AMARILLO BIOSCIENCES,
INC.
|
(Exact name of registrant as specified
in its charter)
|
TEXAS
|
|
75-1974352
|
(State or other jurisdiction of incorporation
or organization)
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(IRS Employer Identification No.)
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4134 Business Park Drive, Amarillo, Texas
79110
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(Address of principal
executive offices) (Zip Code)
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(806) 376-1741
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(Issuer's telephone number,
including area code)
|
Large accelerated filer o | Accelerated filer o | ||
Non-accelerated filer o | Smaller reporting company þ | ||
(Do not check if smaller reporting company) |
Amarillo Biosciences, Inc.
Balance Sheets |
|||||||
September 30,
2008 |
December 31,
2007 |
||||||
Assets |
(unaudited)
|
||||||
Current assets: | |||||||
Cash and cash equivalents | $ |
1,698
|
$ |
47,184
|
|||
Other current assets |
29,563
|
31,688
|
|||||
Total current assets |
31,261
|
78,872
|
|||||
Property, equipment, and software, net |
10,971
|
14,098
|
|||||
Patents, net |
130,311
|
120,925
|
|||||
Total assets | $ |
172,543
|
$ |
213,895
|
|||
Liabilities and Stockholders' Deficit | |||||||
Current liabilities: | |||||||
Accounts payable and accrued expenses | $ |
435,067
|
$ |
98,203
|
|||
Accrued interest - related party |
550,150
|
682,773
|
|||||
Accrued expenses - related party |
29,981
|
-
|
|||||
Notes payable - related party |
2,000,000
|
2,000,000
|
|||||
Total current liabilities |
3,015,198
|
2,780,976
|
|||||
Total liabilities |
3,015,198
|
2,780,976
|
|||||
Commitments and contingencies | |||||||
Stockholders' deficit | |||||||
Preferred stock, $0.01
par value: Authorized shares - 10,000,000 Issued and outstanding shares - 1,000 at September 30, 2008 and 0 at December 31, 2007, respectively |
10
|
-
|
|||||
Common
stock, $0.01par value: Authorized shares - 100,000,000 Issued and outstanding shares - 30,542,182 at September 30, 2008 and 29,465,261 at December 31, 2007, respectively |
305,422
|
294,653
|
|||||
Additional paid-in capital |
27,455,704
|
25,598,217
|
|||||
Accumulated deficit |
(30,603,791
|
) |
(28,459,951
|
) | |||
Total stockholders' deficit |
(2,842,655
|
) |
(2,567,081
|
) | |||
Total liabilities and stockholders' deficit | $ |
172,543
|
$ |
213,895
|
|||
See accompanying notes to financial statements. |
Amarillo Biosciences, Inc.
Statements of Operations - Unaudited |
|||||||||||||||
Three months ended September 30,
|
Nine months ended September 30,
|
||||||||||||||
2008
|
2007
|
2008
|
2007
|
||||||||||||
Revenues: | |||||||||||||||
Dietary supplement sales | $ |
234
|
$ |
624
|
$ |
1,518
|
$ |
1,772
|
|||||||
Sublicense fee revenue |
30,000
|
-
|
60,000
|
40,000
|
|||||||||||
Total revenues |
30,234
|
624
|
61,518
|
41,772
|
|||||||||||
Operating expenses: | |||||||||||||||
Cost of sales |
104
|
204
|
540
|
559
|
|||||||||||
Research and development expenses |
42,398
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141,351
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388,014
|
384,593
|
|||||||||||
Selling, general and administrative expenses |
296,104
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551,988
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1,115,079
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1,663,912
|
|||||||||||
Total operating expenses |
338,606
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693,543
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1,503,633
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2,049,064
|
|||||||||||
Operating loss |
(308,372
|
) |
(692,919
|
) |
(1,442,115
|
) |
(2,007,292
|
) | |||||||
Other income (expense) | |||||||||||||||
Interest expense |
(23,568
|
) |
(22,898
|
) |
(68,524
|
) |
(67,571
|
) | |||||||
Interest income |
-
|
159
|
2,696
|
2,389
|
|||||||||||
Net loss |
(331,940
|
) |
(715,658
|
) |
(1,507,943
|
) |
(2,072,474
|
) | |||||||
Deemed dividend for beneficial conversion feature |
-
|
-
|
(562,841
|
) |
-
|
||||||||||
Dividend on preferred stock |
(25,000)
|
-
|
(73,056
|
) |
-
|
||||||||||
Net loss applicable to common shareholders | $ |
(356,940
|
) | $ |
(715,658
|
) | $ |
(2,143,840
|
) | $ |
(2,072,474
|
) | |||
Basic and diluted net loss per share |
(0.01
|
) |
(0.03
|
) |
(0.07
|
) |
(0.08
|
) | |||||||
Weighted average shares outstanding |
30,301,432
|
26,712,223
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29,877,198
|
25,870,142
|
|||||||||||
See accompanying notes to financial statements. |
Amarillo Biosciences, Inc.
Condensed Statements of Cash Flows - Unaudited |
|||||||
Nine months ended September 30,
|
|||||||
2008
|
2007
|
||||||
Net cash used in operating activities | $ |
(843,210
|
) | $ |
(1,057,740
|
) | |
Cash from investing activities | |||||||
Purchases of equipment and software |
(980
|
) |
(1,265
|
) | |||
Patent expenditures |
(20,089
|
) |
(4,411
|
) | |||
Net cash used in investing activities: |
(21,069
|
) |
(5,676
|
) | |||
Cash from financing activities: | |||||||
Proceeds from exercise of options |
-
|
90,889
|
|||||
Proceeds from sales of convertible preferred stock |
793,793
|
-
|
|||||
Proceeds from sale of common stock |
25,000
|
792,505
|
|||||
Net cash provided by financing activities |
818,793
|
883,394
|
|||||
Net decrease in cash |
(45,486
|
) |
(180,022
|
) | |||
Cash and cash equivalents at beginning of period |
47,184
|
213,844
|
|||||
Cash and cash equivalents at end of period | $ |
1,698
|
$ |
33,822
|
|||
Supplemental disclosure of cash flow information | |||||||
Cash paid for interest | $ |
201,147
|
$ |
440
|
|||
Cash paid for income taxes | $ |
-
|
$ |
-
|
|||
Non cash transactions | |||||||
Stock dividend to preferred shareholders | $ |
73,056
|
$ |
-
|
|||
See accompanying notes to financial statements. |
Amarillo Biosciences, Inc.
Notes To Financial Statements - Unaudited |
|
1. | Basis of presentation. The accompanying financial
statements, which should be read in conjunction with the financial statements
and footnotes included in the Company's Form 10-KSB for the year ended December
31, 2007 filed with the Securities and Exchange Commission, are unaudited,
but have been prepared in accordance with accounting principles generally
accepted in the United States for interim financial information. Accordingly,
they do not include all of the information and footnotes required by accounting
principles generally accepted in the United States for complete financial
statements. In the opinion of management, all adjustments (consisting only
of normal recurring adjustments) considered necessary for a fair presentation
have been included. Operating results for the nine months ended September 30, 2008 are not necessarily indicative of the results that may be expected for the full year ending December 31, 2008. |
2. | Financial Condition. The Company's viability is dependent upon successful commercialization of products resulting from its research and product development activities. The Company plans on working with commercial development partners in the United States and in other parts of the world to provide the necessary sales, marketing and distribution infrastructure to successfully commercialize the interferon alpha product for both human and animal applications. The Company's products will require significant additional development, laboratory and clinical testing and investment prior to the Company obtaining regulatory approval to commercially market its product(s). Accordingly, for at least the next few years, the Company will continue to incur research and development and general and administrative expenses and may not generate sufficient revenues from product sales to support its operations. |
3. | Common Stock. In the first quarter of 2007,
the Company completed private equity financing by selling 998,000 restricted
shares of common stock at a discount to 18 investors, generating $449,100
in cash. In the second quarter of 2007, the Company completed private equity
financing by selling 349,100 restricted shares of common stock at a discount
to eight investors, generating $151,405 in cash. In the third quarter of
2007, the Company completed private equity financing by selling 930,000
restricted shares of common stock at a discount to sixteen investors, generating
$192,000 in cash. Cash generated from selling restricted shares during the
first nine months of 2007 totaled $792,505. During the nine months ended
September 30, 2007, finder's fees paid related to private placements of
stock totaled $7,750, and are included as general and administrative expenses
in the Company's statement of operations. During the first quarter of 2008,
no private placement of restricted shares of common stock occurred. During
the second quarter of 2008, the Company completed private equity financing
by selling 100,000 restricted shares of common stock at a discount with
100,000 three year warrants exercisable at $0.30 per share to two investors,
generating $25,000 in cash. No finder's fees were paid. During the first quarter of 2007, the Board of Directors authorized stock grants to two consultants: 100,000 shares to Claus Martin on March 5, 2007 ($84,000 fair value) and 100,000 shares to David Stewart on March 31, 2007 ($82,000 fair value). The shares to David Stewart were issued in 25,000 share portions on March 31, June 30, September 30 and |
December 31 during fiscal 2007. The entire
expense of $82,000 was recognized in the quarter ending March 31, 2007.
During the first quarter of 2008, the Board of Directors authorized stock
grants to two consultants: 90,000 shares to CEOcast on February 2, 2008
($27,900 fair value) and 100,000 shares to David Stewart on March 31, 2008
($29,000 fair value). The 2008 award to David Stewart was issued in 25,000
share portions on March 31, June 30, September 30, and is to be issued in
a 25,000 share portion on December 31 during fiscal 2008. Expense of $17,750
was recognized in the nine months ending September 30, 2008. In February
2008, the Company entered into a 1 year consulting agreement with CEOcast
to provide investor relations, public relations and shareholder relations
services. The Company terminated the agreement for the remaining nine months
of services. The Company paid the Consultant $30,000 plus the above common
stock grant of 90,000 shares for the first three months. In the first quarter of 2008, the Board of Directors awarded Dr. Joe Cummins a $2,500 cash bonus and a $2,500 stock bonus (7,575 shares) for closing a $1 million funding with Firebird Global Master Fund, Ltd. During the second quarter of 2008, an attorney agreed to accept payment of 166,667 shares of stock to cover $30,000 of fees to file the amendments to the Registration Statement. The Board of Directors approved payment of 166,667 shares of stock on May 20, 2008 ($55,000 fair value). On June 25, 2008, the Executive Committee approved to pay a consultant $20,000 in fees for public relations and investor relations services in stock and warrants under the same terms and conditions as a private placement approved by the Executive Committee on April 24, 2008 ($0.25 per share of unregistered common stock with 100% warrant coverage, three year term and exercisable at $0.30 per share). Expense was recognized on June 15, 2008 for payment of 40,000 shares of common stock ($9,200 fair value) and 80,000 warrants ($11,522 fair value) in payment of $10,000 due on June 15, 2008. The remaining $10,000 was paid in 20,000 shares of stock on July 15, 2008 ($3,600 fair value) and 20,000 shares of stock on August 15, 2008 ($4,400 fair value). Dr. Peter Mueller was paid 54,627 shares of stock on June 2, 2008 ($16,652 fair value) in salary. Dr. Peter Mueller, Dr. Joe Cummins, Dr. Gary Coy and Martin Cummins were paid 99,438 shares of stock on July 10, 2008 ($18,893 fair value) in salaries. Dr. Gary Coy was paid 13,361 shares of stock on September 17, 2008 ($2,405 fair value) in salary. On April 1, 2008, July 7, 2008, and October 3, 2008, Firebird Global Master Fund, Ltd. was issued 84,198 shares, 121,913 shares, and 184,142 shares of common stock respectively, as dividends on the Series A Preferred Stock. These dividends were valued at $23,056, $25,000, $25,000, and recorded on March 31, 2008, June 30, 2008, and September 30, 2008 respectively. The price of the common stock was calculated at 90% of the average of the 2 lowest VWAP (volume weighted average price) for the 5 trading days prior to the dividend payment due date. Dividends on the Series A Preferred Stock, at the rate of 10% per annum, payable in cash or common stock in the discretion of the Company, are due quarterly on January 1, April 1, July 1 and October 1 beginning on the first such date after the original issue date (January 8, 2008). |
|
4. | Common Stock Options. During 2006, the Company issued 1,200,000 options to employees of the Company. These options vest evenly over the four years following grant. The Company recognized $58,287 expense related to the options during the first quarter of 2007 and $55,304 during the second quarter of 2007 and $60,270 expense during the third quarter of 2007. During the second quarter of 2007, the Company issued 500,000 stock options for |
services and recognized $187,383 of expense
related to the options. During the third quarter of 2007, the Company issued
1,020,000 stock options for services and recognized $363,488 of expense
related to the options. In the third quarter, the Company extended the expiration
date of 275,000 stock options issued for services in the second quarter
by 60 days. During the second quarter of 2007, 249,486 options were exercised at $0.06 to $0.44 per share generating $45,889 in cash. A Director exercised 6,000 cashless options at $0.44 per share and received 1,672 shares of Common Stock valued at $0.61 per share. In the third quarter of 2007, 225,000 options were exercised at $0.20 per share generating $45,000 in cash. The Company recognized $55,661 of employee options expense during the first quarter of 2008, $97,575 during the second quarter of 2008 and $75,096 during the third quarter of 2008. The remaining cost expected to be recognized if these options vest is $590,388. During the second quarter of 2008 the amount of employee options expense increased when Dr. Peter Mueller joined the Company as COO. On April 15, 2008 the Company issued 700,000 options to Dr. Mueller pursuant to an employment agreement dated April 15, 2008. On April 15, 2008, 100,000 of these options vested ($25,516 fair value recognized for the second quarter of 2008). The remaining options vest evenly over the three years following grant. $11,311 fair value of these options was recognized during the second quarter of 2008 and $13,515 during the third quarter of 2008. The remaining cost expected to be recognized if these options vest is $141,652. During the first nine months of 2008, the Company also recognized $15,182 expense for 100,000 options granted to two consultants. 25,000 options vested on March 31; 25,000 options vested on June 30; 25,000 options vested on September 30 and 25,000 options vest on December 31, 2008. On September 16, 2008, 10,000 options vested ($239 fair value recognized for the third quarter of 2008) to another consultant. No options were exercised during the first nine months of 2008. The fair value of each option granted is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions: dividend yield 0.0%, expected volatility of 109.6 - 138.31%, risk-free interest rate of 1.5 - 4.617% and expected life of 0.25 - 5 years. |
|
5. | Preferred Stock Financing. During the first quarter of 2008, the Company completed a private placement by selling 1,000 shares of convertible preferred stock for $1,000 per share under the terms of a Stock Purchase Agreement; generating gross proceeds of $1,000,000 and net proceeds of $848,793, net of commissions, registration costs and closing costs. The convertible preferred stock is convertible into 4,000,000 shares of common stock. The investor also received 5 year warrants to purchase 4,000,000 shares of common stock at $0.30 per share. The Company evaluated this transaction in accordance with the EITF 00-19 and determined it should be recorded as equity. The investment banker was paid a commission of $80,000 plus received 5 year warrants to purchase 640,000 shares of common stock at $0.30 per share. During the second quarter $55,000 of additional registration costs were incurred to file two amendments to the S-1 registration statement. Net proceeds were reduced to $793,793. |
Pursuant to the Registration Rights Agreement
entered into in connection with the Stock Purchase Agreement, as amended,
the Company is required to use best efforts to have the registration statement
declared effective by the Securities and Exchange Commission by August 23,
2008. In the event that the registration statement is not timely filed,
declared effective or not maintained effective, the Company will be subject
to liquidated damages up to 1% of the aggregate subscription amount per
30 day period not to exceed a maximum of 10% ($100,000). The conversion
option of the preferred stock was determined by the Company to represent
a beneficial conversion feature, in accordance with the Financial Accounting
Standards Board (FASB) EITF 98-5. The $561,841 intrinsic value of the beneficial
conversion feature was recorded as a deemed dividend to the preferred shareholders
in January 2008, the earliest date preferred shares could have been converted
by the holders. The liquidated damages were determined to not be of a likelihood
to require recording of a liability under FASB statement No. 5, Accounting
for Contingencies. The Company filed a registration statement with the SEC on April 24, 2008 for the common stock reserved for the preferred stock and warrants. The SEC issued a comment letters on May, 7, 2008 and June 2, 2008. The Company filed amended registration statements on May 21, 2008 and June 6, 2008. The second amendment to the registration statement for 3,288,000 of 4,000,000 shares reserved for the preferred stock, all 4,000,000 shares reserved for warrants and 84,198 shares paid as a dividend payment on April 1, 2008 was declared effective on June 12, 2008. The 712,000 unregistered shares reserved for conversion of the preferred stock and future unregistered stock for dividend payments are eligible to have the restricted stock legends removed under rule 144 since the preferred stock has been held more than six months. |
|
6. | Notes Payable. The Company has unsecured loan agreements with Hayashibara Biochemical Laboratories (HBL), a related party. The annual interest rate on unpaid principal from the date of each respective advance was 4.5 percent, with accrued interest being payable at the maturity of the note. $1,000,000 was payable on or before June 3, 2008. The other $1,000,000 was payable on or before August 28, 2008. HBL was paid $200,000 of accrued interest in the first quarter of 2008. HBL had proposed to extend the notes to December 3, 2009 and February 28, 2010, respectively, if $145,000 of accrued interest was paid on or before August 31, 2008. The Company was unable to make such payment. Although the notes are past due, HBL has not demanded payment. The Company is presently pursuing funding from prospective investors and prospective pharmaceutical partners. If the Company does not get funding from investors or prospective pharmaceutical partners, the Company will not be able to pay the requested accrued interest to extend the notes. The Company is discussing alternatives with HBL, but currently has no commitment or assurance that HBL will not demand payment and/or declare the notes in default. |
7. | Line of Credit. The Company has a line of credit with Wells Fargo for $20,000, with an interest rate of prime rate plus 6.75 percent. There was an outstanding balance on September 30, 2008 is $18,841, which is included in accounts payable. |
8. | License and Sublicense Agreements. During first nine months of 2008 the Company received a $30,000 sublicense fee payment in the second quarter and a $30,000 sublicense fee payment in the third quarter. A $14,990 sublicense fee payable to HBL was recorded in the second quarter and a $14,991 sublicense fee payable to HBL was recorded in the third quarter |
and included in accounts payable based on sublicense fee income earned by the Company during the second and third quarters of 2008. | |
9. | Related Party Transactions. The Company engaged the law firm of Sanders Baker P.C. of which Mr. Morris is a partner. Mr. Morris is also the Secretary of the Company. During the nine months ended September 30, 2008 the Company incurred approximately $42,000 of legal fees from Sanders Baker P.C. |
10. | Employment Contract. On April 15, 2008, Dr. Peter R. Mueller joined the Company as Chief Operating Officer and Director of Research. Pursuant to an employment contract executed in April 2008, Dr. Mueller's annual salary was set at $210,000 and he was granted 700,000 share options with an exercise price of $0.32 (equal to the closing price on April 15, 2008), 100,000 options vesting on April 15, 2008 and the remaining options vesting annually every April 15 over 3 years. |
11. | Subsequent Events. On October 14, 2008, 75,000
shares (fair value $10,500) were issued to reimburse an insurance agent
for $9,875 of an insurance premium. On October 15, 17, and 20, 2008 Firebird Global Master Fund converted all the Convertible Preferred stock held into Common Stock at $0.25 per share. On October 16, 2008 Firebird Global Master Fund assigned the Series A Common Stock Purchase Warrant convertible into 4 million shares of Common Stock at $0.30 per share with expiration date January 8, 2013 to a third party. On October 24, 2008, the contact person for notices at Firebird Global Master Fund stated that all shares of Common Stock had been transferred to third parties. The 2008 Directors, Officers, And Consultants Stock Purchase Plan was approved by consent resolution of the Board of Directors on October 22, 2008. The plan is administered by a committee of outside directors. The Committee may grant awards to Directors, officers and consultants to purchase shares of common Stock of the Company at market value. On October 22, 2008, one Director, the Chief Operating Officer, the Chief Financial Officer and the Corporate Secretary purchased 188,404 shares of restricted common stock at $0.10 per share. |
|
announcements of technological innovation or improved or new diagnostic products by others; |
|
general market conditions; |
|
changes in government regulation or patent decisions; |
|
changes in insurance reimbursement practices or policies for diagnostic products. |
|
net tangible assets in excess of $2,000,000, if such issuer has been in continuous operation for three years; |
|
net tangible assets in excess of $5,000,000, if such issuer has been in continuous operation for less than three years; or |
|
average revenue of at least $6,000,000, for the last three years. |
Shares of Common Stock
|
Discount*
|
|||||
Date (2008)
|
Issue Price
|
Number
|
Purchaser
|
Per Share
|
Total
|
|
1
|
January 8
|
$ .33
|
7,575
|
Dr. Joseph Cummins
|
$ 0
|
$ 0
|
2
|
February 26
|
.31
|
86,400
|
Rachel Glicksman (CEOcast)
|
0
|
0
|
3
|
February 26
|
.31
|
3,600
|
Dan Schustack (CEOcast)
|
0
|
0
|
4
|
March 31
|
.29
|
25,000
|
David Stewart
|
0
|
0
|
5
|
April 1
|
.2738
|
84,198
|
Firebird Global Master Fund
|
.0305
|
2,568
|
6
|
May 16**
|
.1358
|
20,000
|
David Metz
|
.1742
|
3,484
|
7
|
May 19**
|
.1358
|
80,000
|
Griffin Family Trust
|
.1742
|
13,936
|
8
|
May 23***
|
.18
|
166,667
|
Darrin Ocasio
|
.15
|
25,000
|
9
|
June 2
|
.3048
|
54,627
|
Dr. Peter Mueller
|
0
|
0
|
10
|
June 15**
|
.1537
|
40,000
|
RJ Falkner
|
.0763
|
3052
|
11
|
June 30
|
.22
|
25,000
|
David Stewart
|
0
|
0
|
12
|
July 7
|
.2051
|
121,913
|
Firebird Global Master Fund
|
.0228
|
2,780
|
13
|
July 10
|
$ .19
|
61,236
|
Dr. Peter Mueller
|
$ 0
|
$ 0
|
14
|
July 10
|
.19
|
14,986
|
Dr. Joseph Cummins
|
0
|
0
|
15
|
July 10
|
.19
|
11,726
|
Martin Cummins
|
0
|
0
|
16
|
July 10
|
.19
|
11,490
|
Dr. Gary Coy
|
0
|
0
|
17
|
July 15**
|
.1389
|
20,000
|
RJ Falkner
|
.0411
|
822
|
18
|
August 15**
|
.1511
|
20,000
|
RJ Falkner
|
.0689
|
1,378
|
19
|
Sept. 17
|
.18
|
13,361
|
Dr. Gary Coy
|
0
|
0
|
20
|
Sept. 30
|
.1358
|
184,142
|
Firebird Global Master Fund
|
.0151
|
2,781
|
21
|
Sept. 30
|
.20
|
25,000
|
David Stewart
|
0
|
0
|
Shares of Convertible Preferred Stock
|
Discount*
|
|||||
Date (2008)
|
Issue Price
|
Number
|
Purchaser
|
Per Share
|
Total
|
|
1
|
January 8
|
$ 1,000
|
1,000
|
Firebird Global Master Fund
|
$ .00
|
0
|
AMARILLO BIOSCIENCES, INC. | |
Date: November 12, 2008 |
By: /s/ Joseph M. Cummins
Joseph M. Cummins President and Chief Executive Officer |
Date: November 12, 2008 | By: /s/ Gary W. Coy
Gary W. Coy Vice President and Chief Financial Officer |