i) The Company did not maintain effective controls over the identification of a variable conversion feature and put option embedded within its convertible debt instruments and the determination of the appropriate accounting treatment for those debt instruments. ii) The Company did not maintain effective controls over the accounting for its investment in Phoenix Digital, LLC and the determination of the appropriate accounting treatment for the investment. As a result of these weaknesses, management has taken steps, including the retention of new and additional accounting personnel, and continues to monitor the controls and procedures, to ensure that the errors will not occur again and that the Company’s disclosure controls and procedures are operating at the reasonable assurance level. In addition, management has engaged our current auditors to perform a re-audit of the fiscal years ended May 31, 2005, 2004, 2003 and 2002 (including the beginning balances for 2001). ads