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An additional 50,000 warrants were issued to an intermediary on the same terms as were granted to the Buyers. The Preferred Stock is convertible into common stock on the following basis: The number of shares of common stock to be issued is equal to the stated value of the number of shares of Preferred Stock being converted, together with any accrued dividends (the quot;Additional Amountquot;) thereon, divided by the quot;Conversion Pricequot. The Conversion Price is equal to the lesser of (i) 115 of the average of the two lowest bid prices quoted on the exchange where the Company's common stock is traded during the ten days preceding the closing or, (ii) 80 of the average of the two lowest bid prices of the common stock. Related to this issuance of the Company's preferred stock, the Company recorded an imputed, preferred dividend, which represented the difference between the trading price of the Company's common stock and the conversion rate most beneficial to the preferred stock holder, at the date the preferred stock was issued.

The Company recorded expense of 19,000 in connection with the issuance of these shares. In October 1999, a former Chief Executive Officer and shareholder of the Company returned 941,436 shares to the Company as a contribution to capital. On April 20, 2000, the Company entered into a one year consulting agreement with a financial advisor. The agreement calls for the issuance of options to purchase 30,000 shares of common stock at 3. 86 per share.

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