ITEM 2.03 CREATION OF A DIRECT FINANCIAL OBLIGATION

Effective July 22, 2005, we issued a Secured Convertible Debenture to Ralph McElroy ("Holder"), a greater than 10% shareholder of the Company, for the principal sum of $660,000 bearing interest at the rate of 12% per annum, with a maturity date of August 1, 2008 (the "Debenture"). Under the terms of the Debenture, we are required to make monthly interest payments beginning September 1, 2005. The Company has the right to redeem the Debenture in whole or in part at any time during the term of the Debenture. At the election of the Holder, the Holder has the right to require the Debenture to be repaid in thirty (30) equal monthly installments commencing February 2006, or to convert all or a portion of the Debenture into shares of our common stock at a rate of $3.00 per share (the "Conversion Shares"), subject to adjustment under certain conditions. The Conversion Shares have piggyback registration rights. The Debenture is secured by certain of our assets. Additionally, we issued the Holder a Warrant to purchase 50,000 shares of our common stock at an exercise price of $3.00 per share until July 22, 2008. The terms and conditions of the transaction were the result of arms-length negotiation between the parties.