SOURCE: National Storm Management, Inc.

August 22, 2007 09:00 ET

National Storm Management Reports Second Quarter Results

Second Quarter Revenue Increases 58 Percent

CHICAGO, IL--(Marketwire - August 22, 2007) - National Storm Management, Inc. (PINKSHEETS: NSMG) reported its second quarter financial results for the period ended June 30, 2007.

Revenues for the second quarter of 2007 increased 58 percent to $2.4 million compared to $1.4 million for the first quarter 2007. Operating income also improved to a loss of $505,917 in the second quarter from $777,254 in the first quarter of 2007. The company posted a net loss of $1.1 million, $0.01 per share based on 78.6 million shares, resulting from a higher interest expense, which increased to $637,963 from $262,246 in the first quarter 2007.

"During the first half of 2007, we continued to remain focused on cost containment while diligently pursuing strategies to improve our revenues and operating income," said Terry Kiefer, president and CEO of National Storm Management. "We will remain focused on these strategies and we believe we are well positioned to respond to forecasters' predictions of inclimate weather including an above average hurricane season."

According to a recent report by the National Oceanic & Atmospheric Administration (NOAA), the 2007 Atlantic hurricane season, which begins June 1 and ends November 30, has a 75 percent chance of being above normal in activity. NOAA scientists are predicting 13 to 17 named storms, with seven to 10 becoming hurricanes, of which three to five could become major hurricanes of Category 3 strength or higher.

In July 2007, National Storm Management filed an amendment to its registration statement on Form SB-2, which is currently being reviewed by the Securities and Exchange Commission (SEC). Upon effectiveness of the registration statement, the Company will become subject to SEC reporting requirements, including the filing of quarterly and annual financial statements. The Company intends to seek to have its common shares quoted on the Over-The-Counter Bulletin Board (OTCBB) after it becomes subject to such reporting requirements. Management hopes such measures will improve liquidity in the company's common stock.

About National Storm Management, Inc.

National Storm Management (PINKSHEETS: NSMG) is a national construction company headquartered in Glen Ellyn, Illinois providing storm restoration services in seven states. Its operating affiliates include: ABC Exteriors (Illinois, Indiana and Kentucky); Pinnacle Roofing (Florida and Louisiana); WRS, Inc (Minnesota); and First Class Roofing and Siding (Ohio). The company and its affiliates are recognized by all major insurance companies such as State Farm, Allstate, Farmers and others for storm related claims. The company is a member of the National Roofing Contractors Association (NRCA) and the Better Business Bureau. More information is available at www.nationalstorm.com.

Forward-Looking Statements

Certain statements included in this press release may constitute forward-looking statements. These forward-looking statements relate to, among other things, plans and timing for the introduction or enhancement of our services and products, statements about future market conditions, financial performance, plans to update a registration statement with the SEC, and other expectations, intentions and plans contained in this press release that are not historical fact and involve risks and uncertainties. Our expectations regarding future revenues depend upon our ability to develop and supply products and services that meet defined specifications. When used in this press release, the words "plan," "expect," "believe," and similar expressions generally identify forward-looking statements. These statements reflect our current expectations, but actual results could differ materially as a result of many factors, including, but not limited to, severe weather conditions and the physical damage caused by hail storms and hurricanes, fluctuations in interest rates and the resulting impact on financing costs, general economic developments in the states where we do business, availability of labor, materials and supplies, our ability to execute our future growth plans and our ability to timely and accurately prepare quarterly and annual financial statements. Forward-looking statements are made as of this press release and we do not undertake any obligation to provide updates to such statements except where required to so by law.

                      National Storm Management, Inc.
                        CONSOLIDATED BALANCE SHEET
                              June 30, 2007


                                                   Unaudited    Unaudited
                                                  -----------  -----------
                                                      2007         2006
                                                    June 30,     June 30,
                                                  -----------  -----------
ASSETS
Current assets :
       Cash                                       $   230,628  $    21,375
       Accounts receivable (less respective
        allowances)                                   158,863    1,264,593
       Inventories                                     34,446      175,509
       Management & Salesman Advances                  43,996       37,299
       Cost in excess of billings                     293,527      320,421
       Prepaid Expenses                                   374      145,332
       Other current assets                            76,924       86,009
                                                  -----------  -----------
          Total current assets                        838,758    2,050,538

Property, plant and equipment                         508,512      486,705
       Less: Accumulated depreciation and
        amortization                                 (301,774)     209,678
                                                  -----------  -----------
          Property, plant and equipment - net         206,738      277,027

Goodwill                                                    -        5,000
Deferred tax asset - net of valuation allowance     1,082,011      848,727
Other                                                  27,741       79,257
                                                  -----------  -----------
          Total assets                            $ 2,155,248  $ 3,260,549
                                                  ===========  ===========


LIABILITIES AND STOCKHOLDER EQUITY
Current liabilities :
       Current maturities of long-term debt       $ 2,505,087  $ 1,081,363
       Accounts payable - trade                     1,182,062    1,507,769
       Other current liabilities                    1,200,996       34,160
       Unearned income                                177,413            -
       Billings in excess of costs                     37,961    1,133,669
                                                  -----------  -----------
          Total current liabilities                 5,103,519    3,756,961

Non-current Liabilities :
       Term loan, net of current portion               27,322       26,836
       Other long-term obligations                          -      107,500
                                                  -----------  -----------
          Total long-term debt                         27,322      134,336

                                                  -----------  -----------
          Total liabilities                         5,130,841    3,891,297
                                                  -----------  -----------

Stockholders' Equity :
Common Stock 78,592,204 and 65,624,876
 issued and outstanding                           $    78,592  $    65,625
Additional paid-in capital                          4,688,561    2,544,637
Accumulated Deficit                                (7,742,745)  (3,241,010)
                                                  -----------  -----------
          Total Stockholders' Equity               (2,975,592)    (630,748)
                                                  -----------  -----------

          Total Liabilities and Stockholders'
           Equity                                 $ 2,155,248  $ 3,260,549
                                                  ===========  ===========



                      National Storm Management, Inc.
                   CONSOLIDATED STATEMENT OF OPERATIONS
                              June 30, 2007
                             ** UNAUDITED **

                    --------------------------  --------------------------
                        Three Months Ended           Six Months Ended
                             June 30,                    June 30,
                    --------------------------  --------------------------
                        2007          2006          2007          2006
                    ------------  ------------  ------------  ------------
REVENUES:
Net trade sales     $  2,445,833  $  2,200,052  $  3,829,388  $  4,494,562
                    ------------  ------------  ------------  ------------

OPERATING COST AND
 EXPENSES:
  Cost of product
   sold                1,334,866       974,500     2,172,289     2,501,434
  Selling,
   administrative,
   and general         1,597,466     1,650,791     2,898,537     3,243,844
  Depreciation and
   amortization           19,477        40,432        41,792        52,669
                    ------------  ------------  ------------  ------------
                       2,951,809     2,665,723     5,112,618     5,797,947
                    ------------  ------------  ------------  ------------

INCOME (LOSS) FROM
 OPERATIONS             (505,976)     (465,671)   (1,283,230)   (1,303,385)

Interest expense        (637,963)      (21,950)     (900,209)      (51,028)
Other income
 (loss)                    5,987          (826)        6,437           384
                    ------------  ------------  ------------  ------------

Income (loss)
 before income
 taxes and
 extraordinary
 gain                 (1,137,952)     (488,447)   (2,177,002)   (1,354,029)
Provision
 (Benefit) for
 income taxes                  0        (6,599)                   (259,357)
                    ------------  ------------  ------------  ------------


NET INCOME (LOSS)   $ (1,137,952) $   (481,848) $ (2,177,002) $ (1,094,672)
                    ============  ============  ============  ============

Basic Earnings per
 Share:
Weighted -average
 shares             $      (0.01) $      (0.01) $      (0.03) $      (0.02)
Net earnings
 (loss)             $      (0.01) $      (0.01) $      (0.03) $      (0.02)
                    ============  ============  ============  ============



                      National Storm Management, Inc.
                   CONSOLIDATED STATEMENT OF CASH FLOWS
                              June 30, 2007
                              **UNAUDITED**
                                                --------------------------
                                                     Six Months Ended
                                                         June 30,
                                                --------------------------
                                                    2007          2006
                                                ------------  ------------
CASH FLOWS FROM OPERATING ACTIVITIES :
Net income (loss)                               $ (2,177,002) $ (1,094,672)

Adjustments to reconcile net income (loss) to
 net cash provided by (used for) operating
 activities :
        Depreciation, and amortization                41,792        52,669
        Discounted interest on Fife loan             772,705             -
        Forfeiture of security deposits                  988
        Deferred tax benefit                                      (261,000)
        Stock and stock options issued for
         professional fees                                           9,375
 Changes in components of working capital :
        (Increase) decrease in accounts
         receivable - net                            481,942      (599,609)
        (Increase) decrease in inventories            20,344       (10,433)
        (Increase) decrease in advances               (1,870)       32,711
        Increase (decrease) in cost in
         uncompleted contracts                      (346,808)      578,377
        (Increase) decrease in prepaid expenses       22,283        17,142
        (Increase) decrease in other current
         assets                                        7,851
        Increase (decrease) in accounts payable     (204,218)     (146,921)
        Increase (decrease) in unearned income       177,413
        Increase (decrease) in billings in
         uncompleted contracts                      (243,698)
        Increase (decrease) in other current
         liabilities                                  14,456       (42,094)
        Other, net                                      (330)            -
                                                ------------  ------------
          Net cash provided by (used for)
           operating activities                 $ (1,434,152) $ (1,464,455)
                                                ------------  ------------

CASH FLOWS FROM INVESTING ACTIVITIES :
        Capital expenditures                    $    (11,024) $    (27,143)
        Increase (decrease) in other long-term
         liabilities                                               107,500
                                                ------------  ------------
          Net cash provided by (used in)
           investing activities                 $    (11,024) $     80,357
                                                ------------  ------------

CASH FLOWS FROM FINANCING ACTIVITIES :
        Issuance of common stock                $  1,827,825  $  1,409,290
        Repayment of term loan under
         foreclosure                              (1,655,259)      (44,967)
        Repayment of supplier note payable           (41,727)
        Repayment of installment note payable          1,655
        Proceeds from Fife loan                    1,500,000
        Increase in term loan                            325             -
                                                ------------  ------------
          Net cash provided by (used in)
           financing activities                 $  1,632,819  $  1,364,323
                                                ------------  ------------

NET INCREASE (DECREASE) IN CASH
 AND CASH EQUIVALENTS                           $    187,643  $    (19,775)
Cash and cash equivalents, beginning of period        42,985        41,150
                                                ------------  ------------
Cash and cash equivalents, end of period        $    230,628  $     21,375
                                                ============  ============

Cash interest paid for the periods presented :  $    112,709  $     51,028
                                                ============  ============



                      National Storm Management, Inc.
              CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
                              June 30, 2007
                              **UNAUDITED**


                           Common
                           Stock   Additional
                            Par     Paid in       Retained    Stockholders'
                 Shares    Value    Capital       Earnings       Equity
               ========== ======== ===========  ============  ============
Balance,
 January 1,
 2004          25,751,670 $ 25,752              $   (314,052) $   (288,300)
  Net income                                          65,952        65,952
  Dividends
   paid -
   owners
   discretionary
   draw                                             (247,915)     (247,915)
  Common stock
   issued in
   connections
   with new
   entities     8,248,330    8,248                    (8,248)            -
               ========== ======== ===========  ============  ============
Balance,
 December 31,
 2004          34,000,000 $ 34,000              $   (504,263) $   (470,263)
  Issuance of
   stock
   options for
   professional
   fees         6,800,000    6,800     746,200                     753,000
  Acquisition
   of assets
   of N.S.M.
   Inc          6,000,000    6,000      (1,000)            -         5,000
  Common stock
   issued       2,313,903    2,314     397,284             -       399,598
  Net income
   (loss)                                         (1,642,075)   (1,642,075)
               ========== ======== ===========  ============  ============
Balance,
 December 31,
 2005          49,113,903 $ 49,114 $ 1,142,484  $ (2,146,338) $   (954,740)
  Issuance of
   stock
   options for
   professional
   fees                 -        -           -             -             -
  Common stock
   issued      16,510,973   16,511   1,402,153             -     1,418,664
  Net income
   (loss)                                         (1,094,672)   (1,094,672)
               ========== ======== ===========  ============  ============
Balance, June
 30, 2006      65,624,876 $ 65,625 $ 2,544,637  $ (3,241,010) $   (630,748)
  Issuance of
   stock
   options for
   repayment
   of debt      3,000,000    3,000      (3,000)            -             -
  Proceeds
   from sales
   of stock on
   Fife loan                             6,961                       6,961
  Common stock
   issued       1,067,318    1,067     321,039             -       322,106
  Net income
   (loss)                                         (2,324,733)   (2,324,733)
               ========== ======== ===========  ============  ============
Balance,
 December 31,
 2006          69,692,194 $ 69,692 $ 2,869,637  $ (5,565,743) $ (2,626,414)
  Issuance of
   stock
   options for
   repayment
   of debt      8,900,010    8,900   1,818,924             -     1,827,824
  Net income
   (loss)                                         (2,177,002)   (2,177,002)
Balance, June
 30, 2007      78,592,204 $ 78,592 $ 4,688,561  $ (7,742,745) $ (2,975,592)
               ========== ======== ===========  ============  ============

Note 1 – Basis of presentation

The accompanying consolidated balance sheets as of June 30, 2007, the consolidated statements of operations and cash flows for the three month period ended June 30, 2007 and 2006 and the consolidated statement of changes in stockholders' equity for the three month period ended June 30, 2007 are unaudited. The data disclosed in the notes to the consolidated financial statements for those periods is also unaudited. In the opinion of management, these statements have been prepared on the same basis as the audited financial statements and include all adjustments, consisting of normal recurring adjustments, necessary to present fairly the position of the interim period. Interim operating results are not necessarily indicative of results for the full year. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to the rules and regulations relating to the interim financial statements.

Note 2 – Accounts receivable

Accounts receivable is recorded at net of $158,863 and $640,805 and includes an allowance of $169,408 and $44,230 in 2007 and 2006, respectively.

Note 3 – Fixed assets

Fixed assets are recorded at cost. Depreciation is computed using the straight-line method. Estimated service lives of fixed assets vary based on classification from 3-20 years.

As of June 30, 2007, the Company had fixed assets totaling $508,512 and accumulated depreciation of $301,774. The Company recorded depreciation expense of $19,477 and $40,432 during the three month periods ended June 30, 2007 and 2006, respectively

Note 4 – Term loans

June 30,                                                    2007
                                                       ---------------
Note payable - John Fife - Convertible                 $         5,087
                                                       ---------------
Note payable - John Fife -                                   1,500,000
                                                       ---------------
Note payable - Bridge Loan                                   1,000,000
Vehicle term loans
(Interest rates vary between 3.9 -
 8.75%)                                                         27,322
Less current maturities of long-term debt                    2,505,087
                                                       ---------------
Total long term debt                                   $        27,322
                                                       ===============

On July 24, 2006 the Company borrowed $1,000,000 from John M. Fife. This note is an original discounted note averaging at a 30% discount rate over a one year period. As security for the loan, the Company's CEO pledged approximately 17,000,000 shares of the Company's common stock to Mr. Fife. If the Company defaults on the loan, then Mr. Fife will have the right to foreclose on the shares of the Company's common stock pledged as collateral and immediately begin to sell such stock until he is repaid in full. In December 2006, the company defaulted on the loan agreement. At this time, the loan agreement was amended to use replacement shares of stock in lieu of the CEO's shares. As of June 30, 2007, 9,000,000 shares of stock were issued and sold and the liability was reduced accordingly.

On January 31, 2007 the Company borrowed $500,000 from John M. Fife. This note is an original discount note averaging at a 30% discount rate over a one year period. On each day February 26, 2007, April 13, 2007, May 21, 2007, and June 29, 2007 the company borrowed an additional $250,000 from Mr. Fife, and the note was amended accordingly. The company pledged 15,000,000 shares of it common stock to secure its obligations under the note. If the company defaults on the loan, then Mr. Fife will have the same right to foreclosure on the shares of the Company's common stock pledged as collateral and immediately begin to sell such stock until he is repaid in full. The maturity date of this note is July 30, 2007, at which time the amount of $2,481,000 will be due and payable.

The Company entered into a bridge loan agreement for $1,000,000 private placement on September 2, 2005. Interest is computed at 6% per annum. This private placement initially is a convertible note that requires the Company to register 5,000,000 shares of stock through a 504 transaction within the state of Nevada to convert this note, failure to use best efforts to procure this registration, the note becomes due the later of October 31, 2005 or the 504 Nevada registration.

The vehicle term loans represent vehicle-financing packages provided by Ford Motor Credit and Chrysler Financial Corporation in which the Company purchased vehicles for its operations. The loans mature in September 2008 and are secured by the titles of the respective vehicles.

Note 5 – Leases

Future minimum lease payments, under operating leases having initial or remaining noncancellable terms in excess of one year are as follows:

Year ending June 30,                                 Operating Leases
                                                    ==================

2008                                                $          215,570
2009                                                           110,055
2010                                                            20,573
2011                                                                 0
Thereafter                                                           0
                                                    ==================
Total minimum lease payments                        $          346,198
                                                    ==================

Note 6 – Income taxes

Deferred income taxes are provided for temporary differences in recognizing certain income and expense items for financial and tax reporting purposes. The deferred tax asset of $1,082,011 as of June 30, 2007 consisted primarily of the income tax benefits from net operating losses. A valuation allowance has been recorded to partially offset the deferred tax asset as the Company believes it is more likely than not that the assets will be utilized. Significant components of the benefit for income taxes for the six month period ended June 30, 2007 are as follows:

The tax effects of the temporary differences and carry forwards that give rise to deferred tax assets consist of the following:

June 30                                                   2007
                                                    -----------------

Deferred tax assets:
  Loss carry forwards                               $       2,054,117
  Other                                                       109,904
                                                    -----------------
Gross deferred tax assets                                   2,164,021

Valuation allowance                                        (1,082,010)
                                                    =================

                                                    $       1,082,011
                                                    =================

As of June 30, 2007, the Company has not made any additional provision for deferred taxes.

At June 30, 2007 deferred tax assets were recorded in the accompanying financial statements. The Company's effective tax rate differs from the statutory rates associated with taxing jurisdictions because of permanent and temporary timing differences as well as a valuation allowance.

Note 7 – Commitments and Contingencies

A petition was filed in the County Court of Dallas County on March 22, 2006 by Trucolor, Inc. against the Company, National Storm Management Services, Inc., Barron Moore Holdings, Inc., Terry Kiefer and Thomas Bojadzijev. The petition alleges that Barron Moore arranged a transaction between Trucolor and the Company in which the Company obtained a convertible promissory note from Trucolor in the amount of $1,000,000. The terms of the promissory note allowed conversion of the debt into 5,000,000 shares of the Company at a value of $0.20 per share. Trucolor alleges that the Company fraudulently diluted the existing shares of the Company's stock thereby reducing the value of the collateral to secure the promissory note. Trucolor is seeking actual and special damages, consequential and incidental compensatory damages, and punitive damages. The Company believes this claim is without merit and intends to vigorously defend itself. However, management is unable to predict the outcome of any litigation.

Note 8 - Stockholders' Equity

Earnings per Share

The basic earnings (loss) per share is calculated by dividing the Company's net income available to common shareholders by the weighted average number of common shares during the year. The Company's Articles of Incorporation authorizes the issuance of 300,000,000 shares of common stock, $0.0001 par value per share, of which 78,592,204 were outstanding as of June 30, 2007.

Recapitalization

The Company completed an acquisition on February 24, 2005 through the exchange of all of the outstanding 1,236,614 shares of National Storm Management Services, Inc. ("NSMS") in return for 34,000,000 shares of National Storm Management, Inc. (formerly known as 18th Letter Inc.) ("NSM"). At the time of the merger, the 18th Letter, Inc. was a public shell company listed on the "Pink Sheets" with virtually no operations, assets or liabilities. In conjunction with the merger, 24,000,000 shares from the previous majority owner of National Storm Management, Inc. were cancelled. Upon completion of the merger, the total common stock outstanding was 40,000,000 shares. As a result of this merger, NSM is the legal acquirer and surviving entity but NSMS is considered the accounting acquirer since its shareholders obtained the controlling interest in NSM.

Stock Options, warrants or similar securities

In conjunction with the merger, the Company granted an option to purchase 2,000,000 shares of NSM's common stock at an exercise price of $0.75 per share for a period of three years, to Shocker 100 Index, LP, and a limited partnership, in which Interim Capital Corp. is the general partner. The option was granted for investment banking services previous by Interim Capital Corp. related to merger. In addition, 18,000,000 shares of the Company's common stock was reserved for issuance under a nonqualified stock option plan was adopted on May 1, 2005.

On December 28, 2005 the Company entered into an agreement to sell 1,000,000 restricted shares of common stock at a price of $0.15 per share to Nite Capital, L.P. This transaction also included common stock purchase warrants up to 1,000,000 shares at an exercise price of $0.20 per common share. The Company believes this issuance of securities is exempt from the registration requirements of the Securities Act under Section 4(2) of the Securities Act as a transaction by an issuer not involving any public offering, or under SEC Rule 506 of Regulation D.

On May 19, 2006, the Company granted La Jolla Cove Investors, Inc. a warrant for the right to purchase up to 20,000,000 shares of the Company's common stock for a premium of $500,000. Upon exercising the warrant, La Jolla Cove Investors, Inc. shall pay the exercise price for the shares of common stock, such exercise price being the greater of (a) $0.001 per share or (b) 80% of the average of the five lowest volume weighted average prices of the Company's common stock during the twenty trading days prior to the date of exercise. La Jolla Cove Investors, Inc. may effect a cashless exercise by surrendering the warrant for a number of shares, as determined by the provisions of the warrant. The warrant expires on May 18, 2009.

Common stock issued:

On February 9, 2006 the Company entered into an agreement with TJ Management Group, LLC, to sell 1,282,051 shares of common stock at $0.078 per share. This offering was conducted in reliance upon the exemption from the registration requirements of the Securities Act as set forth under SEC Rule 504 of Regulation D and Sections 5.1.T and 7 of the Texas administrative Code and Regulations.

On March 8, 2006 the Company entered into an agreement with Diller Investments LLC to sell 5,000,000 shares of common stock at $0.10 per share. This offering was conducted in reliance upon the exemption from the registration requirements of the Securities Act set forth under SEC Rule 504 of Regulation D and Sections 5.1.T and 7 of the Texas Administrative Code and Regulations.

On April 7 and April 10, 2006 the Company entered into an agreement with Mazuma Corp. to sell 1,422,987 shares of common stock at $0.056536 per share, net of legal fees funded from the proceeds of this transaction. This offering was conducted in reliance upon the exemption from the registration requirements of the Securities Act set forth under SEC Rule 504 of Regulation D and utilizing Section 80A.15, Subdivision 2 of the State of Minnesota Administrative Code and Regulations for sale to Minnesota residents.

On April 24 and May 1, 2006 the Company entered into an agreement with Mazuma Corp. to sell 1,100,000 shares of common stock at $0.06 per share. This offering was conducted in reliance upon the exemption from the registration requirements of the Securities Act set forth under SEC Rule 504 of Regulation D and utilizing Section 80A.15, Subdivision 2 of the State of Minnesota Administrative Code and Regulations for sale to Minnesota residents.

On May 2, 2006, the Company entered into an agreement with TJ Management Group, LLC to sell 1,250,000 shares of common stock at $0.06 per share. This offering was conducted in reliance upon the exemption from the registration requirements of the Securities Act under SEC Rule 504 of Regulation D and Sections 5.1.T and 7 of the Texas Administrative Code and Regulations.

On May 3, 2006, the Company entered into an agreement with Mazuma Corp. to sell 1,071,428 shares of common stock at $0.07 per share. This offering was conducted in reliance upon the exemption from the registration requirements of the Securities Act set forth under SEC Rule 504 of Regulation D and utilizing Section 80A.15, Subdivision 2 of the State of Minnesota Administrative Code and Regulations for sale to Minnesota residents.

On May 11, 2006, the Company entered into an agreement with Mazuma Corp. to sell 600,000 shares of common stock at $0.125 per share. This offering was conducted in reliance upon the exemption from the registration requirements of the Securities Act set forth under SEC Rule 504 of Regulation D and utilizing Section 80A.15, Subdivision 2 of the State of Minnesota Administrative Code and Regulations for sale to Minnesota residents.

On May 12, 2006 the Company entered into an agreement with TJ Management Group, LLC, to sell 476,190 shares of common stock at $0.105 per share. This offering was conducted in reliance upon the exemption from the registration requirements of the Securities Act as set forth under SEC Rule 504 of Regulation D and Sections 5.1.T and 7 of the Texas Administrative Code and Regulations.

On May 31, 2006 the Company entered into an agreement with Diller Investments LLC to sell 4,000,000 shares of common stock at $0.05 per share. This offering was conducted in reliance upon the exemption from the registration requirements of the Securities Act set forth under SEC Rule 504 of Regulation D and Sections 5.1.T and 7 of the Texas Administrative Code and Regulations.

On June 26, 2006, La Jolla Cove Investors, Inc. partially exercised its warrant by purchasing 233,317 shares of restricted common stock at $0.24 per share. The price was based on eighty percent (80%) of the average of the five lowest volume weighted average prices of the Company's common stock during the twenty trading days prior to the date of exercise as determined by the provisions of the warrant enter into on May 19, 2006.

On July 12, 2006, La Jolla Cove Investors, Inc. partially exercised its warrant by purchasing 181,291 shares of restricted common stock at $0.28 per share. The price was based on eighty percent (80%) of the average of the five lowest volume weighted average prices of the Company's common stock during the twenty trading days prior to the date of exercise as determined by the provisions of the warrant entered into on May 19, 2006.

On July 14, 2006, La Jolla Cove Investors, Inc. partially exercised its warrant by purchasing 195,650 shares of restricted common stock at $0.28 per share. The price was based on eighty percent (80%) of the average of the five lowest volume weighted average prices of the Company's common stock during the twenty trading days prior to the date of exercise as determined by the provisions of the warrant enter into on May 19, 2006.

On July 24, 2006, La Jolla Cove Investors, Inc. partially exercised its warrant by purchasing 349,040 shares of restricted common stock at $0.29 per share. The price was based on eighty percent (80%) of the average of the five lowest volume weighted average prices of the Company's common stock during the twenty trading days prior to the date of exercise as determined by the provisions of the warrant enter into on May 19, 2006.

On October 6, 2006 the Company filed an amendment to its Articles of Incorporation, which provided for an increase in the number of shares that it is authorized to issue and the creation of a new class of stock. The company is now authorized to issue a total of 310,000,000 shares of stock, of which 300,000,000 shares are designated "Common Stock," $0.0001 par value, and 10,000,000 shares are designated "Class B Common Stock," no par value. As of June 30, 2007, 78,592,204 shares of common stock were outstanding.

On October 20, 2006, the Company's board of directors declared a stock dividend payable to each shareholder of record on October 27, 2006 equal to one share of Class B Common Stock for every twenty shares of Common Stock held by each shareholder.

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