UNITED STATES | ||
SECURITIES AND EXCHANGE COMMISSION | ||
WASHINGTON, D.C. 20549 | ||
FORM 10-Q | ||
(Mark One) | ||
[ X] | QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE | |
SECURITIES EXCHANGE ACT OF 1934. | ||
For the quarterly period endedMay 31, 2007. | ||
OR | ||
[ ] | TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE | |
SECURITIES EXCHANGE ACT OF 1934. | ||
For the transition period from to . |
Commission file number0-4465 | ||
eLEC Communications Corp. | ||
(Exact Name of Registrant as Specified in Its Charter) | ||
New York | 13-2511270 | |
(State or Other Jurisdiction | (I.R.S. Employer | |
of Incorporation or Organization) | Identification No.) | |
75 South Broadway, Suite 302, White Plains, New York | 10601 | |
(Address of Principal Executive Offices) | (Zip Code) | |
Registrant’s Telephone Number, Including Area Code | 914-682-0214 | |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by |
Section 13 or 15(d) of the Exchange Act 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 X No___ . |
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a |
non-accelerated filer. See definition of “accelerated filer and large accelerated filer in Rule 12b-2 of the |
Exchange Act. (Check one): |
Large Accelerated Filer___ Accelerated Filer___ Non-Accelerated Filer X . |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the |
Exchange Act). Yes No X |
The number of outstanding shares of the Registrant’s Common Stock as of June 30, 2007 was |
23,489,506 |
PART 1. FINANCIAL INFORMATION | ||||||||||
Item 1. | Financial Statements | |||||||||
eLEC Communications Corp. and Subsidiaries | ||||||||||
Condensed Consolidated Balance Sheet | ||||||||||
May 31, 2007 | Nov. 30, 2006 | |||||||||
(Unaudited) | (See Note 1) | |||||||||
Assets | ||||||||||
Current assets: | ||||||||||
Cash and cash equivalents | $ 49,183 | $1,337,525 | ||||||||
Accounts receivable, net | 72,653 | 630,197 | ||||||||
Prepaid expenses and other current assets | 72,016 | 154,749 | ||||||||
Assets held for sale | 775,811 | - | ||||||||
Deferred finance costs, net | 1,010,766 | 1,012,941 | ||||||||
Total current assets | 1,980,429 | 3,135,412 | ||||||||
Property, plant and equipment, net | 835,414 | 903,281 | ||||||||
Other assets | 110,212 | 149,525 | ||||||||
Total assets | $2,926,055 | $4,188,218 | ||||||||
Liabilities and stockholders’ equity deficiency | ||||||||||
Current liabilities: | ||||||||||
Current portion of long-term debt and capital lease obligations | $2,538,059 | $3,347,707 | ||||||||
Warrant liability | 2,073,892 | 1,251,182 | ||||||||
Accounts payable and accrued expenses | 2,438,623 | 2,897,495 | ||||||||
Taxes payable | 7,964 | 559,617 | ||||||||
Liabilities assumed in sale | 2,390,151 | - | ||||||||
Deferred Revenue | - | 166,100 | ||||||||
Total current liabilities | 9,448,689 | 8,222,101 | ||||||||
Long-term debt and capital lease obligations, less current maturities | 189,448 | 214,907 | ||||||||
Total liabilities | 9,638,137 | 8,437,008 | ||||||||
Stockholders’ equity deficiency: | ||||||||||
Preferred stock $.10 par value, 1,000,000 shares authorized, | ||||||||||
none issued and outstanding | - | - | ||||||||
Common stock $.10 par value, 50,000,000 shares authorized, | ||||||||||
22,459,282 and 22,434,282 shares issued and outstanding in 2007 and | ||||||||||
2006 | 2,245,928 | 2,243,428 | ||||||||
Capital in excess of par value | 27,337,537 | 27,071,584 | ||||||||
Deficit | (36,284,625) | (33,554,700) | ||||||||
Accumulated other comprehensive loss, unrealized loss on securities | (10,922) | (9,102) | ||||||||
Total stockholders’ equity deficiency | (6,712,082) | (4,248,790) | ||||||||
Total liabilities and stockholders’ equity deficiency | $2,926,055 | $4,188,218 | ||||||||
See notes to the condensed consolidated financial statements. |
eLEC Communications Corp. and Subsidiaries |
Condensed Consolidated Statements of Operations and Comprehensive Loss |
(Unaudited) |
For the Six Months Ended | For the Three Months Ended | |||||||
May 31, 2007 | May 31, 2006 | May 31, 2007 | May 31, 2006 | |||||
Revenues | $408,506 | $ 83,106 | $ 213,389 | $ 58,245 | ||||
Costs and expenses: | ||||||||
Costs of services | 535,535 | 241,139 | 230,968 | 134,086 | ||||
Selling, general and administrative | 1,340,739 | 1,158,979 | 675,498 | 606,549 | ||||
Depreciation and amortization | 235,352 | 113,568 | 137,853 | 58,338 | ||||
Total costs and expenses | 2,111,626 | 1,513,686 | 1,044,319 | 798,973 | ||||
Loss from operations | (1,703,120) | (1,430,580) | (830,930) | (740,728) | ||||
Other income (expense): | ||||||||
Interest expense | (355,903) | (267,046) | (212,183) | (143,384) | ||||
Interest and other income | 21,363 | 25,738 | 10,593 | 428 | ||||
Change in warrant valuation | (510,148) | 224,611 | 450,074 | 246,868 | ||||
Total other income (expense) | (844,688) | (16,697) | 248,484 | 103,912 | ||||
Loss from continuing operations before | ||||||||
discontinued operations | (2,547,808) | (1,447,277) | (582,446) | (636,816) | ||||
Earnings (loss) from discontinued operations | (182,117) | 135,857 | (147,020) | (11,125) | ||||
Net loss | (2,729,925) | (1,311,420) | (729,466) | (647,941) | ||||
Other comprehensive income (loss) – | ||||||||
unrealized income (loss) on marketable | ||||||||
securities | (1,820) | (160) | (364) | 755 | ||||
Comprehensive loss | ($2,731,745) | ($1,311,580) | ($729,830) | ($647,186) | ||||
Basic loss per share: | ||||||||
Loss from continuing operations before | ||||||||
Discontinued operations | ($0.11) | ($0.09) | ($0.02) | ($0.04) | ||||
Earnings (loss) from discontinued operations | (.01) | .01 | (.01) | .00 | ||||
($0.12) | ($0.08) | ($0.03) | ($0.04) | |||||
Weighted average number of common shares | ||||||||
outstanding | ||||||||
Basic | 22,447,744 | 16,844,337 | 22,459,282 | 16,849,282 | ||||
See notes to the condensed consolidated | ||||||||
financial statements. |
eLEC Communications Corp. and Subsidiaries | ||||
Condensed Consolidated Statements of Cash Flows | ||||
(Unaudited) | ||||
For the Six Months Ended | ||||
May 31, 2007 | May 31, 2006 | |||
Net cash used in operating activities: | ($1,457,096) | ($ 882,493) | ||
Cash flows used in investing activities, purchase of property and | ||||
equipment | (84,171) | (177,899) | ||
Cash flows from financing activities: | ||||
Repayment of short-term debt | - | (328,324) | ||
Repayment of long-term debt | (22,075) | (114,490) | ||
Proceeds from notes | 275,000 | 1,753,500 | ||
Net cash provided by financing activities | 252,925 | 1,310,686 | ||
Increase (decrease) in cash and cash equivalents | (1,288,342) | 250,294 | ||
Cash and cash equivalents at beginning of period | 1,337,525 | 205,998 | ||
Cash and cash equivalents at the end of period | $ 49,183 | $ 456,292 | ||
See notes to the condensed consolidated financial statements. |
eLEC COMMUNICATIONS CORP. |
Notes To Condensed Consolidated Financial Statements (Unaudited) |
Note 1-Basis of Presentation |
The accompanying unaudited condensed consolidated financial statements have been |
prepared in accordance with generally accepted accounting principles for interim financial |
information and in accordance with the rules and regulations of the Securities and Exchange |
Commission for Form 10-Q. Accordingly, they do not include all of the information and |
footnotes required by generally accepted accounting principles for complete financial statements. |
In the opinion of management, all adjustments (consisting of normal recurring accruals) |
considered necessary for a fair presentation have been included. Operating results for the three- |
month or six-month periods ended May 31, 2007 are not necessarily indicative of the results that |
may be expected for the year ended November 30, 2007. For further information, refer to the |
consolidated financial statements and footnotes thereto included in our Annual Report on Form |
10-K for the year ended November 30, 2006. |
Note 2-Going Concern Matters and Realization of Assets |
The accompanying financial statements have been prepared on a going concern basis, |
which contemplates the realization of assets and the satisfaction of liabilities in the |
ordinary course of business. However, we have sustained substantial losses from |
continuing operations in recent years and we have negative working capital and a |
stockholders’ equity deficiency. In addition, similar to many start-up ventures, we are |
experiencing difficulty in generating sufficient cash flow to meet our obligations and |
sustain our operations. We are currently in default of our financing agreement with our |
principal lender (Note 10). |
We expect our operating losses and cash deficits from operations to continue through |
fiscal 2007. As a result, we will need to raise additional cash through some combination |
of borrowings, sale of equity or debt securities or sale of assets to enable us to meet our |
cash requirements. |
We may not be able to raise sufficient additional debt, equity or other cash on acceptable |
terms, if at all. Failure to generate sufficient revenues, achieve certain other business |
plan objectives or raise additional funds could have a material adverse effect on the |
Company’s results of operations, cash flows and financial position, including our ability |
to continue as a going concern, and may require us to significantly reduce, reorganize, |
discontinue or shut down our operations. |
In view of the matters described above, recoverability of a major portion of the recorded |
asset amounts shown in the accompanying balance sheet is dependent upon continued |
operations of the company which, in turn, is dependent upon our ability to meet our |
financing requirements on a continuing basis, and to succeed in our future operations. |
The financial statements do not include any adjustments relating to the recoverability and |
classification of recorded asset amounts or amounts and classification of liabilities that |
might be necessary should we be unable to continue operating. |
Management’s plans include (1) seeking additional financing to continue operations as a |
broadband voice carrier and increasing our sales channels and sales staff so our |
broadband voice facilities are more fully utilized, (2) seeking additional financing to |
purchase target businesses that are generating positive cash flow, and (3) evaluating |
strategic partnerships with companies that may want to purchase a portion of our |
business. |
There can be no assurance that we will be able to achieve our business plan objectives or |
that we will achieve or maintain cash flow positive operating results. If we are unable to |
generate adequate funds from operations or raise additional funds, we may not be able to |
repay its existing debt, continue to operate our network, respond to competitive pressures |
or fund our operations. As a result, we may be required to significantly reduce, |
reorganize, discontinue or shut down our operations. Our financial statements do not |
include any adjustments that might result from this uncertainty. |
Note 3-Major Customers |
During the six-month and three-month periods ended May 31, 2007, one customer |
accounted for 42% and 50%, respectively, of revenue from continuing operations. During the |
six-month and three-month periods ended May 31, 2006, one customer accounted for 48% and |
36%, respectively, of revenue from continuing operations, and a second customer accounted for |
19% and 20%, respectively, of revenue from continuing operations. |
Note 4-Loss Per Common Share |
Basic loss per common share is calculated by dividing net loss by the weighted average |
number of common shares outstanding during the period. |
Approximately 13,093,000 and 10,950,000 shares of common stock issuable upon the |
exercise of our outstanding stock options and warrants and in the six-month and three-month |
periods ending May 31, 2006, the conversion of our outstanding convertible debt, were excluded |
from the calculation of loss per share for the six-month and three-month periods ended May 31, |
2007 and 2006, respectively, because the effect would be anti-dilutive. |
Note 5-Risks and Uncertainties |
We have created our own proprietary Internet Protocol (“IP”) telephony network and have |
transitioned from a reseller of traditional wireline telephone services into a facilities-based |
broadband service provider to take advantage of the network cost savings that are inherent in an |
IP network. Although we continue to build our IP telephony business, we face strong |
competition and we continue to grow our IP telephony business without adequate financial |
resources. At this point in time, the survival of our business is dependent upon the success of our | ||
IP operations. Future results of operations involve a number of risks and uncertainties. Factors | ||
that could affect future operating results and cash flows and cause actual results to vary | ||
materially from historical results include, but are not limited to: | ||
· | The availability of additional funds to successfully pursue our business plan; | |
· | The acceptance of IP telephony by mainstream consumers; | |
· | Our ability to market our services to current and new customers and to generate customer | |
demand for our products and services in the geographical areas in which we operate; | ||
· | Our ability to comply with provisions of our financing agreements; | |
· | The impact of changes the Federal Communications Commission or State Public Service | |
Commissions may make to existing telecommunication laws and regulations, including | ||
laws dealing with Internet telephony; | ||
· | The highly competitive nature of our industry; | |
· | Our ability to retain key personnel; | |
· | Our ability to maintain adequate customer care and manage our churn rate; | |
· | The cooperation of industry service partners that have signed agreements with us; | |
· | Our ability to maintain, attract and integrate internal management, technical information | |
and management information systems; | ||
· | The availability and maintenance of suitable vendor relationships in a timely manner and | |
at reasonable cost; | ||
· | Our ability to manage rapid growth while maintaining adequate controls and procedures; | |
· | Failure or interruption in our network and information systems; | |
· | Our inability to adapt to technological change; | |
· | The perceived infringement of our technology on another entity’s patents; | |
· | Our inability to manage customer attrition and bad debt expense; | |
· | Failure or bankruptcy of other telecommunications companies upon which we rely for | |
services and revenues; | ||
· | Our lack of capital or borrowing capacity, and inability to generate cash flow; | |
· | The decrease in telecommunications prices to consumers; and | |
· | General economic conditions. | |
Note 6-Stock-Based Compensation Plans | ||
We issue stock options to our employees and outside directors pursuant to stockholder- | ||
approved and non-approved stock option programs. In December 2004, the Financial | ||
Accounting Standards Board (“FASB”) issued SFAS No. 123R, “Share-Based Payment”. SFAS | ||
123R is a revision of SFAS 123, and supersedes APB 25. Among other items, SFAS 123R | ||
eliminates the use of APB 25 and the intrinsic value method of accounting, and requires | ||
companies to recognize in their financial statements the cost of employee services received in | ||
exchange for awards of equity instruments, based on the grant date fair value of those awards. | ||
SFAS 123R permits companies to adopt its requirements using either a “modified prospective” | ||
method, or a “modified retrospective” method. Under the “modified prospective” method, | ||
compensation cost is recognized in the financial statements beginning with the effective date, | ||
based on the requirements of SFAS 123R for all share-based payments granted after that date, | ||
and based on the requirements of SFAS 123 for all unvested awards granted prior to the effective | ||
date of SFAS 123R. Under the “modified retrospective” method, the requirements are the same |
as under the “modified prospective” method, but this method also permits entities to restate |
financial statements of previous periods based on proforma disclosures made in accordance with |
SFAS 123. Beginning in fiscal 2006, we account for stock-based compensation in accordance |
with the provisions of SFAS 123R and have elected the “modified prospective” method and have |
not restated prior financial statements. For the six-month periods ended May 31, 2007 and 2006, |
we recorded approximately $91,000 and $100,000, respectively, in employee stock-based |
compensation expense, which is included in our selling, general and administrative expenses. For |
the three-month periods ended May 31, 2007 and 2006, we recorded approximately $44,000 and |
$47,000, respectively, in employee stock-based compensation expense. As of May 31, 2007, |
there was approximately $142,000 of unrecognized stock-compensation expense for previously- |
granted unvested options that will be recognized over a three-year period. |
Note 7-Impairment of Long-Lived Assets |
We review long-lived assets for impairment whenever events or changes in circumstances |
indicate that the carrying value 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 future |
forecasted net undiscounted cash flows expected to be generated by the asset. If such assets are |
considered to be impaired, the impairment to be recognized is measured by the amount by which |
the carrying amount of the assets exceeds the fair values. We founded our IP telephony business |
in 2004, and since its inception it has incurred significant operating and cash flow losses. It can |
be considered a late-stage start-up business, and we have evaluated the assets of this business and |
future operations to determine if we need to recognize an impairment expense. We recently |
received a written offer for this business payable in stock of a public company, |
assumption of debt and cash. Even if the portion payable in stock is discounted, the offer is |
significantly higher than the book value of the assets of our IP telephony business. Accordingly, |
we have determined that such assets are not impaired. In addition, subsequent to the balance |
sheet date of May 31, 2007, we sold our wireline telephony business for a gain (see Note 12), |
and consequently, we determined that such assets were not impaired. |
Note 8-Accrued Expenses |
At May 31, 2007, we were disputing payments on invoices from Verizon amounting to |
approximately $537,000 because we believe Verizon overcharged us for certain calls made by |
our former wireline telephone customers. Although we are not currently required to pay the disputed |
amount, Verizon initially rejected our claims. We have escalated many of our claims and hired a |
firm that specializes in telecom disputes to analyze past call records and to resubmit and pursue |
the claims. Although we intend to vigorously pursue all claims and would consider a settlement |
for a partial amount, the minimum amount of claims that our outside claim consultant believes |
will be honored is $65,000. Consequently, we have recorded $477,000 of the disputed charges as |
a liability and have not recorded the $65,000 amount. |
Note 9-Defined Benefit Plan |
We sponsor a defined benefit plan covering one active employee and a number of former |
employees. Our funding policy with respect to the defined benefit plan is to contribute annually |
not less than the minimum required by applicable law and regulation to cover the normal cost |
and to fund supplemental costs, if any, from the date each supplemental cost was incurred. |
Contributions are intended to provide not only for benefits attributable to service to date, but also |
for those expected in the future. |
For the six-month and three-month periods ended May 31, 2007 and 2006, we recorded pension |
expense of $48,000 and $24,000, respectively. In the six-month period ended May 31, 2007, we |
contributed $10,000 to our defined benefit plan. There were no contributions in the three-months |
ended May 31, 2007. In the six- and three-month periods ended May 31, 2006, we contributed |
$52,500 and $0, respectively, to the pension plan. We expect to contribute |
approximately $68,000 to our defined benefit plan in fiscal 2007. The current investment |
strategy for the defined benefit plan is to invest in conservative debt and equity securities. The |
expected long-term rate of return on plan assets is 8%. |
We also sponsor a 401(k) profit sharing plan for the benefit of all eligible employees, as |
defined. The plan provides for the employees to make voluntary contributions not to exceed the |
statutory limitation provided by the Internal Revenue Code. We may make discretionary |
contributions. There were no discretionary contributions made for the six-month and three- |
month periods ended May 31, 2007 or 2006. |
Note 10-Principal Financing Arrangements |
We have completed three financings with our principal lender, one in February 2005, one |
in November 2005 and one in May 2006. Each financing requires a certain amount of monthly |
principal payments. We did not make any principal payments on our loans during fiscal 2007, |
and on April 16, 2007 we received a waiver and a modification to our lending agreement from |
our principal lender that deferred principal payments on our February 2005 financing and our |
November 2005 financing, so that monthly principal payments on such loans were not required |
until June 1, 2007, and August 1, 2007, respectively. In consideration for the principal deferral, we |
issued to our lender a seven-year warrant to purchase 1,200,000 shares of our common stock at a |
price of $0.25 per share. We valued the warrant at $313,162 using the Black-Scholes method with an |
interest rate of 5.25%, volatility of 103%, zero dividends and an expected term of seven years. The |
underlying contracts provide for a potential cash settlement and accordingly, the warrants are |
classified as debt. Deferred financing cost of $313,162 was also recorded as of April 16, 2007 and |
is being amortized to interest expense over the life of the notes payable. |
In conjunction with the sale of two of our subsidiaries in June 2007 (see Note 11), the |
remaining principal balance from our financing in February 2005, which had a book value of $1,006,799 |
as of May 31, 2007, has been paid in full. We are in default with our lender for not making all of |
our June and July 2007 principal and interest payments, and we are working with our lender to |
adjust our payment schedule. Because of the default on such debt, the debt can be called |
immediately, and we have classified such debt as a current liability on our balance sheet and |
have shown the related debt finance costs as a current asset. |
Note 11-Income Taxes |
At November 30, 2006, we had net operating loss carryforwards for Federal income tax |
purposes of approximately $25,400,000 expiring in the years 2008 through 2026. As a result of |
the sale of two wholly owned subsidiaries in June 2007 (see Note 11), the amount of our net |
operating loss that we can carry forward to future years will be reduced by the amount of the net |
operating losses that are attributable to the divested subsidiaries. We have not yet determined the |
reduction in the amount of net operating loss carryforwards available to us. We will continue to |
have an annual limitation of approximately $187,000 on the utilization of approximately |
$2,400,000 of our remaining net operating loss carryforwards under the provisions of Internal |
Revenue Code Section 382. We did not provide for a tax benefit, as it is more likely than not |
that any such benefit will not be realized. |
Note 12-Sale of Subsidiaries |
On December 14, 2006, we entered into two separate definitive purchase agreements |
(“Agreements”) to sell to Cyber Digital, Inc. (“Purchaser”), a publicly-traded shell company, our |
two wholly-owned subsidiaries that operate as competitive local exchange carriers (“CLECs”). |
The CLECs were sold in June 2007. The operations of the CLECs are presented in our income |
statement as discontinued operations for the six-month and three-month periods ended May 31, |
2007 and 2006. The gain on the sale of the CLECs will be recorded in the third fiscal quarter of |
fiscal 2007. The May 31, 2007 balance sheet includes assets held for sale of approximately |
$776,000 and liabilities assumed in sale of approximately $2,390,000 to reflect the May 31, 2007 |
balances of the assets and liabilities that were transferred to the Purchaser in June 2007. Further, |
in the third quarter of fiscal 2007, we will write off the remaining deferred financing costs of |
approximately $319,000 from the February 2005 loan that was paid in full as part of the sale of |
the CLECs. We anticipate recording a gain on the sale of discontinued operations |
of approximately $1,200,000. |
CLEC revenues amounted to approximately $3,013,000 and $1,456,000 for the six-month |
and three-month periods ended May 31, 2007 and approximately $4,591,000 and $2,112,000 for |
the six-month and three-month periods ended May 31, 2006. Pretax income (loss) attributable to |
the operations of the CLECs amounted to approximately ($182,000) and ($147,000) for the six- |
month and three-month periods ended May 31, 2007 and approximately $135,000 and ($11,000) |
for the six-month and three-month periods ended May 31, 2006. |
Item 2. Management’s Analysis and Discussion of Financial Condition and Results of |
Operations |
The statements contained in this Report that are not historical facts are “forward- |
looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 |
with respect to our financial condition, results of operations and business, which can be |
identified by the use of forward-looking terminology, such as “estimates,” “projects,” “plans,” |
“believes,” “expects,” “anticipates,” “intends,” or the negative thereof or other variations |
thereon, or by discussions of strategy that involve risks and uncertainties. Management wishes |
to caution the reader of the forward-looking statements that such statements, which are |
contained in this Report, reflect our current beliefs with respect to future events and involve |
known and unknown risks, uncertainties and other factors, including, but not limited to, |
economic, competitive, regulatory, technological, key employee, and general business factors |
affecting our operations, markets, growth, services, products, licenses and other factors |
discussed in our other filings with the Securities and Exchange Commission, and that these |
statements are only estimates or predictions. No assurances can be given regarding the |
achievement of future results, as actual results may differ materially as a result of risks facing |
us, and actual events may differ from the assumptions underlying the statements that have been |
made regarding anticipated events. Factors that may cause our actual results, performance or |
achievements, or industry results, to differ materially from those contemplated by such forward- |
looking statements include, without limitation those factors set forth under Note 4 – Risks and |
Uncertainties. |
These forward-looking statements are subject to numerous assumptions, risks and |
uncertainties that may cause our actual results to be materially different from any future results |
expressed or implied by us in those statements. These risk factors should be considered in |
connection with any subsequent written or oral forward-looking statements that we or persons |
acting on our behalf may issue. All written and oral forward looking statements made in |
connection with this Report that are attributable to us or persons acting on our behalf are |
expressly qualified in their entirety by these cautionary statements. Given these uncertainties, |
we caution investors not to unduly rely on our forward-looking statements. We do not undertake |
any obligation to review or confirm analysts’ expectations or estimates or to release publicly any |
revisions to any forward-looking statements to reflect events or circumstances after the date of |
this Report or to reflect the occurrence of unanticipated events. Further, the information about |
our intentions contained in this Report is a statement of our intention as of the date of this |
Report and is based upon, among other things, the existing regulatory environment, industry |
conditions, market conditions and prices, the economy in general and our assumptions as of such |
date. We may change our intentions, at any time and without notice, based upon any changes in |
such factors, in our assumptions or otherwise. |
Overview |
We are a provider of wholesale Internet Protocol (“IP”) telephone services. We route |
telephone calls over broadband services using our own IP telephony product. IP telephony is the |
real time transmission of voice communications in the form of digitized “packets” of information |
over the Internet or a private network, which is analogous to the way in which e-mail and other |
data is transmitted. We use proprietary softswitch technology that runs on Cisco and Dell |
hardware to provide broadband telephone services to other service providers, such as cable |
operators, Internet service providers, WiFi and fixed wireless broadband providers, data |
integrators, value-added resellers and satellite broadband providers. Our technology enables |
these carriers to quickly and inexpensively offer premier broadband telephone services, complete |
with order flow management for efficient provisioning, billing and support services and user |
interfaces that are easily customized to reflect the carrier’s unique brand. |
The worldwide rollout of broadband voice services has allowed consumers and |
businesses to communicate at dramatically reduced costs in comparison to traditional telephony |
networks. Traditionally, telephone service companies have built networks based on circuit |
switching technology, which creates and maintains a dedicated path for individual telephone |
calls until the call is terminated. While circuit-switched networks have provided reliable voice |
communications services for more than 100 years, transmission capacity is not efficiently utilized |
in a circuit-switched system. Under circuit-switching technology, when a person makes a |
telephone call, a circuit is created and remains dedicated for the entire duration of that call, |
rendering the circuit unavailable for the transmission of any other calls. |
Data networks, such as IP networks, utilize packet switching technology that divides |
signals into packets and simultaneously routes them over different channels to a final destination |
where they are reassembled into the original order in which they were transmitted. No dedicated |
circuits are required and a fixed amount of bandwidth is not needed for the duration of each call. |
The more efficient use of network capacity results in the ability to transmit significantly greater |
amounts of traffic over a packet-switched network than a circuit-switched network. Packet- |
switching technology enables service providers to converge traditional voice and data networks |
in an efficient manner by carrying voice, fax, video and data traffic over the same network. IP |
networks are therefore less expensive for carriers to operate, and these cost savings can be passed |
on to the consumer in the form of lower costs for local, long distance and international long |
distance telephone services. |
We have created our own Linux-based IP platform and have transitioned into a |
facilities-based broadband service provider to take advantage of the network cost savings that are |
inherent in an IP network. Our proprietary softswitch provides more than 20 of the Class 5 call |
features, voice mail and enhanced call handling on our own Session Initiation Protocol (“SIP”) |
server suite. We control all of the features we offer to broadband voice customers because we |
write the software code for any new features that we desire to offer our customers rather than |
relying on a third-party software vendor. We have no software licensing fees and our other |
variable network costs are expected to drop as we increase our network traffic and as we attract |
more pure-IP telephony users with traffic that does not incur the cost of originating or |
terminating on a circuit-switched network. |
Our SIP servers are part of a cluster of servers, which we refer to as a server farm, in |
which each server performs different network tasks, including back-up and redundant services. |
We believe the server farm structure can be easily and cost-effectively scaled as our broadband |
voice business grows. In addition, servers within our server farm can be assigned different tasks |
as demand on the network dictates. If an individual server ceases to function, our server farm is |
designed in a manner that subscribers should not have their calls interrupted. |
We began our telecom operations in 1998 as a reseller of local telephone service. Our |
reseller subsidiaries were sold to a third-party purchaser in June 2007 and have been presented in |
our financial statements as discontinued operations. |
Plan of Operations |
Our objective is to build a profitable telephone company on a stable and scalable |
platform with minimal network costs. We want to be known for our high quality of service, |
robust features and ability to deliver any new product to a wholesale customer or a web store |
without delay. We believe that to achieve our objective we need to have “cradle to grave” |
automation of our back-office web and billing systems. We have written our software for |
maximum automation, flexibility and changeability. |
We know from experience in provisioning complex telecom orders that back-office |
automation is a key factor in keeping overhead costs low. Technology continues to work for 24 |
hours a day and we believe that the fewer people a company has in the back office, the more |
efficiently it can run, which should drive down the cost per order. |
Furthermore, our strategy is to grow rapidly by leveraging the capital, customer base and |
marketing strength of our wholesale customers. Many of our targeted wholesale customers and |
some of our existing wholesale customers have ample capital to market a private-labeled |
broadband voice product to their existing customer bases or to new customers. We believe our |
strength is our technology-based platform. By providing our technology to cable companies, |
CLECs, ISPs, WiFi and fixed-wireless broadband providers, data integrators, value-added |
resellers, and satellite broadband providers and any other entity that desires to offer a broadband |
telephony product, we believe we will require significantly less cash resources than other |
providers will require to attract a similar number of subscribers. |
By taking a wholesale approach, our goal is to obtain and manage 500 customers that |
have an average customer base of 1,000 end-users. We believe we will be more successful and |
more profitable taking this approach to reaching 500,000 end-users than we would be if we tried |
to attract and manage 500,000 individual end-users by ourselves. |
Six Months Ended May 31, 2007 vs. Six Months Ended May 31, 2006 |
Our revenue from continuing operations for the six-month period ended May 31, 2007 |
increased by approximately $325,000, or approximately 392%, to approximately $409,000 as |
compared to approximately $83,000 reported for the six-month period ended May 31, 2006. The |
increase in revenues was directly related to the increase in the number of wholesale customers |
that began reselling our Internet telephone service. At May 31, 2007, we were billing 45 |
wholesale customers, as compared to 15 customers at May 31, 2006. As of May 31, 2007, we |
had signed 87 wholesale customer contracts, consisting of seven CLECs, seven cable operators, |
five Internet service providers, eight data integrators, 35 resellers and 25 agents. When we sign |
up a new customer, typically it will be several months before the customer begins to resell our |
service to individual retail consumers. Some of our wholesale customers will abandon their |
efforts to sell Internet telephony services and we will never be able to bill them. In addition to |
the 87 signed wholesale customers, we have 39 potential customers in trial and we anticipate |
continued rapid growth in our monthly billings, as many of the wholesale customers that we |
signed early in the year are beginning to turn up services. We anticipate that our billings in July |
2007 will increase more than 25% over our June 2007 billings. |
We attained a negative gross profit for the six-month period ended May 31, 2007 of |
approximately ($127,000), which was an improvement of approximately $31,000 over the |
negative gross profit of approximately ($158,000) reported in the six-month period ended May |
31, 2006. Our IP telephony facilities have significant unused capacity and we have therefore |
been unable to generate a positive gross profit on a quarterly basis, although we did achieve a |
positive gross profit for the month of May. We need to attain higher sales volumes to cover fixed |
costs and to negotiate lower variable costs with vendors. We are currently moving traffic to a |
vendor that can lower our variable costs, and we are speaking with another low-cost vendor that |
could lower our variable costs, but that charges monthly minimums. We currently have a |
sufficient number of minutes to meet proposed contractual minimums. |
Selling, general and administrative expenses increased by approximately $182,000, or |
approximately 16%, to approximately $1,341,000 for the six-month period ended May 31, 2007 |
from approximately $1,159,000 reported in the same prior-year fiscal period. Additional salary |
and marketing expense accounted for the majority of the increase. |
Depreciation and amortization expense increased by approximately $122,000 for the six |
months ended May 31, 2007 to approximately $235,000 as compared to approximately $113,000 |
for the same period in fiscal 2006. Approximately $83,000 of the increase was for deferred |
financing costs related to our financing agreements and approximately $39,000 related to our |
Internet telephony platform. |
Interest expense increased by approximately $89,000 to approximately $356,000 for the |
six months ended May 31, 2007 as compared to approximately $267,000 for the six months |
period ended May 31, 2006. The increase was due to higher interest expense paid to our |
principal lender of approximately $94,000 due to higher borrowing levels in the fiscal 2007 |
period. |
Warrant expense for the six months ended May 31, 2007 amounted to approximately |
$510,000, primarily due to the significant increase in the market value of our common stock from |
November 30, 2006 to May 31, 2007, as compared to the warrant income of approximately |
$225,000 for the same period in fiscal 2006. The warrant income resulted from a decrease in the |
price of our common stock at May 31, 2006 as compared to the value at November 30, 2005. |
Discontinued operations reflect the net loss for the six-month periods ended May 31, |
2007 and 2006 attributable to our former CLEC operations, which were sold in June 2007. |
Three Months Ended May 31, 2007 vs. Three Months Ended May 31, 2006 |
Our revenue from continuing operations for the three-month period ended May 31, 2007 |
increased by approximately $155,000, or approximately 266%, to approximately $213,000 as |
compared to approximately $58,000 reported for the three-month period ended May 31, 2006. |
The increase in revenues was directly related to the increase in the number of wholesale |
customers that began reselling our Internet telephone service. As discussed above, at May 31, |
2007, we were billing 45 wholesale customers as compared to 15 customers at May 31, 2006. |
We attained a negative gross profit for the three-month period ended May 31, 2007 of |
approximately ($18,000) which was an improvement of approximately $58,000 over the negative |
gross profit of approximately ($76,000) reported in the three-month period ended May 31, 2006. |
Our IP telephony facilities have significant unused capacity and we have therefore been unable to |
generate a positive gross profit on a quarterly basis, although we did show a positive gross profit |
amount for the month of May 2007. We anticipate that we will be able to continue generating a |
positive gross margin on a monthly basis given the current revenue volume we have reached, and |
given the anticipated continued growth of our services. The increase volume of minutes on our |
network allows us to cover all of our fixed network costs and to negotiate lower variable costs |
with other carriers. |
Selling, general and administrative expenses increased by approximately $68,000, or |
approximately 11%, to approximately $675,000 for the three-month period ended May 31, 2007 |
from approximately $607,000 reported in the same prior year fiscal period. Most of the increase |
related to increased personnel costs and marketing expenses. |
Depreciation and amortization expense increased by approximately $80,000 for the three |
months ended May 31, 2007 to approximately $138,000 as compared to approximately $58,000 |
for the same period in fiscal 2006. Approximately $33,000 of the increase was for deferred |
financing costs related to our financing agreements and approximately $17,000 related to our |
Internet telephony platform. |
Interest expense increased by approximately $69,000 to approximately $212,000 for the |
three months ended May 31, 2007 as compared to approximately $143,000 for the three months |
period ended May 31, 2006. The increase was due to higher non-cash interest charges of |
approximately $29,000 in the 2007 fiscal period and higher cash interest expense of |
approximately $40,000 due to higher borrowing levels in the fiscal 2007 period. The non-cash |
interest expense consisted of the accretion of a debt discount using the effective interest method |
over the term of the related debt. |
Warrant income for the three months ended May 31, 2007 amounted to approximately |
$450,000 due to the decrease in the market price of our common stock at May 31, 2007 as |
compared to February 28, 2007. Similarly, a decrease in the market price of our common stock |
at May 31, 2006 as compared to the market price at February 28, 2006, generated warrant income |
of approximately $247,000 in the three month period ended May 31, 2006. |
Discontinued operations reflect the net loss for the three-month periods ending May 31, |
2007 and 2006 attributable to our former CLEC operations, which were sold in June 2007. |
Liquidity and Capital Resources |
At May 31, 2007, we had cash and cash equivalents of approximately $49,000 and |
negative working capital of approximately $7,468,000. |
Net cash used in operating activities aggregated approximately $1,457,000 and $882,000 |
in the six-month periods ended May 31, 2007 and 2006, respectively. The principal use of cash |
in fiscal 2007 was the loss for the period of approximately $2,730,000, which was partially offset |
by a non-cash mark-to-market warrant adjustment of $510,000. The principal use of cash in |
fiscal 2006 was the loss for the period of $1,311,000. |
Net cash used in investing activities in the six-month periods ended May 31, 2007 and |
2006 aggregated approximately $84,000 and $178,000, respectively, resulting primarily from |
expenditures related to enhancements to our IP telephony software. |
Net cash provided by financing activities aggregated approximately $253,000 and |
$1,311,000 in the six-month periods ended May 31, 2007 and 2006, respectively. In fiscal 2007, |
net cash provided in financing activities resulted from the proceeds of notes of approximately |
$275,000, which was offset in part by the repayment of long-term debt of approximately |
$22,000. In fiscal 2006, net cash provided by financing activities resulted from the proceeds of |
long-term notes of approximately $1,754,000, which was partially offset by the repayment of |
short-term debt of approximately $328,000 and repayment of long-term debt of approximately |
$115,000. |
For the six months ended May 31, 2007, we had approximately $84,000 in capital |
expenditures primarily related to our IP telephony business. We expect to make equipment |
purchases of approximately $50,000 to $100,000 in the third fiscal quarter of 2007, depending on |
our growth and the availability of cash or equipment financing. We expect that other capital |
expenditures over the next 12 months will relate primarily to a continued roll-out of our IP |
telephony network that will be required to support a growing customer base of IP telephony |
subscribers. |
As previously noted, we are in default with our lender for not making all our principal |
payments and some of out interest payments due on June 1 and July 1, 2007. Because of the |
default on such debt, the debt can be called immediately, and we have classified such debt as a |
current liability on our balance sheet and have shown the related debt finance costs as a current |
asset. If our lender accelerates such debt, we will not be able to satisfy such indebtedness in full, |
which inability would adversely affect our ability to continue operating as a going concern. |
The report of our independent registered public accounting firm on our 2006 financial |
statements indicates there is substantial doubt about our ability to continue as a going concern. |
Our operating losses have been funded through the sale of non-operating assets, the issuance of |
equity securities and borrowings. We believe our current cash resources will not be sufficient to |
finance our operations. Accordingly, beginning in July 2007, a selling agent began efforts to |
raise up to $1.5 million in equity to support our operating losses and fund the growth of our IP |
telephony business. The agent has indicated to us that such equity raise will be forthcoming |
shortly and that the business and technology we have built is attractive to investors. However, |
there can be no assurance that we will receive any proceeds from such proposed financing or that |
such financing, if completed in whole or in part, will be sufficient to get us to a break-even level. |
Our failure to generate sufficient revenues and raise additional capital will have an adverse |
impact on our ability to achieve our longer-term business objectives, and would adversely affect |
our ability to continue operating as a going concern. |
Item 3. Quantitative and Qualitative Disclosure About Market Risk |
Our outstanding debt is primarily under three borrowing arrangements with one lender |
and such borrowings are at the rate of 2% over the prime rate. We currently do not use interest |
rate derivative instruments to manage our exposure to interest rate changes. As a result of |
conversion features, warrant issuances and lender discounts, the effective rate of interest has |
been calculated at rates of approximately 38% on our February 2005 financing, 47% on our |
November 2005 financing and 185% on the $650,000 portion of our May 2006 financing. |
Item 4. Controls and Procedures |
(a)Disclosure Controls and Procedures. Our management, with the participation of our |
chief executive officer/chief financial officer, has evaluated the effectiveness of our disclosure |
controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the |
Securities Exchange Act of 1934, as amended (the "Exchange Act")) as of the end of the period |
covered by this Report. Based on such evaluation, our chief executive officer/chief financial |
officer has concluded that, as of the end of such period, for the reasons set forth below, our |
disclosure controls and procedures were not effective. We are presently taking the necessary |
steps to improve the effectiveness of such disclosure controls and procedures. |
(b)Internal Control Over Financial Reporting. There have not been any changes in our |
internal controls over financial reporting (as such term is defined in Rules 13a-15(f) and 15d- |
15(f) under the Exchange Act) during the second quarter of fiscal 2007 that have materially |
affected, or are reasonably likely to materially affect, our internal control over financial |
reporting. In connection with our year-end November 30, 2006 audit, our management became |
aware of an inadequately designed accounting system as it pertains to our VoX subsidiary. As |
reported in fiscal 2006 and 2005, we also have a lack of staffing within our accounting |
department, both in terms of the small number of employees performing our financial and |
accounting functions and their lack of experience to account for complex financial transactions. |
Management believes the lack of qualified personnel, in the aggregate, and the inadequately |
designed accounting system, are both a material weakness in our internal control over financial |
reporting. We have updated and enhanced our internal reporting at VoX and we will continue to |
evaluate the number of accounting employees we utilize, the need to engage outside consultants |
with technical and accounting-related expertise to assist us in accounting for complex financial |
transactions and the hiring of additional accounting staff with complex financing experience. |
We also are evaluating our internal controls systems so that when we are required to do |
so, our management will be able to report on, and our independent auditors to attest to, our |
internal controls, as required by Section 404 of the Sarbanes-Oxley Act of 2002. We will be |
performing the system and process evaluation and testing (and any necessary remediation) |
required in an effort to comply with the management certification and auditor attestation |
requirements of Section 404 of the Sarbanes-Oxley Act. In connection with our year-end |
November 30, 2006 and 2005 audits, we identified the control deficiencies and issues with our |
internal controls over financial reporting that we believe amount in the aggregate to a significant |
deficiency in our internal controls over financial reporting. Such deficiencies no longer exist as |
of the date of this Report due to the sale of our CLEC businesses. |
eLEC COMMUNICATIONS CORP. | ||
PART II-OTHER INFORMATION | ||
Item 5. | Submission of Matters to a Vote of Security Holders | |
Our 2007 Annual Meeting of Shareholders was held on June 7, 2007 at our principal executive | ||
offices in White Plains, New York. At the meeting, the holders of approximately 94% of our | ||
outstanding shares of common stock were present in person or by proxy. | ||
The voting results are set forth below. | ||
PROPOSAL 1. – Election of Directors. Four of the following five nominees for director were | ||
elected at the meeting, with the following vote totals: |
Votes Cast For | Votes Withheld | |||
Gayle Greer | 19,883,939 | 1,192,767 | ||
Michael Khalilian | 9,934,079 | 11,142,627 | ||
Greg M. Cooper | 20,729,939 | 346,767 | ||
Paul H. Riss | 20,643,439 | 433,267 | ||
S. Miller Williams | 20,732,339 | 344,367 | ||
Mr. Khalilion was not elected to the board |
PROPOSAL 2. Our stockholders approved our 2007 Equity Incentive plan, which approved the | ||||||||
reservation of 2,000,000 shares of common stock issuable under the plan. | ||||||||
For | Against | Abstentions | Broker Non-Votes | |||||
11,879,918 | 1,171,635 | 585,805 | 7,439,348 | |||||
PROPOSAL 3. Our stockholders approved the change in the name of our company to “Pervasip | ||||||||
Corp.” | ||||||||
For | Against | Abstentions | ||||||
19,882,766 | 682,856 | 511,084 | ||||||
PROPOSAL 4. Our stockholders approved an increase in the authorized shares of all classes of | ||||||||
capital stock that we have the authority to issue to 151,000,000 shares. | ||||||||
For | Against | Abstentions | ||||||
19,452,501 | 1,111,573 | 512,632 | ||||||
PROPOSAL 5. Our stockholders approved a reduction in the par value of our capital stock from | ||||||||
$.10 per share to $.001 per share. | ||||||||
For | Against | Abstentions | ||||||
19,468,808 | 806,954 | 803,944 |
PROPOSAL 6. Our stockholders approved the appointment of Nussbaum Yates & Wolpow, P.C. | ||||||
as our independent registered public accounting firm for the fiscal year ended November 30, | ||||||
2007. | ||||||
For | Against | Abstentions | ||||
20,443,484 | 100,378 | 532,844 | ||||
Item 6. | Exhibits | |||||
Exhibit | ||||||
Number | Description | |||||
31.1 | Certification of our Chief Executive Officer and Chief Financial | |||||
Officer, Paul H. Riss, pursuant to 18 U.S.C. 1350 (Section 302 of the | ||||||
Sarbanes-Oxley Act of 2002) | ||||||
32.1 | Certification of our Chief Executive Officer and Chief Financial | |||||
Officer, Paul H. Riss, pursuant to 18 U.S.C. 1350 (Section 906 of the | ||||||
Sarbanes-Oxley Act of 2002) |
SIGNATURES | ||||
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 hereunto duly authorized. | ||||
eLEC Communications Corp. | ||||
Date:July 23, 2007 | By: /s/ Paul H. Riss | |||
Paul H. Riss | ||||
Chief Executive Officer | ||||
(Principal Financial and | ||||
Accounting Officer) |
EXHIBIT INDEX | ||
Exhibit | ||
Number | Description | |
31.1 | Certification of our Chief Executive Officer and Chief Financial | |
Officer, Paul H. Riss, Pursuant to 18 U.S.C. 1350 (Section 302 of | ||
the Sarbanes-Oxley Act of 2002) | ||
32.1 | Certification of our Chief Executive Officer and Chief Financial | |
Officer, Paul H. Riss, Pursuant to 18 U.S.C. 1350 (Section 906 of | ||
the Sarbanes-Oxley Act of 2002) |
EXHIBIT 31.1 | ||||
CERTIFICATION | ||||
Pursuant to 18 U.S.C. 1350 | ||||
(Section 302 of the Sarbanes-Oxley Act of 2002) | ||||
I, Paul H. Riss, Chief Executive Officer and Chief Financial Officer of eLEC Communications | ||||
Corp., certify that: | ||||
1. | I have reviewed this quarterly report on Form 10-Q of eLEC Communications Corp.; | |||
2. | Based on my knowledge, this report does not contain any untrue statement of a material | |||
fact or omit to state a material fact necessary to make the statements made, in light of the | ||||
circumstances under which such statements were made, not misleading with respect to the period | ||||
covered by this report; | ||||
3. | Based on my knowledge, the financial statements, and other financial information | |||
included in this report, fairly present in all material respects the financial condition, results of | ||||
operations and cash flows of the registrant as of, and for, the periods presented in this report; | ||||
4. | I am responsible for establishing and maintaining disclosure controls and procedures (as | |||
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and I have: | ||||
(a) | Designed such disclosure controls and procedures, or caused such disclosure | |||
controls and procedures to be designed under my supervision, to ensure that material | ||||
information relating to the registrant, including its consolidated subsidiaries, is made | ||||
known to me by others within those entities, particularly during the period in which this | ||||
report is being prepared; | ||||
(b) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures | |||
and presented in this report our conclusions about the effectiveness of the disclosure | ||||
controls and procedures, as of the end of the period covered by this report based on such | ||||
evaluation; and | ||||
(c) | Disclosed in this report any change in the registrant’s internal control over | |||
financial reporting that occurred during the registrant’s most recent fiscal quarter that has | ||||
materially affected, or is reasonably likely to materially affect, the registrant’s internal | ||||
control over financial reporting; and | ||||
5. | I have disclosed, based on my most recent evaluation of internal control over financial | |||
reporting, to the registrant’s auditors and the audit committee of the registrant’s board of | ||||
directors (or persons performing the equivalent functions): | ||||
(a) | All significant deficiencies and material weaknesses in the design or operation of | |||
internal control over financial reporting which are reasonably likely to adversely affect | ||||
the registrant’s ability to record, process, summarize and report financial information; | ||||
and |
(b) | Any fraud, whether or not material, that involves management or other | |||
employees who have a significant role in the registrant’s internal control over financial | ||||
reporting. | ||||
Date: July 23, 2007 | ||||
/s/ Paul H. Riss | ||||
Paul H. Riss | ||||
Chief Executive Officer and Chief | ||||
Financial Officer |
EXHIBIT 32.1 | ||||
CERTIFICATION | ||||
Pursuant to 18 U.S.C. 1350 | ||||
(Section 906 of the Sarbanes-Oxley Act of 2002) | ||||
In connection with the Quarterly Report on Form 10-Q of eLEC Communications Corp. | ||||
(the "Company") for the quarter ended May 31, 2007, as filed with the Securities and Exchange | ||||
Commission on the date hereof (the "Report"), Paul H. Riss, as Chief Executive Officer and | ||||
Chief Financial Officer of the Company, hereby certifies, pursuant to 18 U.S.C. §1350, as | ||||
adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that: | ||||
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of | ||||
the Securities Exchange Act of 1934, as amended; and | ||||
(2) The information contained in the Report fairly presents, in all material | ||||
respects, the financial condition and results of operations of the Registrant. | ||||
Date: July 23, 2007 | By: | /s/ Paul H. Riss | ||
Paul H. Riss | ||||
Chief Executive Officer and | ||||
Chief Financial Officer | ||||
This certification accompanies each Report pursuant to § 906 of the Sarbanes-Oxley Act | ||||
of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be | ||||
deemed filed by the Company for purposes of §18 of the Securities Exchange Act of 1934, as | ||||
amended. | ||||
A signed original of this written statement required by Section 906 has been provided to | ||||
the Company and will be retained by the Company and furnished to the Securities and Exchange | ||||
Commission or its staff upon request. |