-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QaHMJ+jqkC5vobut9AQjpPwMJUIh/+w/F9Q16PaUMz/T+Rr/RpxzbvNQJ2WJoEvG DFakyhPQ4OvUPrSBZFazTA== 0001185185-06-000331.txt : 20060914 0001185185-06-000331.hdr.sgml : 20060914 20060914142811 ACCESSION NUMBER: 0001185185-06-000331 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20060630 FILED AS OF DATE: 20060914 DATE AS OF CHANGE: 20060914 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ENTECH ENVIRONMENTAL TECHNOLOGIES INC CENTRAL INDEX KEY: 0001066923 STANDARD INDUSTRIAL CLASSIFICATION: INDUSTRIAL INSTRUMENTS FOR MEASUREMENT, DISPLAY, AND CONTROL [3823] IRS NUMBER: 980222013 STATE OF INCORPORATION: FL FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-32249 FILM NUMBER: 061090381 BUSINESS ADDRESS: STREET 1: 3233 GRAND AVENUE STREET 2: .SUITE N-353 CITY: CHINO HILLS STATE: CA ZIP: 91709-1489 BUSINESS PHONE: 8668153951 MAIL ADDRESS: STREET 1: 3233 GRAND AVENUE STREET 2: .SUITE N-353 CITY: CHINO HILLS STATE: CA ZIP: 91709-1489 FORMER COMPANY: FORMER CONFORMED NAME: CYBER PUBLIC RELATIONS INC DATE OF NAME CHANGE: 20010111 10QSB 1 entech10qsb063006.txt ENTECH 10-QSB 06.30.06 U.S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-QSB [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2006 [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _______ to ________ COMMISSION FILE NUMBER: 000-32249 ENTECH ENVIRONMENTAL TECHNOLOGIES, INC. (Name of small business issuer in its charter) Florida 77-0616120 - -------------------------------- ------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 3233 Grand Avenue, Suite N-353 Chino Hills, California 91709-1489 (Address and telephone number of principal executive offices) (909) 623-2502 ----------------------- (Issuer's telephone number) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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 [ ] State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: As of September 12, 2006, the issuer had 32,380,840 shares of its common stock issued and outstanding. Transitional Small Business Disclosure Format (check one): Yes [ ] No [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| TABLE OF CONTENTS PART I - FINANCIAL INFORMATION...............................................F-1 Item 1. Financial Statements...............................F-1 to F-10 Item 2. Management's Discussion and Analysis or Plan of Operation.........................................3 Item 3. Controls and Procedures......................................8 PART II - OTHER INFORMATION Item 1. Legal Proceedings............................................9 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds..........................................9 Item 3. Defaults Upon Senior Securities.............................10 Item 4. Submission of Matters to a Vote of Security Holders.........................................10 Item 5. Other Information...........................................10 Item 6. Exhibits....................................................10 SIGNATURES 2 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS ENTECH ENVIRONMENTAL TECHNOLOGIES, INC. CONSOLIDATED BALANCE SHEET JUNE 30, 2006 (UNAUDITED) Assets Current assets: Cash $ 27,974 Accounts receivable, net allowance for doubtful accounts totaling $85,825 889,914 Costs and estimated earnings in excess of billings on uncompleted contracts 88,700 Inventory 121,043 Prepaid expenses and other 68,684 ------------ Total current assets 1,196,315 Property and equipment, net 425,993 Other assets 40,091 ------------ Total assets $ 1,662,399 ============ LIABILITIES AND DEFICIENCY IN STOCKHOLDERS' EQUITY: Current liabilities: Accounts payable $ 585,336 Accrued interest and other 369,862 Accrued payroll 154,578 Billings in excess of costs and estimated earnings on uncompleted contracts 167,675 Purchase price payable 39,756 Due to de-consolidated entities 793,025 Current portion of notes payable, net of discounts totaling $135,402 926,611 Current portion of note payable - related party 27,343 ------------ Total current liabilities 3,064,186 Notes payable, net of current portion and net of discounts totaling $415,312 89,211 Note payable - related party, net of current portion 99,437 Commitments and contingencies -- Deficiency in stockholders' equity: Preferred stock, $.001 par value; 10,000,000 shares authorized; none issued and outstanding -- Common stock, $0.001 par value; 100,000,000 shares authorized; 32,380,840 shares issued and outstanding 32,381 Additional paid-in capital 16,896,661 Common stock subscribed, 3,500 shares 597 Accumulated deficit (18,520,074) ------------ Total deficiency in stockholders' equity (1,590,435) ------------ Total liabilities and deficiency in stockholders' equity $ 1,662,399 ============ See accompanying notes to the consolidated financial statements. F-1
ENTECH ENVIRONMENTAL TECHNOLOGIES, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) For the three months For the nine months ended June 30, ended June 30, ---------------------------- ---------------------------- 2006 2005 2006 2005 ------------ ------------ ------------ ------------ Revenues, net $ 963,625 $ 1,790,403 $ 3,722,302 $ 3,844,586 Cost of goods sold 672,598 1,148,867 2,465,904 2,343,117 ------------ ------------ ------------ ------------ Gross profit 291,027 641,536 1,256,398 1,501,469 Operating expenses: Selling, general, and administrative expenses 464,744 494,205 1,433,026 1,481,933 Depreciation and amortization 26,880 11,434 75,243 37,469 Goodwill impairment 21,532 48,412 21,532 48,412 ------------ ------------ ------------ ------------ Total operating expenses 513,156 505,639 1,529,801 1,519,402 ------------ ------------ ------------ ------------ Income (Loss) from continuing operations (222,129) 135,897 (273,403) (17,933) Other income 6,171 -- 44,106 -- Liquidated damages 167,821 -- 358,459 -- Interest expense 224,740 155,096 586,859 461,356 ------------ ------------ ------------ ------------ Loss from continuing operations before provision for income taxes (608,519) (19,199) (1,174,615) (479,289) Provision for income taxes -- -- -- -- ------------ ------------ ------------ ------------ Net loss from continuing operations (608,519) (19,199) (1,174,615) (479,289) Discontinued operations, net of taxes (54,414) (29,491) (146,600) (66,977) ------------ ------------ ------------ ------------ Net loss $ (662,933) $ (48,690) $ (1,321,215) $ (546,266) ============ ============ ============ ============ Net loss per share - basic and fully diluted $ (0.02) $ (0.00) $ (0.04) $ (0.02) ============ ============ ============ ============ Basic and diluted weighted average number of shares outstanding 32,377,507 27,789,728 32,380,747 26,914,392 ============ ============ ============ ============
See accompanying notes to the consolidated financial statements. F-2 ENTECH ENVIRONMENTAL TECHNOLOGIES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
For the nine months ended June 30, ----------------------------- 2006 2005 ----------- ----------- Net loss $(1,321,215) $ 546,266) Add back: Net loss from discontinued operations, net of taxes (146,600) (66,977) ----------- ----------- Net loss from continuing operations (1,174,615) (479,289) Cash flows from continuing operating activities: Adjustments to reconcile net loss from continuing operations to net cash used in operating activities: Depreciation and amortization 75,243 37,469 Common stock issued for services 5,000 -- Goodwill impairment 21,532 -- Amortization of note discount 490,143 387,470 Reserve for bad debts 1,583 -- Gain on settlement (37,935) -- Changes in: Accounts receivable 179,817 (662,918) Due to de-consolidated entities (20,000) -- Inventory 56,099 (96,355) Construction in progress 6,002 24,763 Other assets (62,701) (31,759) Accounts payable and accrued expenses 484,505 352,737 ----------- ----------- Net cash provided by (used in) continuing operating activities 24,673 (467,882) Cash flows from continuing investing activities: Purchases of property and equipment (81,146) (28,399) ----------- ----------- Net cash used in continuing investing activities (81,146) (28,399) Cash flows from continuing financing activities: Proceeds from notes payable 100,000 490,000 Proceeds from notes payable - related party -- 20,000 Principal payments on notes payable (19,123) (20,000) ----------- ----------- Net cash provided by continuing financing activities 80,877 490,000 Net cash used for discontinued operations (109,583) (66,977) ----------- ----------- Net decrease in cash (90,179) (73,258) Cash at beginning of period 113,153 158,093 ----------- ----------- Cash at end of period $ 27,974 $ 84,835 =========== =========== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION : Cash paid during the period for interest $ 8,250 $ 3,045 =========== =========== Cash paid during the period for income taxes $ -- $ -- =========== =========== Beneficial conversion feature of convertible note $ 424,523 $ 133,711 =========== =========== Value of warrants issued with convertible note $ 80,000 $ 356,289 =========== ===========
See accompanying notes to the consolidated financial statements. F-3 ENTECH ENVIRONMENTAL TECHNOLOGIES, INC. NOTES TO CONSOLIDATED FINANCIAL INFORMATION JUNE 30, 2006 (UNAUDITED) NOTE 1 - BUSINESS, BASIS OF PRESENTATION and GOING CONCERN ISSUES General - ------- The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-QSB. 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. Accordingly, the results from operations for the nine month period ended June 30, 2006 are not necessarily indicative of the results that may be expected for the year ended September 30, 2006. The unaudited consolidated financial statements should be read in conjunction with the consolidated September 30, 2005 financial statements and footnotes thereto included in the Company's SEC Form 10-KSB. Business and Basis of Presentation - ---------------------------------- Entech Environmental Technologies, Inc. ("Entech" or the "Company"), formerly Cyber Public Relations, Inc., was formed in June, 1998 under the laws of the State of Florida. The Company, through its H.B. Covey subsidiary, provides construction, maintenance and testing services to petroleum service stations in the southwestern part of the United States of America, and provides installation services for consumer home products in Southern California. The accompanying financial statements include the accounts of the Company and its wholly-owned subsidiary, H.B. Covey, Inc., a California corporation ("H.B. Covey"). All significant intercompany transactions and balances have been eliminated in the consolidated financial statements. Going Concern Issues - -------------------- The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. During the years ended September 30, 2005 and 2004, the Company incurred losses from continuing operations of $1.2 million and $16.0 million, respectively; and had negative cash flows from continuing operations of $588,000 and $1.7 million, respectively. As of June 30, 2006, the Company has negative working capital of $1.9 million, an accumulated deficit of $18.5 million, current portion of notes payable of $1.1 million after full amortization of the note discount, and accounts payable and accrued expenses of $1.1 million. Other than cash received from the collection of accounts receivable for construction and maintenance services, the Company's cash resources are generally limited to borrowings under the Note Purchase Agreements as discussed in Note 3. To date, the Company has borrowed $1.1 million under the original agreement which provides for total aggregate borrowings of $1.5 million. The Note Purchase Agreement provides certain restrictions on the Company's ability to raise funds from other resources. As a result, payments to vendors, lenders and employees may be delayed. These factors raise substantial doubt about the Company's ability to continue as a going concern. The accompanying financial statements do not include any adjustments that might result from the outcome of this uncertainty. The Company's existence is dependent upon management's ability to develop profitable operations and to resolve its liquidity problems. Management anticipates the Company will attain profitable status and improve its liquidity through the continued development, marketing and selling of its services, and through additional debt or equity investment in the Company. F-4 Basic and diluted net loss per share - ------------------------------------ Net loss per share is calculated in accordance with the Statement of Financial Accounting Standards No. 128 (SFAS No. 128), Basic net loss per share is based upon the weighted average number of common shares outstanding. Diluted net loss per share is based on the assumption that all potential dilutive convertible shares and stock options or warrants were converted or exercised. The calculation of diluted net loss per share excludes potential common stock equivalents if the effect is anti-dilutive. The Company's weighted common shares outstanding for basic and dilutive were the same since the effect of common stock equivalents was anti-dilutive. The Company has the following dilutive convertible notes payable and warrants as of June 30, 2006 and 2005 which were excluded from the calculation since the effect is anti-dilutive. 2006 2005 ------------- ------------- Convertible notes payable 62,661,400 42,480,480 Warrants 28,355,555 24,355,555 ------------- ------------- Total 91,016,955 66,836,035 ============= ============= Recent Accounting Pronouncements - -------------------------------- On December 16, 2004, the FASB issued SFAS No. 123 (revised 2004), "Share-Based Payment" (SFAS 123R). SFAS 123R eliminates the alternative of applying the intrinsic value measurement provisions of APB 25 to stock compensation awards issued to employees. Rather, the new standard requires enterprises to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award. That cost will be recognized over the period during which an employee is required to provide services in exchange for the award, known as the requisite service period (usually the vesting period). On April 14, 2005, the Securities and Exchange Commission ("SEC") announced the adoption of a rule that defers the required effective date of SFAS 123R. The SEC rule provides that SFAS 123R is now effective for small business issuers as of the beginning of the first fiscal year beginning after December 15, 2005. SFAS 123R will be effective for our fiscal year beginning October 1, 2006. In March 2005, the SEC released Staff Accounting Bulletin No. 107, "Share-Based Payment" ("SAB 107"), which provides interpretive guidance related to the interaction between SFAS 123(R) and certain SEC rules and regulations. It also provides the SEC staff's views regarding valuation of share-based payment arrangements. In April 2005, the SEC amended the compliance dates for SFAS 123(R), to allow companies to implement the standard at the beginning of their next fiscal year, instead of the next reporting period beginning after June 15, 2005. Management is currently evaluating the impact SAB 107 will have on the financial statements. In May 2005, the FASB issued FASB Statement No. 154, Accounting Changes and Error Corrections. This new standard replaces APB Opinion No. 20, Accounting Changes, and FASB Statement No. 3, Reporting Accounting Changes in Interim Financial Statements, and represents another step in the FASB's goal to converge its standards with those issued by the IASB. Among other changes, Statement 154 requires that a voluntary change in accounting principle be applied retrospectively with all prior period financial statements presented on the new accounting principle, unless it is impracticable to do so. Statement 154 also provides that (1) a change in method of depreciating or amortizing a long-lived nonfinancial asset be accounted for as a change in estimate (prospectively) that was effected by a change in accounting principle, and (2) correction of errors in previously issued financial statements should be termed a "restatement." The new standard is effective for accounting changes and correction of errors made in fiscal years beginning after December 15, 2005. Early adoption of this standard is permitted for accounting changes and correction of errors made in fiscal years beginning after June 1, 2005. Management believes that changes resulting from adoption of the FASB will not have a material effect on the financial statements taken as a whole. In June 2005, the EITF reached a consensus on Issue 05-6, "Determining the Amortization Period for Leasehold Improvements," which requires that leasehold improvements acquired in a business combination or purchased subsequent to the inception of a lease be amortized over the lesser of the useful life of the assets or a term that includes renewals that are reasonably assured at the date of the business combination or purchase. EITF 05-6 is effective for periods beginning after June 29, 2005. Earlier application is permitted in periods for which financial statements have not been issued. The adoption of this Issue did not have an impact on the Company's financial statements. F-5 In February 2006, the FASB decided to move forward with the issuance of a final FSP FAS 123R-4 Classification of Options and Similar Instruments Issued as Employee Compensation That Allow for Cash Settlement upon the Occurrence of a Contingent Event. The guidance in this FSP FAS 123R-4 amends paragraphs 32 and A229 of FASB Statement No. 123R to incorporate the concept articulated in footnote 16 of FAS 123R. That is, a cash settlement feature that can be exercised only upon the occurrence of a contingent event that is outside the employee's control does not meet the condition in paragraphs 32 and A229 until it becomes probable that the event will occur. Originally under FAS 123R, a provision in a share-based payment plan that required an entity to settle outstanding options in cash upon the occurrence of any contingent event required classification and accounting for the share based payment as a liability. This caused an issue under certain awards that require or permit, at the holder's election, cash settlement of the option or similar instrument upon (a) a change in control or other liquidity event of the entity or (b) death or disability of the holder. With this new FSP, these types of cash settlement features will not require liability accounting so long as the feature can be exercised only upon the occurrence of a contingent event that is outside the employee's control (such as an initial public offering) until it becomes probable that event will occur. The guidance in this FSP shall be applied upon initial adoption of Statement 123(R). An entity that adopted Statement 123(R) prior to the issuance of the FSP shall apply the guidance in the FSP in the first reporting period beginning after February 2006. Early application of FSP FAS 123R-4 is permitted in periods for which financial statements have not yet been issued. The Company does not anticipate that this new FSP will have any material impact upon its financial condition or results of operations. In February 2006, the FASB issued SFAS 155 "Accounting for Certain Hybrid Financial Instruments, an amendment of FASB Statements No. 133 and In February 2006, the FASB issued SFAS 155 "Accounting for Certain Hybrid Financial Instruments, an amendment of FASB Statements No. 133 and 140". This Statement amends FASB Statements No. 133, Accounting for Derivative Instruments and Hedging Activities, and No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities. This Statement resolves issues addressed in Statement 133 Implementation Issue No. D1, Application of Statement 133 to Beneficial Interests in Securitized Financial Assets. This Statement: a. Permits fair value remeasurement for any hybrid financial instrument that contains an embedded derivative that otherwise would require bifurcation; b. Clarifies which interest-only strips and principal-only strips are not subject to the requirements of Statement 133; c. Establishes a requirement to evaluate interests in securitized financial assets to identify interests that are freestanding derivatives or that are hybrid financial instruments that contain an embedded derivative requiring bifurcation; d. Clarifies that concentrations of credit risk in the form of subordination are not embedded derivatives; and e. Amends Statement 140 to eliminate the prohibition on a qualifying special-purpose entity from holding a derivative financial instrument that pertains to a beneficial interest other than another derivative financial instrument. This Statement is effective for all financial instruments acquired or issued after the beginning of an entity's first fiscal year that begins after September 15, 2006. The fair value election provided for in paragraph 4(c) of this Statement may also be applied upon adoption of this Statement for hybrid financial instruments that had been bifurcated under paragraph 12 of Statement 133 prior to the adoption of this Statement. Earlier adoption is permitted as of the beginning of an entity's fiscal year, provided the entity has not yet issued financial statements, including financial statements for any interim period for that fiscal year. Provisions of this Statement may be applied to instruments that an entity holds at the date of adoption on an instrument-by-instrument basis. The Company is currently evaluating the impact of SFAS 155. NOTE 2 - ACQUISITION OF ASSETS and GOODWILL IMPAIRMENT Acquisition of Assets - --------------------- On December 9, 2005, the Company entered into an Asset Purchase and Sale Agreement with Pacific Coast Testing to acquire the assets of this fuel system testing company for $125,000. No liabilities were assumed as part of the transaction. The Company paid $75,000 of the purchase price at closing, and the remaining $50,000 was payable in May 2006. The final payment is subject to downward adjustment for issues that may arise subsequent to the transaction. F-6 The assets acquired were valued at their fair market value, resulting in the recording of goodwill totaling approximately $22,000. Following is a breakdown of the purchase price allocation: Amount ----------- Vehicles $ 57,455 Equipment 37,590 Inventory 8,423 Goodwill 21,532 ----------- Purchase price $ 125,000 =========== Burr Northrop, the Company's President, advanced the funds to make the initial $75,000 purchase price payment, and the Company recorded this as an advance from related party. As noted below, the Company entered into a Note Purchase Agreement to finance the repayment of the advance, and the advance was repaid in January 2006. The advance and $500 of interest were paid to Mr. Northrop in January 2006. Goodwill Impairment - ------------------- The Company merged the Testing Services division with the Maintenance Services division during the three months ended June 30, 2006, and recorded a goodwill impairment charge of $21,532, which was the amount of goodwill recorded at acquisition. NOTE 3 - NOTE PURCHASE AGREEMENTS AND LIQUIDATED DAMAGES In September 2004, the Company entered into a Note Purchase Agreement ("NPA #1") whereby the Company would borrow a minimum of $100,000 and a maximum of $1,500,000 pursuant to a secured convertible note or convertible notes. Through June 30, 2006, the Company has borrowed $1.1 million under NPA #1, and this amount is due on September 30, 2006. The notes are convertible into 42.5 million common shares, and the Company issued warrants to purchase 15.9 million common shares to the note holder pursuant to NPA #1. The shares underlying the convertible notes and warrants have registration rights. The registration rights agreement for NPA #1 provides for liquidated damages equal to 36% per annum of the note principal in the event that a registration statement to register the underlying shares is not filed timely or declared effective timely. The Company filed a registration statement to register the shares underlying the convertible note payable and warrants on June 8, 2006. The registration statement has not been declared effective by the Securities and Exchange Commission, and the Company will incur liquidated damages until the registration statement is declared effective. The Company recorded liquidated damages of $97,100 and $287,700 for the three months and nine months ended June 30, 2006. The Company did not record liquidated damages for the three months and nine months ended June 30, 2005. In December 2005, the Company executed a Note Purchase Agreement ("NPA #2") to provide for repayment of the advance by Burr Northrop that was used to pay the initial purchase price in the acquisition of Pacific Coast Testing. NPA #2 provides for funding of $100,000 pursuant to a convertible note payable, and the funding did not occur until January 2006. Accordingly, the transaction was recorded in January 2006. The note bears interest at 8% per year, is due December 30, 2007, and is convertible into 4.0 million shares of common stock. The Company issued warrants to purchase 4.0 million common shares to the note holder in December 2005. The value of the note proceeds were allocated to the beneficial conversion feature and the warrants, resulting in a discount equal to the face value of the note. The note discount is being amortized to interest expense beginning on the funding date. The shares underlying the convertible note and warrants have registration rights. The registration rights agreement for NPA #2 provides for liquidated damages equal to 36% of the note principal in the event that a registration statement to register the underlying shares is not declared effective. The Company filed a registration statement to register the shares underlying the convertible note payable and warrants on June 8, 2006. The registration statement has not been declared effective by the Securities and Exchange Commission, and the Company will incur liquidated damages until the registration statement is declared effective. The Company recorded liquidated damages of $18,000 for the three months and nine months ended June 30, 2006. The Company did not record liquidated damages for the three months and nine months ended June 30, 2005. F-7 In January 2006, the Company executed a Note Purchase Agreement ("NPA #3") to convert $236,680 of accrued liquidated damages on NPA #1 into a note payable. The note bears interest at 8%, is due January 26, 2008, and is convertible into approximately 9.5 million shares of common stock based on a conversion rate of one common share for every $.025 of note principal. The value of the note proceeds were allocated to the beneficial conversion feature, resulting in a discount equal to the face value of the note. The note discount is being amortized to interest expense beginning on the funding date. The shares underlying the convertible note have registration rights. The registration rights agreement for NPA #3 provides for liquidated damages equal to 36% of the note principal in the event that a registration statement to register the underlying shares is not declared effective. The Company filed a registration statement to register the shares underlying the convertible note payable on June 8, 2006. The registration statement has not been declared effective by the Securities and Exchange Commission, and the Company will incur liquidated damages until the registration statement is declared effective. The Company recorded liquidated damages of $42,600 for the three months and nine months ended June 30, 2006. The Company did not record liquidated damages for the three months and nine months ended June 30, 2005. In April 2006, the Company executed a Note Purchase Agreement ("NPA #4) to convert $167,843 of accrued liquidated damages on NPA #1, NPA #2 and NPA #3 into a note payable. The note bears interest at 8%, is due April 20, 2008, and is convertible into approximately 6.7 million shares of common stock based on a conversion rate of one common share for every $.025 of note principal. The value of the note proceeds were allocated to the beneficial conversion feature, resulting in a discount equal to the face value of the note. The note discount is being amortized to interest expense beginning on the funding date. The shares underlying the convertible note have registration rights. The registration rights agreement for NPA #4 provides for liquidated damages equal to 36% of the note principal in the event that a registration statement to register the underlying shares is not declared effective. The Company filed a registration statement to register the shares underlying the convertible note payable on June 8, 2006. The registration statement has not been declared effective by the Securities and Exchange Commission, and the Company will incur liquidated damages until the registration statement is declared effective. The Company recorded liquidated damages of $10,100 for the three months and nine months ended June 30, 2006. The Company did not record liquidated damages for the three months and nine months ended June 30, 2005. The notes referenced above are secured by the Company's assets, and the Company would lose all of its assets in the event of a default under the terms on the note agreements. Conversion of the convertible notes and exercise of the warrants issued pursuant to NPA #1, NPA #2, NPA #3 and NPA #4 are limited such that the note holder can not convert notes or exercise warrants that would result in beneficial ownership by the holder or its affiliates of more than 4.9% of the outstanding common shares on the conversion or exercise date. NOTE 4 - SETTLEMENT AGREEMENT In December 2005, the Company entered into a settlement agreement with a vendor to satisfy accounts payable totaling $163,000. Terms of the agreement provided for payment in cash of $35,000, and the issuance of 1,000,000 shares of common stock. The common shares issued were valued at $90,000, or $0.09 per share, which was the fair market value on the agreement date. The resulting gain on settlement totaling $38,000 was recorded as other income during the three months ended December 31, 2005. NOTE 5 - COMMON STOCK In December 2005, the Company entered into a settlement agreement with a vendor to satisfy accounts payable totaling $163,000. Terms of the agreement provided for payment in cash of $35,000, and the issuance of 1,000,000 shares of common stock. The common shares issued were valued at $90,000, or $0.09 per share, which was the fair market value of the common stock on the agreement date. The resulting gain on settlement totaling $38,000 was recorded as other income during the nine months ended June 30, 2006. F-8 In March 2006, the Company cancelled 1,500,000 shares previously issued to a former employee, and in April 2006, the Company issued 150,000 shares to replace the cancelled shares pursuant to an agreement between the Company and the former employee. In April 2006, the Company issued 100,000 shares for public relations services covering the three months from March to May, 2006. The Company recorded compensation expense of $5,000 based on the closing market price of $0.05 on the date of issuance, April 4, 2006. During the nine months ended June 30, 2006, the Company issued 4,225,015 shares that were previously subscribed. As of June 30, 2006, the Company has subscribed for the issuance of 3,500 shares of common stock for services rendered. As of June 30, 2006, the Company has outstanding convertible notes that are convertible into 62.7 million common shares and has outstanding warrants that are exercisable for 24.4 million common shares. Conversion of the convertible notes and exercise of the warrants for 19.9 million common shares are limited such that the note holder can not convert notes or exercise warrants that would result in beneficial ownership by the holder or its affiliates of more than 4.9% of the outstanding common shares on the conversion or exercise date. The Company did not grant any stock options during the nine months ended June 30, 2006 or during the years ended September 30, 2005 or 2004. NOTE 6 - DISCONTINUED OPERATIONS In June 2006, the Company discontinued the operations of the Consumer Services division, which consisted primarily of installation of home consumer products for a major retailer. The employees of the Consumer Services division were laid-off in and the fixed assets used in the Consumer Services Division were transferred to the Company's other divisions. The net loss from discontinued operations for the three and nine months ended June 30, 2006 was $54,400 and $146,600, respectively. The net loss from discontinued operations for the three and nine months ended June 30, 2005 was $29,500 and $67,000, respectively. NOTE 7 - SEGMENT INFORMATION Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information" ("SFAS 131") establishes standards for reporting information regarding operating segments in annual financial statements and requires selected information for those segments to be presented in interim financial reports issued to stockholders. SFAS 131 also establishes standards for related disclosures about products and services and geographic areas. Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision maker, or decision-making group, in making decisions how to allocate resources and assess performance. Beginning in October 2004, the Company operated in three segments: Construction Services; Maintenance Services, and Consumer Services. Beginning in December 2005, the Company added a new division called Testing Services. Beginning June 2006, the Company closed its Consumer Services division and merged the Testing Services division into the Maintenance Services division. The Company's Other segment includes primarily general and administrative expenses. During the three months ended June 30, 2006, we recognized revenue of $155,000 from one customer in the Construction Services division, and $253,000 and $182,000 from two different customers in the Maintenance Services division. During the three months ended June 30, 2005, we recognized revenue of $335,000 from one customer in the Construction Services division, and $298,000 and $251,000 from two different customers in the Maintenance Services division. During the nine months ended June 30, 2006, we recognized revenue of $1.1 million from one customer in the Construction Services division, and $737,000 and $664,000 from two different customers in the Maintenance Services division. During the nine months ended June 30, 2005, we recognized revenue of $546,000 from one customer in the Construction Services division, and $791,000 and $759,000 from two different customers in the Maintenance Services division. While we consider our relationships with the customers to be satisfactory, given the concentration of our sales to a few key customers, our continued relationships may be subject to the policies and practices of the customers. We continue to concentrate our efforts on expanding our customer base in order to reduce our reliance on our current customers. Intersegment revenues are not material and are not shown in the following tables. F-9 The following table provides selected summary financial information data by segment.
For the three months ended June 30, 2006 -------------------------------------------------------- Construction Maintenance Other Consolidated ------------ ----------- ----------- ------------ Revenues $ 346,229 $ 617,396 $ -- $ 963,625 Cost of sales 317,731 354,867 -- 672,598 Gross profit 28,498 262,529 -- 291,027 Operating expenses 95,268 201,545 167,931 464,744 Depreciation expense and goodwill impairment 2,388 36,348 9,676 48,412 Income (Loss) from operations (69,158) 24,636 (177,607) (222,129) Interest expense and liquidated damages -- -- 392,561 392,561 For the three months ended March 31, 2005 -------------------------------------------------------- Construction Maintenance Other Consolidated ------------ ----------- ----------- ------------ Revenues $ 1,161,103 $ 629,300 $ -- $ 1,790,403 Cost of sales 748,986 399,881 -- 1,148,867 Gross profit 412,117 229,419 -- 641,536 Operating expenses 82,388 114,285 297,532 494,205 Depreciation expense and goodwill impairment -- -- 11,434 11,434 Income (Loss) from operations 329,729 115,134 (308,966) 135,897 Interest expense and liquidated damages -- -- 155,096 155,096 For the nine months ended June 30, 2006 -------------------------------------------------------- Construction Maintenance Other Consolidated ------------ ----------- ----------- ------------ Revenues $ 1,905,183 $ 1,817,120 $ -- $ 3,722,303 Cost of sales 1,416,280 1,049,625 -- 2,465,905 Gross profit 488,903 767,495 -- 1,256,398 Operating expenses 327,972 563,453 541,601 1,433,026 Depreciation expense and goodwill impairment 10,777 56,046 29,952 96,775 Income (Loss) from operations 150,154 147,996 (571,553) (273,403) Interest expense and liquidated damages -- -- 945,318 945,318 Additions to long-lived assets -- 99,431 1,037 100,468 For the nine months ended June 30, 2005 -------------------------------------------------------- Construction Maintenance Other Consolidated ------------ ----------- ----------- ------------ Revenues $ 1,901,191 $ 1,943,395 $ -- $ 3,844,586 Cost of sales 1,089,273 1,253,844 -- 2,343,117 Gross profit 811,918 689,551 -- 1,501,469 Operating expenses 229,599 408,606 843,728 1,481,933 Depreciation expense and goodwill impairment -- 13,300 24,169 37,469 Income (Loss) from operations 582,319 267,645 (867,897) (17,933) Interest expense -- -- 461,356 461,356 Additions to long-lived assets 12,784 14,783 832 28,399
NOTE 8: LEGAL PROCEEDINGS The proceedings described below are in various stages. While the ultimate effect of the legal actions described below cannot be predicted with certainty, the Company expects that the proceedings against its subsidiaries will not result in liability to the Company due to the ongoing bankruptcy of CPI and AFFS. F-10 The Company does not expect the outcome of these matters to have a material effect on its financial condition or the results of its operations. The following lawsuits have been filed against the Company: NK Heating & Air Conditioning filed complaint against the Company and its formerly owned subsidiary , CPI Development, Inc. in Los Angeles County Superior Court. The complaint alleges a breach of contract, and asks for damages of $98,000. The Company believes that it has meritorious defenses to the plaintiff's claims and intends to vigorously defend itself against the Plaintiff's claims. Corona Service Park, et al filed complaint against the Company in the Central District of California of the United States District Court. The complaint alleges a breach of contract. The Company believes that it has meritorious defenses to the plaintiff's claims and intends to vigorously defend itself against the Plaintiff's claims. The Company is also subject to other legal proceedings and claims which arise in the ordinary course of its business. Although occasional adverse decisions or settlements may occur, the Company believes that the final disposition of such matters will not have material adverse effect on its financial position, results of operations or liquidity Other than described above, the Company is not engaged in any other litigation, and is unaware of any claims or complaints that could result in future litigation. The Company will seek to minimize disputes with its customers but recognize the inevitability of legal action in today's business environment as an unfortunate price of conducting business. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS. FORWARD-LOOKING INFORMATION Much of the discussion in this Item is "forward looking" as that term is used in Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934. Actual operations and results may materially differ from present plans and projections due to changes in economic conditions, new business opportunities, changed business conditions, and other developments. Other factors that could cause results to differ materially are described in our filings with the Securities and Exchange Commission. There are several factors that could cause actual results or events to differ materially from those anticipated, and include, but are not limited to general economic, financial and business conditions, changes in and compliance with governmental laws and regulations, including various state and federal environmental regulations, our ability to obtain additional financing from outside investors and/or bank and mezzanine lenders and our ability to generate sufficient revenues to cover operating losses and position us to achieve positive cash flow. Readers are cautioned not to place undue reliance on the forward-looking statements contained herein, which speak only as of the date hereof. We believe the information contained in this Form 10-QSB to be accurate as of the date hereof. Changes may occur after that date. We will not update that information except as required by law in the normal course of its public disclosure practices. Additionally, the following discussion regarding our financial condition and results of operations should be read in conjunction with the financial statements and related notes contained in Item 1 of Part I of this Form 10-QSB, as well as the financial statements in Item 6 of Part II of our Form 10-KSB for the fiscal year ended September 30, 2005. RESULTS OF OPERATIONS CONTINUING OPERATIONS - --------------------- Beginning in October 2004, the Company operated in three segments: Construction Services; Maintenance Services, and Consumer Services. Beginning in December 2005, the Company added a new division called Testing Services. Beginning June 2006, the Company closed its Consumer Services division and merged the Testing Services division into the Maintenance Services division. The Company's Other segment includes primarily general and administrative expenses. 3 THREE MONTHS ENDED JUNE 30, 2006 COMPARED TO THE THREE MONTHS ENDED JUNE 30, 2005
For the three months ended June 30, 2006 -------------------------------------------------------- Construction Maintenance Other Consolidated ------------ ----------- ----------- ------------ Revenues $ 346,229 $ 617,396 $ -- $ 963,625 Cost of sales 317,731 354,867 -- 672,598 Gross profit 28,498 262,529 -- 291,027 Operating expenses 95,268 201,545 167,931 464,744 Depreciation expense and goodwill impairment 2,388 36,348 9,676 48,412 Income (Loss) from operations (69,158) 24,636 (177,607) (222,129) Interest expense and liquidated damages -- -- 392,561 392,561 For the three months ended March 31, 2005 -------------------------------------------------------- Construction Maintenance Other Consolidated ------------ ----------- ----------- ------------ Revenues $ 1,161,103 $ 629,300 $ -- $ 1,790,403 Cost of sales 748,986 399,881 -- 1,148,867 Gross profit 412,117 229,419 -- 641,536 Operating expenses 82,388 114,285 297,532 494,205 Depreciation expense and goodwill impairment -- -- 11,434 11,434 Income (Loss) from operations 329,729 115,134 (308,966) 135,897 Interest expense and liquidated damages -- -- 155,096 155,096
Construction Services - --------------------- Construction Services revenues decreased $(814,900), or 70.20% due to management's inability to secure and complete larger projects and to control cost. The failures can be attributed to inadequate operating capital to support large upfront costs, cyclical softening of the market, inadequate sales and marketing effort, and lack of bonding capacity. Gross margin percentage decreased to 8.2% from 35.5% because our efforts during the quarter focused primarily on two large contracts which underperformed. Operating expenses as a percentage of revenue increased from 7.1% to 27.5% because of our lower revenue base in the current year quarter. On a gross dollar basis, operating expenses increased $12,900, or 15.6%. Bad debt expense increased $8,600, or 100%, during the current year quarter because we did not allocate bad debt expense to the divisions in the prior year quarter, which has no effect on consolidated operations. Employee related expenses decreased $10,100, or 19.2% during the current year quarter because we reduced our headcount by one project manager. Insurance expense increased $10,900, or 100%, during the current year quarter because we did not allocate insurance expense to the divisions in the prior year quarter, which has no effect on consolidated operations. Overall, Construction Services incurred a loss from operations during the current year quarter of $69,200 compared to income from operations of $329,700 during the prior year quarter, a decrease of $398,900, or 121%, based on the factors discussed above. Maintenance Services - -------------------- Maintenance Services revenues decreased $11,900, or 1.9%. Revenues were consistent because we made a business decision to focus on higher quality customers and elimination of non-critical customers, which had the effect of lowering maintenance related revenues by $35,200; and we recorded testing services related revenue of $23,300, which we did not have in the prior year quarter and which helped offset the decrease in maintenance services revenue. Gross margin percentage increased to 42.5% from 36.5% primarily because we increased our labor efficiency. Labor related charges in cost of goods sold decreased $25,300, or 14.2%. 4 Operating expenses as a percentage of revenue increased to 32.6% from 18.2%, or $45,600 in total. Bad debt expense increased $40,600, or 100%, during the current year quarter because we did not allocate bad debt expense to the divisions in the prior year quarter, which has no effect on consolidated operations. Insurance expense increased $13,000, or 100%, during the current year quarter because we did not allocate insurance expense to the divisions in the prior year quarter, which has no effect on consolidated operations. Employee related expenses increased $23,800, or 38.8%, due to salary increases and the addition of one employee. We merged the Testing Services division with the Maintenance Services division during the current year quarter, and recorded a goodwill impairment charge during the current year quarter of $21,500, which was the amount of the goodwill recorded at acquisition. Overall, Maintenance Services income from operations decreased $90,500, or 78.6%, based on the factors discussed above and cyclical softening of the market. Other - ----- Corporate overhead decreased from $297,500 to $167,900 or 43.6%. We allocated insurance costs to the divisions in the current year, resulting in a decrease in overhead costs of $39,700 during the current year quarter. The remainder of the decrease is primarily attributable to lower legal, accounting and consulting fees in the current year quarter. We incurred higher legal, accounting and consulting fees in the prior year quarter related to our restructuring and bankruptcy filings. Interest expense increased to $225,000 from $155,000, or 44.9%. We have a higher debt base this quarter compared to the prior year quarter which attributes to the increase in interest expense. Interest expense also includes amortization of the note discounts discussed in Note 3. We recorded liquidated damages of $168,000 during the current year period related to our failure to timely file a registration statement to register the shares underlying the convertible notes and warrants discussed in Note 3. No such charge was recorded in the prior year quarter. Consolidated - ------------ On a consolidated basis, our revenues decreased $826,800, or 46.2%, our gross margin decreased $350,500, or 54.6%, our operating expenses decreased $29,500, or 6.0%; our liquidated damages expense increased $168,000, or 100%; and our interest expense increased $70,000, or 45.2%, all as discussed above on a segment basis. We recorded a net loss of $662,900 in the current quarter, compared to a net loss of $48,700 in the prior year quarter. NINE MONTHS ENDED JUNE 30, 2006 COMPARED TO THE NINE MONTHS ENDED JUNE 30, 2005
For the nine months ended June 30, 2006 -------------------------------------------------------- Construction Maintenance Other Consolidated ------------ ----------- ----------- ------------ Revenues $ 1,905,183 $ 1,817,120 $ -- $ 3,722,303 Cost of sales 1,416,280 1,049,625 -- 2,465,905 Gross profit 488,903 767,495 -- 1,256,398 Operating expenses 327,972 563,453 541,601 1,433,026 Depreciation expense and goodwill impairment 10,777 56,046 29,952 96,775 Income (Loss) from operations 150,154 147,996 (571,553) (273,403) Interest expense and liquidated damages -- -- 945,318 945,318 Additions to long-lived assets -- 99,431 1,037 100,468 5 For the nine months ended June 30, 2005 -------------------------------------------------------- Construction Maintenance Other Consolidated ------------ ----------- ----------- ------------ Revenues $ 1,901,191 $ 1,943,395 $ -- $ 3,844,586 Cost of sales 1,089,273 1,253,844 -- 2,343,117 Gross profit 811,918 689,551 -- 1,501,469 Operating expenses 229,599 408,606 843,728 1,481,933 Depreciation expense and goodwill impairment -- 13,300 24,169 37,469 Income (Loss) from operations 582,319 267,645 (867,897) (17,933) Interest expense -- -- 461,356 461,356 Additions to long-lived assets 12,784 14,783 832 28,399
Construction Services - --------------------- Construction Services revenues increased $4,000, or less than 1% due to cyclical softening of the market, inadequate sales and marketing effort, and inadequate operating capital. Gross margin percentage decreased to 25.7% from 42.7% because our efforts during the third quarter of 2006 focused primarily on two large contracts on which underperformed. Operating expenses as a percentage of revenue increased from 12.1% to 17.2%. On a gross dollar basis, operating expenses increased $98,400, or 42.8%. Employee related costs increased $39,600, or 27.8%, during the current year period because our un-billable labor increased during the current period. Insurance expense increased $32,400, or 100%, during the current year period because we did not allocate insurance expense to the divisions in the prior year period, which has no effect on consolidated operations. Facility related costs increased $12,600, or 72.5% during the current year period because we rented additional storage space for vehicles, equipment and tools. Bad debt expense increased $4,200, or 100%, during the current year period because we did not allocate bad debt expense to the divisions in the prior year period, which has no effect on consolidated operations. Overall, Construction Services income from operations decreased by $432,200, or 74.2%, because of these factors. Maintenance Services - -------------------- Maintenance Services revenues decreased $126,300, or 6.5%. We made a business decision to focus on higher quality customers and to eliminate of non-critical customers, which reduced maintenance related revenues by $242,500. This decrease was offset by testing related revenues of $116,200 which we did not have in the prior year period. Gross margin percentage increased to 42.2% from 35.5% because we increased our labor efficiency. Labor related charges in cost of goods sold decreased $188,300, or 29.2%. Operating expenses as a percentage of revenue increased to 31.0% from 21.0%, or $154,800 in total. Employee related expenses increased $53,300, or 23.6%, due to salary increases and the addition of one employee. Bad debt expense increased $43,400, or 100%, during the current year period because we did not allocate bad debt expense to the divisions in the prior year quarter, which has no effect on consolidated operations. Insurance expense increased $39,000, or 100%, during the current year period because we did not allocate insurance expense to the divisions in the prior year period, which has no effect on consolidated operations. We merged the Testing Services division with the Maintenance Services division during the current year period, and recorded a goodwill impairment charge during the current year period of $21,500, which was the amount of the goodwill recorded at acquisition. Other - ----- Corporate overhead decreased to $541,600 from $843,700, or 35.8%. We allocated insurance costs to the divisions in the current year, resulting in a decrease in overhead costs of $104,100 during the current year period. The remainder of the decrease is primarily attributable to lower legal, accounting and consulting fees in the current year period. We incurred higher legal, accounting and consulting fees in the prior year period related to our restructuring and bankruptcy filings. 6 Interest expense increased to $587,000 from $461,000, or 27.2%. We have a higher debt base during the current year period compared to the prior year period which attributes to the increase in interest expense. Interest expense also includes amortization of the note discounts discussed in Note 3. We recorded liquidated damages of $358,000 during the current year period related to our failure to timely file a registration statement to register the shares underlying the convertible notes and warrants discussed in Note 3. No such charge was recorded in the prior year period. Consolidated - ------------ On a consolidated basis, our revenues decreased $122,200, or 3.2%; our gross margin decreased $245,100, or 16.3%; our operating expenses decreased $48,900, or 3.3%; liquidated damages increased $358,00, or 100%; and our interest expense increased $126,000, or 27.2%, all as discussed above on a segment basis. Our net loss increased to $1.3 million from $546,000 based on the factors discussed above. DISCONTINUED OPERATIONS In June 2006, we discontinued the operations of the Consumer Services division, which consisted primarily of installation of home consumer products for a major retailer. The employees of the Consumer Services division were laid-off in and the fixed assets used in the Consumer Services Division were transferred to the Company's other divisions. The net loss from discontinued operations for the three and nine months ended June 30, 2006 was $54,400 and $146,600, respectively. The net loss from discontinued operations for the three and nine months ended June 30, 2005 was $29,500 and $67,000, respectively. LIQUIDITY AND CAPITAL RESOURCES During the nine months ended June 30, 2006 and during the year ended September 30, 2005, we incurred net losses of $1.3 million and $1.2 million, respectively. During the nine months ended June 30, 2006, our continuing operations provided $19,700 of cash; however, for the year ended September 30, 2005, we used $588,000 of cash for our operating activities. During the nine months ended June 30, 2006, we purchased property and equipment totaling $81,100 for our continuing operations; Burr Northrop, our President, advanced us $75,000, which we repaid; and we issued an 8% convertible note payable for $100,000. At June 30, 2006, we have negative working capital of $1.9 million, and we have outstanding obligations to Barron Partners of an aggregate of $1.1 million that is due September 30, 2006. We filed a registration statement to register the shares underlying the convertible notes payable on June 2, 2006, and will continue to incur liquidated damages at the rate of 36% per year on the outstanding balance of the notes payable until such registration statement is effective. In order to execute our business plan, we will need to acquire additional debt or equity financing. Our independent certified public accountants have stated in their report, included in our Form 10-KSB for the year ended September 30, 2005, and in Note 1 of this Form 10-QSB that due to our net loss and negative cash flows from operations, in addition to a lack of operational history, there is a substantial doubt about our ability to continue as a going concern. In the absence of significant revenue and profits, we will be completely dependent on additional debt and equity financing arrangements. There is no assurance that any financing will be sufficient to fund our capital expenditures, working capital and other cash requirements for the fiscal year ending September 30, 2006. No assurance can be given that any such additional funding will be available or that, if available, can be obtained on terms favorable to us. If we are unable to raise needed funds on acceptable terms, we will not be able to execute our business plan, develop or enhance existing services, take advantage of future opportunities or respond to competitive pressures or unanticipated requirements. A material shortage of capital will require us to take drastic steps such as further reducing our level of operations, disposing of selected assets or seeking an acquisition partner. If cash is insufficient, we will not be able to continue operations. ACCOUNTING POLICIES INVOLVING MANAGEMENT ESTIMATES AND ASSUMPTIONS The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions in certain circumstances that affect amounts reported in the accompanying financial statements and related footnotes. In preparing these financial statements, management has made its best estimates and judgments of 7 certain amounts included in the financial statements, giving due consideration to materiality. We do not believe there is a great likelihood that materially different amounts would be reported related to the accounting policies described below. However, application of these accounting policies involves the exercise of judgment and use of assumptions as to future uncertainties and, as a result, actual results could differ from these estimates. Our senior management has discussed the development and selection of the critical accounting estimates, and related disclosures, with the Audit Committee of our Board of Directors. Financial Reporting Release No. 60, which was released by the Securities and Exchange Commission, or SEC, in December 2001, requires all companies to include a discussion of critical accounting policies or methods used in the preparation of financial statements. The Notes to Consolidated Financial Statements included in our Annual Report on Form 10-KSB for the year ended September 30, 2005 includes a summary of our significant accounting policies and methods used in the preparation of our financial statements. In preparing these financial statements, we have made our best estimates and judgments of certain amounts included in the financial statements, giving due consideration to materiality. The application of these accounting policies involves the exercise of judgment and use of assumptions as to future uncertainties and, as a result, actual results could differ from these estimates. Our critical accounting policies are as follows: REVENUE RECOGNITION The Company recognizes revenues from fixed-price and modified fixed-price construction contracts on the percentage-of-completion method, measured by the percentage of cost incurred to date to estimated total cost for each contract. Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined. Changes in job performance, job conditions, and estimated profitability may result in revisions to costs and income, which are recognized in the period in which the revisions are determined. Changes in estimated job profitability resulting from job performance, job conditions, contract penalty provisions, claims, change orders, and settlements, are accounted for as changes in estimates in the current period. The Company recognizes revenue from repair and installation services, in accordance with SEC Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" ("SAB 101"). SAB 101 requires that four basic criteria must be met before revenue can be recognized: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred or services have been rendered; (3) the selling price is fixed and determinable; and (4) collectability is reasonably assured. The SEC's Staff Accounting Bulletin, or SAB, No. 104, Revenue Recognition, provides guidance on the application of generally accepted accounting principles to selected revenue recognition issues. We believe that our revenue recognition policy is appropriate and in accordance with generally accepted accounting principles and SAB No. 104. ALLOWANCE FOR DOUBTFUL ACCOUNTS We also maintain an allowance for doubtful accounts for potential uncollectible accounts receivable arising from our customers' inability to make required payments. Our estimate is determined by analyzing historical bad debts, customer payment history and patterns, customer creditworthiness, and economic, political or regulatory factors affecting the customer's ability to make the required payments. ITEM 3. CONTROLS AND PROCEDURES. Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file under the Exchange Act is accumulated and communicated to our management, including our principal executive and financial officers, as appropriate to allow timely decisions regarding required disclosure. Evaluation of Disclosure and Controls and Procedures. As of the end of the period covered by this Quarterly Report, we conducted an evaluation, under the supervision and with the participation of our chief executive officer and chief financial officer, of our disclosure controls and procedures (as defined in Rules 13a-15(e) of the Exchange Act). Based on this evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms. 8 Changes in Internal Controls Over Financial Reporting. There have not been any changes in the our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS The proceedings described below are in various stages. While the ultimate effect of the legal actions described below cannot be predicted with certainty, we expect that the proceedings against our subsidiaries will not result in liability to us due to the ongoing bankruptcy of CPI and AFFS. We do not expect the outcome of these matters to have a material effect on our financial condition or the results of our operations. The following lawsuits have been filed against us: NK Heating & Air Conditioning filed complaint against the Company and its formerly owned subsidiary , CPI Development, Inc. in Los Angeles County Superior Court. The complaint alleges a breach of contract, and asks for damages of $98,000. The Company believes that it has meritorious defenses to the plaintiff's claims and intends to vigorously defend itself against the Plaintiff's claims. Corona Service Park, et al filed complaint against the Company in the Central District of California of the United States District Court. The complaint alleges a breach of contract. The Company believes that it has meritorious defenses to the plaintiff's claims and intends to vigorously defend itself against the Plaintiff's claims. The Company is also subject to other legal proceedings and claims which arise in the ordinary course of its business. Although occasional adverse decisions or settlements may occur, the Company believes that the final disposition of such matters will not have material adverse effect on its financial position, results of operations or liquidity Other than described above, we are not engaged in any other litigation, and are unaware of any claims or complaints that could result in future litigation. We will seek to minimize disputes with our customers but recognize the inevitability of legal action in today's business environment as an unfortunate price of conducting business. ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS In December 2005, the Company entered into a settlement agreement with a vendor to satisfy accounts payable totaling $163,000. Terms of the agreement provided for payment in cash of $35,000, and the issuance of 1,000,000 shares of common stock. The common shares issued were valued at $90,000, or $0.09 per share, which was the fair market value of the common stock on the agreement date. The resulting gain on settlement totaling $38,000 was recorded as other income during the nine months ended June 30, 2006. In December 2005, the Company entered into settlement agreement with a law firm in which the Company issued 225,000 shares of common stock. The services were performed during the year ended September 30, 2005, legal expense of $36,000 ($.016 per share) was recorded during the year ended September 30, 2005 based on the fair market value of the common stock, and the shares were subscribed for issuance as of September 30, 2005. As of June 30, 2006, the Company has subscribed for the issuance of 3,500 shares of common stock for services rendered. As of June 30, 2006, the Company sold units consisting of convertible notes that are convertible into 62.7 million common shares and warrants that are exercisable for 19.9 million common shares. Conversion of the convertible notes and exercise of the warrants are limited such that the note holder can not convert notes or exercise warrants that would result in beneficial ownership by the holder or its affiliates of more than 4.9% of the outstanding common shares on the conversion or exercise date. The offer and sale of such shares of our common stock were effected in reliance on the exemptions for sales of securities not involving a public offering, as set forth in Rule 506 promulgated under the Securities Act of 1933, as amended (the "Securities Act") and in Section 4(2) and Section 4(6) of the Securities 9 Act and/or Rule 506 of Regulation D, based on the following: (a) the investors confirmed to us that they were "accredited investors," as defined in Rule 501 of Regulation D promulgated under the Securities Act and had such background, education and experience in financial and business matters as to be able to evaluate the merits and risks of an investment in the securities; (b) there was no public offering or general solicitation with respect to the offering; (c) the investors were provided with certain disclosure materials and all other information requested with respect to our company; (d) the investors acknowledged that all securities being purchased were "restricted securities" for purposes of the Securities Act, and agreed to transfer such securities only in a transaction registered under the Securities Act or exempt from registration under the Securities Act; and (e) a legend was placed on the certificates representing each such security stating that it was restricted and could only be transferred if subsequently registered under the Securities Act or transferred in a transaction exempt from registration under the Securities Act. All of the investors took their securities for investment purposes without a view to distribution and had access to information concerning the Company and our business prospects, as required by the Securities Act. ITEM 3. DEFAULTS UPON SENIOR SECURITIES None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. ITEM 5. OTHER INFORMATION None. ITEM 6. EXHIBITS 1.1** Investment Banking Agreement with Windstone Capital Partners dated October 24, 2003 2.1** Plan and Agreement of Triangular Merger Between Environmental Technologies, Inc., Parr Sub One, Inc. and Christie-Peterson Development dated December 29, 2003 2.2** Agreement of Merger between Christie-Petersen Development and Parr Sub One, Inc. filed December 30, 2003 2.3** Plan and Agreement of Triangular Merger Between Environmental Technologies, Inc., Parr Sub Two, Inc. and Advanced Fuel Filtration Systems, Inc. dated December 29, 2003 2.4** Agreement of Merger between Advanced Fuel Filtration, Inc. and Parr Sub Two, Inc. filed December 30, 2003 2.5** Plan and Agreement of Triangular Merger Between Environmental Technologies, Inc., Parr Sub Three, Inc. and H.B. Covey, Inc. dated December 29, 2003 2.6** Agreement of Merger between H.B. Covey, Inc. and Parr Sub Three, Inc. filed December 30, 2003 3.1.1** Articles of Incorporation of Cyber Public Relations, Inc., filed June 18, 1998 3.1.2** Amended and Restated Articles of Incorporation of Cyber Public Relations, Inc., changing the name of the corporation to Entech Environmental Technologies, Inc., filed March 22, 2004 3.1.3** Articles of Incorporation of Point 2 Point Services, Inc., filed April 5, 2001 3.1.4** Certificate of Amendment to Articles of Incorporation of Point 2 Point Services, Inc., changing the name of the corporation to Parr Development, Inc., filed December 31, 2002 3.1.5** Amended and Restated Articles of Incorporation of Parr Development, Inc., changing the name of the corporation to Environmental Technologies, Inc., filed November 25, 2003 3.1.6** Articles of Incorporation of Parr Sub One, Inc. filed December 19, 2003 3.1.7** Articles of Incorporation of Parr Sub Two, Inc. filed December 19, 2003 3.1.8** Articles of Incorporation of Parr Sub Three, Inc. filed December 19, 2003 3.1.9** Articles of Incorporation of Christie-Petersen Development filed September 15, 1995 3.1.10** Articles of Incorporation of YLD/Clean Fuels, Inc. filed September 18, 1995 3.1.11** Certificate of Amendment of Articles of Incorporation of YLD/Clean Fuels, Inc., changing the name of the corporation to Advanced Fuel Filtration, Inc., filed September 27, 1997 3.1.12** Articles of Incorporation of H.B. Covey, Inc., filed March 19, 1971 10 3.2.1** Bylaws of Cyber Public Relations, Inc., adopted July 5, 1998 3.2.2** Amended Bylaws of Cyber Public Relations, Inc. adopted February 16, 2004 3.2.3** Amended and Restated Bylaws of Entech Environmental Technologies, Inc., adopted April 28, 2004 3.2.4** Bylaws of Point 2 Point Services, Inc 3.2.5** Bylaws of Parr Sub One, Inc. , adopted December 29, 2003 3.2.6** Bylaws of Parr Sub Two, Inc., adopted December 29, 2003 3.2.7** Bylaws of Parr Sub Three, Inc., adopted December 29, 2003 3.2.8** Bylaws of Christie-Petersen Development, adopted September 22, 1995 3.2.9** Bylaws of YLD/Clean Fuels, Inc. dated October 6, 1995 3.2.10** Bylaws of Entech Environmental Technologies, Inc. adopted February 4, 2004 3.2.11** Restated Bylaws of H.B. Covey, Inc. adopted April 1, 1999 3.3.1** Charter of the Audit Committee of the Board of Directors of Cyber Public Relations, Inc., adopted January 29, 2004 3.3.2** Charter of the Compensation Committee of the Board of Directors of Cyber Public Relations, Inc., adopted January 29, 2004 4.1** Registration Rights Agreement with Barron Partners, LP regarding registration of shares, dated January 23, 2004 4.2** Registration Rights Agreement with Wood Capital Associates, regarding registration of shares, dated January 23, 2004 4.3** Registration Rights Agreement with Patricia L. Fiorese, regarding registration of shares, dated January 23, 2004 4.4** Registration Rights Agreement with Vance Luedtke, regarding registration of shares, dated January 23, 2004 4.5** Registration Rights Agreement with Diane C. Burge, regarding registration of shares, dated January 23, 2004 4.6** Registration Rights Agreement with Clayton Chase, regarding registration of shares, dated January 23, 2004 4.7** Registration Rights Agreement with James W. Moldermaker, regarding registration of shares, dated January 23, 2004 4.8** Registration Rights Agreement with J. Kevin Wood, regarding registration of shares, dated January 23, 2004 4.9** Registration Rights Agreement with Thomas Sheridan, regarding registration of shares, dated January 23, 2004 4.10** Registration Rights Agreement with San Diego Torrey Hills Capital, regarding registration of shares, dated January 23, 2004 4.11** Registration Rights Agreement with Norman E. Clarke, regarding registration of shares, dated January 23, 2004 4.12** Registration Rights Agreement with Steven R. Green, regarding registration of shares, dated January 23, 2004 10.1** Robert K. Christie Employment Agreement, dated December 15, 2003 10.2** Steven D. Rosenthal Employment Agreement, dated December 15, 2003 10.3** Douglas L. Parker Employment Agreement, dated December 15, 2003 10.4** James R. Christ Employment Agreement, dated December 31, 2003 10.5** Stock Pledge Agreement between Robert K. Christie and Environmental Technologies, Inc. dated December 29, 2003 10.6** Stock Purchase Escrow Agreement between Barron Partners, LP, Cyber Public Relations, Inc. and Harbour, Smith, Harris &Merritt, P.C. dated January 21, 2004 10.7** Capital Stock Exchange Agreement between the Registrant and the Stockholders of Environmental Technologies, Inc., dated January 21, 2004 10.8** Stock Purchase Agreement between Environmental Technologies, Inc. and Barron Partners, LP dated January 14, 2004 10.9** Amendment to Stock Purchase Agreement between Environmental Technologies, Inc. and Barron Partners, LP dated January 21, 2004 10.10** Lease Agreement, effective October 1, 1999 10.11** Lease Agreement, effective September 1, 2001 10.12** Lease Agreement, effective November 15, 2002 10.13** Amendment No. 2 to Lease, effective July 31, 2003 10.14** First Amendment to Lease, effective September 3, 2003 10.15** Cyber Public Relations, Inc. A Warrant for the Purchase of Common Stock 10.16** Cyber Public Relations, Inc. B Warrant for the Purchase of Common Stock 10.17** Cyber Public Relations, Inc. C Warrant for the Purchase of Common Stock 10.18** Cyber Public Relations, Inc. D Warrant for the Purchase of Common Stock 10.19** Cyber Public Relations, Inc. E Warrant for the Purchase of Common Stock 10.20** Cyber Public Relations, Inc. Warrant for the Purchase of Common Stock, Wood Capital Associates 11 10.21** Cyber Public Relations, Inc. Warrant for the Purchase of Common Stock, Patricia L. Fiorese 10.22** Cyber Public Relations, Inc. Warrant for the Purchase of Common Stock, Vance Luedtke 10.23** Entech Environmental Technologies, Inc. Warrant for the Purchase of Common Stock, Diane C. Burge 10.24** Entech Environmental Technologies, Inc. Warrant for the Purchase of Common Stock, Clayton Chase 10.25** Entech Environmental Technologies, Inc. Warrant for the Purchase of Common Stock, James W. Moldermaker 10.26** Entech Environmental Technologies, Inc. Warrant for the Purchase of Common Stock, J. Kevin Wood 10.27** Entech Environmental Technologies, Inc. Warrant for the Purchase of Common Stock, Thomas Sheridan 10.28** Entech Environmental Technologies, Inc. Warrant for the Purchase of Common Stock, San Diego Torrey Hills Capital 10.29** Entech Environmental Technologies, Inc. Warrant for the Purchase of Common Stock, Norman E. Clarke 10.30** Entech Environmental Technologies, Inc. Warrant for the Purchase of Common Stock, Steven R. Green 10.31** Settlement Agreement with Norman T. Reynolds, Esq., dated September 23, 2004 10.32** Settlement Agreement with Stonegate Securities, dated September 21, 2004 10.33** Settlement Agreement with Russell Bedford Stefanou Mirchandani LLP, dated September 21, 2004 10.34** Settlement Agreement with Birch Advisors Ltd. dated September 30, 2004 10.35** Settlement Agreement with Gerald Foster dated September 30, 2004 10.36** Secured Convertible Note between Entech Environmental Technologies, Inc. and Barron Partners, L.P. dated September 30, 2004 10.37** Cyber Public Relations, Inc. Warrant for the Purchase of Common Stock, Barron Partners, L.P. 10.38** Note Purchase Agreement between Environmental Technologies, Inc. and Barron Partners, LP dated September 30, 2004 10.39** Registration Rights Agreement with Barron Partners, LP regarding registration of shares, dated September 30, 2004 10.40** Entech Environmental Technologies, Inc. Warrant for the Purchase of Common Stock for Barron Partners, LP 10.41** Escrow Agreement between Entech Environmental Technologies, Inc., Robert K. Christie and Norman T. Reynolds dated September 29, 2004 10.42** Warrant Cancellation from Barron Partners, L. P. dated September 30, 2004 10.43** Settlement Agreement with San Diego Torrey Hills Capital, Inc. dated September 1, 2004 10.44** Settlement Agreement with Donald G. St. Clair, CPA dated September 30, 2004 10.45** Termination of Investment Banking Agreement dated September 1, 2004 10.46* Note Purchase Agreement between Environmental Technologies, Inc. and Barron Partners, LP dated December 30, 2005. 10.47* Registration Rights Agreement with Barron Partners, LP regarding registration of shares, dated December 30, 2005. 10.48* Secured Convertible Note between Entech Environmental Technologies, Inc. and Barron Partners, L.P. dated December 30, 2005. 10.49* Entech Environmental Technologies, Inc. Warrant for the Purchase of Common Stock, Barron Partners, LP. 31.1* Certification of Chief Executive Officer pursuant to 18 U.S.C. Sec.1350, as adopted pursuant toSec.302 of the Sarbanes-Oxley Act of 2002. 31.2* Certification of Principal Financial and Accounting Officer pursuant to 18 U.S.C. Sec.1350, as adopted pursuant to Sec.302 of the Sarbanes-Oxley Act of 2002. 32.2* Certification of Chief Executive Officer pursuant to 18 U.S.C. Sec.1350, as adopted pursuant to .906 of the Sarbanes-Oxley Act of 2002. 32.2* Certification of Principal Financial and Accounting Officer pursuant to 18 U.S.C. Sec.1350, as adopted pursuant to .906 of the Sarbanes-Oxley Act of 2002. - ---------- * Filed herewith. ** Previously Filed 12 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. ENTECH ENVIRONMENTAL TECHNOLOGIES, INC. Signature Title Date /s/ Burr D Northrop Chief Executive Officer September 14, 2006 - ------------------- Burr D. Northrop Chief Financial Officer 13 EX-31 2 ex31-1.txt EXHIBIT 31.1 EXHIBIT 31.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Burr Northrop, certify that: 1. I have reviewed this quarterly report on Form 10-QSB of Entech Environmental Technologies, Inc.; 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. The Registrant's other certifying officer(s) and I are 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 have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the Issuer'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 (d) Disclosed in this report any change in the Issuer's internal control over financial reporting that occurred during the Registrant's fiscal quarter ending December 31, 2005 that has materially affected, or is reasonably likely to materially affect, the Issuer's internal control over financial reporting. 5. The Registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant's auditor and the audit committee of the Registrant's board of directors (or persons performing the equivalent functions): (a) All 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. Dated: September 14, 2006. /s/ Burr Northrop --------------------------- Burr Northrop Chief Executive Officer EX-31 3 ex31-2.txt EXHIBIT 31.2 EXHIBIT 31.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Burr Northrop, certify that: 1. I have reviewed this quarterly report on Form 10-QSB of Entech Environmental Technologies, Inc.; 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. The Registrant's other certifying officer(s) and I are 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 have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the Issuer'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 (d) Disclosed in this report any change in the Issuer's internal control over financial reporting that occurred during the Registrant's fiscal quarter ending December 31, 2005 that has materially affected, or is reasonably likely to materially affect, the Issuer's internal control over financial reporting. 5. The Registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant's auditor and the audit committee of the Registrant's board of directors (or persons performing the equivalent functions): (a) All 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. Dated: September 14, 2006. /s/ Burr Northrop --------------------------- Burr Northrop Principal Financial Officer EX-32 4 ex32-1.txt EXHIBIT 32.1 EXHIBIT 32.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Entech Environmental Technologies, Inc., a Florida corporation (the "Company"), on Form 10-QSB for the period ended June 30, 2006, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Burr Northrop, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 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; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. Dated: September 14, 2006. /s/ Burr Northrop ---------------------------------- Burr Northrop, President and Chief Executive Officer EX-32 5 ex32-2.txt EXHIBIT 32.2 EXHIBIT 32.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Entech Environmental Technologies, Inc., a Florida corporation (the "Company"), on Form 10-QSB for the period ended June 30, 2006, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Burr Northrop, as Principal Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 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; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. Dated: September 14, 2006. /s/ Burr Northrop --------------------------- Burr Northrop, Principal Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----