UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
{X} QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2004
OR
{_} TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission File No. 000-
WORLDTEQ GROUP INTERNATIONAL, INC.
(Exact name of Registrant as specified in its charter)
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Nevada 03-7392107
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
30 West Gude Drive, Rockville, Maryland 20850
(Address of principal executive offices) (Zip/Postal Code)
(888) 263-7776
(Telephone Number)
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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 period
that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days.
{X} YES { } NO
State the number of shares outstanding of each of the Issuer's classes of common
equity, as of the latest practicable date. There were 33,706,190 common stock
shares, par value $0.001, as of April 7, 2004.
Note Regarding FORWARD-LOOKING STATEMENTS
In addition to historical information, this Report contains forward-looking
statements. Such forward-looking statements are generally accompanied by words
such as "intends," "projects," "strategies," "believes," "anticipates," "plans,"
and similar terms that convey the uncertainty of future events or outcomes. The
forward-looking statements contained herein are subject to certain risks and
uncertainties that could cause actual results to differ materially from those
reflected in the forward-looking statements. Factors that might cause such a
difference include, but are not limited to, those discussed in ITEM 2 of this
Report, the section entitled "MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION." Readers are cautioned not to place undue reliance on these
forward-looking statements, which reflect management's analysis only as of the
date hereof and are in all cases subject to the Company's ability to cure its
current liquidity problems. There is no assurance that the Company will be able
to generate sufficient revenues from its current business activities to meet
day-to-day operation liabilities or to pursue the business objectives discussed
herein.
The forward-looking statements contained in this Report also may be impacted by
future economic conditions. Any adverse effect on general economic conditions
and consumer confidence may adversely affect the business of the Company.
WorldTeq Group International, Inc. undertakes no obligation to publicly revise
these forward-looking statements to reflect events or circumstances that arise
after the date hereof. Factors that could cause actual results or conditions to
differ from those anticipated by these and other forward-looking statements
include those more fully described in the "Risk Factors" section of the
Company's Registration Statement filed with the Securities and Exchange
Commission (the "SEC") on April 20, 2004 on Form 10KSB. In addition, readers
should carefully review the risk factors described in other documents the
Company files from time to time with the Securities and Exchange Commission.
Part I
Financial Information
Item 1. Financial Statement
In the opinion of management, the accompanying unaudited financial statements
included in this Form 10-QSB reflect all adjustments necessary for a fair
presentation of the results of operations for the periods presented. The results
of operations for the periods presented are not necessarily indicative of the
results to be expected for the full year.
ITEM 1. FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION
WORLDTEQ GROUP INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
September 30, 2004
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Assets (unaudited) (audited)
September 30, 2004 December 31,2003
Current Assets:
Restricted Cash $ 31,807 $ 31,807
Accounts Receivable 62,481 32,229
Other Current Assets 15,272
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Total current assets 109,560 64,036
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Equipment, net 9,110 15,266
Customer base 41,667
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Total assets $ 160,337 $ 79,302
=================== ==================
Current Liabilities
Convertible notes payable to stockholders $ 187,432 $ 141,740
Convertible note payable 3,000 48,780
Accounts Payable 243,712 243,949
Accrued expenses 54,949 46,060
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Total current liabilities 489,093 480,529
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Commitments and contingencies
Stockholders' Deficit
Convertible preferred stock, $.001 par value,
5,000,000 shares authorized, 911,553 shares
And 1,055,553 issued & outstanding respectively 911 1,055
Common stock, $.001 par value, 100,000,000
shares authorized, 34,706,190 and 29,561,746
issued and outstanding respectively 34,706 29,562
Paid in capital 21,593,542 20,736,542
Retained deficit (21,957,915) (21,168,386)
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Total stockholders' deficit (328,756) (401,227)
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Total liabilities and stockholders' deficit $ 160,337 $ 79,302
=================== ==================
WORLDTEQ GROUP INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
(unaudited)
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Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------- --------------------------
2004 2003 2004 2003
------------ ------------ ------------ ------------
Sales $ 110,748 $ 174,051 $ 334,686 $ 764,896
Cost of Sales 45,232 57,573 $ 206,614 $ 371,603
------------ ------------ ------------ ------------
Gross profit 65,516 116,478 128,072 393,293
Selling, general and 393,365 103,504 901,962 540,053
administrative expenses
------------ ------------ ------------ ------------
Income (loss) from (327,849) 12,974 (773,890) (146,750)
Operations
Other Expenses 1,250 - 1,501
Interest Expense 14,139 3,012 14,139 22,424
------------ ------------ ------------ ------------
Net income (loss) $ (343,238) $ 9,962 (789,530) (169,174)
============ ============ ============ ============
Basic and diluted income $ (0.01) $ (0.00) $ (0.02) $ (0.01)
(loss) per share:
============ ============ ============ ============
Weighted Average Shares 34,372,413 24,763,923 32,634,190 22,586,032
Outstanding
============ ============ ============ ============
WORLDTEQ GROUP INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS CASH FLOWS
----------------------------------
(unaudited)
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Nine Months Ended
September 30,
-----------------------
Cash Flows Used in Operating Activities 2004 2003
-----------------------
Net Income (Loss) $(789,530) $ (169,174)
Adjustments to reconcile net income (loss) to
net cash used in operating activities:
Depreciation and amortization 19,098 56,721
Stock For Services 382,000
Stock option expense 220,000 -
Change in:
Accounts Receivable (30,252) 34,861
Other Current Assets (15,272) 12,574
Accounts Payable (235) (68,509)
Accrued Expenses 11,888 18,264
Deferred Revenue - -
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Net Cash Used In Operating Activities (202,303) (115,263)
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Cash Flows Used In Investing Activities
Purchases of customer base (54,609) -
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Cash Flows Provided By Financing Activities
Proceeds from shareholder note payable - 87,830
Payments on note payable (3,088) (2,567)
Stock Issued For Cash 260,000
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Net cash from financing activities 256,912 85,263
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Net Change in Cash - (30,000)
Cash - beginning of year 31,807 85,000
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Cash - End of Quarter $ 31,807 $ 55,000
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Stock issued for notes payable $ 150,000
Liabilities assumed by Net World Acquiror $ 435,666
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WORLDTEQ GROUP INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATMENTS
September 30, 2004
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
The interim financial statements and summarized notes included herein were
prepared in accordance with accounting principals generally accepted in the
United States of America for interim financial information, pursuant to rules
and regulations of the Securities and Exchange Commission. Because certain
information and notes normally included in complete financial statements
prepared in accordance with accounting principals generally accepted in the
United States of America were condensed or omitted pursuant to such rules and
regulations, it is suggested that these financial statements be read in
conjunction with the Consolidated Financial Statements and the Notes thereto,
included in Worldteq's Report 10KSB-A filed May 18, 2004. These interim
financial statements and notes hereto reflect all adjustments that are, in the
opinion of management, necessary for a fair statement of results for the interim
periods presented. Such financial results should not be construed as necessarily
indicative of future results.
STOCK BASED COMPENSATION:
The Company accounts for its employee stock-based compensation plans under
Accounting Principles Board ("APB") Opinion No. 25, Accounting for Stock Issued
to Employees. Worldteq granted options to purchase 2,350,000 shares of common
stock to two employees during the three months ending March 31, 2004. All
options begin vesting six months after the date issued, February 25, 2004, and
vest 1/36 each month thereafter, have an exercise price of $.13 per share and
expire 10 years from the date of grant.
The following table illustrates the effect on net loss and net loss per share if
Worldteq had applied the fair value provisions of FASB Statement No. 123,
Accounting for Stock-Based Compensation, to stock-based employee compensation.
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------ -----------------------
2004 2003 2004 2003
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Net loss available to common $ (343,238) $ 9,962 $(789,530) $ (169,174)
stockholders, as reported
Less: stock based compensation
determined under fair value
based method (18,199) - (18,199) -
----------- ----------- ---------- -----------
Pro forma net loss $ (361,437) $ 9,962 $(807,729) $ (169,174)
=========== ============ ========= ===========
Basic and diluted net loss per share
As reported $ (0.01) $ (0.01) $ (0.02) $ (0.01)
=========== ============ ========= ===========
Pro forma $ (0.01) $ (0.01) $ (0.02) $ (0.01)
=========== ============ ========= ===========
NOTE 2 - COMMON STOCK
During the three months ended March 31, 2004, Worldteq issued 2,000,000 options
to purchase shares of common stock to consultants resulting in $220,000 of
expense. The options were later exercised. The expense was calculated using the
black scholes pricing model with the following assumptions: Volatility of 161%,
1 year life, 0% dividend yield and a 3% discount rate.
During the quarter ended March 31, 2004, preferred stockholders converted
144,000 shares of preferred stock into 144,000 shares of common stock.
During the quarter ended June 30, 2004, Worldteq issued 1,000,000 shares for
services and cash to two consultants. Cash receipts for the shares totaled
$60,000. On the issue date, shares were trading at $.24. The difference in
price created an additional expense to Worlteq of $180,000.
During the quarter ended September 30, 2004, Worldteq issued 2,000,000 shares
for services and cash to two consultants. Cash receipts for the shares totaled
$100,000. On the issue date, shares were trading at $.15. The difference in
price created an additional expense to Worldteq of $200,000.
NOTE 3 - CUSTOMER BASE AND EQUIPMENT
During the three months ended March 31, 2004, Worldteq purchased a customer base
from a third party for $50,000 cash. The customer base is being amortized over
48 months. During the three months ended June 30, 2004, Worldteq purchased
equipment for $4,609. The equipment is being depreciated over 36 months
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
The following discussion and analysis of the financial condition and results of
operations should be read in conjunction with the financial statements, related
notes, and other detailed information included elsewhere in this Form 10QSB.
Certain information contained below and elsewhere in this Form 10QSB, including
information regarding our plans and strategy for our business, are
forward-looking statements. See "Note Regarding Forward-Looking Statements."
Our business plan for the next twelve months is to demonstrate the efficacy of
our product candidate in animal models. It is necessary for us to establish
evidence of efficacy of our approach in order to advance to subsequent
milestones.
OVERVIEW
The Company is a switch-less and facilities-based provider of Internet protocol
and traditional fiber-based communications services, including voice and data,
along with toll free and related services. We market our services to groups
specializing in specific ethnic demographics, residential communities located in
major metropolitan areas, associations, network marketing organizations, and
multi-level-marketing organizations (MLM's). Our goal is to become a leading
provider of payroll services and communication services, including voice, data
and Internet services to our targeted markets, comprised of affinity
communities. We provide our services through a flexible network of owned,
contracted facilities and resale arrangements. We have an extensive network
available to us of IP gateways, international gateways, and domestic switches.
Through our subsidiary WorldTeq Corporation we provide agents, associations, and
businesses with opportunities to generate revenues by supplying those
associations, individuals, and businesses with Internet technology and
communications solutions and services. Our products and services enable the
agents and affinity groups to offer their members, customers and others a
variety of revenue producing solutions and services without making large
investments in technology, infrastructure or staff. The principal products and
services which we offer are:
- Long Distance Service
- Toll Free Products
- Financial Services / Corporate Payroll Solutions
- Billing Services
- Web site creation and design; and
- Web site hosting.
RECENT DEVELOPMENTS
During the third quarter of 2004, the company finished the development of its
new online service, MundoTeq.com and soft launched the product in mid-October.
MundoTeq.com was created to be one of the first all Spanish web portals.
MundoTeq will strive to be the preeminent gateway to the Spanish language
Internet marketplace. The goal is to make MundoTeq a place where all
Spanish-speaking residents of the U.S. can get news, entertainment,
shopping and much more! Some of the free services all in Spanish language
include:
- International news service from Southern, Central, Latin American
countries
- Chat Rooms
- Dating Services
- Classifieds
- Search Capabilities
- Childrens content
- Online Shopping
- And more
The biggest benefit that users will find at MundoTeq.com are specially designed
services created just for the MundoTeq community. The BanqueCard debit card,
Internet access, calling cards, prepay cell phones and more will be offered at
very low rates with all components such as, online signup forms, billing, and
customer service all in Spanish language!
During the 3rd quarter the company also entered negotiations with Estudios, and
Uraguayan third party billing services company. Estudios has an online billing
package the bills and creates retail invoices for long distance and toll service
service, calling card service, web hosting, and in the future, Internet access.
WorldTeq proposed a joint venture wherein WorldTeq would offer 49% of DigitalTeq
ownership to Estudios. DigitalTeq is currently 100% owned by WorldTeq Group
International, Inc. and has no current source of revenue, nor does it have any
expenses. All parties have verbally agreed. During the 4th quarter of 2004 the
issues will go before WorldTeq Group's board of director, to get approval. Once
approved DigitalTeq will begin selling third party billing solution to resellers
in the communication service industries. This will be a new source of revenue
for WorldTeq Group International, Inc. While the company will continue to
develop and attempt to add retail customers to its telecommunications product
lines, as well as offering new services to other markets such as the third party
billing services solution, we are expecting the majority of growth and future
revenues, especially in 2005, to be generated by the MundoTeq portal.
While growth of our retail telecommunications division has been slower then
expected, due to most of the company's resources being used on the development
of MundoTeq, the company is attempting to grow its wholesale telecommunications
division.
The company had made a previously released announcement of a special toll free
service deal that was made in June of 2004 and we had also discussed in the 10Q
filing for the period ending June 30, 2004. The customer had ordered 7,000 toll
free numbers and we began seeing traffic August 7th, 2004. Unfortunately, the
customer pulled this traffic very shortly after that for reasons beyond our
control.
FINANCIAL CONDITION
We have limited financial resources after our restructuring. We have eliminated
non-productive assets and have continued to pare down our workforce to reduce
overhead. We have little long-term debt. Although our operating cash flow was
negative during the first quarter of 2004, we believe it may be positive for the
year, because of the profits being spent on the development of MundoTeq. We
raised $100,000 of capital through the exercise of warrants in Q3 of 2004, which
was used to fund MundoTeq development, infrastructure costs, and some marketing
expenditures, as well as help reduce some short-term debts.
RESULTS OF OPERATIONS
Total sales for the third quarter 2004 was $110,748 as compared to $174,051 for
the quarter ended September 30, 2003, a 36% decrease. This was largely still
due the decline of prepay type accounts that were once the company's standard
product but have since been replaced by competitors unlimited plans. The
company really concentrated its efforts during the first three quarters of
the year on developing the MundoTeq portal.
Our net loss for the quarter ending September 30, 2004 was $343,238 or less then
$.01 per share, as compared to a gain of $9,962 for the same period in 2003.
This is in large part to the expenses of developing MundoTeq.
Selling, general and administrative expenses for the third quarter of fiscal
2004 were $393,365 as compared to $103,504 for the same quarter in fiscal 2003.
This increase is largely due to the fact that during the quarter ended September
30, 2004, Worldteq issued 2,000,000 shares for services and cash to two
consultants. Cash receipts for the shares totaled $100,000. On the issue date,
shares were trading at $.15. The difference in price created an additional
expense to Worldteq of $200,000. Additionally, WorldTeq incurred costs due to
the development of the MundoTeq web site.
We do anticipate an increase in SGA expenses in 2005 due to the fact we Will be
adding personnel as necessary as MundoTeq grows and we begin new ventures, such
as the third party billing product. While costs will be kept to a minimum
because of our back office automation, we are expecting additional costs with
our new MundoTeq site. These new costs will be directly related to new revenues
in the 4th Quarter of 2004 and throughout 2005.
Cost of sales for the third quarter of fiscal 2004 was $45,232 as compared to
$57,573 for the same quarter in fiscal 2003. This decrease of 22% was primarily
attributable to efficiencies in our sales organization, but also slightly lower
sales.
Interest expense during the quarter was $14,139 which increased from the second
quarter of 2004 which was $3,012 and was due to a one time adjustment made to a
shareholder's note payable
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities for the period ended June 30, 2004 was
primarily the result of a net loss and a decrease in accounts payable offset by
recognition of deferred offering costs.
The Company, at September 30th, 2004 and Year End of 2003, respectively, had
total assets of approximately $160,337 and $79,302. The increase in assets is
directly related to current accounts receivables as of September 30th, 2004.
We believe that, based on current activities of the first phase of marketing
MundoTeq and the high likelihood the board will approval the DigitalTeq billing
deal, cash from operations will begin to meet the development goals of the
Company in 2005, although we can give no assurances. A significant increase in
activities, either billable work or work related to new product development,
will require additional resources, which we may not be able to fund through cash
from operations. In circumstances where resources will be insufficient, the
Company will look to other sources of financing, including debt and/or equity
investments.
To meet our growth expectations, we anticipate that we will need to add up to 6
to 8 additional employees in the areas of sales, marketing, and sales support
over the next twelve months, especially for the support of MundoTeq as it
continues to grow after it's launch. We will be investing slightly in our back
office infrastructure such as servers, office equipment, and software to sustain
our growth projections for the next 2 years for MundoTeq, and based on the
infrastructure need for current product offerings.
Off-Balance Sheet Arrangements
- ----------------------------
The Company does not have any off-balance sheet arrangements with any party.
Critical Accounting Estimates
- ---------------------------
There have been no material changes in our critical accounting policies or
critical accounting estimates since the companies inception, nor have we adopted
an accounting policy that has or will have a material impact on our
consolidated financial statements. For further discussion of our accounting
policies see Footnote 1
"Summary of Significant Accounting Policies" in this Quarterly Report on Form
10-QSB and the Notes to Consolidated Financial Statements in our Annual Report
on Form 10-KSB for the fiscal year ended December 31, 2003.
ITEM 3. Controls and Procedures
(a) The Company maintains controls and procedures designed to ensure that
information required to be disclosed in the reports that the Company files or
submits under the Securities Exchange Act of 1934 is recorded, processed,
summarized and reported within the time periods specified in the rules and forms
of the Securities and Exchange Commission. Based upon their evaluation of those
controls and procedures performed within 90 days of the filing date of this
report, the chief executive officer and the principal financial officer of the
Company concluded that the Company's disclosure controls and procedures were
adequate.
(b) Changes in internal controls. The Company made no significant changes in its
internal controls or in other factors that could significantly affect these
controls subsequent to the date of the evaluation of those controls by the chief
executive officer and principal financial officer.
Part II
OTHER INFORMATION
Item 1. Legal Proceedings
Not Applicable
Item 2. Changes in Securities and Small Business Issuer Purchases of Equity
Securities
In January 2004, in exchange for services, we issued stock purchase warrants to
XCL Partners, Inc. to purchase 1,000,000 shares of common stock at an exercise
price of $0.15 per share, 1,000,000 shares of common stock at an exercise price
of $0.20 per share, and 2,000,000 shares of common stock at an exercise price of
$0.25 per share. In addition, we also issued a stock purchase warrant to
Chesapeake Group, Inc. to purchase 1,000,000 shares of common stock at an
exercise price of $.25 per share.
In February 2004, we registered 3,350,000 shares under our 2004 Employee Stock
Option Plan on a Form S-8. We granted our CEO, Jeffrey Lieberman an option to
purchase 2,000,000 shares at an exercise price of $0.13 per share. We also
granted our VP of Sales, Brian Rosinski an option to purchase 350,000 shares at
an exercise price of $0.13 per share. For both options, 16.667% of the Shares
subject to the Option shall vest six months after February 25, 2004, and 1/36 of
the Shares subject to the Option shall vest each month thereafter, subject to
the Optionee continuing to be a Service Provider on such dates.
Item 3. Defaults Upon Senior Securities
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders
Not Applicable
Item 5. Other Information
Not Applicable
Item 6. Exhibits and Reports on Form 8-K
(a) LIST OF EXHIBITS
List of Exhibits
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3.1 The articles of incorporation of Registrant (incorporated by reference to the
Registrant's Registration Statement on Form 10-SB12G/A filed with the
Commission on November 17, 1999, No. 000-27243).
- -------------- -----------------------------------------------------------------------------
3.2 Bylaws of Registrant (incorporated by reference to the Registrant's
Registration Statement on Form 10-SB12G/A filed with the Commission
on November 17, 1999, No. 000-27243).
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31.1 Certification of Chief Executive Officer pursuant to Section 302 of
Sarbanes-Oxley Act of 2002
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32.1 Certification of the Company's Chief Executive Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes
-Oxley Act of 2002
- -------------- -----------------------------------------------------------------------------
(b) REPORTS ON FORM 8-K
The following reports on Form 8-K were filed by the Company during the fiscal
quarter ended September 30, 2004:
None
SIGNATURE
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.
WorldTeq Group International, Inc.
/s/ Jeff Lieberman
-----------------------------
Jeff Lieberman
Chief Executive Officer,
President,
Treasurer, and
Chairman of the Board
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
/s/ Jeff Lieberman
-----------------------------
Jeff Lieberman
Chief Executive Officer,
President,
Treasurer, and
Chairman of the Board
Date: December 8, 2004