QUIP Quipp (MM)

 

 

UNITED STATES
SECURITY AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarter ended March 31, 2008

OR

o		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 0-14870

QUIPP, INC.

(Exact name of registrant as specified in its charter)

Florida		59-2306191
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

4800 N.W. 157th Street, Miami, Florida 33014

(Address of principal executive offices)

Registrant’s telephone number, including area code (305) 623-8700

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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 þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer  o		Accelerated filer  o		Non-accelerated filer  o		Smaller reporting company  þ
		(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes o No þ

The number of shares of the registrant’s common stock, $.01 par value, outstanding at May 5, 2008 was 1,477,746.

 

 

QUIPP, INC.
INDEX

		Page
PART I — FINANCIAL INFORMATION
Item 1 — Unaudited Condensed Consolidated Financial Statements
Unaudited Condensed Consolidated Balance Sheets — March 31, 2008 and December 31, 2007			3
Unaudited Condensed Consolidated Statements of Operations — Three months ended March 31, 2008 and 2007			4
Unaudited Condensed Consolidated Statements of Shareholders’ Equity — Three months ended March 31, 2008			5
Unaudited Condensed Consolidated Statements of Cash Flows — Three months ended March 31, 2008 and 2007			6
Notes to Unaudited Condensed Consolidated Financial Statements			7
Item 2 — Management’s Discussion and Analysis of Financial Condition and Results of Operations			11
Item 3 — Quantitative and Qualitative Disclosure about Market Risk			12
Item 4 — Controls and Procedures			12
PART II — OTHER INFORMATION
Item 1A — Risk Factors			13
Item 6 — Exhibits			13

PART 1 — FINANCIAL INFORMATION
Item 1. Unaudited Condensed Consolidated Financial Statements

QUIPP, INC. AND SUBSIDIARY
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

		March 31, 2008				December 31, 2007
ASSETS
Current assets:
Cash and cash equivalents		$	830,667			$	1,391,100
Restricted securities and cash equivalents			1,000,000				1,000,000
Accounts receivable, net of allowances of $129,061 and $179,568			2,118,284				3,641,206
Inventories			5,092,250				3,941,964
Prepaid expenses and other current assets			421,136				420,282
Total current assets		$	9,462,337			$	10,394,552
Property, plant and equipment, net of accumulated depreciation and amortization of $3,397,953 and $3,289,156			1,706,910				1,810,506
Intangible assets, net of accumulated amortization of $2,018,787 and $1,921,486			991,312				1,088,613
Other assets			24,486				26,586
Total assets		$	12,185,045			$	13,320,257
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Current portion of long-term debt		$	151,660			$	154,162
Accounts payable			1,326,059				1,867,197
Accrued salaries and wages			421,581				516,196
Deferred revenues			3,689,462				3,348,764
Other accrued liabilities			1,360,164				1,259,276
Total current liabilities			6,948,926				7,145,595
Total liabilities			6,948,926				7,145,595
Shareholders’ equity:
Common stock — par value $.01 per share, 8,000,000 shares authorized, 1,477,746 issued and outstanding			14,778				14,778
Additional paid in capital			527,046				518,960
Retained earnings			4,694,295				5,640,924
			5,236,119				6,174,662
Total liabilities and shareholders’ equity		$	12,185,045			$	13,320,257

See accompanying notes to the unaudited condensed consolidated financial statements.

QUIPP INC. AND SUBSIDIARY
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

		For the three months ended
		March 31, 2008				March 31, 2007
Net sales		$	3,672,327			$	4,321,637
Cost of sales			(2,966,022	)			(3,470,262	)
Gross profit			706,305				851,375
Operating expenses:
Selling, general and administrative expenses			(1,486,848	)			(1,468,642	)
Research and development			(106,860	)			(93,018	)
Operating loss			(887,403	)			(710,285	)
Other income (expense):
Miscellaneous income			—				10,000
Interest income			22,519				51,659
Interest expense			(7,857	)			(1,694	)
			14,662				59,965
Loss before income taxes			(872,741	)			(650,320	)
Income tax benefit			—				—
Net loss		$	(872,741	)		$	(650,320	)
Per share amounts:
Basic and diluted loss per common share		$	(0.59	)		$	(0.44	)
Weighted average common and common equivalent shares outstanding			1,477,746				1,458,189

See accompanying notes to the unaudited condensed consolidated financial statements.

QUIPP, INC. AND SUBSIDIARY
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

										Additional								Total
		Common Stock								Paid-In				Retained				Shareholders’
		Shares				Amount				Capital				Earnings				Equity
Balances on December 31, 2007			1,477,746			$	14,778			$	518,960			$	5,640,924			$	6,174,662
Stock-based compensation											8,086								8,086
Dividend declared on common stock ($.05 per share)															(73,888	)			(73,888	)
Net loss															(872,741	)			(872,741	)
Balances on March 31, 2008			1,477,746			$	14,778			$	527,046			$	4,694,295			$	5,236,119

See accompanying notes to the unaudited condensed consolidated financial statements.

QUIPP INC. AND SUBSIDIARY
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

		For the three months ended
		March 31, 2008				March 31, 2007
Cash flow from operations:
Net loss		$	(872,741	)		$	(650,320	)
Reconciliation of net loss to net cash (used in) provided by operations:
Depreciation and amortization			108,797				122,334
Intangible amortization			97,301				130,609
Stock-based compensation			8,086				11,862
Changes in operational assets and liabilities:
Accounts receivable			1,522,922				(38,405	)
Inventories			(1,150,286	)			(918,739	)
Prepaid and other assets			1,246				(81,786	)
Accounts payable and accrued liabilities			(534,865	)			245,448
Deferred revenues			340,698				1,592,787
Net cash (used in) provided by operations			(478,842	)			413,790
Cash flow from investing activities:
Securities matured			—				1,474,455
Capital expenditures			(5,201	)			(18,249	)
Net cash (used in) provided by investing activities			(5,201	)			1,456,206
Cash flow from financing activities:
Dividends paid to shareholders			(73,888	)			(72,910	)
Repayment of debt			(2,502	)			(2,378	)
Net cash used in financing activities			(76,390	)			(75,288	)
(Decrease) increase in cash and cash equivalents			(560,433	)			1,794,708
Cash and cash equivalents at beginning of year			1,391,100				864,879
Cash and cash equivalents at end of quarter		$	830,667			$	2,659,587

See accompanying notes to the unaudited condensed consolidated financial statements.

QUIPP, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 — BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements include the accounts of Quipp, Inc. and its wholly owned subsidiary, Quipp Systems, Inc. All significant intercompany transactions have been eliminated in consolidation. The accompanying unaudited condensed consolidated financial statements have been prepared on a basis consistent with that used as of and for the year ended December 31, 2007 and, in the opinion of management, reflect all adjustments (principally consisting of normal recurring accruals) considered necessary to present fairly the financial position of Quipp, Inc. and subsidiary as of March 31, 2008 and the results of its operations and cash flows for the three months ended March 31, 2008 and 2007. The results of operations for the three months ended March 31, 2008 are not necessarily indicative of the results to be expected for the full year ending December 31, 2008. These financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and the instructions of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles in the United States of America for complete financial statements. The unaudited condensed consolidated balance sheet at December 31, 2007 was derived from audited financial statements, but, as permitted by Regulation S-X, is not accompanied by all disclosures required by generally accepted accounting principles.

NOTE 2 — INVENTORIES

Inventories at March 31, 2008 include material, labor and factory overhead and are stated at the lower of cost or market. Inventories also include equipment shipped to customers but not yet recognized as a sale because either risk of loss has not transferred to the customer or the equipment requires complex installation services. The Company will recognize the sale and corresponding cost of sales when risk of loss has transferred to the customer or when installation services are complete and collection of the resulting receivable is reasonably assured. Cost is determined using the first-in, first-out (FIFO) method. The composition of inventories at March 31, 2008 and December 31, 2007 is as follows:

		March 31, 2008				December 31, 2007
Raw materials			2,722,461			$	2,841,432
Work in process			1,563,703				276,733
Subtotal			4,286,164				3,118,165
Shipped, not recognized			806,086				823,799
			5,092,250				3,941,964

NOTE 3 — REVENUE RECOGNITION

Revenue is recognized when all significant contractual obligations have been satisfied and collection of the resulting accounts receivable is reasonably assured. Revenue from the sale of standard stand-alone equipment without installation service is recognized upon delivery according to contractual terms and is recorded net of discounts. Revenue from multiple-element arrangements, such as the sale of standard equipment and basic installation services, is recognized in accordance with Emerging Issues Task Force (EITF) Issue No. 00-21 “Revenue Arrangements with Multiple Deliverables.” Revenue from the standard equipment is recognized upon delivery according to contractual terms and is recorded net of discounts. The fair value of the revenue related to the installation service is deferred until installation services are provided. Fair value is determined by the price charged to other customers when services are sold separately and is supported by competitive market data. Revenue from long-term complex equipment or installation arrangements is recognized using the unit of delivery method under AICPA Statement of Position (SOP) 81-1 in accordance with contractual terms and is recorded net of discounts. Cost and profitability estimates are revised periodically based on changes in circumstances. Estimated losses on such contracts are recognized immediately.

NOTE 4 — LOSS PER SHARE

Basic loss per share is based on the weighted average number of common shares outstanding during the periods presented. Diluted loss per share is computed using the weighted average number of common and dilutive common equivalent shares outstanding in the period presented. Dilutive common equivalent shares assume the exercise of options, calculated under the treasury stock method, using the average stock market prices during the periods. For the three months ended March 31, 2008 and 2007, the Company had no common stock equivalents because the exercise price of outstanding options exceeded the market price of the underlying shares.

NOTE 5 — STOCK-BASED COMPENSATION

The Quipp, Inc. Equity Compensation Plan (Equity Compensation Plan) provides for grants of stock options and stock-based awards to employees, directors, consultants and advisors of the Company. Stock options issued in connection with the Equity Compensation Plan are granted with an exercise price per share equal to the fair market value of a share of Company common stock at the date of grant. All stock options have five to ten-year maximum terms and vest, either immediately, or within four years of grant date. The total number of shares of common stock issuable under the Equity Compensation Plan is 600,000. At March 31, 2008, there were 140,389 shares available for grant under the Equity Compensation Plan.

The Company recognized stock-based compensation totaling $8,086 and $11,862 for the three months ended March 31, 2008 and 2007, respectively. Components of stock-based compensation expense follow:

		Three months ended
		March 31,
		2008				2007
Stock Options		$	1,029			$	1,971
Restricted Stock Awards			7,057				9,891
Total stock based compensation costs included in selling, general and administrative expenses		$	8,086			$	11,862

The following stock option activity occurred during the three months ending March 31, 2008:

										Weighted
						Weighted				Average
						Average				Remaining				Aggregate
						Exercise				Contractual				Intrinsic
		Shares				Price				Term (years)				Value
Options outstanding at December 31, 2007			45,000			$	13.57				4.57				—
Granted			—				—				—				—
Vested			—				—				—				—
Forfeited			—				—				—				—
Options outstanding at March 31, 2008			45,000			$	13.57				4.32				—
Stock options exercisable at March 31, 2008			45,000			$	13.57				4.32				—

As of March 31, 2008, all stock-based compensation costs related to stock options has been recognized.

The following table summarizes restricted stock award activity for the three months ended March 31, 2008:

						Weighted
						Average
		Restricted				Grant Date
		Shares				Fair Price
Non-vested stock awards as of December 31, 2007			10,000			$	11.84
Granted			—				—
Vested			(5,000	)			12.80
Forfeited			—				—
Non-vested stock awards as of March 31, 2008			5,000			$	10.87

As of March 31, 2008, approximately $19,000 of unrecognized compensation costs related to non-vested restricted stock awards is expected to be recognized over 1 year.

NOTE 6 — INCOME TAXES

The Company has evaluated the positive and negative evidence bearing upon the realizability of its deferred tax assets. Recent trends in the newspaper publishing industry, including reduced advertising revenue growth and consolidation of newspaper publishers make it difficult for management to forecast future income with a high degree of certainty. As a result, management has concluded that it is necessary to provide a full valuation allowance against the Company’s deferred tax assets. The Company will maintain the valuation allowance until an appropriate level of profitability is sustained, or there are tax planning strategies that would enable the Company to determine that additional deferred tax benefits will be realized.

The Company adopted Financial Accounting Standards Board (FASB) Interpretation No. 48, “Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109” (FIN 48) on January 1, 2007. Previously, the Company provided for tax contingencies in accordance with Statement of Financial Accounting Standards (SFAS) No. 5, “Accounting for Contingencies.”

The liability for uncertain tax positions as of December 31, 2007 was approximately $78,000. During the quarter ended March 31, 2008, the Company had no significant changes in its liability for uncertain tax positions.

The Company also accrues both penalties and interest related to the liability for uncertain tax positions. These amounts are charged to income tax expense. As of December 31, 2007, the Company had accrued approximately $34,000 for the payment of interest and penalties. During the quarter ended March 31, 2008, the Company did not recognize any material changes to interest and penalties charges related to uncertain tax positions.

The liability for uncertain tax positions and related penalties and interest is included in other accrued liabilities.

The Company is subject to income taxes in U.S. federal and various state jurisdictions, and is subject to ongoing examinations by certain tax authorities in these jurisdictions. Tax regulations within each jurisdiction are subject to interpretation of the related tax laws and regulations and require significant judgment to apply. Company management believes it is no longer subject to U.S. federal income tax examinations by tax authorities for the years before 2004. Also, in state and local jurisdictions in which the Company files income tax returns, management believes the Company is no longer subject to tax examinations by tax authorities for the years before 2003.

NOTE 7 — RECENT DEVELOPMENTS

On March 26, 2008, we entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Illinois Tool Works Inc. (“ITW”) and Headliner Acquisition Corporation, a wholly-owned subsidiary of ITW (“Merger Sub”). Under the Merger Agreement, Merger Sub will merge with and into our company, we will become a wholly-owned subsidiary of ITW, and all outstanding shares of our common stock (other than shares held by persons who have properly exercised their dissenters’ rights) will be converted into the right to receive an amount per share in cash of $4.30 to $5.65. The definitive price per share will be determined based on adjustments relating to the amount of our cash and cash equivalents and specified indebtedness prior to consummation of the transaction. The Company will not proceed with the transaction if the adjusted price would be less than $4.30 per share.

NOTE 8 — RECENT PRONOUNCEMENTS

In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities” (SFAS 161). SFAS 161 is intended to improve financial reporting about derivative instruments and hedging activities by requiring enhanced disclosures that will provide a better understanding of their effects on an entity’s financial position, financial performance and cash flows. The provisions of SFAS 161 are effective for fiscal years and interim periods beginning after November 15, 2008. We are currently evaluating the impact of the provisions of SFAS 161.

In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements—an Amendment of Accounting Research Bulletin No. 51.” SFAS No. 160 establishes accounting and reporting standards for the noncontrolling interest (sometimes called minority interest) and for the deconsolidation of a subsidiary. SFAS No. 160 is effective for fiscal years that start after December 15, 2008 and prohibits early adoption. We are currently evaluating the impact of the provisions of SFAS 160.

In December 2007, the FASB issued SFAS No. 141 (R), “Business Combinations, a revision of SFAS No. 141.” SFAS No. 141 (R) establishes principles and requirements as to how the acquirer of a business recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed and any noncontrolling interest in the acquiree. The statement also provides guidance for recognizing and measuring the goodwill acquired in the business combination and determines what information to disclose to enable users of the financial statement to evaluate the nature and financial effects of the business combination. SFAS No. 141 (R) is effective for financial statements issued for fiscal years beginning after December 15, 2008. We are currently evaluating the impact of the provisions of SFAS 141 (R).

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities.” SFAS No. 159 permits, but does not require, companies to report at fair value the majority of recognized financial assets, financial liabilities and firm commitments. Under this standard, unrealized gains and losses on items for which the fair value option is elected are reported in earnings at each subsequent reporting date. SFAS No. 159 is effective as of the beginning of an entity’s first fiscal year that starts after November 15, 2007. The Company has concluded that SFAS No. 159 will not impact the Company’s financial position, results of operations or cash flows in 2008.

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements.” SFAS No. 157 establishes a framework for measuring fair value in accordance with GAAP, clarifies the definition of fair value and expands disclosures about fair value measurements. SFAS No. 157 does not require any new fair value measurements; however, the application of SFAS No. 157 may change current practice for some entities. SFAS No. 157 is effective as of the beginning of an entity’s first fiscal year that starts after November 15, 2007. The Company has concluded that SFAS No. 157 will not impact the Company’s financial position, results of operations or cash flows in 2008.

Item 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations

Results of Operations: The following table presents statements of operations items expressed as a percentage of net sales for the periods indicated:

		Three Months Ended
		March 31,
		2008				2007
		(Unaudited)				(Unaudited)
Net sales			100.0	%			100.0	%
Gross profit			19.2	%			19.7	%
Selling, general and administrative expenses			40.4	%			34.0	%
Research and development			2.9	%			2.2	%
Other income, net			0.4	%			1.3	%
Net loss			(23.8	%)			(15.0	%)

Net sales for the three months ended March 31, 2008 were $3,672,327, a decrease of $649,310 (15.0%) compared to net sales of $4,321,637 for the corresponding period in 2007. Published reports indicate that U.S. newspapers have been experiencing lower profits due to declining circulation, reduced print advertising revenue and higher costs. We believe these developments have resulted in lower capital spending on post-press newspaper manufacturing equipment, which has adversely affected our incoming orders and net sales.

Gross profit for the three months ended March 31, 2008 was $706,305, a decrease of $145,070 (17.0%) as compared to $851,375 for the corresponding period in 2007. Gross profit as a percentage of sales for the first three months of 2008 decreased to 19.2% compared to 19.7% for the same period in 2007. Our margin as a percentage of sales has decreased because of the allocation of fixed manufacturing overhead costs over a lower level of production and shipment volumes. We have also experienced increased raw material, transportation, insurance and electricity costs.

Selling, general and administrative expenses for the three months ended March 31, 2008 were $1,486,848, an increase of $18,206 (0.1%) as compared to $1,468,642 for the corresponding period in 2007. Our costs increased mostly due to professional fees related to our proposed merger transaction by which we will be acquired by ITW (see note 7 to the unaudited condensed consolidated financial statements in this report). The higher professional fees were offset in part by lower variable selling expenses and reduced amortization costs on intangible assets, reflecting the write down of these assets at the end of 2007. As described in our Form 10-K for the year ended December 31, 2007, the write down occurred because the value of our amortizable intangible assets was determined to be impaired.

Research and development expenses for the three months ended March 31, 2008 were $106,860, an increase of $13,842 (14.9%) as compared to $93,018 for the same period in 2007. During the three months ended March 31, 2008, we continued expending most of our development resources on enhancements to our Quipp-Newstec inserter product line.

Other income and expense (net) for the three months ended March 31, 2008 reflected income of $14,662 as compared to $59,965 for the corresponding period in 2007. Interest income was reduced in 2008 primarily due to lower average balances of cash, cash equivalents and securities available for sale and lower interest rates. In addition, we generated $10,000 of royalty income in 2007 relating to our patented automatic cart loading system technology used by another supplier of post-press material handling equipment.

General

Our backlog as of March 31, 2008 was $7,621,000 compared to $6,457,000 at December 31, 2007 and $9,714,000 at March 31, 2007. We expect to ship all items in our backlog during the next twelve months. Orders for the three months ended March 31, 2008 were $4,760,279 compared to orders of $4,998,212 during the three months ended March 31, 2007.

Liquidity

On March 31, 2008, cash and cash equivalents and restricted securities available for sale and cash equivalents totaled $1,830,667 as compared to $2,391,100 at December 31, 2007, a decrease of $560,433. Working capital on March 31, 2008 was $2,513,411, a decrease of $735,546 from $3,248,957 at December 31, 2007.

Our line of credit agreement with Merrill Lynch Business Financial Services, Inc. (Merrill Lynch) has been extended until August 31, 2008. As of the date of this report, we have no balance outstanding on the line of credit. Under the terms of the agreement, we can borrow up to $3,000,000, subject to a limit based on eligible accounts receivable and inventory. Borrowings under the line of credit are secured by all accounts receivable, inventory, intangibles and contract rights as well as securities with value of no less than $1,000,000. Interest is payable monthly at a rate equal to the one-month LIBOR rate plus 2.4%. While the line of credit was recently extended for a period of four months in order to provide availability until the anticipated closing of ITW’s acquisition of Quipp, we believe we will not be able to renew this credit facility in the future. The agreement relating to the acquisition contains restrictions on our ability to borrow under the line of credit

Our debt consists primarily of obligations under variable rate industrial revenue bonds that were issued through the Dade County Industrial Development Authority in 1988. At March 31, 2008, the balance due on the bonds was $150,000, which is payable in full on October 1, 2008.

We believe that our cash and cash equivalents and securities available for sale, together with future cash generated from operations, will be sufficient to fund operations at the current levels.

Forward Looking Statements

This quarterly report on Form 10-Q contains forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements relating to shipment of backlog orders, adequacy of available resources and proposed acquisition of Quipp by ITW. A number of important factors could cause actual results to differ materially from those in the forward looking statements including, but not limited to, economic conditions generally and specifically in the newspaper industry, demand and market acceptance for new and existing products, the impact of competitive products and pricing, manufacturing capacity, delays in shipment, cancellation of customer orders, engineering and production difficulties and the failure of the acquisition of Quipp by ITW to close, due to, among other things, failure to obtain shareholder approval or satisfy other conditions required for closing.

Item 3 Quantitative and Qualitative Disclosure about Market Risk

Market Risk

We are exposed to various types of market risk, including changes in interest rates. Market risk is the potential loss arising from adverse changes in market rates and prices such as interest rates. We do not enter into derivatives or other financial instruments for trading or speculative purposes. Because our cash and investments exceed short and long-term debt, the exposure to interest rates relates primarily to our investment portfolio. Due to the short-term maturities of our investments, we believe there is no significant risk arising from interest rate fluctuations. To ensure safety and liquidity, we only invest in instruments with credit quality and which are traded in a secondary market. The counterparties are major financial institutions and government agencies.

Item 4 Controls and Procedures

(a)

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures as of the end of the period covered by this report are functioning effectively to provide reasonable assurance that the information required to be disclosed in reports filed under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.

(b)

Change in Internal Control over Financial Reporting

No change in our internal control over financial reporting occurred during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II — OTHER INFORMATION

Item 1A Risk Factors

In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2007, which could materially affect our business, financial condition or future results. The risks described in our Annual Report on Form 10-K are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.

Item 6 Exhibits

The following exhibits are filed with this report:

3.1

Articles of Incorporation, as amended (incorporated by reference to Exhibit 3.2 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2004).

3.2

By Laws, as amended (incorporated by reference to Exhibit 99.1 to Registrant’s Current Report on Form 8-K filed March 5, 2008).

31.1

Certificate of the Chief Executive Officer of the Registrant required by Rule 13a-14(a) under the Securities Exchange Act of 1934.

31.2

Certificate of the Chief Financial Officer of the Registrant required by Rule 13a-14(a) under the Securities Exchange Act of 1934.

32.1

Certificate of the Chief Executive Officer of the Registrant required by Rule 13a-14(b) under the Securities Exchange Act of 1934.

32.2

Certificate of the Chief Financial Officer of the Registrant required by Rule 13a-14(b) under the Securities Exchange Act of 1934.

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

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