------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 2007
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________
Commission file number 000-29196
PROFILE TECHNOLOGIES, INC.
--------------------------
(Name of Small Business Issuer in Its Charter)
Delaware 91-1418002
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2 Park Avenue, Suite 201
Manhasset, New York 11030
------------------- -----
(Address of principal executive offices) (Zip Code)
(516) 365-1909
--------------
(Issuer's Telephone Number, Including Area Code)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes |X| No |_|
Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act). Yes|_| No |X|
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: 14,322,594 shares of common
stock as of January 30, 2008.
Transitional Small Business Disclosure Format (check one): Yes|_| No |X|
TABLE OF CONTENTS
Description Page Number
--------------------------------------------------------------------------------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheet (Unaudited) -
At December 31, 2007............................................ 3
Statements of Operations (Unaudited) -
Three and Six Months Ended December 31, 2007 and 2006 .......... 4
Statements of Cash Flows (Unaudited) -
Six Months Ended December 31, 2007 and 2006..................... 5
Notes to Financial Statements (Unaudited)............................ 6
Item 2. Management's Discussion and Analysis or Plan of Operation.....14
Item 3. Controls and Procedures.......................................16
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.............................................17
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds...17
Item 3. Defaults Upon Senior Securities...............................17
Item 4. Submission of Matters to a Vote of Stockholders...............18
Item 5. Other Information.............................................18
Item 6. Exhibits......................................................18
SIGNATURES ...................................................................20
CERTIFICATIONS
2
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements.
PROFILE TECHNOLOGIES, INC.
Balance Sheet
(Unaudited)
December 31,
2007
------------
Assets
Current assets:
Cash and cash equivalents $ 682,128
Accounts receivable 13,300
Prepaid expenses and other current assets 12,332
------------
Total current assets 707,760
Equipment, net of accumulated depreciation of $11,480 8,878
Deferred financing fees 240
Other assets 1,633
------------
Total assets $ 718,511
============
Liabilities and Stockholders' Deficit
Current Liabilities:
Accounts payable $ 154,115
Notes payable to stockholders 7,500
Current portion of convertible debt 65,000
Deferred wages 748,936
Accrued professional fees 220,150
Accrued interest 1,386
Other accrued expenses 12,644
------------
Total current liabilities 1,209,731
Long-term convertible debt, net of unamortized discount of $42,898 2,102
Stockholders' deficit:
Common stock, $0.001 par value. Authorized 35,000,000
shares; issued and outstanding 14,092,593 shares 14,093
Common stock issuable; 107,779 shares 108
Additional paid-in capital 15,315,860
Accumulated deficit (15,823,383)
------------
Total stockholders' deficit (493,322)
Commitments, contingencies and subsequent events
------------
Total liabilities and stockholders' deficit $ 718,511
============
See accompanying notes to financial statements.
3
PROFILE TECHNOLOGIES, INC.
Statements of Operations
(Unaudited)
For the Three Months Ended For the Six Months Ended
December 31, December 31,
2007 2006 2007 2006
------------ ------------ ------------ ------------
Revenue $ 13,300 $ -- $ 13,300 $ --
Operating expenses:
Cost of revenue 18,834 -- 18,834 --
Research and development 178,014 125,233 265,180 314,722
General and administrative 692,204 865,573 879,676 976,924
------------ ------------ ------------ ------------
Total operating expenses 889,052 990,806 1,163,690 1,291,646
------------ ------------ ------------ ------------
Loss from operations (875,752) (990,806) (1,150,390) (1,291,646)
Interest expense 2,740 3,013 20,058 6,078
Interest income 6,010 -- 9,035 --
------------ ------------ ------------ ------------
Net loss $ (872,482) $ (993,819) $ (1,161,413) $ (1,297,724)
============ ============ ============ ============
Basic and diluted net loss per share $ (0.06) $ (0.08) $ (0.09) $ (0.10)
Weighted average shares outstanding used to
calculate basic and diluted net loss per share 13,946,117 12,554,950 13,629,912 12,505,698
See accompanying notes to financial statements.
4
PROFILE TECHNOLOGIES, INC.
Statements of Cash Flows
(Unaudited)
For the Six Months Ended
December 31,
2007 2006
----------- -----------
Cash flows from operating activities:
Net loss $(1,161,413) $(1,297,724)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 1,310 3,526
Accreted discount on convertible debt 1,301 321
Amortization of convertible debt discount included in interest expense 14,802 --
Amortization of debt issuance costs 80 140
Equity issued for services to consultants 83,600 192,950
Equity issued for services to employees and board of directors 514,750 685,300
Changes in operating assets and liabilities:
Accounts receivable (13,300) --
Prepaid expenses and other current assets (960) 3,673
Other assets 1,551 --
Accounts payable (3,110) (31,570)
Deferred wages 9,253 20,453
Accrued professional fees 10,000 12,000
Accrued interest (172) (230)
----------- -----------
Net cash used in operating activities (542,308) (411,161)
Cash flows from financing activities:
Common stock issuance costs (117,150) --
Proceeds from issuance of common stock 1,171,501 --
Proceeds from exercise of stock options and warrants 50,500 61,333
----------- -----------
Net cash provided by financing activities 1,104,851 61,333
----------- -----------
Increase (decrease) in cash 562,543 (349,828)
Cash at beginning of period 119,585 852,468
----------- -----------
Cash at end of period $ 682,128 $ 502,640
=========== ===========
Supplemental disclosure of cash flow information:
Cash paid for interest $ 3,053 $ 4,387
Convertible debt and related accrued interest converted into 30,000 and 50,000 shares
of common stock during the six months ended December 31, 2007 and 2006 $ 15,000 $ 25,000
See accompanying notes to financial statements.
5
PROFILE TECHNOLOGIES, INC
December 31, 2007
Notes to Financial Statements (Unaudited)
1. Description of Business
Profile Technologies, Inc. (the "Company"), was incorporated in 1986
and commenced operations in fiscal year 1988. The Company is in the business of
providing pipeline inspection services to locate corrosion and other anomalies
that require assessment to verify pipeline integrity. The Company has developed
a patented, non-destructive and non-invasive, high speed scanning process that
uses electromagnetic waves to remotely inspect buried, cased and insulated
pipelines for corrosion and other anomalies. The Company's services are
available to owners and operators of natural gas and oil pipelines, power plants
and refineries, utilities, and other facilities with cased or insulated pipe.
The Company is actively marketing its inspection services for cased and
insulated pipelines. In conjunction with providing inspection services, the
Company continues research and development of the application of its patented
technology to inspect pipelines internally as well as those pipelines that are
directly buried.
2. Basis of Presentation
The unaudited interim financial statements and related notes of the
Company have been prepared pursuant to the instructions to Form 10-QSB.
Accordingly, certain information and footnote disclosures normally included in
financial statements prepared in accordance with accounting principles generally
accepted in the United States of America have been omitted pursuant to such
instructions. The preparation of financial statements requires the Company to
make estimates and judgments that affect the reported amounts of assets,
liabilities, revenues, and expenses. On an on-going basis, the Company evaluates
its estimates, including contract revenue recognition and impairment of
long-lived assets. Actual results and outcomes may differ materially from these
estimates and assumptions.
The financial statements and related notes should be read in
conjunction with the audited financial statements and notes thereto included in
the Company's annual report on Form 10-KSB for the year ended June 30, 2007. The
information furnished reflects, in the opinion of management, all adjustments,
consisting of only normal recurring items, necessary for fair presentation of
the results of the interim periods presented. Interim results are not
necessarily indicative of results for a full year.
3. Liquidity
The accompanying financial statements have been prepared assuming the
Company will continue as a going concern. The Company incurred cumulative losses
of $15,823,383 through December 31, 2007, and had negative working capital of
$501,971 as of December 31, 2007. Additionally, the Company has expended a
significant amount of cash in developing its technology and patented processes.
These conditions raise substantial doubt about the Company's ability to continue
as a going concern. Management recognizes that in order to meet the Company's
capital requirements, and continue to operate, additional financing, including
seeking industry-partner investment through joint ventures or other possible
arrangements, will be necessary. The Company is evaluating alternative sources
of financing to improve its cash position and is undertaking efforts to raise
capital. If the Company is unable to raise additional capital or secure revenue
contracts and generate positive cash flow, it is unlikely that the Company will
be able to continue as a going concern. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
4. Summary of Significant Accounting Policies
Cash and cash equivalents
Cash and cash equivalents includes highly liquid investments with
original maturities of three months or less. On occasion, the Company has
amounts deposited with financial institutions in excess of federally insured
limits.
6
Fair Value of Financial Instruments
The Company has the following financial instruments: cash, accounts
payable, notes payable to stockholders, and convertible debt. The carrying value
of these instruments, other than the convertible debt, approximates fair value
based on their liquidity. The fair value of the convertible debt was determined
as the excess of the proceeds over the fair value of the warrants.
Deferred Financing Fees
The Company records costs incurred related to debt financings as
deferred financing fees and amortizes, on a straight-line basis, the costs
incurred over the life of the related debt. The amortization is recognized as
interest in the financial statements. Upon conversion into equity or
extinguishment of the related debt, the Company recognizes any unamortized
portion of the deferred financing fees as interest expense.
Contract Revenue Recognition
The Company recognizes revenue from service contracts using the
percentage of completion method of accounting. Contract revenues earned are
measured using either the percentage of contract costs incurred to date to total
estimated contract costs or, when the contract is based on measurable units of
completion, revenue is based on the completion of such units. This method is
used because management considers total cost or measurable units of completion
to be the best available measure of progress on contracts. Because of the
inherent uncertainties in estimating costs, it is at least reasonably possible
that the estimates used may change in the near term.
Anticipated losses on contracts, if any, are charged to earnings as
soon as such losses can be estimated. Changes in estimated profits on contracts
are recognized during the period in which the change in estimate is known.
Cost of revenue includes contract costs incurred to date as well as any
idle time incurred by personnel scheduled to work on customer contracts.
The Company records claims for additional compensation on contracts
upon revision of the contract to include the amount to be received for the
additional work performed. Contract costs include all direct material and labor
costs and those indirect costs related to contract performance, such as indirect
labor, supplies, tools and repairs, and depreciation costs. Selling, general,
and administrative costs are charged to expense as incurred. Service contracts
generally extend no more than six months.
During the three months ended December 31, 2007, the Company entered
into a pipeline inspection contract with one customer. As of December 31, 2007,
the Company had completed the inspection work in accordance with the terms of
the contract and accordingly recognized the full amount of the contract price as
revenue during the three months ended December 31, 2007.
Research and Development
Research and development costs are expensed when incurred. During the
three months ended December 31, 2007 and 2006, the Company incurred $178,014 and
$125,233 on research and development activities. During the six months ended
December 31, 2007 and 2006, the Company incurred $265,180 and $314,722 on
research and development activities.
Equipment
Equipment is stated at cost and is depreciated using the straight-line
method over estimated useful lives of three to seven years.
Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of
The Company reviews long-lived assets, such as equipment and
intangibles, for impairment at least annually or whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to estimated undiscounted future
cash flows expected to be generated by the asset. If the carrying amount of an
asset exceeds its estimated future cash flows, an impairment charge is
recognized by the amount by which the carrying amount of the asset exceeds the
fair value of the asset.
7
Valuation of Warrants and Options
The Company estimates the value of warrants and option grants using a
Black-Scholes pricing model based on management assumptions regarding the
warrant and option lives, expected volatility, and risk free interest rates.
Use of Estimates
The preparation of financial statements in conformity with U.S.
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Recently Issued Accounting Standards Not Yet Adopted
In September 2006, the FASB issued Statement No. 157, Fair Value
Measurements ("Statement No. 157"). Statement No. 157 prescribes a definition of
the term "fair value", establishes a framework for measuring fair value and
expands disclosure about fair value measurements. Statement No. 157 is effective
for fiscal years beginning after November 15, 2007. The Company does not expect
the application of Statement No. 157 to have a material effect on the Financial
Statements.
In February 2007, the FASB issued FASB Statement No. 159, The Fair
Value Option for Financial Assets and Financial Liabilities ("Statement No.
159"). Statement No. 159 permits an instrument by instrument election to account
for selected financial assets and liabilities at fair value. Statement No. 159
is effective for fiscal years beginning after November 15, 2007. The Company
does not expect the application of Statement No. 159 to have a material effect
on the Financial Statements.
On December 21, 2007, the Securities and Exchange Commission issued
Staff Accounting Bulletin No. 110 ("SAB 110") to permit entities, under certain
circumstances , the continued use of the "simplified" method, in developing
estimates of expected term of "plain-vanilla" share options in accordance with
Statement No. 123R Share-Based Payment. SAB 110 amended SAB 107 to permit the
use of the "simplified" method beyond December 31, 2007. On July 1, 2007, the
Company revised its methodology for estimating the expected term of its
"plain-vanilla" stock options and implemented the simplified method, as
permitted by SAB 107. This change in estimate did not have a material effect on
the Company's Financial Statements.
Vendor Concentration
Consultant Scientist Fees
The Company relies on the expertise of two consultant scientists to
facilitate the development and testing of the Company's hardware and software.
These scientists are also instrumental in compiling and interpreting the data
captured during the testing of the hardware and software. The loss of the
specialized knowledge provided by the scientists could have an adverse effect on
the ability of the Company to successfully market its hardware and software.
During the three and six months ended December 31, 2007, the Company incurred
cash fees payable to the scientists of $86,967 and $158,427, which are included
in research and development expense in the Company's Statements of Operations.
During the three and six months ended December 31, 2006, the Company incurred
cash fees payable to the scientists of $45,695 and $131,989, which are included
in research and development expense in the Company's Statements of Operations.
As partial compensation for services rendered, on November 16, 2007,
the Company granted the scientists stock options to purchase a total of 50,000
shares of common stock at an exercise price of $1.20 per share, expiring
November 15, 2012. The 50,000 stock options had a fair value at the date of
grant of $38,000, which is included in research and development expense in the
Company's Statements of Operations for the three and six months ended December
31, 2007.
As partial compensation for services rendered, on November 13, 2006,
the Company granted the scientists stock options to purchase a total of 100,000
shares of common stock at an exercise price of $0.86 per share, expiring
November 12, 2016. The 100,000 stock options had a fair value at the date of
grant of $77,000, which is included in research and development expense in the
Company's Statements of Operations for the three and six months ended December
31, 2006.
8
As partial compensation for services rendered, on July 13, 2006, the
Company granted one of the scientists a stock option to purchase 100,000 shares
of common stock at an exercise price of $1.05 per share, expiring July 12, 2011.
The 100,000 stock options had a fair value at the date of grant of $89,000,
which is included in research and development expenses in the Company's
Statements of Operations for the six months ended December 31, 2006.
Total cash and equity compensation expense incurred for settlement of
services rendered by the scientists totaled $124,967 and $196,427, or
approximately 70% and 74%, of research and development expense for the three and
six months ended December 31, 2007.
Total cash and equity compensation expense incurred for settlement of
services rendered by the scientists totaled $122,695 and $297,989, or
approximately 98% and 95%, of research and development expense for the three and
six months ended December 31, 2006.
As of December 31, 2007, the Company owed the consultant scientists a
total of $71,180, which is included in accounts payable at December 31, 2007.
5. Stock Based Compensation
On January 1, 2006, the Company adopted the fair value recognition
provisions of SFAS No. 123R Share-Based Payment ("SFAS 123R"), Prior to January
1, 2006, the Company accounted for stock-based awards under the recognition and
measurement principles of APB Opinion No. 25, Accounting for Stock Issued to
Employees ("APB 25"), and related Interpretations, as permitted by SFAS 123. In
accordance with APB 25, no compensation expense was required to be recognized
for stock options granted that had an exercise price equal to or greater than
the fair market value of the underlying common stock on the date of grant.
The Company adopted SFAS 123R using the modified-prospective
application method, which requires measurement of compensation cost for all
stock-based awards at fair value on the date of grant and recognition of
compensation over the requisite service period. The Company grants stock options
that are either fully vested upon grant or have a four-year vesting period
(defined by SFAS 123R as the requisite service period), and no performance or
service conditions, other than continued employment. Stock compensation cost
related to options that are fully vested upon grant is recognized immediately.
Stock compensation cost related to options that have a vesting period is
amortized ratably over the requisite service period.
The fair value of stock options is based on the price of a share of the
Company's common stock on the date of grant. In determining fair value of stock
options, the Company uses the Black-Scholes option pricing model that employs
the following key weighted average assumptions:
Three Months Ended Six Months Ended
December 31, December 31,
--------------------- ---------------------
2007 2006 2007 2006
--------------------- ---------------------
Risk-free interest rate 3.60% 4.60% 3.66% 4.67%
Volatility 147.24% 175.38% 146.86% 172.81%
Expected dividend yield 0% 0% 0% 0%
Expected life 4.5 years 5.0 years 4.5 years 4.6 years
Weighted average Black-Scholes value of options granted $1.04 $0.82 $1.04 $0.81
9
The risk-free interest rate is based on the U.S. Treasury yield curve
in effect at the time of grant. The Company does not anticipate declaring
dividends in the foreseeable future. Volatility is calculated based on the
historical weekly closing stock prices for the same period as the expected life
of the option. As permitted by SAB 107, the Company uses the "simplified" method
for determining the expected term of its "plain vanilla" stock options. SFAS
123R also requires that the Company recognize compensation expense for only the
portion of stock options that are expected to vest. Therefore, the Company
applies an estimated forfeiture rate that is derived from historical employee
termination data and adjusted for expected future employee turnover rates. To
date, the Company has not experienced any forfeitures. If the actual number of
forfeitures differs from those estimated by the Company, additional adjustments
to compensation expense may be required in future periods. The Company's stock
price volatility, option lives and expected forfeiture rates involve
management's best estimates at the time of such determination, all of which
impact the fair value of the option calculated under the Black-Scholes
methodology and, ultimately, the expense that will be recognized over the life
of the option.
The following table sets forth the share-based compensation cost
resulting from stock option grants that was recorded in the Company's Statements
of Operations for the three and six months ended December 31, 2007 and 2006:
Three Months Ended Six Months Ended
December 31, December 31,
-------------------- --------------------
2007 2006 2007 2006
-------- -------- -------- --------
General and administrative $506,250 $365,750 $527,100 $365,750
Research and development 65,750 77,000 71,250 166,000
-------- -------- -------- --------
Total $572,000 $442,750 $598,350 $531,750
======== ======== ======== ========
A summary of the Company's year-to-date stock option activity and
related information follows:
Weighted
Weighted Average
Average Remaining Aggregate
Exercise Contractual Intrinsic
Options Price Term Value
---------- -------- ----------- ---------
Outstanding at June 30, 2007 3,180,000 $ 1.14
Grants 615,000 1.23
Expirations (30,000) 8.50
----------
Outstanding at December 31, 2007 3,765,000 $ 1.10 6.87 years $ 419,950
==========
Exercisable at December 31, 2007 3,715,000 $ 1.10 6.90 years $ 412,450
==========
Available for grant at December 31, 2007 2,150,000
==========
The aggregate intrinsic value of the table above represents the total
pretax intrinsic value for all "in-the-money" options (i.e., the difference
between the Company's closing stock price on the last trading day of its second
quarter of 2008 and the exercise price, multiplied by the number of shares) that
would have been received by the option holders had all option holders exercised
their options on December 31, 2007. This amount changes based on the fair market
value of the Company's stock.
As of December 31, 2007, the Company had approximately $38,500 of total
unrecognized compensation cost related to unvested stock options, which is
expected to be recognized over a weighted average period of 3.50 years.
10
6. Net Loss Per Share
Basic net loss per share is computed by dividing the net loss by the
weighted average number of common shares outstanding during the period. Diluted
net loss per share is computed by dividing the net loss by the weighted average
number of common and dilutive common equivalent shares outstanding during the
period. As the Company had a net loss attributable to common stockholders in
each of the periods presented, basic and diluted net loss per share are the
same.
Excluded from the computation of diluted net loss per share for the
three and months ended December 31, 2007, because their effect would be
antidilutive, are stock options and warrants to acquire 11,916,028 shares of
common stock with a weighted-average exercise price of $0.86 per share. Also
excluded from the computation of diluted net loss per share for the three and
six months ended December 31, 2007 are 220,000 shares of common stock that may
be issued if investors exercise their conversion right under the Debentures
related to the 2003 Offering as discussed in Note 8 because their effect would
be antidilutive.
Excluded from the computation of diluted net loss per share for the
three and six months ended December 31, 2006, because their effect would be
antidilutive, are stock options and warrants to acquire 12,481,417 shares of
common stock with a weighted-average exercise price of $0.99 per share. Also
excluded from the computation of diluted net loss per share for the three and
six months ended December 31, 2006 are 300,000 shares of common stock that may
be issued if investors exercise their conversion right under the Debentures
related to the 2003 Offering as discussed in Note 8 because their effect would
be antidilutive.
For the three and six months ended December 31, 2007 and 2006,
additional potential dilutive securities that were excluded from the diluted net
loss per share computation are the exchange rights discussed in Note 9 that
could result in options to acquire up to 223,000 shares of common stock with an
exercise price of $1.00 per share at December 31, 2007 and 2006.
For purposes of earnings per share computations, shares of common stock
that are issuable at the end of a reporting period are included as outstanding.
7. Related Parties
Notes Payable - Stockholders
In April 2002, the Company issued a non-interest bearing bridge note
payable to an officer of the Company in the amount of $7,500. The note is
payable in full when the Company determines it has sufficient working capital to
do so. On September 29, 2002, the officer who was owed the $7,500 died.
8. Convertible Debt
On June 19, 2003, the Board of Directors approved the offering (the
"2003 Offering") of $1,000,000 in convertible debentures (the "Debentures"). The
Debentures are convertible into that number of shares of the Company's common
stock equal to the amount of the converted indebtedness divided by $0.50 per
share. The Debentures bear interest at a rate of 5% per annum, payable
quarterly. Delinquent interest payments bear interest at a rate of 12% per
annum. The Company is required to redeem each Debenture on the 5th anniversary
of the date of the Debenture. The Company may, in its discretion, redeem any
Debenture at any time prior to the mandatory redemption date of the Debenture by
providing no less than 60 days' prior written notice to the holder of the
Debenture. Certain events of default will result in the Debentures being
redeemable by the Company upon demand of the holder.
Upon the purchase of, and for each $0.50 of the Debenture's principal
amount, the Company issued to each investor a warrant (the "Warrant") to
purchase one (1) share of the Company's common stock at an exercise price of
$0.75 per share. The Warrants are exercisable at any time prior to the 5th
anniversary date of the redemption of the Debenture.
11
Warrants issued in connection with the 2003 Offering were recorded
based on their relative fair value as compared to the fair value of the debt at
issuance. The relative fair value of the warrants was recorded as paid-in
capital. The intrinsic value of the Debentures results in a beneficial
conversion feature, recorded as a discount against the Debentures, which reduces
the book value of the convertible debt to not less than zero. The Company
amortizes the discount using the effective interest method over the five-year
life of the Debentures.
During the quarter ended March 31, 2005, the Board of Directors
terminated the 2003 Offering. As of the closing date of the 2003 Offering, the
Company had raised $503,000 from the 2003 Offering.
During the six months ended December 31, 2007, one investor exercised
his conversion right and converted his Debenture in the principal amount of
$15,000, pursuant to the terms of the 2003 Offering. Accordingly, the carrying
value of the convertible debt was reclassified as equity upon conversion. Since
the convertible debt instruments include a beneficial conversion feature, the
remaining unamortized discount of $14,802 at the conversion date was recognized
as interest expense during the six months ended December 31, 2007.
During the six months ended December 31, 2006, one investor exercised
his conversion right and converted his Debenture in the principal amount of
$25,000, pursuant to the terms of the 2003 Offering. Accordingly, the carrying
value of the convertible debt was reclassified as equity upon conversion. The
discount related to this Debenture was previously expensed as interest expense
during the quarter ended June 30, 2004 when the Company was deemed to be in
default with respect to the interest payment terms.
As of December 31, 2007, accrued interest on the Debentures was $1,386.
The Company recorded interest expense related to the accretion of the discount
on the Debentures and amortization of the convertible debt discount as a result
of the conversion discussed above of $803 and $16,103 for the three and six
months ended December 31, 2007. The Company recorded interest expense related to
the accretion of the discount on the Debentures of $197 and $321 for the three
and six months ended December 31, 2006. As of December 31, 2007 the carrying
value of the long-term portion of the Debentures was $2,102, net of unamortized
debt discount of $42,898.
9. Deferred Wages and Accrued Professional Fees
To reduce cash outflows, certain of the Company's employees, officers,
consultants, and directors have agreed to defer a portion of their salaries and
professional fees until the Company has sufficient resources to pay the amounts
owed or to exchange such amounts into options as described below. At December
31, 2007, the Company has accrued $969,086 related to the deferred payment of
salaries and professional fees of which $748,936 is included under deferred
wages and $220,150 in accrued professional fees. On March 18, 2002, the Board
approved a conversion right on all deferred wages and accrued professional fees
deferred as of March 18, 2002 (the "Conversion Right"). Pursuant to the
Conversion Right, employees, officers, consultants, and directors may elect to
convert $1.00 of fees owed to them as of March 18, 2002 for an option to
purchase two shares of the Company's common stock, at an exercise price of $1.00
per share for a term of five years. Of the total $969,086 deferred salaries and
professional fees, the amount subject to the Conversion Right is $111,500,
resulting in the potential issuance of 223,000 options under the terms mentioned
above. No conversions have occurred to date. At March 18, 2002, there was no
intrinsic value associated with these exchange rights. As such, no additional
compensation cost was recorded.
10. Common Stock
On June 21, 2007, the Company entered into a private placement offering
(the "2007 Offering") of 1,300,000 shares of common stock at $0.90 per share to
accredited investors. On October 4, 2007, the Board approved an increase in the
offering to 2,000,000 shares of common stock for a total offering price of
$1,800,000. On January 14, 2008, the Board determined that it was in the best
interests of the Company to extend the termination date of the 2007 Offering and
voted to extend the expiration date to February 15, 2008.
During the three months ended December 31, 2007, the Company raised
$193,201 under the terms of the 2007 Offering. Accordingly, the Company issued
214,668 shares of common stock.
12
The Company engaged a brokerage firm to help in the fund raising
efforts of the 2007 Offering. Pursuant to the terms of the agreement with the
brokerage firm, the Company will pay the brokerage firm a ten percent cash
commission on all funds that the brokerage firm helps raise. Accordingly, during
the three months ended December 31, 2007, the Company incurred cash fees payable
to the brokerage firm of $19,320. As of December 31, 2007, the Company owed the
brokerage firm a total of $4,750, which is included in accounts payable at
December 31, 2007.
11. Stock Options and Warrants
Stock Options
Stock Option Grants
On November 13, 2007, the Board approved the issuance of stock options,
exercisable for a total of 550,000 shares of common stock pursuant to the 1999
Stock Option Plan to certain directors, officers, employees and four consultants
of the Company. The grant date of the stock options was November 16, 2007 and
they are fully vested upon grant. The stock options granted to directors,
officers, and employees are exercisable until November 15, 2017. The stock
options granted to the consultants are exercisable until November 15, 2012. The
exercise price of the stock options granted to affiliates owning or controlling
more than ten percent of the Company's common stock was $1.32. The exercise
price of the stock options granted to non-affiliates was $1.20. On November 16,
2007, the date of grant, the Company recognized $65,750 as research and
development expense related to the fair value of 75,000 of the stock options and
$506,250 as general and administrative expense related to the fair value of
475,000 of the stock options. The fair value of the stock option grants that
expire on November 15, 2012 was estimated using the Black-Scholes option pricing
model with the following weighted average assumptions: expected volatility of
111%, risk-free interest rate of 3.30%, expected lives of 2.5 years, and a 0%
dividend yield. The fair value of the stock option grants that expire on
November 15, 2017 was estimated using the Black-Scholes option pricing model
with the following weighted average assumptions: expected volatility of 156%,
risk-free interest rate of 3.68%, expected lives of five years, and a 0%
dividend yield
On August 20, 2007, the Board elected Robert C. Geib as the Company's
Chief Operating Officer, effective September 4, 2007. Mr. Geib's annual base
salary was set by the Board at $115,000. In addition, the Board agreed to grant
Mr. Geib, on September 4, 2007 an option to purchase 50,000 shares of the
Company's common stock, under the Company's 1999 Stock Option Plan, and on March
4, 2008 to grant him an additional option to purchase 50,000 shares of common
stock. The exercise price of each grant shall be equal to the closing price of
the common stock on the date of grant, or, if the Company's stock is not traded
on the date of grant, the first day of active trading following each respective
grant date. Each of the two option grants will vest 25% on the first anniversary
of the grant dates, with the remainder vesting at 25% on each of the three
subsequent anniversaries of the grant dates until the options are fully vested.
The exercise price of the stock option granted on September 4, 2007 was $1.05.
The fair value of the option grant was $44,000 at the time of grant. The fair
value was estimated using the Black-Scholes option pricing model with the
following weighted average assumptions (the original assumptions used were
revised during the quarter ended December 31, 2007 to be consistent with second
quarter issuances: expected volatility of 140% (originally 81%), risk-free
interest rate of 4.26%, expected life of 3.75 years (originally estimated at
five years), and a 0% dividend yield. The Company recognized amortization
expense of $2,220 and $5,500, during the three and six months ended December 31,
2007, as research and development expense related to this stock option grant.
The effects of revising the weighted average assumptions for the Black-Scholes
valuation was not material to the Company's financial statements.
On August 21, 2007, the Board nominated Richard L. Palmer to fill the
vacancy on the Board created as a result of the death of Mr. William Krivsky in
December 2006. Mr. Palmer was subsequently elected by the Stockholders on
September 16, 2007 at the Annual Meeting of Stockholders. On September 12, 2007,
the Board granted Mr. Palmer an option to purchase 15,000 shares of the
Company's common stock, under the Company's 1999 Stock Option Plan. The exercise
price of the stock option was $1.50, the closing price of the common stock on
the date of grant. The stock option is fully vested upon grant and expires on
September 11, 2017. In addition, Mr. Palmer will receive $1,000 per month as a
compensation for his services as a Board member. The Company recognized $20,850,
at the time of grant, as board fee expense for the fair value of the option
13
grant. The fair value of the option grant was estimated using the Black-Scholes
option pricing model with the following weighted average assumptions (the
original assumptions used were revised during the quarter ended December 31,
2007 to be consistent with second quarter issuances: expected volatility of 155%
(originally 80%), risk-free interest rate of 4.11%, expected life of five years,
and a 0% dividend yield. The effects of revising the weighted average
assumptions for the Black-Scholes valuation was not material to the Company's
financial statements.
On November 13, 2006, the Board approved the issuance of stock options
exercisable for a total of 575,000 shares of common stock pursuant to the 1999
Stock Option Plan to certain directors, officers, employees and four consultants
of the Company. The stock options are fully vested upon grant and are
exercisable until November 12, 2016. The exercise price of the stock options
granted to affiliates owning or controlling more than ten percent of the
Company's common stock was $0.95, which is ten percent over the closing bid
price of the Company's common stock as quoted on the Over the Counter Bulletin
Board on the grant date, November 13, 2006. The exercise price of the stock
options granted to non-affiliates was $0.86. On November 13, 2006, the date of
grant, the Company recognized $77,000 as research and development expense
related to the fair value of 100,000 of the stock options and $365,750 as
general and administrative expense related to the fair value of 475,000 of the
stock options. The fair value of the stock option grants was estimated using the
Black-Scholes option pricing model with the following weighted average
assumptions: expected volatility of 142%, risk-free interest rate of 4.60%,
expected lives of five years, and a 0% dividend yield.
On July 13, 2006, the Board approved an option grant to a consultant to
purchase 100,000 shares of the Company's common stock at an exercise price of
$1.05 per share. The option was granted in consideration for work the consultant
is performing for the Company and was not granted pursuant to the 1999 Stock
Option Plan. The option was fully vested upon grant and is exercisable until
July 13, 2011. The Company recognized $89,000, at the time of grant, as research
and development expense for the fair value of the option grant. The fair value
of the option grant was estimated using the Black-Scholes option pricing model
with the following weighted average assumptions: expected volatility of 160%,
risk-free interest rate of 5.04%, expected life of five years, and a 0% dividend
yield.
Warrants
Warrant Grants
On November 13, 2006, the Board approved the issuance of warrants
exercisable for a total of 450,000 shares of common stock to certain directors
and officers of the Company. The warrants are fully vested upon grant and are
exercisable until November 12, 2016. The exercise price of the warrants was
$0.86, which was the closing bid price of the Company's common stock as quoted
on the Over the Counter Bulletin Board on the grant date, November 13, 2006.
During the three months ended December 31, 2006, the Company recognized $346,500
as general and administrative expense related to the fair value of the warrants.
The fair value of the warrant grants was estimated using the Black-Scholes
option pricing model with the following weighted average assumptions: expected
volatility of 142%, risk-free interest rate of 4.60%, expected lives of five
years, and a 0% dividend yield.
12. Subsequent Events
On January 14, 2008, the Board voted to extend the expiration date of
the 2007 Offering to February 15, 2008. Subsequent to December 31, 2007, the
Company has raised $110,000 under the terms of the 2007 Offering. Accordingly,
the Company issued 122,222 shares of common stock.
Item 2. Management's Discussion and Analysis or Plan of Operation.
Plan of Operation
In recent years, the Company has focused on the buried pipe market in the
United States. Through its operations, it has identified key changes to its EMW
Inspection Process and has redesigned and improved the equipment hardware. It
has also performed lab and field testing of this new hardware and has developed
computer models to better predict and interpret field conditions.
14
On March 27, 2007, the Company was issued a patent by the United States
Patent and Trademark Office. This patent provides significant patent protection
for the improvements made to the Company's EMW technology over the last three
years. These improvements have now been incorporated into new hardware and
software that are being deployed to the field. To date, two field-ready test
sets have been built to utilize the latest improvements.
In order to obtain additional revenue generating contracts, the Company
intends to emphasize the unique capabilities of its cased and insulated pipeline
testing method, the flexibility of the method's application, and its cost
effectiveness as compared to other methods. During fiscal year 2008, the Company
has continued its marketing efforts in the refining, pipeline and utility
insulated and cased pipe inspection markets in the lower-48 states. With respect
to the pipeline and utility market segments, efforts will be particularly
focused on "high consequence areas" as that term is defined in the federal
Department of Transportation's regulations. However, there can be no assurance
that the Company will be successful in concentrating its marketing efforts for
the EMW technology on these market segments. Failure to obtain revenue
generating contracts could have a serious and material effect on the business
and financial condition of the Company.
The Company has temporarily postponed further development work on its
direct buried (uncased) pipe inspection equipment, so that, in the short term,
its efforts can be focused on obtaining contracts for the inspection of cased
and insulated pipes.
While the Company has, in the past, inspected only for external corrosion
and anomalies, it has recently filed a patent application covering the
adaptation of its technology for internal pipe inspections. However, significant
design, fabrication and testing must be done before the Company will be able to
offer internal pipe inspection services.
Capital will be expended to support operations until the Company can
generate sufficient cash flows from operations. In order for the Company to
generate cash flows from operations, the Company must obtain additional revenue
generating contracts. Management is currently directing the Company's activities
towards obtaining service contracts, which, if obtained, will necessitate the
Company attracting, hiring, training and outfitting qualified technicians. If
additional service contracts are obtained, it will also necessitate additional
field test equipment purchases in order to provide the services. The Company
expects that if revenue contracts are secured, working capital requirements will
increase. The Company will incur additional expenses as it hires and trains
field crews and support personnel related to the successful receipt of
commercial contracts. Additionally, the Company anticipates that cash will be
used to meet capital expenditure requirements necessary to develop
infrastructure to support future growth.
The Company has expended a significant amount of cash in developing its
technology and patented processes. These conditions raise substantial doubt
about the Company's ability to continue as a going concern. The Company has
raised $1,281,501 under its current effect private placement memorandum (see
Note 10, "Common Stock"). However, management recognizes that in order to meet
the Company's capital requirements and continue to operate, it may require
additional financing, perhaps through industry-partner investment or through
joint ventures or other possible arrangements within the next twelve months. The
Company is evaluating alternative sources of financing to improve its cash
position. If the Company is unable to raise additional capital or secure revenue
contracts and generate positive cash flow, it is unlikely that the Company will
be able to continue as a going concern.
Off Balance Sheet Arrangements
The Company has no off-balance sheet arrangements.
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-QSB contains "forward-looking statements."
These forward-looking statements can generally be identified as such because the
context of the statement will include words such as the Company "believes,"
"anticipates," "expects" or words of similar import. Similarly, statements that
describe the Company's projected future results, future plans, objectives or
15
goals or future conditions or events are also forward looking statements. Actual
results are inherently difficult to predict. Any such forward-looking statements
are subject to the risks and uncertainties that could cause actual results of
operations, financial condition, acquisitions, financing transactions,
operations, expenditures, expansion and other events to differ materially from
those expressed or implied in such forward-looking statements. Any such
forward-looking statements would be subject to a number of assumptions
regarding, among other things, future economic, competitive and market
conditions generally. Such assumptions would be based on facts and conditions as
they exist at the time such statements are made as well as predictions as to
future facts and conditions, the accurate prediction of which may be difficult
and involve the assessment of events beyond the Company's control.
The forward-looking statements contained in this report are based on
current expectations that involve a number of risks and uncertainties. Such
forward-looking statements are based on assumptions that the Company will obtain
or have access to adequate financing to continue its operations, that the
Company will market and provide products and services on a timely basis, that
there will be no material adverse competitive or technological change with
respect to the Company's business, demand for the Company's products and
services will significantly increase, that the Company will be able to secure
additional fee-for-services or licensing contracts, that the Company's executive
officers will remain employed as such by the Company, that the Company's
forecast accurately anticipate market demand, and that there will be no material
adverse change in the Company's operations, business or governmental regulation
affecting the Company or its customers. The foregoing assumptions are based on
judgments with respect to, among other things, future economic, competitive and
market conditions and future business decisions, all of which are difficult or
impossible to predict accurately and many of which are beyond the Company's
control. Although the Company believes the expectations reflected in the
forward-looking statements are reasonable, the Company cannot guarantee future
results, levels of activity, performance or achievements.
Item 3. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures
The term "disclosure controls and procedures" is defined in Rules 13a-15(e)
and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). This term refers to the controls and procedures of a
company that are designed to ensure that information required to be
disclosed by a company in the reports that it files under the Exchange Act
is recorded, processed, summarized, and reported within the required time
periods. The Company's Chief Executive Officer and Chief Financial Officer
has evaluated the effectiveness of the Company's disclosure controls and
procedures as of the end of the period covered by this report. He has
concluded that, as of that date, the Company's disclosure controls and
procedures were effective at ensuring that required information will be
disclosed on a timely basis in the Company's reports filed under the
Exchange Act.
(b) Changes in Internal Control over Financial Reporting
No change in the Company's internal control over financial reporting (as
defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred
during the period covered by this report that has materially affected, or
is reasonably likely to materially affect, the Company's internal control
over financial reporting.
16
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings.
The Company is not aware of any legal proceedings contemplated by any
governmental authority or any other party involving the Company or its
properties. As of the date of this report, no director, officer or affiliate is
a party adverse to the Company in any legal proceeding or has an adverse
interest to the Company in any legal proceedings. The Company is not aware of
any other legal proceedings pending or that have been threatened against the
Company or its properties.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Common Stock
On June 21, 2007, the Company entered into a private placement offering
(the "2007 Offering") of 1,300,000 shares of common stock at $0.90 per share to
accredited investors. On October 4, 2007, the Board approved an increase in the
offering to 2,000,000 shares of common stock for a total offering price of
$1,800,000. On January 14, 2008, the Board determined that it was in the best
interests of the Company to extend the termination date of the 2007 Offering and
voted to extend the expiration date to February 15, 2008.
During the three months ended December 31, 2007, the Company raised
$193,201 under the terms of the 2007 Offering. Accordingly, the Company issued
214,668 shares of common stock. The issuance of the common stock is exempt from
registration pursuant to Section 4(2) of the Securities Act and the stock
certificates contained an appropriate legend stating that such securities have
not been registered under the Securities Act and may not be offered or sold
absent registration or an exemption therefrom.
Stock Options
Stock Option Grants
On November 13, 2007, the Board approved the issuance of stock options,
exercisable for a total of 550,000 shares of common stock pursuant to the 1999
Stock Option Plan to certain directors, officers, employees and four consultants
of the Company. The grant date of the stock options was November 16, 2007 and
they are fully vested upon grant. The stock options granted to directors,
officers, and employees are exercisable until November 15, 2017. The stock
options granted to the consultants are exercisable until November 15, 2012. The
exercise price of the stock options granted to affiliates owning or controlling
more than ten percent of the Company's common stock was $1.32. The exercise
price of the stock options granted to non-affiliates was $1.20. The issuance of
the common stock is exempt from registration pursuant to Section 4(2) of the
Securities Act and the stock certificates contained an appropriate legend
stating that such securities have not been registered under the Securities Act
and may not be offered or sold absent registration or an exemption therefrom.
Warrants
Warrant Exercise
On December 8, 2007, a consultant exercised a warrant to purchase 10,000
shares of common stock at $0.55 per share. Total proceeds received by the
Company were $5,500. The issuance of the common stock is exempt from
registration pursuant to Section 4(2) of the Securities Act and the stock
certificates contained an appropriate legend stating that such securities have
not been registered under the Securities Act and may not be offered or sold
absent registration or an exemption therefrom.
Item 3. Defaults Upon Senior Securities.
None.
17
Item 4. Submission of Matters to a Vote of Stockholders.
The Annual Meeting of Stockholders (the "Annual Meeting") of the Company
was held on November 13, 2007.
At the Annual Meeting, 8,233,619 shares were present in person or by proxy.
The following is a summary and tabulation of the matters that were voted upon at
the Annual Meeting:
Proposal I.
The election of a board of directors to serve a term of one year or until
their respective successors are elected and qualified.
Votes For Votes Withheld
--------- --------------
Henry E. Gemino 7,968,494 265,125
Murphy Evans 8,002,436 231,183
Charles Christenson 8,009,204 224,415
Richard Palmer 8,009,204 224,415
Item 5. Other Information.
None.
Item 6. Exhibits.
The following exhibits are filed with or incorporated by reference into
this report:
Exhibit No. Description of Exhibit
----------- ----------------------
Exhibit 3.1 Articles of Incorporation (incorporated by reference to
Exhibit 3.1 to the Company's Registration Statement on Form
SB-2 filed with the Commission on May 10, 1996).
Exhibit 3.2 Bylaws of the Company (incorporated by reference to Exhibit
3.3 to the Company's Registration Statement on Form SB-2
filed with the Commission on May 10, 1996).
Exhibit 3.3 Amendment to Certificate of Incorporation (incorporated by
reference to Exhibit A to the Company's Definitive Proxy
Statement filed with the Commission on October 28, 2002).
Exhibit 3.4 Amendment to Certificate of Incorporation (incorporated by
reference to Appendix A to the Company's Preliminary Proxy
Statement filed with the Commission on September 13, 2006).
Exhibit 10.1 Lease Extension dated February 26, 2003 by and between the
Company and Fatum LLC (incorporated by reference to Exhibit
10.5 to the Company's Annual Report on Form 10-KSB filed
with the Commission on October 12, 2004).
Exhibit 10.2 Royalty Agreement (incorporated by reference to Exhibit 10.1
to the Company's Registration Statement on Form SB-2 filed
with the Commission on May 10, 1996).
18
Exhibit 10.3 Assignment of Patent Rights (incorporated by reference to
Exhibit 10.2 to the Company's Registration Statement on Form
SB-2 filed with the Commission on May 10, 1996).
Exhibit 10.4 1999 Stock Option Plan (incorporated by reference to Exhibit
10.9 to the Company's Annual Report on Form 10-KSB filed
with the Commission on October 12, 2004).
Exhibit 10.5 First Amendment to the 1999 Stock Option Plan (incorporated
by reference to Appendix B to the Company's Preliminary
Proxy Statement filed with the Commission on September 13,
2006).
Exhibit 10.6 Lease dated March 1, 2007 by and between the Company and
Long Island Property Management LP. (incorporated by
reference to Exhibit 10.8 to the Company's Quarterly Report
on Form 10-QSB filed with the Commission on May 9, 2007).
Exhibit 10.7 Consulting Agreement dated April 11, 2007, by and between
the Company and R.F. Lafferty. (incorporated by reference to
Exhibit 10.9 to the Company's Quarterly Report on Form
10-QSB filed with the Commission on May 9, 2007).
Exhibit 31.1 Rule 13a-14(a)/15d-14(a) Certification of Henry E. Gemino,
as Chief Executive Officer and Chief Financial Officer of
the Company. *
Exhibit 32.1 Certification under Section 906 of the Sarbanes-Oxley Act of
2002 by Henry E. Gemino, as Chief Executive Officer and
Chief Financial Officer of the Company. *
----------------
*Filed herewith.
19
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
PROFILE TECHNOLOGIES, INC.
--------------------------
(Registrant)
Date: February 12, 2008 /s/ Henry E. Gemino
--------------------------
Henry E. Gemino
Chief Executive Officer and
Chief Financial Officer
20
EXHIBIT INDEX
Exhibit No. Description of Exhibit
----------- ----------------------
Exhibit 3.1 Articles of Incorporation (incorporated by reference to
Exhibit 3.1 to the Company's Registration Statement on Form
SB-2 filed with the Commission on May 10, 1996).
Exhibit 3.2 Bylaws of the Company (incorporated by reference to Exhibit
3.3 to the Company's Registration Statement on Form SB-2
filed with the Commission on May 10, 1996).
Exhibit 3.3 Amendment to Certificate of Incorporation (incorporated by
reference to Exhibit A to the Company's Definitive Proxy
Statement filed with the Commission on October 28, 2002).
Exhibit 3.4 Amendment to Certificate of Incorporation (incorporated by
reference to Appendix A to the Company's Preliminary Proxy
Statement filed with the Commission on September 13, 2006).
Exhibit 10.1 Lease Extension dated February 26, 2003 by and between the
Company and Fatum LLC (incorporated by reference to Exhibit
10.5 to the Company's Annual Report on Form 10-KSB filed
with the Commission on October 12, 2004).
Exhibit 10.2 Royalty Agreement (incorporated by reference to Exhibit 10.1
to the Company's Registration Statement on Form SB-2 filed
with the Commission on May 10, 1996).
Exhibit 10.3 Assignment of Patent Rights (incorporated by reference to
Exhibit 10.2 to the Company's Registration Statement on Form
SB-2 filed with the Commission on May 10, 1996).
Exhibit 10.4 1999 Stock Option Plan (incorporated by reference to Exhibit
10.9 to the Company's Annual Report on Form 10-KSB filed
with the Commission on October 12, 2004).
Exhibit 10.5 First Amendment to the 1999 Stock Option Plan (incorporated
by reference to Appendix B to the Company's Preliminary
Proxy Statement filed with the Commission on September 13,
2006).
Exhibit 10.6 Lease dated March 1, 2007 by and between the Company and
Long Island Property Management LP. (incorporated by
reference to Exhibit 10.8 to the Company's Quarterly Report
on Form 10-QSB filed with the Commission on May 9, 2007).
Exhibit 10.7 Consulting Agreement dated April 11, 2007, by and between
the Company and R.F. Lafferty. (incorporated by reference to
Exhibit 10.9 to the Company's Quarterly Report on Form
10-QSB filed with the Commission on May 9, 2007).
Exhibit 31.1 Rule 13a-14(a)/15d-14(a) Certification of Henry E. Gemino,
as Chief Executive Officer and Chief Financial Officer of
the Company. *
Exhibit 32.1 Certification under Section 906 of the Sarbanes-Oxley Act of
2002 by Henry E. Gemino, as Chief Executive Officer and
Chief Financial Officer of the Company. *
----------------
*Filed herewith.