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 PERIOD ENDED September 30, 2005
OR
[] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD From to
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Commission File Number 333-88480
PRIME RESOURCE, INC.
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(Exact name of registrant as specified in its charter)
Utah 04-3648721
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1245 East Brickyard Road, Suite 590
Salt Lake City, Utah 84106 (801) 433-2000
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(Address of principal executive officers) (Registrant's telephone number,
including area code)
None
(Former name, former address and former fiscal year,
if changed since last report)
Securities registered pursuant to Section 12(b) of
the Act:
None
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 has
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. [X] Yes [] No
Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 126-2 of the Exchange Act). [] Yes [X] No
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date.
Common Stock: 2,955,990 shares issued and outstanding as of September 30, 2005,
No Par Value. Authorized - 50,000,000 common voting shares.
INDEX
Prime Resource, Inc.
For The Quarter Ending September 30, 2005
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets - Septembe 30, 2005 (Unaudited) and
December 31, 2004.
Consolidated Statements of Operations (Unaudited) - For the three
months ended September 30, 2005, and for the three months ended
September 30, 2004; and for the comparable nine month periods ending
September 30, 2005 and September 30, 2004.
Consolidated Statements of Shareholders' Equity as of December 31,
2004 through September 30, 2005
Consolidated Statements of Cash Flows (Unaudited) - For the nine
months ended September 30, 2005, and for the nine months ended
September 30, 2004.
Notes to Condensed Financial Statements (Unaudited) - September 30,
2005
Item 2. Management's Discussion and Analysis o Financial Condition or Plan
of Operation.
Controls and Procedures
Part II. Other Information
Item 5. Other Matters
Item 6. Exhibits and Reports on Form 8-K
Signatures
Certifications
Part I - Financial Information
Item 1. Financial Statements
Prime Resource, Inc.
Consolidated Balance Sheet (Unaudited)
September 30,
ASSETS 2005
---------------------
Current Assets:
Cash $ 570,795
Accounts receivable 545,498
Interest receivable 62,333
Investments in marketable securities 330,854
Notes receivable, current 350,000
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Total Current Assets 1,859,480
---------------------
PROPERTY AND EQUIPMENT, NET 158,826
---------------------
Notes receivable 40,000
Deferred tax assets 37,233
Other assets 15,298
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Total assets $ 2,110,837
=====================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 33,868
Accrued compensation, commissions and benefits 513,796
Income taxes payable 2,559
Deferred taxes payable 119,315
Notes payable, current portion 29,820
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Total Current Liabilities 699,358
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Long-term Liabilities:
Notes payable, net of current portion 34,661
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Total Long-Term Liabilities 34,661
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Total Liabilities 734,019
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Common stock, no par value, 50,000,000 shares
authorized, 2,983,850 shares issued
and 2,955,290 outstanding 0
Additional Paid-In Capital 964,802
Treasury Stock (83,553)
Retained earnings 495,569
---------------------
Stockholders' Equity 1,376,818
---------------------
Total Liabilities and Stockholders' Equity $ 2,110,837
=====================
Prime Resource, Inc.
Consolidated Statements of Income (Unaudited)
For the Three For the Nine
Months Months
Ended Ended
September 30, September 30,
-------------------------------------------- ------------------------------------------
2005 2004 2005 2004
-------------------- -------------------- ------------------- -------------------
REVENUES
Commissions $ 1,690,409 $ 1,212,050 $ 4,862,975 $ 3,557,284
Investment and business advisory fees 164,942 155,314 502,915 480,249
Interest and dividends 43,552 3,951 64,578 11,687
Other income 0 0 0 0
-------------------- -------------------- ------------------- -------------------
Total Revenues 1,898,903 1,371,315 5,430,468 4,049,220
-------------------- -------------------- ------------------- -------------------
EXPENSES
Commissions 1,267,202 788,398 3,577,322 2,299,183
Compensation and benefits 381,312 317,692 1,163,811 951,358
General and administrative 115,496 101,354 382,840 305,836
Occupancy expense 32,022 34,855 97,596 98,970
Depreciation expense 15,888 12,768 45,897 36,711
Interest expense 1,206 961 3,120 2,719
-------------------- -------------------- ------------------- -------------------
Total Expenses 1,813,126 1,256,028 5,270,586 3,694,777
-------------------- -------------------- ------------------- -------------------
Net operating income 85,777 115,287 159,882 354,443
-------------------- -------------------- ------------------- -------------------
GAINS AND LOSSES
Realized gains on trading securities 0 505 (111) 1,368
Unrealized gains on trading securities 23,192 3,402 5,797 3,402
-------------------- -------------------- ------------------- -------------------
Total Gains (Losses) 23,192 3,907 5,686 4,770
-------------------- -------------------- ------------------- -------------------
Net income before income taxes 108,969 119,194 165,568 359,213
Income tax expense 25,536 69,564 49,178 151,612
-------------------- -------------------- ------------------- -------------------
Net income $ 83,433 $ 49,630 $ 116,390 $ 207,601
==================== ==================== =================== ===================
BASIC AND FULLY DILUTED
NET INCOME PER SHARE $ 0.03 $ 0.02 $ 0.04 $ 0.07
==================== ==================== =================== ===================
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING
2,945,475 2,934,000 2,937,825 2,934,000
==================== ==================== =================== ===================
Prime Resource, Inc.
Consolidated Statement of
Stockholders' Equity (Unaudited)
For the nine months ended
September 30, 2005
Additional Retained
Common Paid-in Treasury Earnings Total
Stock
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Shares Amount Capital Stock (Deficit) Equity
------------ -------------- ------------- ------------- ------------- --------------
Balance, December 31, 2004 2,934,000 $ 0 $ 907,427 $ (77,755) $ 379,179 $ 1,208,851
Common stock issued for services 22,950 0 57,375 0 0 57,375
Treasury stock (960) 0 0 (5,798) 0 (5,798)
Net income 0 0 0 0 116,390 116,390
------------ -------------- ------------- ------------- ------------- --------------
Balance, September 30, 2005 2,955,990 $ 0 $ 964,802 $ (83,553) $ 495,569 $ 1,376,818
============ ============== ============= ============= ============= ==============
Prime Resource, Inc.
Consolidated Statements of Cash Flows (Unaudited)
For the nine months ended
September 30,
2005 2004
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Cash Flows From Operating Activities:
Net income $ 116,390 $ 207,601
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 45,897 36,711
Change in deferred taxes 6,401 36,386
Issuance of shares for services 57,375 0
Realized loss on trading securities 111 0
Unrealized gains on trading securities (5,796) (1,368)
Changes in assets and liabilities:
Accounts receivable (111,284) (98,255)
Interest receivable (51,000) (3,000)
Income taxes receivable 9,770 33,354
Other assets (2,194) 9,000
Accounts payable (6,823) 36,166
Accrued expenses 127,467 56,191
Income tax payable 2,559 24,745
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Net Cash Provided By Operating Activities 188,873 337,531
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Cash Flows From Investing Activities:
Notes receivable (350,000) 0
Treasury stock (5,798) 0
Purchase of trading securities (53,876) (105,215)
Proceeds from sales of trading securities 19,723 3,376
Purchase of equipment (41,820) (27,889)
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Net Cash Used In Investing Activities (431,771) (129,728)
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Cash Flows From Financing Activities
Payments on notes payable (13,711) (9,610)
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Net Cash Used In Financing Activities (13,711) (9,610)
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Net Increase (Decrease) In Cash And Cash (256,609) 198,193
Equivalents
Cash And Cash Equivalents At Beginning Of Year 827,404 399,403
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Cash And Cash Equivalents At End Of Period $ $ 570,795 $ 597,596
================== =================
Supplemental Cash Flow Information:
Cash paid for interest $ 3,120 $ 2,719
Cash paid for taxes $ 35,500 $ 83,000
NONCASH ACTIVITIES:
Purchase of equipment with long term note payable $ 0 $ 30,822
Item 2. Management's Discussion and Analysis of Financial Condition or Plan of
Operation
Forward-Looking Information
Certain statements in this Section and elsewhere in this report are
forward-looking in nature and relate to trends and events that may affect the
Company's future financial position and operating results. Forward Looking
Statements are defined within the meaning of Section 27-A of the Securities Act
of 1933 and Section 21-E of the Securities Act of 1934. The terms
"expect,""anticipate,""intend," and "project" and similar words or expressions
are intended to identify forward-looking statements. These statements speak only
as of the date of this report. The statements are based on current expectations,
are inherently uncertain, are subject to risks, and should be viewed with
caution. Actual results from experience may differ materially from the
forward-looking statements as a result of many factors, including changes in
economic conditions in the markets served by the company, increasing
competition, fluctuations in prices and demand, and other unanticipated events
and conditions. It is not possible to foresee or identify all such factors. The
company makes no commitment to update any forward-looking statement or to
disclose any facts, events, or circumstances after the date hereof that may
affect the accuracy of any forward-looking statement.
Plan of Operation
Prime Resource, Inc. ("Prime") is a Utah Corporation which was organized and
filed of record on March 29, 2002 as a successor entity to Prime, LLC, (a Utah
limited liability company). Prime is an integrated business entity that conducts
all of its actual business activities through its wholly owned subsidiaries:
Belsen Getty, LLC ("Belsen Getty") and Fringe Benefit Analysts, LLC ("FBA").
Prime Retirement Services, LLC, ("Prime Retirement") had previously been
organized to potentially assume some of the core businesses or similar services
of Prime, but it will not be organized or funded. Unless otherwise specifically
described in this report, the reference to Prime shall collectively mean both
Prime and its two current operating subsidiaries.
The principal business activity of Prime has been, and will continue to be for
the immediate future, providing insurance and related insurance products
principally in the health, life, dental and disability areas, as well as
implementing and managing various employee related benefit programs and plans,
such as 401(k) retirement accounts. See description of probable reorganization
below.
The insurance activities of Prime are primarily conducted through FBA. FBA is
licensed as an insurance broker. Belsen Getty supplies collateral services
related primarily to formation and funding of pension and investment management
programs, as well as retirement planning and
general business and financial consulting. Belsen Getty is a registered
investment advisory firm. Prime Retirement was a potential start-up consulting
entity which has not commenced operations.
The sector breakdown of revenues and profits by the two operating entities for
comparative quarters is generally summarized below:
FBA Analysts:
3rd Quarter 2005 Gross Revenues $1,712,185
Net Profits $322,274
3rd Quarter 2004 Gross Revenues $1,215,436
Net Profits $174,785
Belsen Getty:
3rd Quarter 2005 Gross Revenues $186,718
Net Profits $(205,884)
3rd Quarter 2004 Gross Revenues $155,879
Net Profits $(10,276)
Historically, management intended to attempt to grow the company primarily
through the acquisition of other insurance agencies into the FBA entity and by
developing new client relationships. Concurrently, Belsen Getty attempted to
expand its financial and business consulting and pension planning services
principally by creating a more extensive investment advisory role. Prime
Retirement Services has been abandoned.
During the first and second quarters of 2005, it became increasingly clear to
management that there were a paucity of suitable insurance agency acquisition
opportunities that would meet the criteria of materially growing the revenue
base of the company. As a result, the management has made a conscious decision
to shift emphasis to explore potential merger or acquisition possibilities in
unrelated areas as more fully discussed below.
FBA continues currently negotiating potential marketing plans to expand its
"Advantage Program" whereby it provides plan administration services along with
selling insurance products. Further, FBA is allowing access to the Advantage
Program for competitors for a
negotiated percentage of their gross revenues.
The company completed an initial public offering of its shares on June 16, 2003
in which it raised $750,000 in gross proceeds and $709,664 in net proceeds. Its
stated intention was to employ the majority of these funds for acquisitions to
grow its core insurance services and products as generally discussed above.
During the third quarter of 2005, Prime has determined that these funds may be
better employed enhancing current operations by upgrading programs, systems and
equipment with the balance reserved for funding a more broad based pursuit of
merger or acquisition possibilities. No proceeds of the offering are employed to
pay for costs of day-to-day operations.
To the date of this report, the company has expended approximately $709,664 of
offering proceeds and has $0 remaining which is more particularly reported under
Item 5 of this report pursuant to SEC Rule 463.
To date, the company's long term growth and potential to realize profits was
substantially dependent upon the ability of management of the company to
successfully employ the proceeds of the public offering in a manner which will
generate additional revenues and potential net income to Prime. No assurance or
warranty of the success of Prime, in this regard, can be made or implied at this
time.
The company experienced a profit of $285,028 in calendar year 2004. For the
third quarter of 2005 the company realized an after tax profit of $83,433
compared to a profit $49,630 in the comparable period of 2004.
The current quarter net income of $ 83,433 on gross revenues of $ 1,898,903 was
primarily attributable to the company's executive efforts to negotiate a
reorganization and alternative business direction. The comparable revenues for
the third quarter of 2004 were $1,371,315 and $49,630 in net income. We
attribute the revenue growth primarily to the increased marketing of our
services and products to new clients and the expanded operation of our
"Advantage Program". Also, Prime has increased its client base and commissions
through expanding it's affiliated agent base. Each person reviewing this report
should understand that the company has only had periodic profits since 2003. The
failure of the company to have a long history of profits and determination to
seek other business activities should be considered as potential risk factors to
any person acquiring securities of the company in that it does not have a proven
or sustained profit history.
Prime, including all subsidiaries, currently has 18 full-time employees, 1
part-time employee and 49 affiliated commission based insurance or other agents.
As of September 30, 2005, the outstanding current liabilities of the company
were $699,358 which is an increase of $ 113,509 over the year end of 2004.
Liabilities increased slightly due to greater agent commissions and substantial
costs related to reorganization activities. The
company has an accumulated retained earnings from its inception as a corporate
entity to September 30, 2005 of $495,569.
Products and Markets
As generally described above, the revenue sources to Prime are primarily divided
into two categories. The first being the sale of a broad line of insurance
products and services through FBA with a primary emphasis on group health,
disability, dental and life policies. The second being the related investment
and planning services of Belsen Getty.
The insurance activities of Prime are primarily offered within the eleven
western United States. Prime acts as a general agent through FBA for various
companies in supplying the insurance policies and services. However, four
companies account, collectively, for almost all of the policies provided by
Prime. These four principal suppliers of policies to Prime are Altius Insurance,
(previously Pacific Health Care); United Health Care; Intermountain Health Care
and Regence Blue Cross. Commissions for the placement of these products range
from approximately 2-20%.
The company currently has, as of September 30, 2005, approximately 502 customers
who are receiving ongoing insurance coverage and related services from FBA. FBA
also has what it believes to be a unique program related to its insurance
activities in which it acts as a plan developer and facilitator for various
insurance programs such as COBRA, HIPAA and State continuation plans and other
insurance related plans that require ongoing filing and consulting/management
services. These services have previously been described as the "Advantage
Program". FBA believes it has been successful in growing its business through
supplying the advantage services at no additional cost to the insurance client.
The company also believes it has been successful in maintaining a profit, while
providing these services without additional cost to the client, by obtaining
discounts from service providers who provide these ongoing management services.
Belsen Getty supplies investment advisory and pension management services to
various clients of Prime. Some, but not all, of these clients are referred by
FBA incident to completion of insurance funded products sold to various
individuals and entities which then require pension fund management. The
compensation for these valuable services are derived on a fee basis. The fees
range from 25 basis points to 125 basis points per year depending upon the size
of the portfolio or program managed. There are no commissions paid on investment
products and the assets are held by third party custodians, such as various
brokerage firms. It is anticipated that the Belsen Getty portion of the business
will grow concurrently with the growth of the FBA business, but for the
foreseeable future will generate revenues substantially less than the FBA
component of the business. As of September 30, 2005, FBA has approximately 502
customers and Belsen Getty has 490 clients.
Liquidity and Sources of Capital
As previously noted, the parent entity, Prime Resource, Inc., completed a public
offering as of April 16, 2003 resulting in net proceeds to the company of
$709,664. It was believed and anticipated that these proceeds would be
sufficient to implement the general growth plan of the company, as generally
described above, and which included acquisition of other insurance brokers, as
well as the recruitment and training of insurance agents with existing books of
business, clients, and established insurance markets. No warranty or assurance
of the success of this proposed plan of operation can be made, but it is
believed that there is sufficient existing capital in the company to implement
this plan from the proceeds of the offering. Prime is presently in a position
where it believes that its general revenues can sustain other business
operations, including salaries, rent, utilities and other overhead costs,
without the employment of offering proceeds for those general operating
purposes.
Since the first quarter of 2005 the company has decided to use the net proceeds
on an as needed basis only to enhance existing business equipment or procedures
and as may become necessary to pursue and analyze subsequent business
opportunities. As of September 30, 2005 there remained $ 0 of net proceeds.
The company has no present plans for any additional offering of its securities
or other capital formation activities for the foreseeable future, other than
generally described in the event of the share exchange discussed below.
Further, the company does not significantly rely on lines of credit or other
bank loans for its present operations and has total outstanding debt
obligations, as of September 30, 2005, of approximately $64,481, while
maintaining a net worth of approximately $1,376,818.
Recent Developments
The Company believes it is in the final negotiation stages of an anticipated
reorganization with a private technology company. Prime believes it would be
improper and potentially illegal to disclose or discuss any details of this
potential reorganization until a final definitive agreement is reached and
approved by the board. However, because the negotiation appear to be in a final
stage with a high probability of the conclusion of a proposed reorganization to
be presented shortly to shareholders, management has elected to outline the
probable general terms of any such reorganization with the caveat that the final
definitive terms are not presently agreed upon and will be presented to
shareholders only through a proxy solicitation and publicly announced 8-K filing
when and if a definitive agreement is reached. Within the limitations of this
caveat, Prime indicates that it appears shareholders will be presented with a
share exchange and resulting reorganization incorporating the following primary
terms:
1. Prime would issue and exchange a preponderate majority of its shares
to the private company shareholders to acquire the private technology
company as a wholly owned subsidiary.
2 The existing Prime Principal shareholders would exchange back a
majority of their shares for the existing assets and businesses of
Prime;
3. Current shareholders would incur a dilution and decreased percentage
of ownership in the reorganized company;
4. There would be a 2.5:1 forward stock split;
5. A private placement offering of its shares and share warrants in the
approximate amount of 3 million dollars as part of the share exchange
together with the creation of various stock rights.
6. Shareholders would be asked to allow the Compan to change its name,
business purpose and elect new management as nominated by the private
company being acquired.
During the past quarter the company has made bridge loans to the private
technology company of approximately $350,000, which will be converted to equity
if the share exchange is closed. If not, the loans will constitute a short term
obligation owing to Prime.
Risk Factors
There are significant new risk factors to shareholders if the company
transitions from attempting to expand its core insurance/consulting services to
potential merger and acquisition efforts with unknown entities. Any such future
reorganization would most likely result in a change of management, business, and
the relative share ownership of current shareholders.
Item 3. Controls and Procedures
(a) Prime 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
prescribed by 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 for its present activities. The Company
knows of no fraudulent activities within the Company or any material accounting
irregularities. The Company does not have an independent audit committee and
does not believe it is required to have any audit committee at this time.
(b) Changes in internal controls. The Company made no significant changes
in its internal controls since completing its public offering. The company as of
the first quarter of 2004 obtained a listing of its stock on the National
Association of Securities Dealers ("NASD") sponsored Electronic Bulletin Board,
but does not view such listing as requiring a change in its accounting or
auditing practices at the present time.
(c) The company is aware of the general standards and requirements of
the recent Sarbanes-Oxley Act of 2002 and has implemented procedures and rules
to comply, so far as applicable, such as a prohibition on company loans to
management and affiliates. The company does not have any audit committee as it
does not believe the act requires a separate committee for companies that are
reporting companies, but not registered under the Securities and Exchange Act of
1934 [15(d) companies] and whose shares trade only on the Electronic Bulletin
Board.
Part II - Other Information
Item 5. Other Matters
(1) Public Offering & Use of Proceeds. As generally noted above, Prime
completed its initial public offering of 150,000 shares to 17 new shareholders
as of June 16, 2003. Pursuant to SEC Rule 463, the use or employment of the
proceeds are periodically disclosed as part of this report. We have elected to
set-out such information in a tabular format:
1. Offering Effective Date
4/16/2003
2. Offering Closed $750,000 $709,664
6/16/2003 Gross Proceeds Net Proceeds
3. Costs of offering including $40,336 N/A
legal, accounting, filing fees,
consulting and miscellaneous
(No commissions were paid)
4. No direct payments were made to any 0 0
officer, director or affiliated person.
The offering was a self-underwriting
with no commissions.
Of the net proceeds, the following principal expenditures have been made
during this third Quarter:
(i) Software/computer upgrades $
(ii) Database work & website costs $
(iii) Legal-primarily NASD listing $
(iv) Working Capital $330,591
(v) Office equipment $
(vi) Marketing $
(vii) New Employees $
(viii) New Marketing Coordinator $
(ix) Client gifts and costs $
---------------------------
$330,591
===========================
Prior Offering Proceeds Expenditures $379,073.11
(Previously Reported)
Remaining Net Proceeds $0
(2) Auditors. Child, Van Wagoner & Associates, PLLC of Kaysville, Utah
will continue, subject to Board discretion, as the Company's new independent
auditors. The auditors were appointed in August, 2003. The company has no
differences of opinion with its prior or current auditors.
(3) Trading. The company trades on the Electronic Bulletin Board under
the symbol "PRRO". The Electronic Bulletin Board is essentially an informal
trading mechanism managed by the National Association of Securities Dealers, but
does not constitute a regular NASDAQ exchange or listing. It is, essentially, an
electronic intra-dealer quotation system for small public companies not meeting
the requirements for regular NASDAQ listing. During the third quarter of 2005
the trading range of the company's stock was as follows:
High Low
$5.75 $1.10
(4) Annual Meeting. The company held its last annual meeting of
shareholders on the 5th of June, 2004, wherein the nominated directors were
re-elected and the choice of independent auditors was ratified by majority
shareholder vote. No meeting date in 2005 has presently been set, but a meeting
of shareholders will be required shortly if the company successfully completes
the contemplated share exchange.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
31.1 Certification under Section 302 of the Sarbanes-Oxley Act of 2002
31.2 Certification under Section 302 of the Sarbanes-Oxley Act of 2002
32.1 Certification under Section 906 of the Sarbanes-Oxley Act of 2002 (18
U.S.C. SECTION 1350)
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the reporting period.
(c) Other Exhibits-None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, Registrant
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
Date: October 20, 2005 By: /s/ Terry M. Deru
-----------------------------------
Mr. Terry M. Deru President,
Director
Date: October 20, 2005 By: /s/ Andrew W. Limpert
-----------------------------------
Mr. Andrew W. Limpert
Director, Treasurer/CFO