Common use of Convertible Notes and Warrants Clause in Contracts

Convertible Notes and Warrants. The Company entered into a series of financing agreements over the last three years under which it issued convertible notes and Class A and Class B Warrants to purchase its common stock. The Company had an aggregate of $3,828,515 in principal outstanding in convertible notes payable and Class A Warrants outstanding to purchase an aggregate of 69,538,349 shares of common stock at exercise prices ranging from $0.035 to $15.00 per share, with expiration dates ranging from April 2011 to July 2015. The Class B Warrants will be issued upon exercise of certain Class A Warrants and have an exercise price of $15.00 per share. Upon exercise of certain Class A Warrants, the Company would have the obligation to issue Class B Warrants to purchase 278,068 shares of common stock at an exercise price of $15.00 per share. Class B Warrants to purchase 35,000 shares of common stock have a three year term and Class B Warrants representing the right to purchase 243,068 shares will expire after five years. See attached capitalization schedule which is incorporated by reference herein. SCHEDULE 5(h) Litigation On May 18, 2009, F&M Merchant Group, LLC commenced a lawsuit in the state of Texas to recover the balance owed by us under a Sales Agent Agreement entered by the parties on November 1, 2008. This agreement requires us to pay $5,000 per month and a 5% commission on all net sales. On September 3, 2009, a final judgment by default was approved by the district court in Xxxxxx County, Texas for a total sum of $22,348. This claim has been recorded on the Company’s records. Due to the lack of adequate capital financing, we have not been able to make any payments. On June 5, 2009, Xxxxxx Motor Sports, Inc. commenced a lawsuit in the state of Florida to recover the balance owed by us under a Letter of Agreement to sponsor a Top Fuel Dragster for the 2008 NHRA racing season in the amount of $803,750. Out of this total amount, only $300,000 is required to be paid in cash with the remainder to be paid in shares of common stock. This amount had already been recorded in our records. Xxxxxx Xxx, 0000, Xxxxxx Motor Sports, Inc. dismissed the lawsuit without prejudice. Prior to that time, the parties went through mediation but were unable to settle. The likelihood of an unfavorable outcome cannot be evaluated as another lawsuit possibly could be filed against the Company. On August 21, 2009, CH Fulfillment Services, LLC commenced a lawsuit in the state of Alabama to recover past due amounts owed by us under a contract to provide shipping and fulfillment services. The claim is for $2,106 plus interest and legal costs. This amount was already recorded on our records as well as projected interest costs of $682 and estimated court costs of $307 for a total of $3,095. This amount was recorded on our records. A process of garnishment by the district court in Mobile County, Alabama was approved on September 25, 2009 for the total amount of $3,095. On October 26, 2009, the same court authorized a garnishment process to pay $657 which was done as part payment of the total due amount. No other payments have been paid. On November 9, 2009, Nationwide Distribution Services, Inc. filed a lawsuit in the state of Florida to recover past due amounts owed by us under a contract to provide storage and warehouse fees. The Court approved a final judgment on January 11, 2010 in the sum of $3,650, court costs of $350 and interest fees of $959 for a total sum of $4,959. We have already recorded a similar amount in our records. As of April 2, 2010, we received a letter of notification from Nationwide Distribution Services, Inc. that at 12:00 noon on April 19, 2010, the products owned by us and stored at their facilities were sold at public auction. This sale constituted satisfaction of the final judgment brought against us. On September 16, 2010, Fortitech, Inc. filed a lawsuit in the state of Florida to recover past due amounts owed by us under a contract to provide goods for a certain beverage product. Fortitech is seeking an amount of $18,584 plus interest and costs. We have already recorded $18,334 of the total in our records. The Opportunity Fund, LLC filed a lawsuit in the state of Ohio on October 15, 2010 to recover $120,000 and $33,000 (total of $153,000) plus interest of 15% for two short term bridge loans that are in default. These amounts have already been recorded on our records.

Convertible Notes and Warrants. The Company entered into a series of financing agreements over the last three years under which it issued convertible notes and Class A and Class B Warrants to purchase its common stock. The Company had an aggregate of $3,828,515 in principal outstanding in convertible notes payable and Class A Warrants outstanding to purchase an aggregate of 69,538,349 shares of common stock at exercise prices ranging from $0.035 to $15.00 per share, with expiration dates ranging from April 2011 to July 2015. The Class B Warrants will be issued upon exercise of certain Class A Warrants and have an exercise price of $15.00 per share. Upon exercise of certain Class A Warrants, the Company would have the obligation to issue Class B Warrants to purchase 278,068 shares of common stock at an exercise price of $15.00 per share. Class B Warrants to purchase 35,000 shares of common stock have a three year term and Class B Warrants representing the right to purchase 243,068 shares will expire after five years. See attached capitalization schedule which is incorporated by reference herein. SCHEDULE 5(h) Litigation On May 18, 2009, F&M Merchant Group, LLC commenced a lawsuit in the state of Texas to recover the balance owed by us under a Sales Agent Agreement entered by the parties on November 1, 2008. This agreement requires us to pay $5,000 per month and a 5% commission on all net sales. On September 3, 2009, a final judgment by default was approved by the district court in Xxxxxx County, Texas for a total sum of $22,348. This claim has been recorded on the Company’s records. Due to the lack of adequate capital financing, we have not been able to make any payments. On June 5, 2009, Xxxxxx Motor Sports, Inc. commenced a lawsuit in the state of Florida to recover the balance owed by us under a Letter of Agreement to sponsor a Top Fuel Dragster for the 2008 NHRA racing season in the amount of $803,750. Out of this total amount, only $300,000 is required to be paid in cash with the remainder to be paid in shares of common stock. This amount had already been recorded in our records. Xxxxxx Duxxxx Xxx, 0000, Xxxxxx Motor Xotor Sports, Inc. dismissed the lawsuit without prejudice. Prior to that time, the parties went through mediation but were unable to settle. The likelihood of an unfavorable outcome cannot be evaluated as another lawsuit possibly could be filed against the Company. On August 21, 2009, CH Fulfillment Services, LLC commenced a lawsuit in the state of Alabama to recover past due amounts owed by us under a contract to provide shipping and fulfillment services. The claim is for $2,106 plus interest and legal costs. This amount was already recorded on our records as well as projected interest costs of $682 and estimated court costs of $307 for a total of $3,095. This amount was recorded on our records. A process of garnishment by the district court in Mobile County, Alabama was approved on September 25, 2009 for the total amount of $3,095. On October 26, 2009, the same court authorized a garnishment process to pay $657 which was done as part payment of the total due amount. No other payments have been paid. On November 9, 2009, Nationwide Distribution Services, Inc. filed a lawsuit in the state of Florida to recover past due amounts owed by us under a contract to provide storage and warehouse fees. The Court approved a final judgment on January 11, 2010 in the sum of $3,650, court costs of $350 and interest fees of $959 for a total sum of $4,959. We have already recorded a similar amount in our records. As of April 2, 2010, we received a letter of notification from Nationwide Distribution Services, Inc. that at 12:00 noon on April 19, 2010, the products owned by us and stored at their facilities were sold at public auction. This sale constituted satisfaction of the final judgment brought against us. On September 16, 2010, Fortitech, Inc. filed a lawsuit in the state of Florida to recover past due amounts owed by us under a contract to provide goods for a certain beverage product. Fortitech is seeking an amount of $18,584 plus interest and costs. We have already recorded $18,334 of the total in our records. The Opportunity Fund, LLC filed a lawsuit in the state of Ohio on October 15, 2010 to recover $120,000 and $33,000 (total of $153,000) plus interest of 15% for two short term bridge loans that are in default. These amounts have already been recorded on our records.

Convertible Notes and Warrants. The Company entered into a series of financing agreements over the last three years under which it issued convertible notes and Class A and Class B Warrants to purchase its common stock. The Company had an aggregate of $3,828,515 4,028,784 in principal outstanding in convertible notes payable and Class A Warrants outstanding to purchase an aggregate of 69,538,349 84,372,107 shares of common stock at exercise prices ranging from $0.035 to $15.00 per share, with expiration dates ranging from April 2011 to July 2015January 2016. The Class B Warrants will be issued upon exercise of certain Class A Warrants and have an exercise price of $15.00 per share. Upon exercise of certain Class A Warrants, the Company would have the obligation to issue Class B Warrants to purchase 278,068 shares of common stock at an exercise price of $15.00 per share. Class B Warrants to purchase 35,000 shares of common stock have a three year term and Class B Warrants representing the right to purchase 243,068 shares will expire after five years. See attached capitalization schedule which is incorporated by reference herein. SCHEDULE 5(h) Litigation On May 18, 2009, F&M Merchant Group, LLC commenced a lawsuit in the state of Texas to recover the balance owed by us under a Sales Agent Agreement entered by the parties on November 1, 2008. This agreement requires us to pay $5,000 per month and a 5% commission on all net sales. On September 3, 2009, a final judgment by default was approved by the district court in Xxxxxx County, Texas for a total sum of $22,348. This claim has been recorded on the Company’s records. Due to the lack of adequate capital financing, we have not been able to make any payments. On June 5, 2009, Xxxxxx Motor Sports, Inc. commenced a lawsuit in the state of Florida to recover the balance owed by us under a Letter of Agreement to sponsor a Top Fuel Dragster for the 2008 NHRA racing season in the amount of $803,750. Out of this total amount, only $300,000 is required to be paid in cash with the remainder to be paid in shares of common stock. This amount had already been recorded in our records. Xxxxxx Xxx, 0000, Xxxxxx Motor Sports, Inc. dismissed the lawsuit without prejudice. Prior to that time, the parties went through mediation but were unable to settle. The likelihood of an unfavorable outcome cannot be evaluated as another lawsuit possibly could be filed against the Company. On August 21, 2009, CH Fulfillment Services, LLC commenced a lawsuit in the state of Alabama to recover past due amounts owed by us under a contract to provide shipping and fulfillment services. The claim is for $2,106 plus interest and legal costs. This amount was already recorded on our records as well as projected interest costs of $682 and estimated court costs of $307 for a total of $3,095. This amount was recorded on our records. A process of garnishment by the district court in Mobile County, Alabama was approved on September 25, 2009 for the total amount of $3,095. On October 26, 2009, the same court authorized a garnishment process to pay $657 which was done as part payment of the total due amount. No other payments have been paid. On November 9, 2009, Nationwide Distribution Services, Inc. filed a lawsuit in the state of Florida to recover past due amounts owed by us under a contract to provide storage and warehouse fees. The Court approved a final judgment on January 11, 2010 in the sum of $3,650, court costs of $350 and interest fees of $959 for a total sum of $4,959. We have already recorded a similar amount in our records. As of April 2, 2010, we received a letter of notification from Nationwide Distribution Services, Inc. that at 12:00 noon on April 19, 2010, the products owned by us and stored at their facilities were sold at public auction. This sale constituted satisfaction of the final judgment brought against us. On September 16, 2010, Fortitech, Inc. filed a lawsuit in the state of Florida to recover past due amounts owed by us under a contract to provide goods for a certain beverage product. Fortitech is seeking an amount of $18,584 plus interest and costs. We have already recorded $18,334 of the total in our records. The Opportunity Fund, LLC filed a lawsuit in the state of Ohio on October 15, 2010 to recover $120,000 and $33,000 (total of $153,000) plus interest of 15% for two short term bridge loans that are in default. These amounts have already been recorded on our records.