Document:

ex10-42.htm

    
      

      

    

    Exhibit
10.42

    

    

    UNAUDITED
PRO FORMA CONSOLIDATED FINANCIAL INFORMATION

     

    On
November 13, 2009, Registrant entered into a Stock Purchase
Agreement  ("Agreement") with United States Environmental Response,
LLC, a California limited liability company (“Seller”) pursuant to which the
Registrant has purchased all of the issued and outstanding capital stock of
California Living Waters, Incorporated ("CLW"), a privately held
company.  CLW owns all of the issued and outstanding capital stock of
Santa Clara Waste Water Company (SCWW") a California corporation. CLW's only
operating subsidiary is SCWW. The Agreement is subject to a rescission if
Registrant does not pay certain indebtedness to its senior lender by close of
business on March 12, 2010.

    

    SCWW,
located in Ventura County, California, is a waste water management company with
that operates a 12.7 mile pipeline from its facility to the City of Oxnard'
water reclamation center. In consideration for the sale, GEM issued six
promissory notes (individually a "Note" and collectively, the "Notes") in the
aggregate principal amount of $9,003,000, and warrants to purchase 425,000
shares of GEM's common stock. The Company valued the warrants at
$105,000 using a Black - Scholes option pricing model. For the Black - Scholes
calculation, the Company assumed no dividend yield, a risk free interest rate of
4.78%, expected volatility of 115% and an expected term for the warrants of
10 years. The Notes bear interest at 6.5 per cent per annum. Two of the
Notes, totaling $3,778,000 are convertible into a total of 15% of GEM's common
stock on a fully diluted basis. The Notes have the following payment
provisions:

    

    $2,000,000
Seller's Note-- Payment of the outstanding principal of the Seller's Note is due
and payable in four (4) installments as follows: (A) Two Hundred Fifty Thousand
Dollars ($250,000) plus accrued interest before March 12, 2010, (B) Five Hundred
Thousand Dollars ($500,000) and accrued interest on June 30 2010; (C) One
Million Dollars ($1,000,000) and accrued interest on January 1, 2011 (D) the
balance of all residual principal and accrued interest on March 31,
2011.

    

    $1,700,000
Note One-- Payment of the outstanding principal of Note One is due and payable
in 120 installments commencing on December 1, 2009 and continuing on the first
day of each calendar month through February 1, 2019.  Installments are
payable in the following amounts (subject
to the other terms of this Note): (A) the amount of principal and accrued
interest payable in the first one hundred nineteen (119) Installments shall be
equal Installments of principal and interest, calculated on the basis of a
30-year amortization of this Note and (B) the one hundred twentieth (120th)
Installment shall be a final, “balloon” payment.

    

    $1,100,000
Note Two-- Payment of the outstanding principal of this Note Two is be due and
payable in sixty (60) installments commencing on December 1, 2009 and continuing
on the first day of each calendar month through November 1, 2014. Installments
are payable in the following amounts (subject to the other terms of this Note):
(A) the amount of principal and accrued interest payable in the first fifty-nine
(59) Installments shall be equal Installments of principal and interest,
calculated on the basis of a 30-year amortization of this Note; and (B) the
final, “balloon” payment on November 1, 2014.

     

    $424,000
Note Three-- Payment of the outstanding principal of this Note shall be due and
payable in 120 installments commencing on December 1, 2009 and continuing on the
first day of each calendar month through November 1,
2019.  Installments are payable in the following amounts (subject to
the other terms of this Note): (A) the amount of principal and accrued interest
payable in the first one hundred nineteen (119) Installments shall be equal
Installments of principal and interest, calculated on the basis of a 30-year
amortization of this Note and (B) the one hundred twentieth (120th)
Installment shall be a final, “balloon”. Note Three is convertible at any time
in full or in part (but if in part, then only in principal increments of
$100,000 or an integral multiple thereof) into shares of common stock of
Registrant at the conversion rate of Four Dollars ($4.00) per share, subject to
adjustment.

     

    
      
        
        

      

      
        1

        
          

        

      

      
        
        

      

    

     

    $1,600,000
Note Four-- Payment of the outstanding principal of this Note is due and payable
in 41 installments commencing on July 1, 2010 and continuing on the first day of
each calendar month through November 1, 2013. Installments are payable in the
following amounts (subject to the other terms of this Note): (A) the amount
of principal and accrued interest payable in the first forty Installments shall
be equal Installments of principal and interest, calculated on the basis of a
30-year amortization of this Note, provided that the first Installment shall
also include all interest accrued during the first seven months from the
date of this Note; Four and (B) the final, “balloon”, Installment shall be in
the amount of all then-outstanding principal, interest and other amounts then
outstanding. Note Four is convertible into 5% of the common stock of Registrant
on a fully diluted basis until Registrant achieves a Capital Restructuring Goal.
Capital Restructuring Goal means the concurrent fulfillment of each of the
following events: (i) the Seller’s Note shall have been fully paid on the terms
thereof as to all theretofore outstanding principal, interest, costs and
expenses; (ii) Registrant shall have available, as properly reflected in
Registrant’s books one million dollars ($1,000,000) in uncommitted working
capital (not including any working capital lines of credit); and (iii)
Registrant shall have invested into SCWW capital of at least one million dollars
$1,000,000.

     

    $2,178,000
Note Five-- Payment of the outstanding principal of this Note is due and payable
in 41 installments commencing on July 1, 2010 and continuing on the first day of
each calendar month through November 1, 2013. Installments are payable in the
following amounts (subject to the other terms of this Note): (A) the amount
of principal and accrued interest payable in the first forty Installments shall
be equal Installments of principal and interest, calculated on the basis of a
30-year amortization of this Note, provided that the first Installment shall
also include all interest accrued during the first seven months from the
date of this Note; Four and (B) the final, “balloon”, Installment shall be in
the amount of all then-outstanding principal, interest and other amounts then
outstanding. Note Four is convertible into 10% of the common stock of Registrant
on a fully diluted basis until Registrant achieves the Capital Restructuring
Goal.

     

    The
acquisition of CLW will be accounted for as a purchase in accordance and the
operations of the company will be consolidated with those of GEM as of October
1, 2009. The parties determined that the effective date of the acquisition
was September 30, 2009, the date of which GEM assumes all the
responsibility for any losses or profits that might be incurred during
the period. The results of CLW as of October 31, 2009 have been
combined in this pro forma with the September 30, 2009 results of the
Company.  The ten months’ operating results for CLW added to the nine
months’ results for the Company are representative on a pro forma basis of the
operating performance of the combined companies.  The $9.0 million
purchase price will be allocated as follows based upon the fair value of the
acquired assets, as determined by management.

     

    
      	
              Current
      assets and liabilities

            	 
      	
              $

            	
              428,392

            	 
      
	
              Intangibles,
      net

            	 
      	 
      	
              1,486,503

            	 
      
	
              Other
      non current assets

            	 
      	 
      	
              342,561

            	 
      
	
              Property
      and equipment

            	 
      	 
      	
              12,386,747

            	 
      
	
              Long
      term obligations, net of current portion

            	 
      	 
      	
              (5,536,203)

            	 
      
	
              Total

            	 
      	
              $

            	
              9,108,000

            	 
      

    

     

    The Company has not completed its valuation of the acquired assets
but believes most of the excess fair value of the acquired assets and
liabilities will be allocated to property and equipment and have been reflected
as such in the accompanying Pro Forma Balance Sheet. The valuation of the
acquired assets may change based upon final valuation.

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

     

    The
following unaudited pro forma combined balance sheet as of September 30, 2009
and the combined statements of operations for the nine months ended September
30, 2009 and for the year ended December 31, 2008 give effect to the acquisition
of CLW as if these transactions had been consummated on January 1, 2009 and
January 1, 2008.  The unaudited pro forma combined balance sheet as of
September 30, 2009 gives effect to the Merger Transaction and acquisition of CLW
as if it had occurred on September 30, 2009.

     

    The
unaudited condensed combined pro forma financial statements should be read in
conjunction with the historical financial statements.  The unaudited
pro forma financial statements are presented for illustrative purposes only and
are not necessarily indicative of future operating results or the results that
might have occurred if the exchange transaction had actually occurred on the
indicated date.

     

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

     

    
      General
Environmental Management, Inc.

      Unaudited
Pro Forma Consolidated Balance Sheet

      As
of September 30, 2009

       

      
        
          	 	 	
                  Historical

                	 	 	
                  California
      Living Waters, Inc. and Subsidiary (b)

                	 	 	 
      

                  Pro Forma

                  Adjustments

                	 	 	 	 
      

                  Pro
      Forma

                  Consolidated

                	 
	
                  ASSETS

                	 	 	 	 	 	 	 	 	 	 
      	 	 	 
	
                  Current
      assets:

                	 	 	 	 	 	 	 	 	 	 
      	 	 	 
	
                  Cash

                	 	$	39,676	 	 	$	492,193	 	 	$	-	 	 
      	 	$	531,869	 
	
                  Accounts
      receivable, net of allowance for doubtful accounts

                	 	 	2,989,745	 	 	 	1,331,224	 	 	 	-	 	 
      	 	 	4,320,969	 
	
                  Prepaid
      expenses and current other assets

                	 	 	768,852	 	 	 	85,361	 	 	 	-	 	 
      	 	 	854,213	 
	
                  Total
      current assets

                	 	 	3,798,273	 	 	 	1,908,778	 	 	 	-	 	 
      	 	 	5,707,051	 
	 
      	 	 	 	 	 	 	 	 	 	 	 	 	 
      	 	 	 	 
	
                  Property
      and equipment, net of accumulated depreciation

                	 	 	5,191,212	 	 	 	10,777,655	 	 	 	  5,332,999	 	
                  (a)

                	 	 	21,301,866	 
	 
      	 	 	 	 	 	 	 	 	 	 	 	 	 
      	 	 	 	 
	
                  OTHER
      ASSETS

                	 	 	 	 	 	 	 	 	 	 	 	 	 
      	 	 	 	 
	
                  Restricted
      cash

                	 	 	900,039	 	 	 	-	 	 	 	-	 	 
      	 	 	900,039	 
	
                  Intangibles,
      net

                	 	 	547,232	 	 	 	-	 	 	 	-	 	 
      	 	 	547,232	 
	
                  Goodwill

                	 	 	84,505	 	 	 	-	 	 	 	-	 	 
      	 	 	84,505	 
	
                  Permits
      and Franchises

                	 	 	-	 	 	 	1,486,503	 	 	 	 	 	 
      	 	 	1,486,503	 
	
                  Deferred
      financing fees

                	 	 	369,015	 	 	 	162,854	 	 	 	-	 	 
      	 	 	531,869	 
	
                  Other
      noncurrent assets

                	 	 	-	 	 	 	179,707	 	 	 	 	 	 
      	 	 	179,707	 
	
                  Assets
      of discontinued operations

                	 	 	1,089,341	 	 	 	 	 	 	 	 	 	 
      	 	 	1,089,341	 
	
                  Deposits

                	 	 	191,686	 	 	 	-	 	 	 	-	 	 
      	 	 	191,686	 
	
                  Total
      assets

                	 	$	12,171,303	 	 	$	14,515,497	 	 	$	5,332,999	 	 
      	 	$	32,019,799	 
	 
      	 	 	 	 	 	 	 	 	 	 	 	 	 
      	 	 	 	 
	
                  Liabilities
      and Stockholders’ Equity

                	 	 	 	 	 	 	 	 	 	 	 	 	 
      	 	 	 	 
	
                  Current
      liabilities:

                	 	 	 	 	 	 	 	 	 	 	 	 	 
      	 	 	 	 
	
                  Accounts
      Payable

                	 	$	4,082,904	 	 	 	635,665	 	 	 	-	 	 
      	 	 	4,718,569	 
	
                  Payable
      to related party

                	 	 	741,719	 	 	 	 	 	 	 	-	 	 
      	 	 	741,719	 
	
                  Deferred
      rent

                	 	 	35,254	 	 	 	 	 	 	 	-	 	 
      	 	 	35,254	 
	
                  Accrued
      expenses

                	 	 	2,405,394	 	 	 	128,233	 	 	 	-	 	 
      	 	 	2,533,627	 
	
                  Accrued
      disposal costs

                	 	 	536,519	 	 	 	-	 	 	 	-	 	 
      	 	 	536,519	 
	
                  Derivative
      liabilities

                	 	 	4,931,579	 	 	 	 	 	 	 	 	 	 
      	 	 	4,931,579	 
	
                  Current
      portion of financing agreement

                	 	 	4,858,771	 	 	 	-	 	 	 	-	 	 
      	 	 	4,858,771	 
	
                  Current
      portion of capital lease obligations

                	 	 	277,372	 	 	 	 	 	 	 	 	 	 
      	 	 	277,372	 
	
                  Current
      portion of long-term obligations

                	 	 	-	 	 	 	716,488	 	 	 	698,908	 	 
      	 	 	1,415,396	 
	
                  Total
      current liabilities

                	 	 	17,869,512	 	 	 	1,480,386	 	 	 	698,908	 	 
      	 	 	20,048,806	 
	 
      	 	 	 	 	 	 	 	 	 	 	 	 	 
      	 	 	 	 
	
                  LONG
      – TERM LIABILITIES

                	 	 	 	 	 	 	 	 	 	 	 	 	 
      	 	 	 	 
	
                  Financing
      agreement, net of current portion

                	 	 	5,425,678	 	 	 	-	 	 	 	 -	 	 
      	 	 	5,425,678	 
	
                   

                  Long
      term obligations, net of current portion

                	 	 	  1,758,473	 	 	 	  3,736,203	 	 	 	  8,304,092	 	 
      	 	 	  13,798,768	 
	
                  Capital
      lease obligations, net of current portion

                	 	 	734,430	 	 	 	-	 	 	 	-	 	 
      	 	 	734,430	 
	
                  Deferred
      Income Taxes

                	 	 	 	 	 	 	2,659,932	 	 	 	(2,659,932	)	 
      	 	 	-	 
	
                  Subordinated
      related party notes payable

                	 	 	-	 	 	 	1,800,000	 	 	 	 	 	 
      	 	 	1,800,000	 
	
                  Total
      long-term liabilities

                	 	 	7,918,581	 	 	 	8,196,135	 	 	 	5,644,160	 	 
      	 	 	21,758,876	 
	
                   

                  Stockholders’
      equity (deficiency)

                	 	 	 	 	 	 	 	 	 	 	 	 	 
      	 	 	 	 
	
                     
      Common stock, $.001 par value, 100,000,00 shares authorized 14,557,653 and
      35,439 shares issued and outstanding

                	 	 	14,570	 	 	 	-	 	 	 	 	 	 
      	 	 	14,570	 
	
                  Additional
      paid-in capital

                	 	 	54,450,995	 	 	 	4,946,236	 	 	 	(4,841,236	)	 
      	 	 	54,555,995	 
	
                  Retained
      earnings (accumulated deficit)

                	 	 	(68,082,355	)	 	 	(107,260	)	 	 	3,831,167	 	 
      	 	 	(64,358,448	)
	
                  Total
      stockholders’ equity

                	 	 	(13,616,790	)	 	 	4,838,976	 	 	 	(1,010,069	)	 
      	 	 	(9,787,883	)
	
                  Total
      liabilities and stockholders’ equity (deficiency)

                	 	$	12,171,303	 	 	$	14,515,497	 	 	$	 5,332,999	 	 
      	 	$	32,019,799	 

        

      

       

      Descriptions
of Pro Forma eliminations:

       

      
        	
                (a)  

              	
                To
      reflect acquisition of CLW by General Environmental Management, Inc. and
      allocation of purchase price. 

              

      

      
         

        
          	
                  (b)  

                	
                  For
      pro forma balance sheet presentation purposes at September 30, 2009, the
      Company has  included the historical balance sheet of California
      Living Waters Inc. as of October 31, 2009.  Management has
      determined there are no significant differences between the periods that
      would effect the pro forma.

                

        

         

        
          
            
            

          

          
            4

            
              

            

          

          
            
            

          

        

      

       

      General
Environmental Management, Inc.

      Unaudited
Pro Forma Consolidated Statements of Operations

      For
the nine months ended September 30, 2009

       

      
        	 
      	 	
                Historical

              	 	 
      	 	
                California
      Living Waters, Inc. and Subsidiary(d)

              	 	 	
                Pro Forma

                Adjustments

              	 	 
      	 	
                Pro
      Forma

                Consolidated

              	 
	 
      	 	 	 	 
      	 	 	 	 	 	 	 
      	 	
                (Unaudited)

              	 
	
                Revenue

              	 	$	12,589,161	 	 
      	 	$	5,291,866	 	 	$	-	 	 
      	 	 	17,881,027	 
	
                Cost
      of revenue

              	 	 	12,906,589	 	 
      	 	 	3,650,472	 	 	 	62,671	 	
                 

                (b)

              	 	 	16,619,732	 
	
                Gross
      profit

              	 	 	(317,428	)	 
      	 	 	1,641,394	 	 	 	(62,671	)	 
      	 	 	1,261,295	 
	
                Operating
      expenses

              	 	 	6,607,657	 	 
      	 	 	988,259	 	 	 	 	 	 
      	 	 	7,595,916	 
	
                Operating  income
      (loss)

              	 	 	(6,925,085	)	 
      	 	 	653,135	 	 	 	(62,671	)	 
      	 	 	(6,334,621	)
	 
      	 	 	 	 	 
      	 	 	 	 	 	 	 	 	 
      	 	 	 	 
	
                Other
      Income (Expense):

              	 	 	 	 	 
      	 	 	 	 	 	 	 	 	 
      	 	 	 	 
	
                Interest
      income

              	 	 	19,403	 	 
      	 	 	413	 	 	 	 	 	 
      	 	 	19,816	 
	
                Interest
      and financing costs

              	 	 	(3,724,968	)	 
      	 	 	(379,486	)	 	 	(342,821	)	
                 

                (c)

              	 	 	(4,447,275	)
	
                Gain
      (loss) on disposal of fixed assets

              	 	 	66,050	 	 
      	 	 	(305,129	)	 	 	 	 	 
      	 	 	(239,079	)
	
                Gain
      (loss) on derivative financial instruments

              	 	 	988,342	 	 
      	 	 	 	 	 	 	 	 	 
      	 	 	988,342	 
	
                Gain
      (loss) on extinguishment

              	 	 	(4,039,358	)	 
      	 	 	 	 	 	 	 	 	 
      	 	 	(4,039,358	)
	
                Other
      non- operating income

              	 	 	27,758	 	 
      	 	 	60	 	 	 	 	 	 
      	 	 	27,818	 
	
                Loss
      from operations

              	 	 	(13,587,858	)	 
      	 	 	(31,007	)	 	 	(405,492	)	 
      	 	 	(14,024,357	)
	
                Gain
      (loss) from discontinued operations

              	 	 	1,077,337	 	
                (a)

              	 	 	-	 	 	 	(1,077,337	)	
                 

                (f)

              	 	 	-	 
	
                Provision
      for income taxes

              	 	 	-	 	 
      	 	 	12,403	 	 	 	-	 	 
      	 	 	12,403	 
	
                Provision
      for deferred income taxes

              	 	 	 	 	 
      	 	 	 	 	 	 	3,723,907	 	
                 

                (e)

              	 	 	3,723,907	 
	
                 Net
      Loss

              	 	$	(12,510,521	)	 
      	 	$	(18,604	) 	 	$	(2,241,078	)	 
      	 	$	(10,288,047	)
	 
      	 	 	 	 	 
      	 	 	 	 	 	 	 	 	 
      	 	 	 	 
	
                Net
      loss per common share, basic and diluted

              	 	$	(.94	)	 
      	 	 	 	 	 	 	 	 	 
      	 	$	(.77	)
	 
      	 	 	 	 	 
      	 	 	 	 	 	 	 	 	 
      	 	 	 	 
	 
      	 	 	 	 	 
      	 	 	 	 	 	 	 	 	 
      	 	 	 	 
	
                Weighted
      average shares of common stock outstanding, basic and
    diluted

              	 	 	13,348,530	 	 
      	 	 	 	 	 	 	 	 	 
      	 	 	13,348,530	 

      

       

      Descriptions
of Pro Forma eliminations:

      

      
        	
                a)  

              	
                GEM
      historical reflects the operations of GEM Mobile Treatment Services that
      has been classified as a discontinued operations due to its sale in August
      2009.

              

      

       

      
        	
                b)  

              	
                The
      additional expense classified to Cost of Revenue includes additional
      depreciation related to the allocation of purchase price over the net
      assets acquired to fixed assets.

              

      

       

      
        	
                c)  

              	
                Additional
      interest expense related to long term debt issued in conjunction with the
      purchase of California Living
Waters.

              

      

      
        

        
          	
                  d)  

                	
                  For
      pro forma statement of operations presentation purposes for the nine
      months ended September 30, 2009,   the Company has included
      the historical statement of Operations of California Living Waters Inc.
      for the ten months ended October 31, 2009.  Management has
      determined that the inclusion of the additional one month of operations
      has no significant effect the pro
forma

                

        

         

        
          	
                  e)  

                	
                  Acquisition
      adjustment related to deferred income
taxes

                

        

         

        
          	
                  f)  

                	
                  Elimination
      of income from discontinued
operations

                

        

         

      

      
        
          
          

        

        
          5

          
            

          

        

        
          
          

        

      

       

      General
Environmental Management, Inc.

      Unaudited
Pro Forma Consolidated Statements of  Operations

      For
the year ended December 31, 2008

       

      
        	 
      	 	
                Historical

              	 	 	
                California
      Living Waters, Inc. and Subsidiary

              	 	 	
                Pro Forma

                Adjustments

              	 	 
      	 	
                Pro
      Forma

                Consolidated

              	 
	 
      	 	 	 	 	 	 	 	 	 	 
      	 	
                (Unaudited)

              	 
	
                Revenue

              	 	$	24,307,848	 	 	$	7,615,880	 	 	$	-	 	 
      	 	$	31,923,728	 
	
                Cost
      of revenue

              	 	 	22,422,611	 	 	 	4,593,040	 	 	 	75,204	 	
                 

                (a)

              	 	 	27,090,855	 
	
                Gross
      profit

              	 	 	1,885,237	 	 	 	3,022,840	 	 	 	(75,204	)	 
      	 	 	4,832,873	 
	
                Operating
      expenses

              	 	 	7,658,639	 	 	 	1,992,184	 	 	 	-	 	 
      	 	 	9,650,823	 
	
                Operating
      income (loss)

              	 	 	(5,773,402	)	 	 	1,030,656	 	 	 	(75,204	)	 
      	 	 	(4,817,950	)
	 
      	 	 	 	 	 	 	 	 	 	 	 	 	 
      	 	 	 	 
	
                Other
      Income (Expense):

              	 	 	 	 	 	 	 	 	 	 	 	 	 
      	 	 	 	 
	
                Interest
      income

              	 	 	17,569	 	 	 	-	 	 	 	-	 	 
      	 	 	17,569	 
	
                Interest
      and financing costs

              	 	 	(4,569,813	)	 	 	(521,882	)	 	 	(457,094	)	
                 

                (b)

              	 	 	(5,548,789	)
	
                Other
      non- operating income

              	 	 	41,729	 	 	 	5,256	 	 	 	-	 	 
      	 	 	46,985	 
	
                Income
      (loss) before income taxes

              	 	 	(10,283,917	)	 	 	514,030	 	 	 	(532,298	)	 
      	 	 	(10,302,185	)
	
                Gain
      (loss) from discontinued operations

              	 	 	3,135,613	 	 	 	 	 	 	 	(3,135,613	)	
                 

                (c)

              	 	 	-	 
	
                Provision
      for income taxes

              	 	 	-	 	 	 	(205,612	)	 	 	205,612	 	 
      	 	 	-	 
	
                Provision
      for deferred income taxes

              	 	 	 	 	 	 	 	 	 	 	3,723,907	 	
                 

                (d)

              	 	 	3,723,907	 
	
                Net
      Income (loss)

              	 	$	(7,149,709	)	 	$	308,418	 	 	$	261,608	 	 
      	 	$	(6,578,278	)
	 
      	 	 	 	 	 	 	 	 	 	 	 	 	 
      	 	 	 	 
	 
      	 	 	 	 	 	 	 	 	 	 	 	 	 
      	 	 	 	 
	 
      	 	 	 	 	 	 	 	 	 	 	 	 	 
      	 	 	 	 
	
                Net
      loss per common share, basic and diluted

              	 	$	(.57	)	 	 	 	 	 	 	 	 	 
      	 	$	(.52	)
	 
      	 	 	 	 	 	 	 	 	 	 	 	 	 
      	 	 	 	 
	 
      	 	 	 	 	 	 	 	 	 	 	 	 	 
      	 	 	 	 
	
                Weighted
      average shares of common stock outstanding, basic and
    diluted

              	 	 	12,578,104	 	 	 	 	 	 	 	 	 	 
      	 	 	12,578,104	 
	 
      	 	 	 	 	 	 	 	 	 	 	 	 	 
      	 	 	 	 

      

       

      Descriptions
of Pro Forma eliminations:

      

      
        	
                a)  

              	
                The
      additional expense classified to Cost of Revenue includes additional
      depreciation related to the allocation of purchase price over the net
      assets acquired to fixed assets.

              

      

       

      
        	
                b)  

              	
                Additional
      interest expense related to long term debt issued in conjunction with the
      purchase of California Living
Waters.

              

      

       

      
        	
                c)  

              	
                Gain
      (loss) from discontinued
operations

              

      

    

     

     

     

    6Loan Agreement

 Exhibit 10.8 
 LOAN AGREEMENT 
 This Loan Agreement (the “Agreement”) is made on this 19th day of August 2009 (the “Effective Date”), by and between Audience Productions, Inc. a Washington corporation (the “Borrower”) and Jay T. Schwartz, George Brumder, and Julie Chase (collectively the “Lenders”).

Whereas, the Borrower anticipates undertaking a public offering to raise funds to produce the feature film "Lydia Slotnik Unplugged" (the "Public Offering") and requires loans to continue operations until the Borrower can access proceeds from the Public Offering;

Whereas, the Lenders shall provide such loans to the Borrower up to an aggregate amount of $100,000; and

Whereas, the rate of five percent (5%) per annum (based on a 360 day year, a 5.127% APR) shall accrue on any outstanding borrowings from the day any such amount is deposited into the Borrower's account to the day said amount is paid back;

Now, therefore, in consideration of the mutual representations contained herein, the parties hereby agree as follows:
  

	 	1.	Initial Loan: The Lenders made a $3,000 loan to the Borrower on the Effective Date pursuant to the terms of this Agreement.

 

	 	2.	Permitted Borrowings: The Borrower may request, and the Lenders shall be obligated to provide, additional loans under this Agreement up to a total amount of $100,000.

 

	 	3.	Interest Rate: The rate of interest, which shall apply to all loans made pursuant to this agreement, is five percent (5%) per annum (based on a 360 day year, a 5.127% APR).

 

	 	4.	Public Offering: The Borrower anticipates filing a registration statement for an $8,000,000 Public Offering of 800,000 Series A Preferred Shares with the Securities and Exchange Commission on or about October 15, 2009.

 

	 	5.	Impound Account: All funds raised from the Public Offering will be placed in an impound account until the successful close of the offering; meaning, the $8,000,000 offering amount is raised.

 

	 	6.	Operating Account: The Borrower has opened a demand deposit account at Banner Bank, in Lynwood, WA, where the funds from loans made under this Agreement will be deposited, and from where the Borrower's operating expenses will be paid.

 

	 	7.	Maturity Date: The entire unpaid principal balance and accrued interest thereon from loans made under this Agreement shall become immediately due and payable upon the successful close of the Public Offering. Repayment of the loans will not represent a taxable dividend or distribution of cash from the Borrower.

 

	 	8.	Books and Records: Loan balances shall be maintained in the Borrower's books under the account "Loans from Common Shareholders." The loans do not represent a sale of stock or transfer of any other rights. The loans are not made for the purpose of tax evasion.

 

	 	9.	Modifications: No modification or waiver of any of the terms of this Agreement shall be allowed unless written and signed by both parties. No waiver of any breach or default hereunder shall be deemed a waiver of any subsequent breach or default of the same or similar nature.

 

	 	10.	Transfer of the Agreement: The Borrower hereby waives any notice of the transfer of this Agreement by the Lenders or by any subsequent holder of this Agreement, agrees to remain bound by the terms of this Agreement subsequent to any transfer, and agrees that the terms of this Agreement may be fully enforced by any subsequent holder of this Agreement.

 

	 	11.	Severability Provisions: In the event that any portion of this note is deemed unenforceable, all other provisions shall remain in full force and effect.

 

	 	12.	Choice of Law: All terms and conditions of this note shall be interpreted under the laws of the State of Washington.

 

IN WITNESS WHEREOF, the parties have executed this Agreement the 19th day of August 2009. 

			
	By:	 	 /s/ GEORGE BRUMDER

	Name:	 	George Brumder
		 	For the Borrower, Audience Productions, Inc.
		
	By:	 	 /s/ JAY T. SCHWARTZ 

	Name:	 	Lender, Jay T. Schwartz
		
	By:	 	 /s/ GEORGE BRUMDER

	Name:	 	Lender, George Brumder
		
	By:	 	 /s/ JULIE CHASE

	Name:	 	Lender, Julie Chase

Signed in the presence of:

			
	By:	 	 /s/ MATTHEW DUBINA

	Name:	 	Witness, Matthew Dubina

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