Item 8.01 Other Events
The Company’s principal executive offices consist of leased space in North Hollywood,
California. The Company leases this space from KZ Golf, Inc. (“KZG”). Bruce H. McKinnon, the
Company’s President and Chief Executive Officer, and an incumbent director, is an owner of
KZG. Mr. McKinnon’s wife is the President of KZG.
The Company originally entered into a sublease with KZG on October 16, 2003, which sublease
expired on October 16, 2005. The Company exercised an option to renew the sublease, which renewal
term was due to expire on October 15, 2007. Through October 16, 2005, the rent was $3,400 per month
for approximately 1,225 square feet, and for comprehensive office support services, including
reception, parking and conference facilities. During the extended lease term, the rent was $3,740
per month.
In connection with the Company’s need to acquire additional office space and expanded services
as its business activities were then growing, the Company entered into a new sublease dated as of
January 1, 2006 with KZG (the “2006 Sublease”), replacing the original sublease and the terms
applicable under the extended term thereof. The 2006 Sublease is for a term of 19 months, expiring
July 31, 2007. The new rent under the 2006 Sublease is $6,208 per month for approximately 1,700
square feet of office space, and for additional common area use, expanded office support services,
including a computer network, and additional parking spaces. The Company has the right to renew the
2006 Sublease for an additional term of two years at a 10% increase over the then-current rent.
Thereafter, in July 2006, the Company acquired two additional offices comprising approximately
250 square feet, and additional parking spaces, for which the Company pays KZG $964 per month in
additional rent on a month-to-month basis, or a total of $7,172 per month.
Due to the Company’s current cash flow difficulties, it has not been able to make
most of its payments
to KZG commencing January 2007. On July 12, 2007, KZG presented to the Company a Three-Day Notice
to Pay or Quit, demanding payment of unpaid rent, additional rent and penalties, in the aggregate
amount of $104,413 as of such date. In addition to the unpaid rent during 2007, it is apparently
KZG’s position, taken for the first time, that there is a discrepancy in the calculation of base rent as
far back as April 1, 2004 and that a penalty of $100 per day should be imposed continuously since
January 1, 2006 under the terms of a certain provision of the 2006 Sublease.
For numerous reasons, the Company strongly disagrees with the apparent position of KZG that
there is a discrepancy in the calculation of base rent as far back as April 1, 2004 and that a
penalty of $100 per day should be imposed continuously since
January 1, 2006 under the terms of a certain provision of the
2006 Sublease. There may also be other aspects of KZG’s positions or apparent positions with which
the Company strongly disagrees. The Company intends to fully assess the situation, closely monitor all
developments, continue discussions with KZG and take any and all such action as may be necessary or
appropriate. The Company did not exercise its option to renew the 2006
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