Statement to fill in all spaces left blank and anticipate that the initial offering price will be $4.00 per share. We have revised the Registration Statement accordingly.
3. We note that you have not filed a number of key exhibits, including the selling agent agreement, various loan agreements, and the legality opinion. Please file these exhibits with your next amendment, as we will need time to adequately review them. We also may have further comment with respect to prospectus disclosure after reviewing the exhibits.
In response to this Comment, the following is a complete listing of the Exhibits we have filed, or will be filing herewith:
Ready to
Send / Sent
Code
Description of Exhibit
Status
Yes/Yes
10.9
Robert T. Reed Sr. 1991 loan 94,000 agreement
New Exhibit
Yes/Yes
10.10
Robert T. Reed Sr. 1999 loan 250,000 agreement
New Exhibit
Yes/Yes
10.11
Robert T. Reed Sr. 2003 loan 50,000 agreement
New Exhibit
Yes/Yes
10.12
Robert T. Reed Jr. co-sign Merrill agreement
New Exhibit
Yes/Yes
4.4
Convertible Promissory Note issued to investors
Existing Exhibit
Yes/Yes
10.1
Virgil’s Purchase Agreement
Existing Exhibit
Yes/Yes
10.3
Loan Agreement - purchase of brewery
Existing Exhibit
Yes/Yes
10.4
Loan Agreement - building improvement
Existing Exhibit
Yes/Yes
10.5
Loan Agreement - bay business
Existing Exhibit
Yes/Yes
10.7
Revised promotional shares lock-up
Existing Exhibit
Yes/Yes
10.8
Loan Agreement - bay business, September 28, 2004
Existing Exhibit
Yes/Yes
4.5
Revision to Exhibit 4.4 to extend notes
New Exhibit
No
10.13
Sharma and Brookstreet Agreement
New Exhibit
Ready to
Send / Sent
Code
Description of Exhibit
Status
No
1.2
Selling Agent Agreement
New Exhibit
No
23.2
Lawyer consent letter
New Exhibit
No
10.14
Sharma’s Loan Agreement
New Exhibit
Registration Statement Cover Page
4. Add a sentence and a checked box indicating that the securities are being offered on a delayed or continuous basis pursuant to Rule 415. See, for example, interpretation D.36 of the Manual of Publicly Available Telephone Interpretations (July 1997) and Form S- I to review the disclosure that you should include.
In response to this Comment, we have provided this sentence.
Prospectus Cover Page
We may have contingent liabilities resulting from our recent issuance of common stock
5. Please revise the second full paragraph to divide it into two paragraphs: one addressing the offering itself and the other addressing the lack of a market for your shares. The latter paragraph also should highlight that, due to the lack of trading market, purchasers in this offering are receiving an illiquid security.
In response to this Comment, we have inserted the following as a new third paragraph on the Prospectus Cover page:
“There is no current public market for our shares and there is no assurance that a public market for our shares will ever develop. In the event a public market for our shares does not develop, then purchasers in this offering may be unable to sell the shares for an extended period of time.”
6. Your use of fully justified margins impedes readability. Please revise throughout to use only a left-justified margin
In response to this Comment, we have revised the Registration Statement accordingly.
Table of Contents
7. the outside back cover page of the prospectus, advise dealers of their prospectus delivery obligation, pursuant to Item 502(b) of Regulation S-B.
In response to this Comment, we have inserted language in compliance with Item 502(b).
Prospectus Summary, page 1
8. Since your summary must provide a brief, but not incomplete, overview of the key aspects of the offering, delete the statement that the ''summary is not complete.'' If necessary, provide additional material information in a concise manner to make the summary complete
In response to this Comment, we have deleted the reference to the summary not being complete. We believe that our response to Comment number 9 below provides expanded disclosure for this summary section.
9. We remind you that a summary should provide a brief overview of you in a balanced manner. In this regard, please add disclosure about the following in your core summary:
Disclose that you have significant net losses, and state the amount for the most recent audited and interim periods. Also, disclose if accurate that you have an expectation of continued significant losses and inadequate cash from operations to cover operating and net losses.
State the percentage of your common stock being offered in this prospectus. Also indicate that the Reed family will hold % of your shares, and as a -result will exercise control over your direction.
Explain that your shares currently are not traded on any market or exchange, and briefly explain how this impacts share liquidity. Briefly explain what is required to list your shares on an exchange or become quoted on a market. State the percentage of Your total sales revenues you derive from your products being sold at supermarkets and also at specialty stores. These are only examples. Revise accordingly.
In response to this Comment, we have inserted the following disclosure in the Summary section:
“We believe that the proceeds of this offering may greatly accelerate the success of this business strategy by providing working capital to finance an expanded sales and distribution network….
We currently rely upon one customer for between 10-15% of our aggregate gross revenues. If we were to lose this customer, our operations would be materially effected. …
While there is no assurance, we currently intend to commence trading upon the Over the Counter Bulletin Board (“OTCBB”) market upon completion of this offering, of which this Prospectus is a part.. This will require that we complete certain filings and disclosures of information to the National Association of Securities Dealers and to the OTCBB itself. Our shares are currently not traded on the public securities markets and even if we successfully commence trading on the OTCBB there is no assurance that a public market for our shares of stock will be established.”
10. Further, in the core summary, please briefly describe the type of offering you are conducting, and describe how the amount of proceeds raised will impact your ability to operate going forward.
Please see our response to Comment number 9 above.
Risk Factors
11. Avoid risk factors that could apply to any company. Generic risk factors do not represent meaningful disclosure. Examples include:
• ''We face risks associated with product liability claims...,'' page 4. If you have a history of product recall, state the reason for the recall and the amount of resultant financial loss to you. Moreover, represent whether you carry commercial reasonable amount of insurance coverage to insulate yourself from product liability claims. However, you do not need to disclose the dollar amount of the insurance coverage you carry. Finally, state here that you do not maintain product recall insurance, as you disclose on page 22.
• ''We need to manage our growth page 5. Specify the nature of ''significant strain'' put upon your company by the growth you have experienced.
• ''Our ability to obtain needed additional financing..., page 6. Quantify your known short-term and long-term capital requirements and disclose the time when you anticipate you will need the additional capital.
If you elect to retain these and other generic risk factors in your prospectus, you must clearly explain how they apply to your company, industry, offering, etc. Please revise accordingly throughout..
Rather then set forth all of our changes in this correspondence, we request that the examiner review the revisions to the Risk Factors section of the Registration Statement, which revisions have been made keeping in mind this Comment.
12. Some of your risk factors are unduly vague. Please revise to include sufficient, specific information to assess the risk. Examples include:
• ''The loss of our third-party suppliers or service providers...,'' page 4; and ''The loss of our third-party distributors...,'' page 4. Tell us supplementally whether you have lost or foresee losing third-party suppliers, service Providers, or distributors, or have experienced problems in business relationship with them. If so, disclose the fact in the discussion under the following two risk factor captions.
There are multiple sources for our raw materials and for our packaging and bottling supplies. We believe that if any one of these sources were unable or refused to conduct business with us, that we would be successful in expeditiously identifying an alternative supplier.
• '''Increases in the cost of packaging for our products...,'' page 4. State the percentage of the total expenses on manufacturing that is spent on packaging your products. If your cost of packaging has increased substantially in the recent years, provide quantitative information on this trend.
We have deleted this Risk Factor as it does not apply to our operations.
• ''There is not yet a public trading market for our securities page 5. Please revise to more clearly articulate what you or market makers must do to create a trading market for your securities, and how long that process may take.
These are only examples, As a general matter, you should express your risk factors in more concrete tern-is with adequate, but not excessive, non-generic detail so that readers are able to clearly identify and assess the magnitude of the risk, Do not assume that investors will be able to decipher the risk..
In response to this Comment, please see the Risk Factors section of our Registration Statement.
Forward-Looking Statements, page 8
13. The safe harbor provided by the Private Securities Litigation Reform Act of 1995 for forward-looking statements is not available for an initial registration statement. In addition, such a safe harbor in not available for an initial public offering, pursuant to Section 27A(b)(2)(D) of the Securities Act and Section 2 1 E(b)(2)(D) of the Exchange Act. Delete references to Section 27A of the Securities Act, Section 21 E of the Exchange Act, and the Private Securities Litigation Reform Act of 1995 here and on page 14.
In response to this Comment, we have deleted all references to this safe harbor.
14. In the last paragraph on page 9 you state that you are not responsible for the accuracy and completeness of any forward-looking statements. We remind you that are responsible for the accuracy and completeness of all contents of the registration statement. Revise.
In response to this Comment, we have deleted this statement.
Capitalization as of June 30, 2004, page 12
15. Please revise your ''As adjusted'' disclosure to reflect the 10%, 50% and 100% scenarios presented throughout your filing.
In response to this Comment, the document has been updated to reflect these changes.
16. Please delete the line-item ''Other liabilities'' from the table. Only capitalization in the form of debt and equity should be included.
In response to this Comment, the document has been updated to reflect these changes.
Dilution, page 13
17. With respect to the two issuances of Series A Convertible Preferred Stock in October 2004 tell us what consideration was given to recognition of a beneficial conversion feature (BCF) under EITF 98-5. In this regard we note that the Series A Convertible Preferred Stock entitles the holder to convert into 4 shares of common stock. Based on a sale price of $10 per preferred share, the cost of each common share is $2.50. Based on the proposed offering price per common share of $4.00, it appears that the two transactions resulted in an intrinsic BCF of $1.50 per common share ($6.00 per Series A Convertible Preferred share). Please advise.
The offering price of $4.00 per share and the conversion price of the Series A Convertible Preferred Stock of $2.50 were determined independently of one another and were determined at different times. Management does not believe the $4.00 offering price is the fair value of the common stock at the time the $2.50 conversion price was determined. The preferred stock conversion price was established on June 30, 2004, the date the preferred stockholders agreement was created by management, after discussion and negotiation with the potential preferred stockholders. The offering price is based on an offering date yet to be determined and is anticipating growth in the company from June 30, 2004 to the offering date
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CORRESP 2 filename2.htm Unassociated Document Horwitz & Cron Four Venture Plaza Suite 390 Irvine, California 92618 Telephone: 949 . 450 . 4942 Facsimile: 949 . 453 . 8774 ~ Via Federal Express ~ February 18, 2005 United States Securities and Exchange Commission Attn: H. Christopher Owings, Assistant Director Office of Small Business Mail Stop 0308 Washington, D.C. 20549 RE: REED’S, INC., a Delaware corporation Registration Statement on Form SB-2 SEC File No.: 333-120451 ~ Filed November 12, 2004 Dear Mr. Reynolds: This correspondence is in response to the comment letter of the United States Securities and Exchange Commission (the “Commission”) dated December 10, 2004 directed to the Issuer, REED’S, INC., a Delaware corporation (the “Company”). We have underlined each of the Comments of the Commission for ease of reference and now respond as follows: 1. Please tell us what consideration you have given to naming Mr.. Sharma as an ''underwriter'' within the meaning the federal securities laws. As such, he appears to be engaged in the distribution of shares in this offering. We note in this regard that he is both one of your directors and a registered broker-dealer affiliated with your selling agent, Brookstreet. In fact, we note that Mr. Sharma will receive a substantial amount of the commissions and fees you will pay to Brookstreet as part of this offering. If Mr. Sharma is an underwriter, then he must be named as such on the prospectus cover page, in the Plan of Distribution, and elsewhere as appropriate. Mr. Sharma is not an underwriter within the meaning of federal securities laws. While Mr. Sharma will be extensively involved in the offering, Section 2(11) expressly excludes from the definition of an underwriter: “a person whose interest is limited to a commission from an underwriter or dealer not in excess of the usual and customary distributor’s or selling commission.” Mr. Sharma is only receiving a portion of the commission to be paid to Brookstreet and as a result he would not be considered an underwriter. Mr. Sharma will be operating pursuant to the terms of the Underwriting Agreement between Brookstreet and the Company. Characterizing Mr. Sharma as an underwriter would not only be inaccurate, but it would not provide any additional information necessary to make a fully informed investment decision. The Registration Statement contains an extensive discussion regarding Brookstreet’s obligations and intentions regarding its role as the underwriter in the subject offering. Mr. Sharma’s actions will be no more than what would be expected from a broker extensively involved in any public offering. 2. We note a number of blank spaces throughout your registration statement for information that you are not entitled to omit under Rule 430A, such as the anticipated price range. Please note that we may have additional comments once you have provided this disclosure. Therefore, please allow us sufficient time to review your complete disclosure prior to any distribution of preliminary prospectuses. In this regard, we note you have assumed an offering price of $4.00 per share in certain sections such as the Use of Proceeds and Dilution sections. Other sections such as the Capitalization as of June 30, 2004 were -not fully updated to consider an offering price of $4.00. In response to this Comment, we have revised the Registration Statement to fill in all spaces left blank and anticipate that the initial offering price will be $4.00 per share. We have revised the Registration Statement accordingly. 3. We note that you have not filed a number of key exhibits, including the selling agent agreement, various loan agreements, and the legality opinion. Please file these exhibits with your next amendment, as we will need time to adequately review them. We also may have further comment with respect to prospectus disclosure after reviewing the exhibits. In response to this Comment, the following is a complete listing of the Exhibits we have filed, or will be filing herewith: Ready to Send / Sent Code Description of Exhibit Status Yes/Yes 10.9 Robert T. Reed Sr. 1991 loan 94,000 agreement New Exhibit Yes/Yes 10.10 Robert T. Reed Sr. 1999 loan 250,000 agreement New Exhibit Yes/Yes 10.11 Robert T. Reed Sr. 2003 loan 50,000 agreement New Exhibit Yes/Yes 10.12 Robert T. Reed Jr. co-sign Merrill agreement New Exhibit Yes/Yes 4.4 Convertible Promissory Note issued to investors Existing Exhibit Yes/Yes 10.1 Virgil’s Purchase Agreement Existing Exhibit Yes/Yes 10.3 Loan Agreement - purchase of brewery Existing Exhibit Yes/Yes 10.4 Loan Agreement - building improvement Existing Exhibit Yes/Yes 10.5 Loan Agreement - bay business Existing Exhibit Yes/Yes 10.7 Revised promotional shares lock-up Existing Exhibit Yes/Yes 10.8 Loan Agreement - bay business, September 28, 2004 Existing Exhibit Yes/Yes 4.5 Revision to Exhibit 4.4 to extend notes New Exhibit No 10.13 Sharma and Brookstreet Agreement New Exhibit Ready to Send / Sent Code Description of Exhibit Status No 1.2 Selling Agent Agreement New Exhibit No 23.2 Lawyer consent letter New Exhibit No 10.14 Sharma’s Loan Agreement New Exhibit Registration Statement Cover Page 4. Add a sentence and a checked box indicating that the securities are being offered on a delayed or continuous basis pursuant to Rule 415. See, for example, interpretation D.36 of the Manual of Publicly Available Telephone Interpretations (July 1997) and Form S- I to review the disclosure that you should include. In response to this Comment, we have provided this sentence. Prospectus Cover Page We may have contingent liabilities resulting from our recent issuance of common stock 5. Please revise the second full paragraph to divide it into two paragraphs: one addressing the offering itself and the other addressing the lack of a market for your shares. The latter paragraph also should highlight that, due to the lack of trading market, purchasers in this offering are receiving an illiquid security. In response to this Comment, we have inserted the following as a new third paragraph on the Prospectus Cover page: “There is no current public market for our shares and there is no assurance that a public market for our shares will ever develop. In the event a public market for our shares does not develop, then purchasers in this offering may be unable to sell the shares for an extended period of time.” 6. Your use of fully justified margins impedes readability. Please revise throughout to use only a left-justified margin In response to this Comment, we have revised the Registration Statement accordingly. Table of Contents 7. the outside back cover page of the prospectus, advise dealers of their prospectus delivery obligation, pursuant to Item 502(b) of Regulation S-B. In response to this Comment, we have inserted language in compliance with Item 502(b). Prospectus Summary, page 1 8. Since your summary must provide a brief, but not incomplete, overview of the key aspects of the offering, delete the statement that the ''summary is not complete.'' If necessary, provide additional material information in a concise manner to make the summary complete In response to this Comment, we have deleted the reference to the summary not being complete. We believe that our response to Comment number 9 below provides expanded disclosure for this summary section. 9. We remind you that a summary should provide a brief overview of you in a balanced manner. In this regard, please add disclosure about the following in your core summary: Disclose that you have significant net losses, and state the amount for the most recent audited and interim periods. Also, disclose if accurate that you have an expectation of continued significant losses and inadequate cash from operations to cover operating and net losses. State the percentage of your common stock being offered in this prospectus. Also indicate that the Reed family will hold % of your shares, and as a -result will exercise control over your direction. Explain that your shares currently are not traded on any market or exchange, and briefly explain how this impacts share liquidity. Briefly explain what is required to list your shares on an exchange or become quoted on a market. State the percentage of Your total sales revenues you derive from your products being sold at supermarkets and also at specialty stores. These are only examples. Revise accordingly. In response to this Comment, we have inserted the following disclosure in the Summary section: “We believe that the proceeds of this offering may greatly accelerate the success of this business strategy by providing working capital to finance an expanded sales and distribution network…. We currently rely upon one customer for between 10-15% of our aggregate gross revenues. If we were to lose this customer, our operations would be materially effected. … While there is no assurance, we currently intend to commence trading upon the Over the Counter Bulletin Board (“OTCBB”) market upon completion of this offering, of which this Prospectus is a part.. This will require that we complete certain filings and disclosures of information to the National Association of Securities Dealers and to the OTCBB itself. Our shares are currently not traded on the public securities markets and even if we successfully commence trading on the OTCBB there is no assurance that a public market for our shares of stock will be established.” 10. Further, in the core summary, please briefly describe the type of offering you are conducting, and describe how the amount of proceeds raised will impact your ability to operate going forward. Please see our response to Comment number 9 above. Risk Factors 11. Avoid risk factors that could apply to any company. Generic risk factors do not represent meaningful disclosure. Examples include: • ''We face risks associated with product liability claims...,'' page 4. If you have a history of product recall, state the reason for the recall and the amount of resultant financial loss to you. Moreover, represent whether you carry commercial reasonable amount of insurance coverage to insulate yourself from product liability claims. However, you do not need to disclose the dollar amount of the insurance coverage you carry. Finally, state here that you do not maintain product recall insurance, as you disclose on page 22. • ''We need to manage our growth page 5. Specify the nature of ''significant strain'' put upon your company by the growth you have experienced. • ''Our ability to obtain needed additional financing..., page 6. Quantify your known short-term and long-term capital requirements and disclose the time when you anticipate you will need the additional capital. If you elect to retain these and other generic risk factors in your prospectus, you must clearly explain how they apply to your company, industry, offering, etc. Please revise accordingly throughout.. Rather then set forth all of our changes in this correspondence, we request that the examiner review the revisions to the Risk Factors section of the Registration Statement, which revisions have been made keeping in mind this Comment. 12. Some of your risk factors are unduly vague. Please revise to include sufficient, specific information to assess the risk. Examples include: • ''The loss of our third-party suppliers or service providers...,'' page 4; and ''The loss of our third-party distributors...,'' page 4. Tell us supplementally whether you have lost or foresee losing third-party suppliers, service Providers, or distributors, or have experienced problems in business relationship with them. If so, disclose the fact in the discussion under the following two risk factor captions. There are multiple sources for our raw materials and for our packaging and bottling supplies. We believe that if any one of these sources were unable or refused to conduct business with us, that we would be successful in expeditiously identifying an alternative supplier. • '''Increases in the cost of packaging for our products...,'' page 4. State the percentage of the total expenses on manufacturing that is spent on packaging your products. If your cost of packaging has increased substantially in the recent years, provide quantitative information on this trend. We have deleted this Risk Factor as it does not apply to our operations. • ''There is not yet a public trading market for our securities page 5. Please revise to more clearly articulate what you or market makers must do to create a trading market for your securities, and how long that process may take. These are only examples, As a general matter, you should express your risk factors in more concrete tern-is with adequate, but not excessive, non-generic detail so that readers are able to clearly identify and assess the magnitude of the risk, Do not assume that investors will be able to decipher the risk.. In response to this Comment, please see the Risk Factors section of our Registration Statement. Forward-Looking Statements, page 8 13. The safe harbor provided by the Private Securities Litigation Reform Act of 1995 for forward-looking statements is not available for an initial registration statement. In addition, such a safe harbor in not available for an initial public offering, pursuant to Section 27A(b)(2)(D) of the Securities Act and Section 2 1 E(b)(2)(D) of the Exchange Act. Delete references to Section 27A of the Securities Act, Section 21 E of the Exchange Act, and the Private Securities Litigation Reform Act of 1995 here and on page 14. In response to this Comment, we have deleted all references to this safe harbor. 14. In the last paragraph on page 9 you state that you are not responsible for the accuracy and completeness of any forward-looking statements. We remind you that are responsible for the accuracy and completeness of all contents of the registration statement. Revise. In response to this Comment, we have deleted this statement. Capitalization as of June 30, 2004, page 12 15. Please revise your ''As adjusted'' disclosure to reflect the 10%, 50% and 100% scenarios presented throughout your filing. In response to this Comment, the document has been updated to reflect these changes. 16. Please delete the line-item ''Other liabilities'' from the table. Only capitalization in the form of debt and equity should be included. In response to this Comment, the document has been updated to reflect these changes. Dilution, page 13 17. With respect to the two issuances of Series A Convertible Preferred Stock in October 2004 tell us what consideration was given to recognition of a beneficial conversion feature (BCF) under EITF 98-5. In this regard we note that the Series A Convertible Preferred Stock entitles the holder to convert into 4 shares of common stock. Based on a sale price of $10 per preferred share, the cost of each common share is $2.50. Based on the proposed offering price per common share of $4.00, it appears that the two transactions resulted in an intrinsic BCF of $1.50 per common share ($6.00 per Series A Convertible Preferred share). Please advise. The offering price of $4.00 per share and the conversion price of the Series A Convertible Preferred Stock of $2.50 were determined independently of one another and were determined at different times. Management does not believe the $4.00 offering price is the fair value of the common stock at the time the $2.50 conversion price was determined. The preferred stock conversion price was established on June 30, 2004, the date the preferred stockholders agreement was created by management, after discussion and negotiation with the potential preferred stockholders. The offering price is based on an offering date yet to be determined and is anticipating growth in the company from June 30, 2004 to the offering date