AMERICAN INTERNATIONAL HOLDINGS CORP. - Quarter Report: 2012 June (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

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

For the quarterly period ended June 30, 2012

OR

 

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

 

For the transition period from          to

 

Commission file number: 0-50912

DELTA SEABOARD INTERNATIONAL, INC.

(Exact Name Of Registrant As Specified In Its Charter)

 

Nevada	88-0225318
(State of Incorporation)	(I.R.S. Employer Identification No.)
601 Cien Street, Suite 235 Kemah, TX	77565-3077
(Address of Principal Executive Offices)	(ZIP Code)

 

  Registrant's Telephone Number, Including Area Code: (281) 334-9479

 

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  x No ¨

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes x No ¨

 

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

 

Large accelerated filer ¨	Accelerated filer ¨
Non-accelerated filer ¨	Smaller reporting company x

 

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

 

The number of shares outstanding of each of the issuer’s classes of equity as of August 8, 2012 is 74,641,876 shares of common stock.

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PART I - FINANCIAL INFORMATION

 

 

ITEM 1. FINANCIAL STATEMENTS

 

 

Financial Statements

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DELTA SEABOARD INTERNATIONAL, INC.

Consolidated Balance Sheets

(Unaudited)

	June 30, 2012		December 31, 2011
ASSETS
Current assets:
Cash and cash equivalents	$ 1,567,491		$ -
Assets held for sale	-		3,577,340
Total current assets	1,567,491		3,577,340
Notes receivable	1,400,000		-
Assets held for sale	-		1,707,686
Total assets	$ 2,967,491		$ 5,285,026
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$ 15,000		$ -
Accounts payable – related party	31,716		740
Dividends payable	-		1,035,000
Short-term note payable	-		80,000
Liabilities associated with assets held for sale	-		2,763,857
Total current liabilities	46,716		3,879,597
Liabilities associated with assets held for sale	-		49,843
Total liabilities	46,716		3,929,440
Commitments and contingencies	-		-
Stockholders’ equity:
Preferred stock, $0.0001 par value, 5,000,000 shares authorized, 0 and 3,769,626 shares issued and outstanding, respectively	-		377
Common stock, $0.0001 par value, 195,000,000 shares authorized; 74,661,876 and 70,892,250 shares issued, respectively; 74,641,876 and 70,882,250 shares outstanding, respectively	7,466		7,089
Additional paid-in capital	4,277,438		4,277,438
Accumulated deficit	(1,362,145)		(2,928,578)
Less treasury stock, at cost; 20,000 and 10,000 shares, respectively	(1,984)		(740)
Total stockholders’ equity	2,920,775		1,355,586
Total liabilities and stockholders’ equity	$ 2,967,491		$ 5,285,026

See accompanying notes to the unaudited consolidated financial statements.

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DELTA SEABOARD INTERNATIONAL, INC.

Consolidated Statements of Operations

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2012 AND 2011

 (Unaudited)

See accompanying notes to the unaudited consolidated financial statements.

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DELTA SEABOARD INTERNATIONAL, INC.

Consolidated Statements of Cash Flows

FOR THE SIX MONTHS ENDED JUNE 30, 2012 AND 2011

(Unaudited)

	For the Six Months Ended
	June 30,  2012		June 30, 2011
Cash flows from operating activities:
Net income	$ 531,433		$ 9,528
Income from discontinued operations, net of income taxes	575,810		137,033
Net loss from continuing operations	(44,377)		(127,505)
Adjustments to reconcile net loss to cash used in operating activities:
Other income from forgiveness of debt	(15,000)		-
Share-based compensation	-		127,500
Changes in operating assets and liabilities:
Accounts payable	15,000		-
Net cash used in operating activities from continuing operations	(44,377)		(5)
Cash flows from investing activities
Proceeds from the sale of subsidiary	1,600,000		-
Net cash provided by investing activities from continuing operations	1,600,000		-
Cash flows from financing activities
Loans from (to) related parties, net	78,112		(95)
Principal payments on debt	(65,000)		-
Payments for acquisition of treasury stock	(1,244)		-
Net cash provided by (used in) financing activities from continuing operations	11,868		(95)
Net increase (decrease) in cash and cash equivalents from continuing operations	1,567,491		(100)
Cash and cash equivalents at beginning of period	-		100
Cash and cash equivalents at end of period	$ 1,567,491		$ -
Discontinued operations
Net cash provided by operations	$ 300,902		$ 327,071
Net cash used in investing activities	(125,399)		(213,511)
Net cash used in financing activities	(186,158)		(107,289)
Net increase (decrease) in cash and cash equivalents from discontinued operations	(10,655)		6,271
Cash and cash equivalents at beginning of period from discontinued operations	10,655		24,672
Cash and cash equivalents at end of period from discontinued operations	$ -		$ 30,943
Supplemental disclosures:
Interest paid	$ -		$ -
Income taxes paid	$ -		$ -
Non-cash transactions:
Preferred dividends declared and unpaid	$ 20,000		$ 120,000
Reversal of preferred dividends	$ 1,055,000		$ -
Conversion of preferred stock to common stock	$ 377		$ -
Note receivable received from sale of subsidiary	$ 1,400,000		$ -

See accompanying notes to the unaudited consolidated financial statements.

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DELTA SEABOARD INTERNATIONAL, INC.

Notes to Unaudited Consolidated Financial Statements

 

Note 1 - Summary of Significant Accounting Policies

 

The accompanying unaudited interim consolidated financial statements of Delta Seaboard International, Inc. (“Delta”) have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules of the Securities and Exchange Commission and should be read in conjunction with the audited consolidated financial statements and notes thereto contained in Delta's latest Annual Report filed with the SEC on Form 10-K for the year ended December 31, 2011. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the interim periods presented have been reflected herein. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year. Notes to the unaudited interim consolidated financial statements that would substantially duplicate the disclosures contained in the audited financial statements for the most recent fiscal year as reported in the Form 10-K have been omitted.

 

Organization, Ownership and Business

 

Delta Seaboard International, Inc. ("Delta"), at June 30, 2012, was  a 86.8%  owned subsidiary of American International Industries, Inc. ("American") (OTCBB: AMIN). At June 30, 2012, Delta also had a wholly-owned subsidiary, Delta Seaboard Well Service, Inc., a Texas corporation ("DSWSI").

On April 3, 2012, Delta entered into an Asset Purchase Agreement by and among Delta Seaboard, LLC (the "Purchaser"), a Texas limited liability company that is owned and controlled by Robert W. Derrick, Jr. and Ronald D. Burleigh, Delta's president and director and vice-president and director, respectively, on the date of the Agreement, DSWSI, and American.

 

Pursuant to the terms of the agreement, Delta: (i) sold all of the assets and liabilities of DSWSI to the Purchaser; (ii) Messrs. Derrick and Burleigh resigned as executive officers and as members of Delta’s board of directors; (iii) Mr. Derrick resigned as a director of American; and (iv) Messrs. Derrick and Burleigh transferred and assigned all of their 31,925,832 Delta shares, representing approximately 45% of Delta's outstanding common stock to American. Total consideration for the sale was $3,000,000 for Delta. In consideration for the sale of the DSWSI net assets to Purchaser, Purchaser paid Delta $1,600,000 in cash and executed a 5 year note bearing interest at 5% per annum in the face amount of $1,400,000. The note receivable, which is personally guaranteed by Messrs. Derrick and Burleigh and is secured by the 3.2 acre parcel on which the business of DSWSI is located (the "DSWSI Property"), provides for the mandatory prepayment of the principal and interest in full upon the sale of the DSWSI Property, which is presently listed for sale at $4.25 million. Delta will receive additional consideration equal to the amount that the Purchaser receives from the planned sale of the 3.2 acre property in excess of $3 million.

 

Upon the closing of the agreement on April 3, 2012, American then held an aggregate, including previous holdings, of 64,785,767 shares of Delta's issued and outstanding common stock, representing approximately 86.8% of Delta's shares. At the same date, Delta ceased to be an operating company and became a non-operating "shell company", as that term is defined in Rule 144(i) under the Securities Act of 1933, as amended.

 

Principles of Consolidation

 

The consolidated financial statements include the accounts of Delta Seaboard International, Inc. and its wholly-owned subsidiary, Delta Seaboard Well Service, Inc. All significant intercompany transactions and balances have been eliminated in consolidation.

 

Reclassifications

 

Certain reclassifications have been made to amounts in prior periods to conform with the current period presentation. All reclassifications have been applied consistently to the periods presented.

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Net Income (Loss) Per Share

 

The basic net income (loss) per common share is computed by dividing the net income (loss) by the weighted average number of shares outstanding during a period. Diluted net income (loss) per common share is computed by dividing the net income (loss), adjusted on an as if converted basis, by the weighted average number of common shares outstanding plus potential dilutive securities.

 

For the three and six months ended June 30, 2011, preferred shares convertible into 3,769,626 common shares were excluded from the diluted earnings per share calculation for all periods because their effect would have been anti-dilutive.

 

Income Taxes

 

Delta is a taxable entity and recognizes deferred tax assets and liabilities for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to be in effect when the temporary differences reverse. The effect on the deferred tax assets and liabilities of a change in tax rates is recognized in income in the year that includes the enactment date of the rate change. A valuation allowance is used to reduce deferred tax assets to the amount that is more likely than not to be realized.  Interest and penalties associated with income taxes are included in selling, general and administrative expense.

 

Delta evaluates the tax benefits from uncertain positions and determines if it is "more likely than not" that the position is sustainable, based upon its technical merits. The tax benefit of a qualifying position is the largest amount of tax benefit that is greater than 50 percent likely of being realized upon ultimate settlement with a taxing authority having full knowledge of all relevant information. As of June 30, 2012, Delta had not recorded any tax benefits from uncertain tax positions.

 

Management's Estimates and Assumptions

 

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses. Actual results could differ from these estimates.

 

Subsequent Events

 

Delta has evaluated all subsequent events from June 30, 2012 through the issuance date of the consolidated financial statements for subsequent event disclosure consideration.

 

New Accounting Pronouncements

 

There were various accounting standards and interpretations issued recently, none of which are expected to a have a material impact on our consolidated financial position, operations or cash flows.

 

Note 2 - Assets held for sale

 

On April 3, 2012, Delta sold all of the assets and liabilities of DSWSI, as discussed in Note 1.

 

The assets and liabilities of DSWSI are classified as assets held for sale and associated liabilities of assets held for sale in the consolidated balance sheets as of December 31, 2011 in accordance with Presentation of Financial Statements - Discontinued Operations (ASC 205-20).  Discontinued operations for the three and six months ended June 30, 2012 includes a gain on disposal of DSWSI of $1,498,327 for the total consideration of $3,000,000 less DSWSI's assets and associated liabilities of $1,501,673.  DSWSI's net loss of $922,517 for the six months ended June 30, 2012, and a net loss of $7,167 and net income of $137,033 for the three and six months ended June 30, 2011, respectively, are included in discontinued operations.

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The carrying amounts of the major classes of assets and liabilities for DSWSI at December 31, 2011 are summarized below:

The gain on disposal of DSWSI is summarized below:

DSWSI's revenues and net income (loss) before income tax are summarized below:

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Note 3 - Short-term Notes Payable

(a) On June 29, 2011, Delta entered into an agreement, with an effective date of July 1, 2011, with Vision Opportunity Master Fund, Ltd. (“VOMF”), pursuant to which VOMF agreed to convert 3,769,626 shares of the Company’s preferred stock, constituting all of Delta’s outstanding preferred stock, into 3,769,626 shares of common stock and also agreed to waive all accrued dividends payable on the preferred stock. In consideration for the conversion, Delta agreed to pay VOMF total consideration of $250,000, $50,000 of which was paid on July 1, 2011, and the $200,000 remainder was due and payable at the rate of $20,000 per month. On February 23, 2012, Delta completed the agreement with VOMF. VOMF accepted a payment of $65,000 in full satisfaction of this note, and the difference of $15,000 was recognized as other income from forgiveness of debt. On February 29, 2012, 3,769,626 shares of Delta's preferred stock were converted into 3,769,626 shares of Delta's common stock.

Note 4 - Equity

 

On January 4, 2011, Delta issued 2,550,000 restricted shares of common stock for services valued at $127,500.  During the three and six months ended June 30, 2011, preferred dividends of $60,000 and $120,000, respectively, were accrued and unpaid.

 

On June 29, 2011, Delta entered into an agreement, with an effective date of July 1, 2011, with Vision Opportunity Master Fund, Ltd. (“VOMF”), pursuant to which VOMF agreed to convert 3,769,626 shares of the Company’s preferred stock, constituting all of Delta’s outstanding preferred stock, into 3,769,626 shares of common stock and also agreed to waive all accrued dividends payable on the preferred stock upon the payment of $250,000. In consideration for the conversion, Delta agreed to pay VOMF total consideration of $250,000, $50,000 of which was paid on July 1, 2011, and the $200,000 remainder was due and payable at the rate of $20,000 per month.  On February 23, 2012, Delta completed the agreement with VOMF. VOMF accepted a payment of $65,000 in full satisfaction of this note, and the difference of $15,000 was recognized as other income from forgiveness of debt. On February 29, 2012, 3,769,626 shares of Delta's preferred stock were converted into 3,769,626 shares of Delta's common stock. Upon satisfaction of the agreement with VOMF, the company’s obligation for previously recorded preferred dividends was released and Delta reversed the dividends payable of $1,055,000.

 

Delta has 5,000,000 authorized, 0 issued and outstanding, Preferred Shares consisting of Series A and Series B convertible into one share of Delta's common stock.

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Delta Seaboard International, Inc. ("Delta"), at June 30, 2012, was  a 86.8%  owned subsidiary of American International Industries, Inc. ("American") (OTCBB: AMIN). At June 30, 2012, Delta also had a wholly-owned subsidiary, Delta Seaboard Well Service, Inc., a Texas corporation ("DSWSI").

On April 3, 2012, Delta entered into an Asset Purchase Agreement by and among Delta Seaboard, LLC (the "Purchaser"), a Texas limited liability company that is owned and controlled by Robert W. Derrick, Jr. and Ronald D. Burleigh, Delta's president and director and vice-president and director, respectively, on the date of the Agreement, DSWSI, and American.

 

Pursuant to the terms of the agreement, Delta: (i) sold all of the assets of DSWSI to the Purchaser; (ii) Messrs. Derrick and Burleigh resigned as executive officers and as members of Delta’s board of directors; (iii) Mr. Derrick resigned as a director of American; and (iv) Messrs. Derrick and Burleigh transferred and assigned all of their 31,925,832 Delta shares to American. Total consideration for the sale was $3,000,000 for Delta. In consideration for the sale of the DSWSI assets to Purchaser, Purchaser paid Delta $1,600,000 in cash and executed a 5 year note bearing interest at 5% per annum in the face amount of $1,400,000. The note receivable, which is personally guaranteed by Messrs. Derrick and Burleigh and is secured by the 3.2 acre parcel on which the business of DSWSI is located (the "DSWSI Property"), provides for the mandatory prepayment of the principal and interest in full upon the sale of the DSWSI Property, which is presently listed for sale at $4.25 million. Delta will receive additional consideration equal to the amount that the Purchaser receives from the planned sale of the 3.2 acre property in excess of $3 million.

 

Upon the closing of the agreement on April 3, 2012, American then held an aggregate, including previous holdings, of 64,785,767 shares of Delta's issued and outstanding common stock, representing approximately 86.8% of Delta's shares. At the same date, Delta ceased to be an operating company and became a non-operating "shell company", as that term is defined in Rule 144(i) under the Securities Act of 1933, as amended.

 

Results of Operations for Delta

 

Three and Six Months ended June 30, 2012 Compared to the Three and Six Months ended June 30, 2011

 

General and administrative expenses were $54,877 for the three months ended June 30, 2012, compared to $5 for the three months ended June 30, 2011. General and administrative expenses for the three months ended June 30, 2012 consisted of executive compensation and legal and professional expenses. General and administrative expenses were $76,877 for the six months ended June 30, 2012, compared to $127,505 for the six months ended June 30, 2011. General and administrative expenses for the six months ended June 30, 2012 consisted of executive compensation and legal and professional expenses. General and administrative expenses for the six months ended June 30, 2011 consisted of non-cash stock-based compensation.

 

Other income during the three and six months ended June 30, 2012 was $17,500 and $32,500, respectively, compared to $0 during the same periods in the prior year.  Interest income for the three and six months ended June 30, 2012 was $17,500, representing 5% interest on the $1,400,000 note receivable from the sale of DSWSI’s assets. Vision Opportunity Master Fund, Ltd. accepted a payment of $65,000 in full satisfaction of a note with a balance of $80,000, and the difference of $15,000 was recognized as other income from forgiveness of debt for the six month period ended June 30, 2012.

 

Delta had net income of $1,460,950, or $0.02 per share, for the three months ended June 30, 2012, compared to a net loss of $7,172, or $0.00 per share, for the three months ended June 30, 2011. Delta had net income of $531,433, or $0.02 per share, for the six months ended June 30, 2012, compared to $9,528, or $0.00 per share, for the six months ended June 30, 2011. We had net income from discontinued operations of $1,498,327, or $0.02 per share, and $575,810, or $0.01 per share, respectively, for the three and six months ended June 30, 2012.  Discontinued operations for the three and six months ended June 30, 2012 includes a gain on disposal of DSWSI of $1,498,327 for the total consideration of $3,000,000 less DSWSI's assets and associated liabilities of $1,501,673 (see Note 2).  Discontinued operations for the six months ended June 30, 2012 includes DSWSI's net loss of $922,517.  Discontinued operations for the three and six months ended June 30, 2011 includes DSWSI's net loss of $7,167 and net income of $137,033, respectively.

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Liquidity and Capital Resources for Delta

As of June 30, 2012, Delta had total assets of $2,967,491, consisting of $1,567,491 in cash and cash equivalents and a $1,400,000 note receivable.

 

As of June 30, 2012, Delta had total liabilities of $46,716, of which $15,000 is for accounts payable and $31,716 is for accounts payable to our parent, American.

 

Delta had working capital of $1,520,775 and total stockholders’ equity of $2,920,775 as of June 30, 2012.

 

Net cash used in operating activities was $44,377 for the six months ended June 30, 2012, which was derived from a net loss of $44,377 and non-cash income for forgiveness of debt of $15,000, offset by an increase in accounts payable of $15,000. Net cash used in operating activities was $5 for the six months ended June 30, 2011, which was derived from a net loss of $127,505 offset by non-cash stock-based compensation of $127,500.

Net cash provided by investing activities during the six months ended June 30, 2012 was $1,600,000 for the receipt of proceeds from the sale of DSWSI’s assets.

 

Net cash provided by financing activities during the six months ended June 30, 2012 was $11,868, compared to net cash used in financing activities of $95 during the six months ended June 30, 2011. Net cash provided by financing activities during the six months ended June 30, 2012 included the receipt of $78,112 in loans from related parties, offset by $65,000 in principal payments on debt and $1,244 for the acquisition of 10,000 common shares as treasury stock.  Net cash used in financing activities during the six months ended June 30, 2011 was for the repayment of loans from related parties.

 

Off-Balance Sheet Arrangements

 

As of June 30, 2012 and December 31, 2011, we did not have any off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K promulgated under the Securities Act of 1934.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Not applicable

 

ITEM 4T. CONTROLS AND PROCEDURES

 

Evaluation of disclosure controls and procedures. As of June 30, 2012, the Company's chief executive officer and chief financial officer conducted an evaluation regarding the effectiveness of the Company's disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) under the Exchange Act. Based upon the evaluation of these controls and procedures, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report.

 

Changes in internal controls. During the quarterly period covered by this report, no changes occurred in our internal control over financial reporting that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

PART II - OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

 

There have been no updates to any legal proceedings previously disclosed.

 

ITEM 1A. RISK FACTORS

 

For the six months ended June 30, 2012 there were no material changes from risk factors as disclosed in Part I, Item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2011.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

 

ITEM 4. MINE SAFETY DISCLOSURES

None.

 

ITEM 5. OTHER INFORMATION

None.

 

ITEM 6. EXHIBITS

 

The following documents are filed as exhibits to this report on Form 10-Q or incorporated by reference herein. Any document incorporated by reference is identified by a parenthetical reference to the SEC filing that included such document.

 

Exhibit No.	Description
31.1	Certification of CEO Pursuant to 18 U.S.C. Section 1350 as adopted pursuant to the Sarbanes-Oxley Act of 2002
31.2	Certification of CFO Pursuant to 18 U.S.C. Section 1350 as adopted pursuant to the Sarbanes-Oxley Act of 2002
32.1	Certification of CEO Pursuant to Section 906 of Sarbanes-Oxley Act of 2002
32.2	Certification of CFO Pursuant to Section 906 of Sarbanes-Oxley Act of 2002
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema
101.CAL	XBRL Taxonomy Extension Calculation Linkbase
101.LAB	XBRL Taxonomy Extension Label Linkbase
101.PRE	XBRL Taxonomy Extension Presentation Linkbase

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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.

 

 

By /s/ Daniel Dror

Daniel Dror

Chief Executive Officer, President, and Chairman

August 8, 2012

 

 

By /s/ Sherry L. McKinzey

Sherry L. McKinzey

Director, Chief Financial Officer, and Vice-President

August 8, 2012

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