Unassociated Document

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

________________

FORM 10-Q

________________

(MARK ONE)

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

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2007

o	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 000-30715

COSINE COMMUNICATIONS, INC.

(Exact name of Registrant as specified in its charter)

Delaware	94-3280301
(State or other jurisdiction of	(I.R.S. Employer
Incorporation or organization)	Identification Number)

61 East Main Street, Suite B Los Gatos, CA	95031
(Address of principal executive offices)	(Zip Code)

Registrant's telephone number including area code: (408) 399-6494

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 o

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act). (Check one):

Large accelerated filer o Accelerated filer o Non-accelerated filer x

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes x No o

There were 10,090,635 shares of the Registrant’s Common Stock, par value $.0001, outstanding on September 30, 2007.

COSINE COMMUNICATIONS, INC.

FORM 10-Q

Quarter ended September 30, 2007

TABLE OF CONTENTS

PART I		Page
FINANCIAL INFORMATION

Item 1.	Condensed Consolidated Financial Statements:
	Condensed Consolidated Balance Sheets as of September 30, 2007 and December 31, 2006	3
	Condensed Consolidated Statements of Operations for the Three and Nine Month Periods Ended September 30, 2007 and 2006	4
	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2007 and 2006	5
	Notes to Condensed Consolidated Financial Statements	6
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	12
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	17
Item 4.	Controls and Procedures	18

PART II
OTHER INFORMATION

Item 1.	Legal Proceedings	19
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	19
Item 4.	Submission of Matters to a Vote of Security Holders	20
Item 6.	Exhibits	20
Signature		20
Exhibit Index		21
Certifications		22

PART I. FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

COSINE COMMUNICATIONS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except for par value and share data)

	September 30, 2007			December 31, 2006
	(Unaudited)			(1)
ASSETS
Current assets:
Cash and cash equivalents	$	6,259		$	5,207
Short-term investments		16,766			17,650
Accounts receivable:
Trade (net of allowance for doubtful accounts of nil at September 30, 2007 and December 31, 2006)		—			55
Other		59			68
Prepaid expenses and other current assets		50			56
Total current assets		23,134			23,036
Long-term deposit		3			—
	$	23,137		$	23,036

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	240		$	320
Accrued other liabilities		50			239
Total current liabilities		290			559


Stockholders' equity:
Preferred stock, 3,000,000 authorized, none issued and outstanding		—			—
Common stock, $.0001 par value, 22,000,000 shares authorized; 10,090,635 shares issued and outstanding at September 30, 2007 and December 31, 2006		1			1
Additional paid-in capital		539,016			538,987
Accumulated other comprehensive income		15			17
Accumulated deficit		(516,185	)		(516,528	)
Total stockholders' equity		22,847			22,477
	$	23,137		$	23,036

See accompanying notes to condensed consolidated financial statements.

_____________________________

(1) The information in this column was derived from the Company's audited consolidated financial statements for the year ended December 31, 2006.

COSINE COMMUNICATIONS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except for per share data)

(Unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2007			2006			2007			2006
Revenue:
Product	$	—		$	-		$	—		$	-
Service		—			134			—			1,233
Total revenue		—			134			—			1,233
Cost of revenue¹		—			366			—			1,469
Gross profit (loss)		—			(232	)		—			(236	)

Operating expenses:
Research and development		—			—			—			—
Sales and marketing		—			—			—			—
General and administrative²		175			295			542			906
Total operating expenses		175			295			542			906

Loss from operations		(175	)		(527	)		(542	)		(1,142	)

Interest income and other		302			302			885			996
Income (loss) before income tax provision		127			(225	)		343			(146	)
Income tax provision		-			-			-			-
Net income (loss)	$	127		$	(225	)	$	343		$	(146	)

Basic net income (loss) per share	$	0.01		$	(0.02	)	$	0.03		$	(0.01	)

Diluted net income per share	$	0.01		$	(0.02	)	$	0.03		$	(0.01	)

Shares used in computing per share amounts:

Basic		10,091			10,091			10,091			10,091

Diluted		10,114			10,091			10,118			10,091

See accompanying notes to condensed consolidated financial statements.

_____________________________

¹ Cost of revenue includes non-cash (credits) charges related to equity issuances of $10 for the three months ended September 30, 2006 and $130 for the nine months ended September 30, 2006.

² General and administrative expenses include non-cash charges related to equity issuances of $10 and $29, for the three month and nine month periods ended September 30, 2007, respectively.

COSINE COMMUNICATIONS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

	Nine Months Ended September 30,
	2007			2006
Operating activities:
Net income (loss)	$	343		$	(146	)
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Amortization of warrants issued for services		—			100
Stock compensation expense		29			30
Change in operating assets and liabilities:
Accounts receivable, trade		55			—
Other receivables		9			190
Prepaid expenses and other current assets		6			5
Other assets		(3	)		150
Accounts payable12		(80	)		175
Accrued other liabilities		(189	)		(664	)
Deferred revenue		—			(39	)
Net cash provided by (used in) operating activities		170			(198	)

Investing activities:
Purchase of short-term investments		(22,236	)		(8,792	)
Proceeds from sales and maturities of short-term investments		23,118			12,313
Net cash (used in) provided by investing activities		882			3,521

Net increase in cash and cash equivalents		1,052			3,323
Cash and cash equivalents at the beginning of the period		5,207			12,417
Cash and cash equivalents at the end of the period	$	6,259		$	15,740

See accompanying notes to condensed consolidated financial statements.

COSINE COMMUNICATIONS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. BASIS OF PRESENTATION

Description of Business

CoSine Communications, Inc. ("CoSine" or the "Company," which may be referred to as "we," "us" or "our") was incorporated in California on April 14, 1997 and in August 2000 was reincorporated in the State of Delaware. We were a provider of carrier network equipment products and services until the fourth quarter of fiscal year 2004 during which time we discontinued our product lines, took actions to lay-off most of our employees, terminated contract manufacturing arrangements, contractor and consulting arrangements and various facility leases, and sold, scrapped or wrote-off our inventory, property and equipment. As a result of these activities, our business consisted primarily of a customer support capability for our discontinued products provided by a third party. We continued such support activities through December 31, 2006, at which time we ceased all customer support services. In 2006 we sold our patent portfolio and the intellectual property related to our carrier products and service business. We continue to seek to redeploy our existing resources to identify and acquire one or more new business operations with existing or prospective taxable earnings that can be offset by use of our net operating loss carry-forwards ("NOLs").

Liquidity and Redeployment Strategy

The accompanying financial statements have been prepared in conformity with U.S. generally accepted accounting principles, which contemplate continuation of the Company as a going concern. However, at September 30, 2007, we have an accumulated deficit of $516 million. As of December 31, 2006, we ceased our customer service capability. Our actions in the fourth quarter of fiscal year 2004 to terminate most of our employees and discontinue production activities in an effort to conserve cash raise substantial doubt about our ability to continue as a going concern. The financial statements do not include any adjustments to reflect the possible future effects relating to the recoverability and classification of the recorded asset amounts or amounts and classification of liabilities that might result from the outcome of this uncertainty.

In July 2005, we completed a comprehensive review of strategic alternatives, including a sale of CoSine, a sale or licensing of intellectual property, a redeployment of our assets into new business ventures, or a winding-up and liquidation of the business and a return of capital. The board of directors approved a plan to redeploy our existing resources to identify and acquire one or more new business operations, while continuing to support our existing customers and continuing to offer our intellectual property for license or sale. We continued to provide customer support services through December 31, 2006, at which time we terminated customer support operations. During 2006, we sold the rights to our patent portfolio and the intellectual property related to our carrier products and service business. We continue to pursue our redeployment strategy, which involves the acquisition of one or more operating businesses with existing or prospective taxable earnings that can be offset by use of our NOLs.

Basis of Consolidation

The consolidated financial statements include all of the accounts of CoSine and its wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated.

Use of Estimates

The preparation of consolidated financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and the accompanying notes. Actual results could differ from these estimates. Estimates are used in accounting for, but not limited to, revenue recognition, allowance for doubtful accounts, inventory valuations, long-lived asset valuations, accrued liabilities including warranties, and equity issuances. Estimates and assumptions are reviewed periodically and the effects of revisions are reflected in the consolidated financial statements in the period of determination.

The unaudited condensed consolidated financial statements have been prepared by us pursuant to instructions to Form 10-Q and Article 10 of Regulation S-X and include the accounts of CoSine Communications, Inc. and its wholly owned subsidiaries ("CoSine" or collectively, the "Company"). Certain information and footnote disclosures normally included in financial statements prepared in accordance with U. S. generally accepted accounting principles have been condensed or omitted pursuant to the Securities Exchange Commission’s rules and regulations. In the opinion of management, all adjustments (consisting of normal recurring items) necessary for a fair presentation have been included. The results of operations for the three and nine month periods ended September 30, 2007 are not necessarily indicative of the results to be expected for any subsequent quarter or for the entire year. The condensed consolidated balance sheet at December 31, 2006 has been derived from the audited financial statements as of that date. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the notes included in our Annual Report filed on Form 10-K for the year ended December 31, 2006.

Stock Compensation

Effective January 1, 2006, we adopted the provisions of Statement of Financial Accounting Standards No. 123 (R), “Share-Based Payment” (“SFAS No. 123 (R).” SFAS No. 123 (R) establishes accounting for stock-based awards exchanged for employee services. Accordingly, stock-based compensation cost is measured at grant date, based on the fair value of the award, and is recognized as expense over the employee requisite service period. All of our stock compensation is accounted for as an equity instrument.

Impact of the Adoption of SFAS No. 123 (R)

The effect of recording stock-based compensation for the three and nine month periods ended September 30, 2007 was $10,000 and $29,000, respectively, which consisted of stock based compensation related to employee stock options. The effect of recording stock-based compensation for the three and nine month periods ended September 30, 2006 was $10,000 and $30,000, respectively, which consisted of stock based compensation related to employee stock options. As of September 30, 2007 we had an unrecorded deferred stock compensation balance related to stock options of approximately $79,000 before estimated forfeitures. SFAS No. 123 (R) requires forfeitures to be estimated at the time of grant and revised if necessary in subsequent periods if actual forfeitures differ from those estimates. Based on our analysis of historical experience and review of current option holders, we have assumed an annual forfeiture rate of 2.5% for our options. Accordingly, as of September 30, 2007, we estimated that the stock-based compensation for the awards not expected to vest was approximately $3,086, and therefore, the unrecorded deferred stock-based compensation balance related to stock options was adjusted to approximately $75.962 after estimated forfeitures. This amount will be recognized over an estimated weighted average amortization period of 3 years.

During the nine months ended September 30, 2007, there were stock option grants for 6,000 shares, with an exercise price of $3.50 per share, the market price on the date of grant, and there were no options exercised cancelled or expired. During the nine months ended September 30, 2006, there were stock option grants for 6,000 shares, with an exercise price of $2.45 per share, the market price on the date of grant, and 6,000 options were cancelled.

Valuation Assumptions

	Three Months Ended September 30,						Nine Months Ended September 30,
	2007			2006			2007			2006

Dividend yield		0.0	%		0.0	%		0.0	%		0.0	%
Volatility		0.00			0.40			0.40			0.85
Risk free interest rate		0	%		5.0	%		4.89	%		4.12	%
Expected life		—			6.25 years			6.25 years			4 years

The dividend yield of zero is based on the fact that we have never paid cash dividends and have no present intention to pay cash dividends. Expected volatility is based on the historical volatility of our common stock. The risk-free interest rates are taken from the Daily Federal Yield Curve Rates as of the grant dates as published by the Federal Reserve and represent the yields on actively traded treasury securities for terms equal to the expected term of the options. The expected term calculation is based on the observed historical option exercise behavior and post-vesting forfeitures of our employees and an analysis of the existing option holders.

Stock activity under the Stock Option Plans was as follows (in thousands, except per share data):

	Shares Available for Grant		Shares		Weighted- Average Price Per Share
Balance as of December 31, 2006		2,940		147	$	7.69
Granted		6		6		3.50
Exercised		—		—		—
Canceled		—		—		—
Balance as of September 30, 2007		2,934		153	$	7. 52

The following table summarizes information concerning options outstanding and exercisable at September 30, 2007 (in thousands, except per share data):

	Options Outstanding
			Weighted-				Options Exercisable
			Average		Weighted-				Weighted-
	Number		Remaining		Average		Number		Average
Range of	Of		Contractual		Exercise		Of		Exercise
Exercise Prices	Shares		Life (Years)		Price		Shares		Price
$2.15-2.60		118		8.0	$	2.56		81	$	2.57
3.50		6		9.6		3.50		-		-
5.20		4		5.6		5.20		4		5.20
6.96		12		6.1		6.96		12		6.96
8.80		4		4.6		8.80		4		8.80
22.30		4		3.7		22.30		4		22.30
120.00		5		2.9		120		5		120
$2.15-120.00		153		7.5	$	7.52		110	$	9.41

Guarantees

We may enter into certain types of contracts that require that we indemnify parties against certain third party claims that may arise. These contracts primarily relate to: (i) certain agreements with our officers, directors, employees and other service providers, under which we may be required to indemnify such persons for liabilities arising out of their relationships with us, (ii) contracts under which we may be required to indemnify customers against loss or damage to property or persons as a result of willful or negligent conduct by our employees or sub-contractors, (iii) contracts under which we may be required to indemnify customers against third party claims that our product infringes a patent, copyright or other intellectual property right and (iv) procurement or license agreements under which we may be required to indemnify licensors or vendors for certain claims that may be brought against them arising from our acts or omissions with respect to the supplied products or technology.

Generally, a maximum obligation is not explicitly stated. Because the obligated amounts associated with this type of agreement are not explicitly stated, the overall maximum amount of the obligation cannot be reasonably estimated. Historically, we have not been obligated to make payments for these obligations, and no liabilities have therefore been recorded for these obligations on its consolidated balance sheet as of September 30, 2007.

Income Taxes

We adopted the provisions of Financial Accounting Standards Board (FASB) Interpretation No. 48, Accounting for Uncertainty in Income Taxes, on January 1, 2007. This Interpretation clarifies the accounting for income taxes by prescribing the minimum recognition threshold a tax position is required to meet before being recognized in our consolidated financial statements. The Interpretation also provides guidance for the measurement and classification of tax positions, interest and penalties, and requires additional disclosure on an annual basis. The cumulative effect of the change was not material. Following implementation, the ongoing recognition of changes in measurement of uncertain tax positions will be reflected as a component of income tax expense. Interest and penalties incurred associated with unresolved income tax positions will continue to be included in other income (expense).

2. COMMITMENTS AND CONTINGENCIES

On November 15, 2001, we along with certain of our officers and directors were named as defendants in a class action shareholder complaint filed in the United States District Court for the Southern District of New York, now captioned In re CoSine Communications, Inc. Initial Public Offering Securities Litigation, Case No. 01 CV 10105. The complaint generally alleges that various investment bank underwriters engaged in improper and undisclosed activities related to the allocation of shares in our initial public offering. The complaint brings claims for the violation of several provisions of the federal securities laws against those underwriters, and also against us and each of the directors and officers who signed the registration statement relating to the initial public offering. The plaintiffs seek unspecified monetary damages and other relief. Similar lawsuits concerning more than 300 other companies' initial public offerings were filed during 2001, and this lawsuit is being coordinated with those actions in the Southern District of New York before Judge Shira A. Scheindlin.

On or about July 1, 2002 an omnibus motion to dismiss was filed in the coordinated litigation on behalf of the issuer defendants, of which we and our named officer and directors are a part, on common pleading issues. In October 2002, pursuant to stipulation by the parties, the Court entered an order dismissing our named officers and directors from the action without prejudice. On February 19, 2003, the Court dismissed the Section 10(b) and Rule 10b-5 claims against us but did not dismiss the Section 11 claims against us.

In June 2004, a stipulation of settlement and release of claims against the issuer defendants, including us, was submitted to the court for approval. On August 31, 2005, the Court preliminarily approved the settlement. In December 2006, the appellate court overturned the certification of classes in the six test cases that were selected by the underwriter defendants and plaintiffs in the coordinated proceedings. Because class certification was a condition of the settlement, it was unlikely that the settlement would receive final Court approval. On June 25, 2007, the Court entered an order terminating the proposed settlement based upon a stipulation among the parties to the settlement. Plaintiffs have indicated that they will seek to amend their allegations and file amended complaints. It is uncertain whether there will be any revised or future settlement.

If a settlement is not consummated, we intend to defend the lawsuit vigorously. However, we cannot predict its outcome with certainty. If we are not successful in our defense of this lawsuit, we could be forced to make significant payments to the plaintiffs and their lawyers, and such payments could have a material adverse effect on our business, financial condition and results of operations if not covered by our insurance carrier.

Even if these claims are not successful, the litigation could result in substantial costs and divert management's attention and resources, which could adversely affect our business, results of operations and financial position.

In the ordinary course of business, we are involved in legal proceedings involving contractual obligations, employment relationships and other matters. Except as described above, we do not believe there are any pending or threatened legal proceedings that will have a material impact on our financial position or results of operations.

3. BALANCE SHEET DETAILS

Cash

At September 30, 2007, we had deposits with a financial institution that may exceed the amount of insurance provided on such deposits.

Accounts Receivable

We have no trade accounts receivable at September 30, 2007. Two customers comprised 94% of total accounts receivable at December 31, 2006.

Warranty

Prior to discontinuing our products in September 2004, we provided a basic limited warranty, including repair or replacement of parts, and technical support for products sold on or before September 30, 2004. We ceased offering warranties in 2004 in connection with the discontinuance of our products and all warranty obligations have expired on or before September 30, 2007. There were no warranty activities in the three or nine month periods ended September 30, 2007 and 2006, respectively.

4. NET INCOME (LOSS) PER COMMON SHARE

Basic net income (loss) per share is calculated based on the weighted average number of common shares outstanding during the periods presented. Diluted net income per share gives effect to the dilutive effect of common stock equivalents consisting of stock options and warrants (calculated using the treasury stock method).

The following table presents the calculation of basic and diluted net loss per share for each year (in thousands, except per share data):

	Three Months Ended September 30,					Nine Months Ended September 30,
	2007		2006			2007		2006

Net income (loss)	$	127	$	(225	)	$	343	$	(146	)
Basic and diluted:
Weighted-average shares of common stock outstanding		10,091		10,091			10,091		10,091

Add: effect of dilutive securities - stock options		23		—			27		—
Weighted-average shares used in diluted net income per share		10,114		10,091			10,118		10,091
Basic and diluted net income (loss) per share	$	0.01	$	(0.02	)	$	0.03	$	(0.01	)

Basic net income per common share is calculated based on the weighted-average number of common shares outstanding during the periods presented.

5. COMPREHENSIVE INCOME

The components of comprehensive income are shown below, in thousands:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2007			2006			2007			2006

Net income (loss)	$	127		$	(225	)	$	343		$	(146	)
Other comprehensive income:
Unrealized gains (losses) on investments		(2	)		6			(2	)		13
Currency translation adjustment		-			-			-			13
Total other comprehensive income		(2	)		6			(2	)		26
Comprehensive income (loss)	$	125		$	(219	)	$	341		$	(120	)

6. SEGMENT REPORTING

We operate in only one operating segment, and substantially all of our assets are located in the United States.

We had no revenues in the three and nine month periods ended September 30, 2007. Revenues from customers by geographic region for the three and nine months ended September 30, 2006, respectively, were as follows, in thousands:

	Three Months Ended September 30, 2006		Nine Months Ended September 30, 2006
Region
North America	$	100	$	1,110
France		27		109
Other EMEA		7		14
Total	$	134	$	1,233

Two North American customers accounted for 47% and 27% of total revenues, respectively, in the three months ended September 30, 2006.

7. RECENT ACCOUNTING PRONOUNCEMENTS

In June 2006, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes — an interpretation of FASB Statement No. 109” (FIN 48). FIN 48 prescribes a recognition threshold and measurement attribute for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return, and also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006. We adopted the provisions of FIN 48 on January 1, 2007. As a result of the implementation of FIN 48, we recognized no material adjustments in the liability for unrecognized income tax benefits. We operated in multiple tax jurisdictions both inside and outside the United States. With few exceptions, we are no longer subject to audits by tax authorities for tax years prior to 2001. At the adoption date, we did not have any unrecognized tax benefits and did not have any interest or penalties accrued.

In September 2006, the FASB issued FASB Statement No. 157, Fair Value Measurements, or SFAS 157. The standard provides guidance for using fair value to measure assets and liabilities. The standard also responds to investors’ requests for expanded information about the extent to which companies measure assets and liabilities at fair value, the information used to measure fair value, and the effect of fair value measurements on earnings. The standard applies whenever other standards require or permit assets or liabilities to be measured at fair value. The standard does not expand the use of fair value in any new circumstances. SFAS 157 must be adopted prospectively as of the beginning of the year it is initially applied. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. We are still evaluating the impact of this standard will have on our financial position or results of operations.

In September 2006, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in the Current Year Financial Statements” (“SAB 108”). SAB 108 addresses how the effects of prior -year uncorrected misstatements should be considered when quantifying misstatements in current-year financial statements. SAB 108 requires an entity to quantify misstatements using a balance sheet and income-statement approach and to evaluate whether either approach results in quantifying an error that is material in light of relevant quantitative and qualitative factors. The guidance is applicable for fiscal years ending after November 15, 2006. The adoption of SAB 108 did not have a material impact on our considered financial statements.

In February 2007, the FASB issued FASB Statement No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities—Including an amendment of FASB Statement No. 115” (“SFAS 159”). SFAS 159 creates a “fair value option” under which an entity may elect to record certain financial assets or liabilities at fair value upon their initial recognition. Subsequent changes in fair value would be recognized in earnings as those changes occur. The election of the fair value option would be made on a contract-by contract basis and would need to be supported by concurrent documentation or a preexisting documented policy. SFAS 159 requires an entity to separately disclose the fair value of these items on the balance sheet or in the footnotes to the financial statements and to provide information that would allow the financial statement user to understand the impact on earnings from changes in the fair value. SFAS 159 is effective for us beginning with fiscal year 2008. We are currently evaluating the impact that the adoption of SFAS 159 will have on our consolidated financial statements.

8. TRANSACTIONS WITH RELATED PERSONS

In efforts to reduce our operating expenses, on June 15, 2007, the board of directors approved an agreement (the “Services Agreement”) with SP Corporate Services, LLC (“SP”) pursuant to which SP provides us, on a non-exclusive basis, a full range of executive, financial and administrative support services and personnel, including the services of a Chief Executive Officer, Chief Financial Officer, Secretary, Principal Executive Officer and Principal Accounting Officer, maintenance of our corporate office and records, periodic reviews of transactions in our stock to assist in preservation of our NOLs, and related executive, financial, accounting and administrative support services. The Service Agreement became effective as of July 1, 2007. Under the Services Agreement, we pay SP a monthly fee of $17,000 in exchange for SP's services. SP is responsible for compensating and providing all applicable employment benefits to any SP personnel in connection with providing services under the Services Agreement. We reimburse SP for reasonable and necessary business expenses of ours incurred by SP, and we are responsible payment of fees related to audit, tax, legal, stock transfer, insurance broker, investment advisor and banking services provided to us by third party advisors. The Services Agreement has a term of one year and automatically renews for successive one year periods unless otherwise terminated by either party. The Services Agreement is also terminable by us upon the death of Terry R. Gibson or his resignation as our Chief Executive Officer, Chief Financial Officer or Secretary of the Company. Under the Services Agreement, SP and its personnel are entitled to the same limitations on liability and indemnity rights available under our charter documents to any other person performing such services for us. During fiscal year 2007, prior to the effectiveness of the Services Agreement, we incurred approximately $24,500 per month in performing the services which are to be performed by SP under the Services Agreement.

SP is affiliated with Steel Partners II, L.P., our largest stockholder, by virtue of SP’s President, Warren Lichtenstein, serving as the sole executive officer and managing member of Steel Partners, L.L.C., the general partner of Steel Partners II, L.P. SP is a wholly owned subsidiary of Steel Partners Ltd., also controlled by Mr. Lichtenstein.

Pursuant to the Services Agreement, Terry R. Gibson terminated his employment with us, effective as of June 30, 2007, but continues to serve as our Chief Executive Officer, Chief Financial Officer, Secretary, Principal Executive Officer and Principal Accounting Officer as an employee of SP. SP is responsible for compensating Mr. Gibson, including providing him with all applicable employment benefits to which he may be entitled, for his serving as our Chief Executive Officer, Chief Financial Officer, Secretary, Principal Executive Officer and Principal Accounting Officer and for any other services he may provide to us under the Services Agreement.

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

This Management's Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements. We use words such as "anticipate," "believe," "plan," "expect," "future," "intend" and similar expressions to identify forward-looking statements. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those reflected in the forward-looking statements. Factors that might cause such a difference include, but are not limited to, failure to achieve revenue growth and profitability, our ability to identify and acquire new business operations, the time and costs required to identify and acquire new business operations, management and board interest in and distraction due to identifying and acquiring new business operations, and the reactions, either positive or negative, of investors and others to our strategic direction and to any specific business opportunity selected by us, all as are discussed in more detail in the section entitled "Risk Factors" contained in our Annual Report on Form 10-K for the year ended December 31, 2006. Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management’s opinions only as of the date hereof. We undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements. Readers should carefully review the risk factors described in other documents that we file from time to time with the Securities and Exchange Commission.

OVERVIEW

Until December 31, 2006, our business consisted primarily of a customer support capability provided by a third party for our discontinued products. We continued such support activities through December 31, 2006, at which time we ceased all customer support services. In 2006, we sold our patent portfolio and the intellectual property related to our carrier products and service business. Effective July 1, 2007, we are outsourcing our executive, financial and administrative support services and personnel requirements to SP Corporate Services LLC in efforts to reduce operating costs. See Note 8 to Notes to Condensed Consolidated Financial Statements.. We continue to seek to redeploy our existing resources to identify and acquire one or more new business operations with existing or prospective taxable earnings that can be offset by use of our net operating loss carry-forwards ("NOLs").

DUE TO THE ADOPTION OF OUR REDEPLOYMENT STRATEGY, THE INFORMATION APPEARING BELOW, WHICH RELATES TO PRIOR PERIODS, MAY NOT BE INDICATIVE OF THE RESULTS THAT MAY BE EXPECTED FOR ANY SUBSEQUENT PERIODS. THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 2007 PRIMARILY REFLECTS GENERAL AND ADMINISTRATIVE EXPENSES AND TRANSACTION EXPENSES ASSOCIATED WITH THE CONTINUING ADMINISTRATION OF THE COMPANY AND ITS EFFORTS TO REDEPLOY ITS ASSETS.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

General

Our discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance U.S. generally accepted accounting principles. The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosures of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including those related to revenue recognition, allowance for doubtful accounts, inventory valuation, long-lived assets, warranties and equity issuances. Additionally, the audit committee of our board of directors reviews these critical accounting estimates at least annually. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. These estimates form the basis for certain judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

The following accounting policies are significantly affected by the judgments and estimates we use in the preparation of our consolidated financial statements.

Revenue Recognition

Historically, prior to discontinuing our products, most of our sales were generated from complex arrangements. Recognizing revenue in these arrangements required our making significant judgments, particularly in the areas of customer acceptance and collectibility.

Certain of our historic product sales arrangements required formal acceptance by our customers. In such cases, we did not recognize revenue until we received formal notification of acceptance. Although we worked closely with our customers to help them achieve satisfaction with our products prior to and after acceptance, the timing of customer acceptance could greatly affect the timing of the recognition of our revenue.

While the end user of our product was normally a large network service provider, we also sold product and services through small resellers and to small network service providers in Asia, Europe and North America. To recognize revenue before we received payment, we were required to assess that collection from the customer was probable. If we could not satisfy ourselves that collection is probable, we deferred revenue recognition until we collected payment.

Through December 31, 2006, our revenue consisted primarily of customer service revenue. We recorded revenue as earned for customer service revenue, once we satisfied ourselves that collection was probable. If we could satisfy ourselves that collection was probable, we deferred revenue recognition until we collected payment.

Allowance for Doubtful Accounts

We maintain allowances for doubtful accounts in connection with estimated losses resulting from the inability of our customers to pay our invoices. In order to estimate the appropriate level of this allowance, we analyze historical bad debts, customer concentrations, current customer credit-worthiness, current economic trends and changes in our customer payment patterns. In future periods, if the financial condition of our customers were to deteriorate and affect their ability to make payments, additional allowances may be required.

Warranties

Prior to discontinuing our products, we provided a basic limited warranty, including repair or replacement of parts, and technical support for our products. The specific terms and conditions of those warranties varied depending on the customer or region in which we did business. We estimated the costs that could be incurred under our basic limited warranty and recorded a liability in the amount of such costs at the time product revenue was recognized. Our warranty obligation is affected by the number of installed units, product failure rates, materials usage and service delivery costs incurred in correcting product failures. Each quarter, we assess the adequacy of our recorded warranty liabilities and adjust the amounts as necessary. In future periods, if actual product failure rates, materials usage or service delivery costs differ from our estimates, adjustments to cost of revenue may result.

We ceased offering warranty on product or service sales in 2004 and all warranty obligations expired prior to December 31, 2006.

Impact of Equity Issuances on Operating Results

Equity issuances have historically had a material impact on our operating results. The equity issuances that have affected operating results to date include warrants granted to customers and suppliers, stock options granted to employees and consultants, stock issued in lieu of cash compensation to suppliers and re-priced stock options.

Our cost of revenue, operating expenses and interest expense were affected in prior years by charges related to warrants and options issued for services. Furthermore, some of our employee stock option transactions had resulted in deferred compensation, which was presented as a reduction of stockholders’ equity on our consolidated balance sheet and was amortized over the vesting period of the applicable options using the graded vesting method.

Some of the stock options granted to our employees prior to our IPO in September 2000 had resulted in deferred compensation as a result of stock options having an exercise price below their estimated fair value. Deferred compensation is presented as a reduction to stockholders’ equity on the consolidated balance sheet and is then amortized using an accelerated method over the vesting period of the applicable options. When an employee terminates, an expense credit is recorded for any amortization that has been previously recorded as an expense in excess of vesting.

In the second quarter of 2004, we issued to a reseller a warrant to acquire 254,489 shares of our common stock at an exercise price of $4.65 per share. The warrant had a two-year term beginning May 28, 2004 and vested ratably over the term. If during the two-year term (1) any person or entity had acquired a greater than 50% interest in us or the ownership or control of more than 50% of our voting stock or (2) we had sold substantially all of our intellectual property assets, the warrant would have become exercisable. Even if the reseller had not immediately exercised the warrant upon the occurrence of such an event that made the warrant exercisable (a “trigger event”), the reseller would have been entitled to securities, cash and property to which it would have been entitled to upon the consummation of the trigger event, less the aggregate price applicable to the warrant. We calculated the fair value of the warrant to be approximately $487,000 using the Black-Scholes option pricing model, using a volatility factor of .97, a risk-free interest rate of 2.5%, and an expected life of two years. The fair value of the warrant has been amortized over the two-year expected life of the warrant. The warrant was fully amortized at December 31, 2006. The warrants have expired and were not exercised. During the three month and nine month periods ended September 30, 2006 we amortized nil and $100,000, respectively, to cost of revenue.

RESULTS OF OPERATIONS

Revenue

Effective December 31, 2006, we have ceased all customer service operations and, accordingly, there were no revenues recognized for the three and nine month periods ended September 30, 2007. Revenues for the three and nine month periods ended September 30, 2006 were $134,000 and $1,233,000, respectively, all of which was earned from service contracts.

Revenues by geographic region for the three and nine month periods ended September 30, 2006 were as follows, in thousands:

	Three Months Ended September 30, 2006		Nine Months Ended September 30, 2006
Region
North America	$	100	$	1,110
France		27		109
Other EMEA		7		14
Total	$	134	$	1,233

Non-Cash Charges Related to Equity Issuances

During the three and nine month periods ended September 30, 2007, we recorded $10,000 and $29,000, respectively, of non-cash charges related to equity issuances. During the three and nine month periods ended September 30, 2006, we recorded $10,000 and $130,000, respectively, of non-cash charges related to equity issuances. The charges in 2007 are due to the adoption of SFAS No. 123(R). The charges in 2006 relate to stock option expense as well as the amortization of a stock purchase warrant granted to a reseller.

Cost of Revenue

There was no cost of revenue for the three and nine month periods ended September 30, 2007 as we closed our customer service business effective December 31, 2006. For the three and nine month periods ended September 30, 2006, cost of revenue was $366,000 and $1,469,000, respectively, which represented costs of our third party support contract as well as amortization of a warrant granted to a sales representative.

Gross Profit

There was no gross profit for the three and nine month periods ended September 30, 2007 as we closed our customer service business effective December 31, 2006. For the three and nine month periods ended September 30, 2006, gross profit (loss) was ($232,000) and $(236,000), respectively. Our gross profit was adversely affected during the three and nine month periods ended September 30, 2006 by the declining volume of our service contract sales and the costs we incurred with our third party contractor.

Research and Development Expenses

Research and development expenses were nil for the three and nine month periods ended September 30, 2007 and 2006, respectively. We discontinued all research and development in connection with our announcement in September 2004 that we were laying off all employees and discontinuing our products. We do not expect to incur research and development costs unless and until we acquire new operating businesses.

Sales and Marketing Expenses

Sales and marketing expenses were nil for the three and nine month periods ended September 30, 2007 and 2006, respectively. With our announcement in September 2004 that we were laying off all employees and were discontinuing our products, we have ceased essentially all ongoing sales and marketing efforts. We do not expect to incur sales and marketing costs unless and until we acquire new operating businesses.

General and Administrative Expenses

General and administrative expenses were $175,000 and $542,000 for the three and nine month periods ended September 30, 2007 as compared to $295,000 and $906,000 for the three and nine month periods ended September 30, 2006, respectively. With our announcement in September 2004 that we were laying off all employees and discontinuing our products, our general and administrative efforts have been focused on restructuring activities, the evaluation of strategic alternatives, as well as the activities related to identifying and acquiring profitable business operations. General and administrative costs for the three and nine month periods ended September 30, 2007 and 2006 consisted of costs of contractors, legal and accounting services, insurance and office expenses. The decrease from 2006 to 2007 was due to cost savings resulting from ceasing our customer support services as of December 31, 2006 and outsourcing our executive, financial and administrative support services and personnel requirements to SP Corporate Services LLC, effective as of July 1, 2007.

General and administrative expenses should remain at approximately the levels reported in the three months ended September 30, 2007 for the quarter ending December 31, 2007.

Interest Income and Other Income (Expense)

For the three month and nine month periods ended September 30, 2007, interest income and other income was $302,000 and $885,000, respectively, as compared to $302,000 and $996,000 for the three month and nine month periods ended September 30, 2006. The decrease in other income for the nine months ended September 30, 2006 to 2007 is due primarily to the $180,000 one-time sale of patents in the prior year.

Income Tax Provision

Provisions for income taxes were nil for the three and nine month periods ended September 30, 2007 and 2006, respectively. Our tax expense for fiscal 2007 will continue to depend on the amount and mix of income derived from sources subject to corporate income taxes of foreign taxing jurisdictions.

LIQUIDITY AND CAPITAL RESOURCES

Through December 31, 2006, our current business consisted primarily of a customer support capability for our discontinued products provided by a third party. In June 2006, we sold the rights to our patent portfolio for cash consideration of $180,000 and in November 2006 we sold the rights to our intellectual property for $80,000. We ceased customer support activities effective December 31, 2006. Effective July 1, 2007, we outsourcing our executive, financial and administrative support services and personnel requirements to SP Corporate Services LLC in efforts to reduce operating costs. See Note 8 to Notes to Condensed Consolidated Financial Statements. We have adopted a strategy of seeking to enhance stockholder value by pursuing opportunities to redeploy our assets through an acquisition of one or more operating business with existing or prospective taxable earnings that can be offset by use of our net operating loss carry-forwards. We believe that we possess sufficient liquidity and capital resources to fund our operations and working capital requirements for at least the next 12 months. However, our restructuring activities and our new redeployment of assets strategy raise substantial doubt as to our ability to continue as a going concern.

We will continue to prepare our financial statements on the assumption that we will continue as a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. As such, the financial statements do not include any adjustments to reflect possible future effects of the recoverability and classification of assets or the amounts and classification of liabilities that may result from any decisions made with respect to an assessment of our strategic alternatives. If at some point we were to decide to pursue alternative plans, we may be required to present the financial statements on a different basis. As an example, if we were to decide to pursue a liquidation and return of capital, it would be appropriate to prepare and present financial statements on the liquidation basis of accounting, whereby assets are valued at their estimated net realizable values and liabilities are stated at their estimated settlement amounts.

Cash, Cash Equivalents and Short-Term Investments

Cash, cash equivalents and short-term investments were $23.0 million at September 30, 2007 and $22.9 million at December 31, 2006.

Operating Activities

We generated $170,000 in cash for operations for the nine months ended September 30, 2007 as compared to a usage of $198,000 in cash for operations for the nine months ended September 30, 2006. The improvement in 2007 is due to decreases in operating expenses and cost of revenue as a result of ceasing operations and support services as of the end of 2006 as well as lower payments for short term liabilities in 2007 as compared to 2006.

Investing Activities

Investing activities provided $882,000 in cash for the nine months ended September 30, 2007 as compared to $3.5 million in cash provided by investing activities in the nine months ended September 30, 2006. There were no capital expenditures in the nine months ended September 30, 2007 or 2006, respectively.

Financing Activities

There were no financing activities in the nine months ended September 30, 2007 or 2006, respectively.

OUTLOOK

Our board of directors, on completion of a comprehensive review of strategic alternatives, approved a plan to redeploy our existing resources to identify and acquire one or more new business operations, while continuing to support our existing customers and continuing to offer our intellectual property for license or sale. Our redeployment strategy will involve the acquisition of one or more operating businesses with existing or prospective taxable earnings that can be offset by use of our net operating loss carry-forwards (“NOLs”). As of this date, no candidate has been identified, and no assurance can be given that we will find suitable candidates, and if we do, that we will be able to utilize our existing NOLs.

At September 30, 2007, we had $23.0 million in cash and short-term investments. We believe we possess sufficient liquidity and capital resources to fund our operations and working capital requirements for at least the next 12 months.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Sensitivity

We do not currently use derivative financial instruments for speculative trading or hedging purposes. In addition, we maintain our cash equivalents in government and agency securities, debt instruments of financial institutions and corporations and money market funds. Our exposure to market risks from changes in interest rates relates primarily to corporate debt securities. We place our investments with high credit quality issuers and, by policy, limit the amount of the credit exposure to any one issuer.

Our general policy is to limit the risk of principal loss and ensure the safety of invested funds by limiting market and credit risk. All highly-liquid investments with a maturity of less than three months at the date of purchase are considered to be cash equivalents, and all investments with maturities of three months or greater are classified as available-for-sale and considered to be short-term investments.

A sensitivity analysis was performed on our investment portfolio as of September 30, 2007 based on a modeling technique that measures hypothetical fair market value changes that would result from a parallel shift in the yield curve of plus 100 basis points. Based on this analysis, a hypothetical 100 basis point increase in interest rates would result in a $37,000 decrease in the fair value of our investments in debt securities as of September 30, 2007.

Exchange Rate Sensitivity

Currently, all of our revenue and most of our expenses are denominated in U.S. dollars.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures. The Securities and Exchange Commission defines the term "disclosure controls and procedures" to mean a company's controls and other procedures that are designed to ensure that information required to be disclosed in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time periods specified in the Commission's rules and forms. Our chief executive officer and chief financial officer has concluded, based on the evaluation of the effectiveness of the disclosure controls and procedures by our management, with the participation of our chief executive officer and chief financial officer, as of the end of the period covered by this report, that our disclosure controls and procedures were effective for this purpose, except as noted below under "Changes in Internal Controls."

Changes in Internal Controls. In connection with its audit of our consolidated financial statements for the year ended December 31, 2006, Burr, Pilger & Mayer LLP identified significant deficiencies, which represent material weaknesses. The material weaknesses were related to a lack of adequate segregation of duties. In addition, significant audit adjustments and financial statement disclosure changes were needed that were the result of an insufficient quantity of experienced resources involved with the financial reporting and year end closing process resulting from staff reductions associated with our downsizing.

Prior to the issuance of our consolidated financial statements, we completed the needed analyses and our management review such that we can certify that the information contained in our consolidated financial statements for the year ended December 31, 2006 and the three and nine month periods ended September 30, 2007 and 2006, respectively, fairly presents, in all material respects, our financial condition and results of operations.

Limitations on Effectiveness of Controls and Procedures. Our management, including our chief executive officer and chief financial officer, does not expect that our disclosure controls and procedures or our internal controls will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include, but are not limited to, the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

In June 2004, a stipulation of settlement and release of claims against the issuer defendants, including us, was submitted to the court for approval. On August 31, 2005, the court preliminarily approved the settlement. In December 2006, the appellate court overturned the certification of classes in the six test cases that were selected by the underwriter defendants and plaintiffs in the coordinated proceedings. Because class certification was a condition of the settlement, it was unlikely that the settlement would receive final Court approval. On June 25, 2007, the Court entered an order terminating the proposed settlement based upon a stipulation among the parties to the settlement. Plaintiffs have indicated that they will seek to amend their allegations and file amended complaints. It is uncertain whether there will be any revised or future settlement.

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

On September 25, 2000, in connection with our initial public offering, a Registration Statement on Form S-1 (File No. 333-35938) was declared effective by the Securities and Exchange Commission, pursuant to which 1,150,000 shares of our common stock were offered and sold for our account at a price of $230 per share, generating gross offering proceeds of $264.5 million. The managing underwriters were Goldman, Sachs & Co., Chase Securities Inc., Robertson Stephens, Inc. and JP Morgan Securities Inc. Our initial public offering closed on September 29, 2000. The net proceeds of the initial public offering were approximately $242.5 million after deducting approximately $18.5 million of underwriting discounts and approximately $3.5 million of other offering expenses.

We did not pay directly or indirectly any of the underwriting discounts or other related expenses of the initial public offering to any of our directors or officers, any person owning 10% or more of any class of our equity securities, or any of our affiliates.

We have used approximately $220 million of the funds from the initial public offering to fund our operations. We expect to use the remaining net proceeds for general corporate purposes, to fund our operations, working capital and capital expenditures. Pending further use of the net proceeds, we have invested them in short-term, interest-bearing, investment-grade securities.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

ITEM 6. EXHIBITS

An index of exhibits filed as part of this Report is on page 21.

SIGNATURE

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, thereunto duly authorized.


	COSINE COMMUNICATIONS, INC.

Dated: October 31, 2007	By:	/s/ Terry R. Gibson
		Terry R. Gibson
		Chief Executive Officer and Chief Financial Officer

EXHIBIT INDEX

Exhibit Number	Description

10.1	Services Agreement by and between CoSine Communications, Inc. and SP Corporate Services, LLC, effective as of July 1, 2007 (incorporated by reference to Exhibit 10.1 to Form 8-K filed June 19, 2007).

10.2	First Amendment to Rights Agreement by and between CoSine Communications, Inc. and Mellon Investor Services LLC, effective as of August 31, 2007 (incorporated by reference to Exhibit 10.1 to Form 8-K filed on September 4, 2007).

31.1	Certification of Terry R. Gibson, Chief Executive Officer and Chief Financial Officer of CoSine Communications, Inc., pursuant to 15 U.S.C. Section 7241, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1	Certification of Terry R. Gibson, Chief Executive Officer and Chief Financial Officer of CoSine Communications, Inc., pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002


		/s/ Terry R. Gibson
		Terry R. Gibson
		Director, Chief Executive Officer and Chief Financial Officer October 31, 2007