-----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,
 R7F4w+5iKdSimY8cUEcbpFIfpbDXJ8H2vxHLvPu0lXVgjkzfDqioN+hKtEH1nrD7
 R5vzjNg0U+EhGcJzN+rpaQ==

<SEC-DOCUMENT>0001193125-05-030997.txt : 20050216
<SEC-HEADER>0001193125-05-030997.hdr.sgml : 20050216
<ACCEPTANCE-DATETIME>20050216103805
ACCESSION NUMBER:		0001193125-05-030997
CONFORMED SUBMISSION TYPE:	424B3
PUBLIC DOCUMENT COUNT:		6
FILED AS OF DATE:		20050216
DATE AS OF CHANGE:		20050216

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			VERDISYS INC
		CENTRAL INDEX KEY:			0001141197
		STANDARD INDUSTRIAL CLASSIFICATION:	OIL AND GAS FIELD EXPLORATION SERVICES [1382]
		IRS NUMBER:				223755993
		STATE OF INCORPORATION:			CA
		FISCAL YEAR END:			1231

	FILING VALUES:
		FORM TYPE:		424B3
		SEC ACT:		1933 Act
		SEC FILE NUMBER:	333-119679
		FILM NUMBER:		05619466

	BUSINESS ADDRESS:	
		STREET 1:		25025 I-45 NORTH, SUITE 525
		CITY:			THE WOODLANDS
		STATE:			TX
		ZIP:			77380
		BUSINESS PHONE:		(281) 364-6999

	MAIL ADDRESS:	
		STREET 1:		25025 I-45 NORTH, SUITE 525
		CITY:			THE WOODLANDS
		STATE:			TX
		ZIP:			77380
</SEC-HEADER>
<DOCUMENT>
<TYPE>424B3
<SEQUENCE>1
<FILENAME>d424b3.htm
<DESCRIPTION>DEFINITIVE PROSPECTUS
<TEXT>
<HTML><HEAD>
<TITLE>Definitive Prospectus</TITLE>
</HEAD>
 <BODY BGCOLOR="WHITE">
<h5 align="left"><a href="#toc">Table of Contents</a></h5>

 <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>Registration No. 333-119679 </B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman"
SIZE="2"><B>Filed Pursuant to Rule 424(b)(3) </B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman"
SIZE="6"><B>V<SMALL>ERDISYS</SMALL>, I<SMALL>NC</SMALL>. </B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><B>14550 T<SMALL>ORREY</SMALL> C<SMALL>HASE</SMALL> B<SMALL>OULEVARD</SMALL>,
S<SMALL>UITE</SMALL> 330 </B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><B>H<SMALL>OUSTON</SMALL>, T<SMALL>EXAS</SMALL> 77014-1022 </B></FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>PROSPECTUS </B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT
SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="5"><B>4,636,760 SHARES </B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="5"><B>COMMON STOCK </B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">We are registering up to 4,636,760 shares of our common stock for sale by certain shareholders of our company identified in this Prospectus. These
shareholders are referred to throughout this Prospectus as &#147;selling stockholders.&#148; Of the 4,636,760 shares of our common stock subject to this Prospectus, 3,296,450 shares of our common stock are currently issued and outstanding; 1,240,310
shares of our common stock are issuable upon conversion of certain indebtedness of the Company and the exercise of certain warrants and other rights. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">The selling stockholders who wish to sell their shares of our common stock may offer and sell their shares on a continuous or delayed basis in the future.
These sales may be conducted at fixed prices, market prices or at negotiated prices, and the selling stockholders may engage a broker or dealer to sell their shares. We will not receive any proceeds from these sales, but we will receive proceeds
from the exercise of any warrants. For additional information on possible methods of sale, you should see &#145;Plan of Distribution&#146; on page 15. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">The securities being registered trade on the Over-the-counter bulletin board under the symbol &#147;VDYS.OB&#148;. On February 14, 2005, the last reported sales price of
our common stock was $0.43 per share. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>Investment in small businesses
involves a high degree of risk, and investors should not invest any funds in Verdisys, Inc. unless they can afford to lose their entire investment. See
<A HREF="#tx67395_3">Risk Factors</A>, beginning on Page 3. </B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>Neither the
Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of the Prospectus. Any representation to the contrary is a criminal offense.
</B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P><HR WIDTH="17%" SIZE="1" NOSHADE COLOR="#000000"> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><B>The date of this Prospectus is February 14, 2005 </B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P><HR
WIDTH="17%" SIZE="1" NOSHADE COLOR="#000000">

<p Style='page-break-before:always'>
<HR  SIZE="3" COLOR="#999999" WIDTH="100%" ALIGN="CENTER">
<h5 align="left"><a href="#toc">Table of Contents</a></h5>

 <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><B>V<SMALL>ERDISYS</SMALL>,
I<SMALL>NC</SMALL>. </B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><B>
<A NAME="toc"></A>TABLE OF CONTENTS </B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="100%" BORDER="0" ALIGN="center">

<TR>
<TD WIDTH="97%"></TD>
<TD VALIGN="bottom" WIDTH="2%"></TD>
<TD></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">
<A HREF="#tx67395_1">S<SMALL>UMMARY</SMALL> I<SMALL>NFORMATION</SMALL> <SMALL>AND</SMALL> R<SMALL>ISK</SMALL> F<SMALL>ACTORS</SMALL></A><SMALL></SMALL></FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">1</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">
<A HREF="#tx67395_2"><I>Summary Information</I></A></FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">1</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2"><I>
<A HREF="#tx67395_3">Risk factors</A></I></FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2"><I></I>3<I></I></FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">
<A HREF="#tx67395_4">U<SMALL>SE</SMALL> <SMALL>OF</SMALL> P<SMALL>ROCEEDS</SMALL></A><SMALL></SMALL></FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">12</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">
<A HREF="#tx67395_5">S<SMALL>ELLING</SMALL> S<SMALL>ECURITY</SMALL> H<SMALL>OLDERS</SMALL></A><SMALL></SMALL></FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">12</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">
<A HREF="#tx67395_6">P<SMALL>LAN</SMALL> <SMALL>OF</SMALL> D<SMALL>ISTRIBUTION</SMALL></A><SMALL></SMALL></FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">15</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">
<A HREF="#tx67395_7">L<SMALL>EGAL</SMALL> P<SMALL>ROCEEDINGS</SMALL></A><SMALL></SMALL></FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">16</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">
<A HREF="#tx67395_8">D<SMALL>IRECTORS</SMALL>, E<SMALL>XECUTIVE</SMALL> O<SMALL>FFICERS</SMALL> <SMALL>AND</SMALL> C<SMALL>ONTROL</SMALL> P<SMALL>ERSONS</SMALL></A><SMALL></SMALL></FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">18</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">
<A HREF="#tx67395_9">S<SMALL>ECURITY</SMALL> O<SMALL>WNERSHIP</SMALL> <SMALL>OF</SMALL> C<SMALL>ERTAIN</SMALL> B<SMALL>ENEFICIAL</SMALL> O<SMALL>WNERS</SMALL> <SMALL>AND</SMALL> M<SMALL>ANAGEMENT</SMALL></A><SMALL></SMALL></FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">20</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">
<A HREF="#tx67395_10">D<SMALL>ESCRIPTION</SMALL> <SMALL>OF</SMALL> S<SMALL>ECURITIES</SMALL></A><SMALL></SMALL></FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">21</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">
<A HREF="#tx67395_11">I<SMALL>NTEREST</SMALL> <SMALL>OF</SMALL> N<SMALL>AMED</SMALL> E<SMALL>XPERTS</SMALL> <SMALL>AND</SMALL> C<SMALL>OUNSEL</SMALL></A><SMALL></SMALL></FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">22</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">
<A HREF="#tx67395_12">D<SMALL>ISCLOSURE</SMALL> <SMALL>OF</SMALL> C<SMALL>OMMISSION</SMALL> P<SMALL>OSITION</SMALL> <SMALL>ON</SMALL> I<SMALL>NDEMNIFICATION</SMALL> <SMALL>FOR</SMALL> S<SMALL>ECURITIES</SMALL> A<SMALL>CT</SMALL>
L<SMALL>IABILITIES</SMALL></A><SMALL></SMALL></FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">22</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">
<A HREF="#tx67395_13">D<SMALL>ESCRIPTION</SMALL> <SMALL>OF</SMALL> B<SMALL>USINESS</SMALL></A><SMALL></SMALL></FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">23</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2"><I>
<A HREF="#tx67395_14">Business Development</A></I></FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2"><I></I>23<I></I></FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2"><I>
<A HREF="#tx67395_15">Business Segments</A></I></FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2"><I></I>23<I></I></FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2"><I>
<A HREF="#tx67395_16">Industry</A></I></FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2"><I></I>24<I></I></FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2"><I>
<A HREF="#tx67395_17">Lateral Drilling Services</A></I></FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2"><I></I>25<I></I></FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:5.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2"><I>
<A HREF="#tx67395_18">Major Customers</A></I></FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2"><I></I>29<I></I></FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:5.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2"><I>
<A HREF="#tx67395_19">Customer Acceptance</A></I></FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2"><I></I>29<I></I></FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:5.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2"><I>
<A HREF="#tx67395_20">Market</A></I></FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2"><I></I>29<I></I></FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:5.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2"><I>
<A HREF="#tx67395_21">Competition</A></I></FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2"><I></I>30<I></I></FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2"><I>
<A HREF="#tx67395_22">Satellite Services</A></I></FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2"><I></I>31<I></I></FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:5.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2"><I>
<A HREF="#tx67395_23">Major Customers</A></I></FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2"><I></I>33<I></I></FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:5.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2"><I>
<A HREF="#tx67395_24">Market</A></I></FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2"><I></I>33<I></I></FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:5.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2"><I>
<A HREF="#tx67395_25">Competition</A></I></FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2"><I></I>33<I></I></FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2"><I>
<A HREF="#tx67395_26">Patents &amp; Licenses</A></I></FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2"><I></I>33<I></I></FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2"><I>
<A HREF="#tx67395_27">Governmental Regulation</A></I></FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2"><I></I>34<I></I></FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2"><I>
<A HREF="#tx67395_28">Employees</A></I></FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2"><I></I>35<I></I></FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">
<A HREF="#tx67395_29">M<SMALL>ANAGEMENT</SMALL>&#146;<SMALL>S</SMALL> D<SMALL>ISCUSSION</SMALL> <SMALL>AND</SMALL> A<SMALL>NALYSIS</SMALL> <SMALL>OR</SMALL> P<SMALL>LAN</SMALL> <SMALL>OF</SMALL>
O<SMALL>PERATION</SMALL></A><SMALL></SMALL></FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">36</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">
<A HREF="#tx67395_30">D<SMALL>ESCRIPTION</SMALL> <SMALL>OF</SMALL> P<SMALL>ROPERTY</SMALL></A><SMALL></SMALL></FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">40</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">
<A HREF="#tx67395_31">C<SMALL>ERTAIN</SMALL> R<SMALL>ELATIONSHIPS</SMALL> <SMALL>AND</SMALL> R<SMALL>ELATED</SMALL> T<SMALL>RANSACTIONS</SMALL></A><SMALL></SMALL></FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">42</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">
<A HREF="#tx67395_32">M<SMALL>ARKET</SMALL> <SMALL>FOR</SMALL> C<SMALL>OMMON</SMALL> E<SMALL>QUITY</SMALL> <SMALL>AND</SMALL> R<SMALL>ELATED</SMALL> S<SMALL>TOCKHOLDER</SMALL> M<SMALL>ATTERS</SMALL></A><SMALL></SMALL></FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">44</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">
<A HREF="#tx67395_35">E<SMALL>XECUTIVE</SMALL> C<SMALL>OMPENSATION</SMALL></A><SMALL></SMALL></FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">45</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">
<A HREF="#tx67395_33">C<SMALL>HANGES</SMALL> I<SMALL>N</SMALL> <SMALL>AND</SMALL> D<SMALL>ISAGREEMENTS</SMALL> <SMALL>WITH</SMALL> A<SMALL>CCOUNTANTS</SMALL> <SMALL>ON</SMALL> A<SMALL>CCOUNTING</SMALL> <SMALL>AND</SMALL> F<SMALL>INANCIAL</SMALL>
D<SMALL>ISCLOSURE</SMALL></A><SMALL></SMALL></FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">48</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">
<A HREF="#tx67395_36">A<SMALL>VAILABLE</SMALL> I<SMALL>NFORMATION</SMALL></A><SMALL></SMALL></FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">49</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">
<A HREF="#tx67395_34">F<SMALL>INANCIAL</SMALL> S<SMALL>TATEMENTS</SMALL></A><SMALL></SMALL></FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">50</FONT></TD></TR>
</TABLE>

<p Style='page-break-before:always'>
<HR  SIZE="3" COLOR="#999999" WIDTH="100%" ALIGN="CENTER">
<h5 align="left"><a href="#toc">Table of Contents</a></h5>


 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2"><B>V<SMALL>ERDISYS</SMALL>, I<SMALL>NC</SMALL>. </B></FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>
<A NAME="tx67395_1"></A>Summary Information and Risk Factors </B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:2%; text-indent:-2%"><FONT
FACE="Times New Roman" SIZE="2"><U>
<A NAME="tx67395_2"></A>Summary Information </U></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><B>PROSPECTUS
SUMMARY </B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">You should read the following summary together
with the more detailed information regarding us and the securities being offered for sale by means of this Prospectus and our financial statements and notes to those statements appearing elsewhere in this Prospectus. This summary highlights material
information contained elsewhere in this Prospectus. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>General </B></FONT></P>
<P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">Our mission is to substantially improve the economics of existing and
evolving oil and gas operations through the application of selected technologies. We currently operate in the oil and gas service industry in two distinct business segments. Our primary segment is providing a service that enhances the recovery of
oil and gas from new and existing wells. This service is performed by our specially fabricated mobile drilling rigs equipped to utilize a proprietary lateral drilling system known as Verdisys Lateral Drilling Services, or VLDS. With VLDS, we can
drill multiple lateral holes for a distance of 300 feet horizontally, in selected formations, from an existing well bore down to a depth of 5800 feet. We can provide our services in a few days at approximately one-fourth the cost of conventional
methods. We believe the combination of low front-end costs and the effectiveness and speed of the process should make VLDS highly attractive to oil and gas companies. We believe that there exists a substantial potential market in North America for
the application of the VDLS technology. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">Our secondary business
segment is providing satellite services to oil and gas producers, allowing them to remotely monitor and control well head and pipeline and drilling operations. Using satellite, wireless fidelity 802.11 networks &#147;Wi-Fi&#148;, and other wireless
technology, we provide oil and gas producers the ability to dispense with a manual structure and move to a real-time, automated, state of the art energy management program. With our services, production levels can be optimized to respond to current
market conditions and commitments. Our satellite service competes on the basis of its low cost, speed and broadband capability and our technical expertise in the use of multi-frequencies. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT
SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>Corporate History </B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">In September 2000, we were incorporated initially as Rocker &amp; Spike Entertainment, Inc, a California corporation. Until December 31, 2000, operations
consisted of organizational matters and the search for an operating company with which to perform a merger or acquisition. Effective January 1, 2001, we purchased the assets and web domain of Accident Reconstruction Communications Network from its
sole proprietor. Following the acquisition, we changed our name from Rocker &amp; Spike Entertainment, Inc. to Reconstruction Data Group, Inc. At that time, we provided research, communication and marketing exposure to the accident reconstruction
industry through our website and seminars. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">In April 2003, we
entered into a merger agreement with Verdisys, Inc. (&#147;Verdisys&#148;). Verdisys was initially incorporated as TheAgZone Inc. in 1999 as a California corporation. Its purpose was to provide e-Commerce satellite services to agribusiness. They
changed their name to Verdisys in 2001, and in 2003, with the acquisition of exclusive rights to a proprietary lateral drilling process throughout most of the U.S. and Canada, they changed their market focus to concentrate on services to the oil and
gas industry. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">The merger agreement with Verdisys called for us
to be the surviving company. In connection with the merger, our name changed to Verdisys, our articles of incorporation and bylaws remained in effect, the officers and directors of Verdisys became our officers and directors, each share of
Verdisys&#146; common stock was converted into one share of our common stock, and our accident reconstruction assets were sold. Additionally, Verdisys&#146; historical financial statements replaced ours. As a result of the merger, we now provide
specialty services to oil and gas production companies located in Oklahoma, Texas and Louisiana, and we have exclusive rights to the lateral drilling process throughout most of the U.S. and Canada. </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">- 1 - </FONT></P>


<p Style='page-break-before:always'>
<HR  SIZE="3" COLOR="#999999" WIDTH="100%" ALIGN="CENTER">
<h5 align="left"><a href="#toc">Table of Contents</a></h5>


 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2"><B>V<SMALL>ERDISYS</SMALL>, I<SMALL>NC</SMALL>. </B></FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>Summary of the Offering </B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT
SIZE="1">&nbsp;</FONT></P>
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="100%" BORDER="0" ALIGN="center">

<TR>
<TD WIDTH="45%"></TD>
<TD VALIGN="bottom" WIDTH="2%"></TD>
<TD WIDTH="53%"></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Shares outstanding before the offering</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">33,103,505</FONT><FONT FACE="Times New Roman" SIZE="1" COLOR="#000000"><SUP>(1)</SUP></FONT><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000"></FONT></TD></TR>
<TR>
<TD HEIGHT="16"></TD>
<TD HEIGHT="16" COLSPAN="2"></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Shares offered by selling stockholders</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">4,636,760 shares of our common stock. </FONT><FONT FACE="Times New Roman" SIZE="1" COLOR="#000000"><SUP>(2)</SUP></FONT><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000"></FONT></TD></TR>

<TR>
<TD HEIGHT="16"></TD>
<TD HEIGHT="16" COLSPAN="2"></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Use of proceeds</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">We will not receive any of the proceeds from the sale of our common stock offered by the selling stockholders. However, we may receive an aggregate of $557,310 upon the exercise of all of the
warrants held by the selling stockholders if such warrants are exercised for cash. Such funds, if any, will be used for working capital and general corporate purposes.</FONT></TD></TR>
<TR>
<TD HEIGHT="16"></TD>
<TD HEIGHT="16" COLSPAN="2"></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Risk factors</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">The shares offered hereby involve a high degree of risk. You should carefully consider the information set forth in the &#145;Risk Factors&#146; section of this Prospectus as well as other
information set forth in this Prospectus, including our financial statements and related notes.</FONT></TD></TR>
<TR>
<TD HEIGHT="16"></TD>
<TD HEIGHT="16" COLSPAN="2"></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Plan of distribution</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">The offering of our shares of common stock is being made by stockholders of our company who may wish to sell their shares. Sales of our common stock may be made by the selling stockholders in
the open market or in privately negotiated transactions and at market prices, fixed prices or negotiated prices.</FONT></TD></TR>
<TR>
<TD HEIGHT="16"></TD>
<TD HEIGHT="16" COLSPAN="2"></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">OTC Bulletin Board Trading Symbol</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&#147;VDYS.OB&#148;</FONT></TD></TR>
</TABLE> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2"></FONT><FONT FACE="Times New Roman" SIZE="1" COLOR="#000000"><SUP>(1)</SUP></FONT><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000"></FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">As of January 4, 2005 </FONT></TD></TR></TABLE> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2"></FONT><FONT FACE="Times New Roman" SIZE="1" COLOR="#000000"><SUP>(2)</SUP></FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT FACE="Times New Roman" SIZE="1" COLOR="#000000"><SUP></SUP></FONT><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">Includes 1,240,310 shares of common stock issuable upon exercise of rights or warrants, or
conversion of indebtedness. </FONT></TD></TR></TABLE> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">- 2 - </FONT></P>


<p Style='page-break-before:always'>
<HR  SIZE="3" COLOR="#999999" WIDTH="100%" ALIGN="CENTER">
<h5 align="left"><a href="#toc">Table of Contents</a></h5>


 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2"><B>V<SMALL>ERDISYS</SMALL>, I<SMALL>NC</SMALL>. </B></FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:2%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2"><U>
<A NAME="tx67395_3"></A>Risk factors </U></FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2"><I>Investing in our
common stock is highly speculative and risky. You should be able to bear a complete loss of your investment. You should carefully consider the following risks and the other information in this Prospectus before investing in the shares. If any of the
following risks and uncertainties develops into actual events, the business, financial condition and operating results could be materially adversely affected, and you could lose your entire investment. The risks and uncertainties described below are
not the only ones which we face; there may be additional risks and uncertainties not presently known to us or those we currently believe are immaterial which could also have a negative impact on our business, financial condition, and operating
results. </I></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2"><I>This Prospectus contains forward-looking
statements that involve risks and uncertainties. Actual results could differ materially from those discussed in the forward-looking statements as a result of certain factors, including the risk factors described below. The following risk factors
should be considered carefully in addition to the other information contained in this Prospectus before purchasing the shares offered hereby.</I><B></B><I> </I></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
<P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><B>GENERAL RISKS RELATING TO OUR COMPANY </B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>1. We have a limited operating history, which makes it difficult to evaluate our business performance. </B></FONT></P> <P
STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">We have been in existence for a few years, but we have been conducting drilling operations
using the proprietary lateral drilling technology only since June 2003 and satellite services to the oil and gas industry only since June 2002. We are also conducting field testing to evaluate the application of abrasive jetting technology to the
down-hole milling and lateral jetting techniques. Abrasive jetting has been successfully commercialized in several industries but is not yet proven in the energy drilling industry. Because we have a limited operating history, there is little
historical financial data upon which an investor may evaluate our business performance. Our revenue and income potential are unproven. An investor must consider the risks, uncertainties, expenses and difficulties frequently encountered by companies
in their early stages of development, particularly companies with limited capital in a rapidly evolving market. These risks and difficulties include our ability to develop our infrastructure, reliability in the milling process in our lateral
drilling technology, attract and maintain a base of customers, provide customer support, personnel, and facilities to support our business, and respond effectively to competitive and technological developments. Our business strategy may not be
successful or may not successfully address any of these risks or difficulties. While we believe our business model will permit us to generate substantial revenues, there is no guarantee that the revenues will be realized. Failure to realize the
revenue may have a material adverse effect on our financial condition. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>2.
Verdisys, Inc. is an investment risk because business and marketing strategies planned are not proven. </B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT
FACE="Times New Roman" SIZE="2">We have no established basis to assure investors that business or marketing strategies will be successful. We are highly dependent upon the acquisition of subscribers for our satellite division; selection of, and
productivity from, appropriate oil and gas wells; as well as the effective application of technologies and services within operations. Our business model and marketing strategies anticipate such application and productivity, yet are unproven by a
significant history of business operations. Failure to prove that our business model and strategies work through continued operations may have a material adverse effect on our business and financial condition. </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>3. We may require additional capital in the future, which may not be available to us.
</B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">We may need to raise additional funds through public or private debt or
equity financing or other various means. Adequate funds may not be available when needed or may not be available on favorable terms. If we raise additional funds by issuing equity securities, dilution to existing stockholders will result, and such
equity may have rights, preferences and privileges senior to those of our common stock. If we raise additional funds by issuing debt securities, we may be required to agree to covenants that may restrict our ability to expend or raise capital in the
future. If funding is insufficient at any time in the future, we may be unable to fund acquisitions, take advantage of business opportunities or respond to competitive pressures. Failure to raise additional capital in the future may have a material
adverse effect on our financial condition.<B></B> </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">- 3 - </FONT></P>


<p Style='page-break-before:always'>
<HR  SIZE="3" COLOR="#999999" WIDTH="100%" ALIGN="CENTER">
<h5 align="left"><a href="#toc">Table of Contents</a></h5>


 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2"><B>V<SMALL>ERDISYS</SMALL>, I<SMALL>NC</SMALL>. </B></FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>4. Our auditors have expressed doubt as to our ability to continue as a going concern </B></FONT></P> <P
STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">As noted in the Independent Auditors Report (See Financial Note 2) due to the continued
substantial operating losses that the Company has incurred raises substantial doubt as to the Company&#146;s ability to continue as a going concern. The Company is in an early stage of development and is rapidly depleting its cash resources,
therefore it has determined that it will need to raise additional financing in the short term to continue in operation and fund future growth. The Company incurred liquidated damages claimed by an investor of $400,000 related to the timing of
providing registration rights for the private financing that it arranged in November 2003. The Company also has significant contingent liabilities, which may be determined adversely to the Company. If we are unable to raise additional financing to
satisfy these obligations this would have a material adverse effect on the Company. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman"
SIZE="2">The Company currently plans to raise additional financing. The use of stock for currency in financing or making acquisitions may be heavily curtailed while the Company is under SEC investigation. (See Financial Note 16) If we are unable to
arrange new financing or generate sufficient revenue from new business arrangements, the Company will be unable to continue in its current form and will be forced to restructure or seek creditor protection. </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>5. We experienced operating losses in 2002 and 2003, and this trend may continue.
</B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">We suffered net losses of $3,128,782 for the year ended December 31, 2002
and $7,356,045 for the year ended December 31, 2003, respectively, and $4,342,204 for the nine months ended September 30, 2004, largely because our revenues were inadequate to compensate for increased operating and overhead costs. The volatility
underlying the early stage nature of our business and our industry prevents us from accurately predicting future operating conditions and results, and we could continue to have losses. It is uncertain when, if ever, the company will have significant
operating income or cash flow from operations sufficient to sustain operations. If cash needs exceed available resources, there can be no assurances that additional capital will be available through public or private equity or debt financings.
Sustained losses will continue to have a material adverse effect on our business. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman"
SIZE="2"><B>6. Significant amounts of our outstanding common shares are restricted from immediate resale but may be available for resale into the market in the near future, possibly causing the market price of our common stock to drop significantly.
</B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">As of January 4, 2005, Verdisys, Inc. had 33,103,505 shares of common
stock issued, outstanding and held by 798 shareholders of record. The shares we are registering in this offering once registered may be resold in the public market immediately, resulting in an additional 4,636,760 common shares available for resale.
</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">As restrictions on resale for these shares being registered and the remaining
outstanding shares end, the market price could drop significantly if the holders of these restricted shares sell them or are perceived by the market as intending to sell them in an excessive amount relative to the market demand for our shares. An
excessive sale of our shares may result in a material adverse effect on the price of our common stock, and our ability to raise capital. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>7. One principal stockholder can influence the corporate and management policies of our company. </B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT
SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">After giving effect to this offering, Berg McAfee Companies, and its affiliates, will effectively control approximately 30% of the
outstanding common stock on a pro forma basis. Therefore, Berg McAfee Companies, and its affiliates, may have the ability to substantially influence all decisions made by us. Additionally, Berg McAfee Companies, and its affiliates, control could
have a negative impact on any future takeover attempts or other acquisition transactions. Furthermore, certain types of equity offerings require stockholder approval depending on the exchange on which shares of a company&#146;s common stock is
traded. In the event we are required to obtain stockholder approval of a financing, Berg McAfee Companies, and its affiliates ownership, could block such a financing. The control by one principal stockholder results in less control by our board of
directors, management and the remaining stockholders. Please read &#145;Certain Relationships and Related Transactions.&#146; </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>8. We may sustain losses resulting from our extension of credit to non-paying customers. </B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT
SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">We have, prior to February 2004, conducted much of our drilling activities for related parties, and we did not require collateral in support
of our account receivables. This resulted, on occasion, in an impediment to us obtaining full payment for accounts receivable. Although we are implementing procedures to combat this credit risk, there can be no assurance that our efforts will be
successful. Failure to guard against credit risk may have a material adverse effect on our financial condition. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">- 4 - </FONT></P>


<p Style='page-break-before:always'>
<HR  SIZE="3" COLOR="#999999" WIDTH="100%" ALIGN="CENTER">
<h5 align="left"><a href="#toc">Table of Contents</a></h5>


 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2"><B>V<SMALL>ERDISYS</SMALL>, I<SMALL>NC</SMALL>. </B></FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>9. Securities and Exchange Investigation Inquiries may continue to draw on our limited financial resources and
continue to negatively impact our ability to raise additional capital. </B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman"
SIZE="2">Verdisys has received notice that the Securities and Exchange Commission has initiated a formal investigation into its reporting practices and public statements about the Company in 2003. </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">The SEC has requested substantiation and documentary evidence from the Company concerning the
performance of certain lateral drilling services by subcontractors in the period from May 2003 to September 2003, supervision of such services by the Company&#146;s executive management at the time, revenue recognition related to the performance of
such services, the third quarter 2003 earnings restatement, public statements concerning the services performed, and related matters. The SEC has also requested information and documentary evidence related to the Verdisys&#146; acquisition of
certain assets of QuikView, Inc., a related party company, in June, 2003. In its letters to Verdisys requesting documents, the SEC stated that the staff&#146;s inquiry should not be construed as an indication that any violations of securities laws
have occurred or as an adverse reflection on any persons, company or security. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman"
SIZE="2">Since December 2003, the Company has taken several steps to address issues related to the SEC&#146;s inquiries, including the termination and replacement of the previous Chief Executive Officer and Chief Operating Officer. Two directors
have resigned from the Company&#146;s board and the Company has appointed a new CFO. Internal controls have been strengthened overall, particularly with respect to the public release of Company information and the recognition of revenue. The Company
has also initiated an internal investigation of the matters of concern to the SEC. Consequently, the Company restated its second and third quarter financial statements and has decided to defer all revenue related to the aforementioned period until
such time that it can substantiate whether or not the services were performed. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman"
SIZE="2">Verdisys is cooperating fully with the SEC, including the provision of numerous documents and voluntary testimony by our current executives. In December 2004, the staff of the SEC notified the Company that it was considering recommending
that the SEC bring a civil injunction (including a possible permanent injunction and a civil penalty) against Verdisys alleging violations of provisions of the Sections 10(b), 13(b)(2)(A), 13(b)(2)(B) and 15(d) of the Securities Exchange Act of 1934
and rules promulgated thereunder in connection with the purchase and sale of securities of the Company, recordkeeping, internal controls, certification and disclosure obligations. Verdisys was notified of its right to make a Wells submission. The
Company has provided information to the SEC setting forth the specific steps it has taken to upgrade the quality and effectiveness of its board of directors, replace the previous management team with industry experts, improve its recordkeeping,
internal and disclosure controls, and revenue recognition procedures. Although the Company is working to bring the matter to a prompt conclusion, it cannot make any assurance that the investigation will be resolved positively or that it will not
have negative effects on the Company&#146;s limited resources or its ability to raise capital and use its stock as acquisition currency during the period of the investigation. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT
SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>10. We have entered into a settlement agreement relating to the litigation with Edge Capital. If we do not perform certain obligations
under the settlement agreement, the lawsuit could be reinstituted. An adverse finding the in the lawsuit would have a material adverse effect on Verdisys&#146; financial condition. </B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT
SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Verdisys initiated a lawsuit against Edge Capital in Montgomery County, Texas in February 2004 that requested a declaratory judgment that a
purported agreement between Verdisys and Edge was not enforceable. The lawsuit arose from Edge&#146;s contention that one of Verdisys&#146; ex-officers committed the company to purchase certain alleged oil and gas properties from Edge. Edge filed a
counterclaim against Verdisys and asserts claims against new parties including persons related to Edge&#146;s financing source and current and former officers and directors of Verdisys. Edge sought to enforce the agreement Verdisys challenges, and
alleged several causes of action including claims for fraud, breach of contract, negligence, and conspiracy and claimed actual and punitive damages in excess of $85 million. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT
SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Effective January 19, 2005, Verdisys, Edge, certain entities affiliated with Edge, and Eric McAfee (the former Vice-Chairman of Verdisys)
entered into a Settlement Agreement and Mutual Release to fully settle and resolve the disputes between Edge and its affiliated entities, Verdisys and its directors, and Mr. McAfee. As part of the settlement, Verdisys issued to Edge Capital an
aggregate of 750,000 shares of its common stock, along with warrants to purchase 750,000 shares of common stock. In addition, Verdisys also agreed to provide to Edge Capital a drilling rig to provide certain lateral drilling services. As part of the
drilling services, Edge Capital has agreed to provide a fee per well, along with a share of the revenues generated from each well drilled. Also, as part of the settlement, at closing, Verdisys has agreed to sublicense its Landers horizontal drilling
technology to Edge Capital on a non-exclusive basis to enable Edge to develop fields in which it has an economic interest. Under the sublicense, Edge will prohibited from performing services for others, except that it will have a limited right of
first refusal to perform such services in the event Verdisys elects to not perform such services. The sublicense will have a 5-year term and be limited to the United States and Canada. As part of the settlement, the parties to the agreement have
agreed to a mutual release and have agreed to dismiss all pending claims and litigation between them upon performance of the obligations in the settlement agreement. If Verdisys does not perform its remaining obligations under the settlement
agreement, this would cause the release to not be effective and could lead to the underlying lawsuit being reinstituted. An adverse finding in such lawsuit against Verdisys would have a material adverse effect on Verdisys&#146; financial condition.
See &#147;Legal Proceedings.&#148; </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>11. We are subject to certain additional
lawsuits. If these lawsuits are successful and substantial damages are awarded, these damages would have a material adverse effect on Verdisys&#146; financial condition. </B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT
SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">We are a defendant in a consolidated lawsuit filed in the Southern District of Texas which seek class action status on behalf of all persons
or entities that purchased common stock of the Company. The named defendants include the Company, the Company&#146;s former Chief Financial Officer and the Company&#146;s former Chief Executive Officer. The complaints alleges that the defendants
violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder by making false and misleading statements concerning our reported financial results during the period, primarily relating to revenue
recognition. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">In connection with its financing in October 2003, the Company
agreed to provide certain registration rights to the investors. As part of the registration rights agreement with the investors, the Company agreed to register the shares on or before March 2004. In the event that the Company failed to comply with
the required deadlines, the Company could be subject to certain liquidated damages. The investors have made a claim against the Company for </FONT>
</P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">- 5 - </FONT></P>


<p Style='page-break-before:always'>
<HR  SIZE="3" COLOR="#999999" WIDTH="100%" ALIGN="CENTER">
<h5 align="left"><a href="#toc">Table of Contents</a></h5>


 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2"><B>V<SMALL>ERDISYS</SMALL>, I<SMALL>NC</SMALL>. </B></FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px">
<FONT FACE="Times New Roman" SIZE="2">the maximum liquidated damages in an amount of $400,000. In July 2004, the investor filed a lawsuit in state district court in Dallas, Texas, alleging, among
other claims, breach of contract and securities fraud and have claimed actual damages in excess of $6.2 million. If the investor prevails on its claims, it may obtain significant damages that may have a material adverse effect on the Company.
</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">In July, 2004 Verdisys was informed that a former Chief Executive Officer of
Verdisys filed a lawsuit against Verdisys for breach of contract and wrongful discharge. These claims seek relief in excess of $500,000 related to an alleged employment agreement and also seeks damages related to an excess of 4,000,000 stock options
claimed due pursuant to the alleged agreement. The company has only recently received notice of these claims. The lawsuit was filed in state court in San Diego, California. Verdisys intends to vigorously defend itself. </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">An adverse outcome in any of the above litigation would have a material adverse effective on
our financial condition and result of operations. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Please see the section
&#145;Legal Proceedings.&#146; </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>12. Our common stock is currently traded
over the counter on the Over-the-Counter market and is considered a &#147;penny stock&#148; resulting in potential illiquidity and high volatility in the market price of our common stock. </B></FONT></P> <P
STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">The market price of our common stock is likely to be highly volatile as is the stock market
in general as well as the capital stock of most small cap companies. Our common stock currently trades over the counter on the OTC Bulletin Board, where stocks typically suffer from lower liquidity. This may lead to depressed trading prices, greater
price volatility and difficulty in buying or selling shares in large quantities. Currently, there is a limited trading market for our common stock, and we cannot predict when, if ever, a fully developed public market for the common stock will occur.
</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>13. Because the Company&#146;s common stock is considered a &#147;penny
stock,&#148; certain rules may impede the development of increased trading activity and could affect the liquidity for stockholders. </B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Penny stocks generally are equity securities with a price of less than $5.00 per share other than securities registered on certain national securities exchanges or quoted
on the Nasdaq stock market, subject to certain exceptions for companies which exceed certain minimum tangle net worth requirements. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Our common stock is subject to the SEC&#146;s &#147;penny stock rules&#148;. The rules impose additional sales practice requirements on broker-dealers who sell penny
stock securities to persons other than established customers and accredited investors. For transactions covered by these rules, the broker-dealer must make a special suitability determination for the purchase of penny stock securities and have
received the purchaser&#146;s written consent to the transaction prior to the purchase. Additionally, for any transaction involving a penny stock, unless exempt, the &#147;penny stock rules&#148; require the delivery, prior to the transaction, of a
disclosure schedule relating to the penny stock market. The broker-dealer also must disclose the commissions payable to both the broker-dealer and the registered representative and current quotations for the securities. And, monthly statements must
be sent disclosing recent price information on the limited market in penny stocks. These rules may restrict the ability of broker-dealers to sell our securities and may have the effect of reducing the level of trading activity of our common stock in
the secondary market. In addition, the penny-stock rules could have an adverse effect on our ability to raise capital in the future from offerings of our common stock. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT
SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">On January 12, 2004, the SEC proposed amendments to the penny stock rules to ensure that investors continue to receive the protections of
those rules. The SEC also is proposing that broker-dealers be required to enhance their disclosure schedule to investors who purchase penny stocks, and that those investors have an explicit &#147;cooling-off period&#148; to rescind the transaction.
These amendments could place further constraints on broker-dealers&#146; ability to sell our securities. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT
FACE="Times New Roman" SIZE="2"><B>14. Our operations are subject to inherent risks that are beyond our control, and these risks may not be fully covered under our insurance policies. </B></FONT></P> <P
STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Our operations are subject to hazards inherent in the oil and gas industry, such as
accidents, blowouts, explosions, craterings, fires and oil spills. These conditions can cause: </FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top">&nbsp;</TD>
<TD ALIGN="left" VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">personal injury or loss of life; </FONT></TD></TR></TABLE> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">- 6 - </FONT></P>


<p Style='page-break-before:always'>
<HR  SIZE="3" COLOR="#999999" WIDTH="100%" ALIGN="CENTER">
<h5 align="left"><a href="#toc">Table of Contents</a></h5>


 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2"><B>V<SMALL>ERDISYS</SMALL>, I<SMALL>NC</SMALL>. </B></FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>

<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top">&nbsp;</TD>
<TD ALIGN="left" VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">damage to or destruction of property, equipment and the environment; and </FONT></TD></TR></TABLE> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top">&nbsp;</TD>
<TD ALIGN="left" VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">suspension of operations. </FONT></TD></TR></TABLE> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT
FACE="Times New Roman" SIZE="2">In addition, claims for loss of oil and gas production and damage to formations can occur in the well service industry. Litigation arising from a catastrophic occurrence at a location where our equipment and services
are being used may result in us being named as a defendant in lawsuits asserting large claims. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT
FACE="Times New Roman" SIZE="2">We maintain insurance coverage that we believe to be customary in the industry against these hazards. However, we may not be able to maintain adequate insurance in the future at rates we consider reasonable. In
addition, our insurance is subject to coverage limits and some policies exclude coverage for damages resulting from environmental contamination. The occurrence of a significant event or adverse claim in excess of the insurance coverage that we
maintain or that is not covered by insurance could have a materially adverse effect on our financial condition and results of operations. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>15. We are subject to various operational and performance risks related to projects that we undertake and services that we provide. </B></FONT></P> <P
STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">We are subject to various operational and performance risks related to projects that we
undertake and services that we provide. These risks include: </FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top">&nbsp;</TD>
<TD ALIGN="left" VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">changes in the price or the availability of commodities that we use; </FONT></TD></TR></TABLE> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top">&nbsp;</TD>
<TD ALIGN="left" VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">non-performance, default or bankruptcy of key suppliers or subcontractors; </FONT></TD></TR></TABLE> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top">&nbsp;</TD>
<TD ALIGN="left" VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">cost over-runs and operating cost inflation resulting from fixed-price projects; and </FONT></TD></TR></TABLE> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT
SIZE="1">&nbsp;</FONT></P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top">&nbsp;</TD>
<TD ALIGN="left" VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">failure by one or more parties to a complex business arrangement for technically demanding projects. </FONT></TD></TR></TABLE> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT
SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Failure to guard against operational and performance risks may have a material adverse effect on our financial condition. </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>16. Our markets may be adversely affected by oil and gas industry conditions that are
beyond our control. </B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Oil and gas industry conditions are influenced by
numerous factors over which we have no control, such as the supply of and demand for oil and gas, domestic and worldwide economic conditions, political instability in oil producing countries and merger and divestiture activity among oil and gas
producers. Those conditions could adversely impact the level of drilling and workover activity by some of our customers. This reduction in activity may cause a decline in the demand for our services or adversely affect the price of our services. We
cannot accurately predict either the future level of demand for our services or future conditions of the well service industry. A decline in the demand for our services may have a material adverse effect on our business. </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>17. Our success depends on key members of our management, the loss of whom could disrupt
our business operations. </B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">We depend to a large extent on the services of
some of our executive officers and directors. The loss of the services of either John O&#146;Keefe, or David Adams could disrupt our operations. We have entered into employment agreements with several of our key executives that contain non-compete
provisions. Notwithstanding these agreements, we may not be able to retain our executive officers and may not be able to enforce the non-compete provisions in the employment agreements. Failure to retain key members of our management may have a
material adverse effect on our business. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><B>RISKS RELATED TO
OUR LATERAL DRILLING BUSINESS </B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>1. We are highly dependent on a small
number of customers, two of whom are related parties. The loss of any of these customers would have an adverse effect on our revenue. </B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">One customer accounted for 38% and 87% of total revenues in 2003 and 2002, respectively. Related parties accounted for 52% of total revenue. </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">In the past a relatively limited number of customers has accounted for a substantial portion
of our revenue. In the second half of 2003, 53% of our revenue was derived from services provided to three customers. Of those three </FONT>
</P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">- 7 - </FONT></P>


<p Style='page-break-before:always'>
<HR  SIZE="3" COLOR="#999999" WIDTH="100%" ALIGN="CENTER">
<h5 align="left"><a href="#toc">Table of Contents</a></h5>


 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2"><B>V<SMALL>ERDISYS</SMALL>, I<SMALL>NC</SMALL>. </B></FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px">
<FONT FACE="Times New Roman" SIZE="2">customers, two may be considered related parties. In the same period, 52% of our revenue was derived from services provided to the two related parties. In
addition, Edge, our only non-related customer in that period, has refused to pay for wells drilled in the second half of 2003, resulting in a total of $1,993,000 being reversed or deferred. We are attempting to resolve such matter on an expedited
basis; however, no assurance is given that such funds will be recovered from such customer in the near future or at all. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">We expect that sales of our services to a limited number of customers will continue to account for a high percentage of our revenue for the near term. There can be no
assurance that our current customers will continue to place orders with us or that we will be able to obtain orders from new customers. The loss of any customer or any reduction in orders by such customers, including reductions due to market or
competitive conditions in the industry or the inability to collect monies owed to us by certain customers may have a material adverse effect on our business. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>2. We may not be able to protect our lateral drilling technology which could result in competition with service providers utilizing an infringing technology.
</B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">The license agreement allocates responsibility in maintaining the status
of the patents underlying the technology we license with the US Patent and Trademark Office to the licensor. Although the licensor has performed this obligation in the past, there can be no assurance that the licensor will have the ability to
continue to maintain the patents. In the event Verdisys, Inc. had to assume these responsibilities additional pressure on our financial resources would result. An inability to continue operations under the exclusivity granted by the licensing
agreement may have a material adverse effect on our business. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>3. Our
customers may not realize the expected benefits from our lateral drilling technology, which may impair market acceptance of our lateral drilling services. </B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P>
<P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Our lateral drilling business is heavily dependent upon our clients achieving enhanced production, or lower costs, from certain types of existing oil and gas wells.
Many of the wells for which the lateral drilling technology is used or suspected of being useful have been abandoned for some time due to low production volumes or other reasons. In some cases, we have experienced difficulty in having the enhanced
production reach the market due to the gathering field pipeline system&#146;s disrepair resulting from the age of the fields and the reliability of the milling process. There can be no assurance that our lateral drilling technology will achieve
enhanced production from every well drilled, or that, if enhanced production is achieved initially, it will continue for the duration necessary to achieve payout or that it will reach the market on a timely basis. The failure to achieve projected
enhancements could result in making the application of the technology uneconomic for our clients. Please see the section &#145;Verdisys Lateral Drilling Service&#146; for an explanation as to how we have added additional screening tools and criteria
to attempt to improve the likelihood of achieving an economic benefit for our clients. Failure to achieve an economic benefit for our clients in the provision of this service may have a material adverse effect on our business. </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>4. We may be unable to accurately identify oil and gas wells on which our lateral drilling
technology will enhance oil and gas recovery, which may impair the market acceptance of our lateral drilling services. </B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Our lateral drilling business is heavily dependent on our ability to correctly identify with our clients, the appropriate oil and gas wells that will produce the enhanced
revenues or lower costs. Certain subsurface conditions are not conducive to the use of our high pressure lateral drilling technology, and certain wells may have been severely depleted or otherwise negatively impacted in some manner by the operator.
While we have added an evaluation screening technique and other new technology and improvements relating to analysis of depleted fields, the failure to identify the correct types of oil and gas wells could result in not realizing the expected
economic returns which could initially have a material adverse effect on our business, financial condition and operating results. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>5. Competition within the well service industry may adversely affect our ability to market our services. </B></FONT></P> <P
STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">The well service industry is highly competitive and includes several large companies, such
as Halliburton, Baker Hughes, Schlumberger and other independent drilling companies that possess substantially greater financial and other resources than we do. These greater resources could allow those competitors to compete more effectively than
we can. Additionally, the number of rigs available continues to exceed demand, resulting in active price competition. Moreover, many contracts are awarded on a bid basis, which further increases competition based on price. Failure to successfully
compete within our industry may have a material adverse effect on our business. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">- 8 - </FONT></P>


<p Style='page-break-before:always'>
<HR  SIZE="3" COLOR="#999999" WIDTH="100%" ALIGN="CENTER">
<h5 align="left"><a href="#toc">Table of Contents</a></h5>


 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2"><B>V<SMALL>ERDISYS</SMALL>, I<SMALL>NC</SMALL>. </B></FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>6. We may be subject to environmental requirements which may increase our costs or liabilities related to our
lateral drilling operations. </B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Given the manner in which we currently
operate our business, we are not regulated to the extent that an oil and gas company is with respect to environmental laws, rules and regulations in the U.S. and other countries, including those covering hazardous materials, because we generally do
not own the properties we service. However, environmental requirements generally are becoming increasingly strict. In the future, we may be held liable for certain failures relating to environmental regulations. Sanctions for failure to comply with
these requirements, many of which may be applied retroactively, may include: </FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top">&nbsp;</TD>
<TD ALIGN="left" VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">administrative, civil and criminal penalties; </FONT></TD></TR></TABLE> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top">&nbsp;</TD>
<TD ALIGN="left" VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">revocation of permits; and </FONT></TD></TR></TABLE> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top">&nbsp;</TD>
<TD ALIGN="left" VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">corrective action orders, including orders to investigate and/or clean up contamination. </FONT></TD></TR></TABLE> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT
SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Liability for damages arising as a result of environmental laws could be substantial and could have a material adverse effect on our results
of operations. The liabilities incurred as a result of complying with environmental requirements or failure on our part to comply with applicable environmental requirements may have a material adverse effect on our financial condition. There can be
no assurance that governmental laws will not broaden in scope in the future to cover the types of services that we currently provide. Failure to comply with environmental laws could have a material negative impact on our financial condition.
</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>7. Changes in environmental laws may decrease demand for our services.
</B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Changes in environmental laws may negatively impact demand for our
services. Activity by oil and gas exploration and production companies may decline if, for example, the Environmental Protection Agency promulgates more stringent environmental regulations such as land use policies. If oil and gas exploration and
production activities decline, this could have a material adverse effect on our operating results. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"
ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><B>RISKS RELATED TO OUR SATELLITE BUSINESS </B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT
FACE="Times New Roman" SIZE="2"><B>1. We are highly dependent upon a few key providers who furnish satellite networking components, hardware, and technological services. </B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT
SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Our satellite business is heavily dependent on agreements with Spacenet, ViaSat and other equipment and service providers. These strategic
relationships provide key network technology, satellite data transport, hardware and software. Failure of Spacenet, ViaSat or other key relationships to meet our expectations or termination of a relationship with one of our key providers may have a
material adverse effect on our business. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>2. We depend upon our vendors and
their affiliates to provide services that we require to operate the network we use to provide services to our customers. </B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">We are not and do not plan to become a licensee of the Federal Communications Commission (&#147;FCC&#148;) and do not hold any authorization to operate satellite
communications facilities. We depend upon licenses held by Spacenet and ViaSat and their subsidiaries for our satellite communications. If the licenses held by Spacenet and ViaSat are limited or revoked, if the FCC limits the number of its customer
premises earth stations or if Spacenet or ViaSat fails to operate the earth stations providing service to us and our subscribers in a satisfactory manner, our operating results may be materially adversely affected. </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>3. We rely on third-party independent contractors to install our customer premises
equipment at new subscribers&#146; businesses and homes. </B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">We have
agreements with Keypoint, RS&amp;I and Metron North America to provide installation services to our customers. We do not control the hiring, training, certification and monitoring of the employees of our third-party independent contractors. If
growth of our new subscriber base outpaces growth of our installer base or if the installers fail to provide the quality of service that our customers expect, our operating results may be materially adversely affected. </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">- 9 - </FONT></P>


<p Style='page-break-before:always'>
<HR  SIZE="3" COLOR="#999999" WIDTH="100%" ALIGN="CENTER">
<h5 align="left"><a href="#toc">Table of Contents</a></h5>


 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2"><B>V<SMALL>ERDISYS</SMALL>, I<SMALL>NC</SMALL>. </B></FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>4. The service we provide is entirely dependent on the functionality of satellites on which we lease transponders
and on our computer and communications hardware and software. </B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Our ability
to provide service is entirely dependent on the functionality of satellites on which we lease transponders. These satellites may experience failure, loss, damage or destruction from a variety of causes, including war, anti-satellite devices and
collision with space debris. If this occurs, we are likely to suffer: </FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top">&nbsp;</TD>
<TD ALIGN="left" VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">permanent loss of service; </FONT></TD></TR></TABLE> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top">&nbsp;</TD>
<TD ALIGN="left" VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">temporary gaps in service availability; or </FONT></TD></TR></TABLE> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top">&nbsp;</TD>
<TD ALIGN="left" VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">decreased quality of service. </FONT></TD></TR></TABLE> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Such a failure in the service we provide may have a material adverse effect on our business, financial condition and operating results. </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">The ability to provide timely information and services depends also on the efficient and
uninterrupted operation of our computer and communications hardware and software systems. These systems and operations are vulnerable to damage or interruption from human error, natural disasters, telecommunication failures, break-ins, sabotage,
computer viruses, intentional acts of vandalism and similar events. We are in the process of designing and plan to implement a disaster recovery plan. Despite precautions, there is always the danger that human error or sabotage could substantially
disrupt the system. Any such failure may have a material adverse effect on our business. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT
FACE="Times New Roman" SIZE="2"><B>5. We may be unable to attract or retain subscribers. </B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT
FACE="Times New Roman" SIZE="2">If we are unable to attract or retain subscribers, our telecommunications business will be harmed. Our success depends upon our ability to rapidly grow our subscriber base. Several factors may negatively impact this
ability, including: </FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top">&nbsp;</TD>
<TD ALIGN="left" VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">loss of our existing sales employees, resulting in our lack of access to potential subscribers; </FONT></TD></TR></TABLE> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT
SIZE="1">&nbsp;</FONT></P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top">&nbsp;</TD>
<TD ALIGN="left" VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">failure to establish and maintain the Verdisys brand through advertising and marketing, or erosion of our brand due to misjudgments in service offerings; </FONT></TD></TR></TABLE>
<P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top">&nbsp;</TD>
<TD ALIGN="left" VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">failure to develop or acquire technology for additional value added services that appeals to the evolving preferences of our subscribers; </FONT></TD></TR></TABLE> <P
STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top">&nbsp;</TD>
<TD ALIGN="left" VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">failure to meet our expected minimum sales commitments to Spacenet and ViaSat; and </FONT></TD></TR></TABLE> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT
SIZE="1">&nbsp;</FONT></P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top">&nbsp;</TD>
<TD ALIGN="left" VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">failure to provide the minimum transmission speeds and quality of service our customers expect. </FONT></TD></TR></TABLE> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT
SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">In addition, our service may require customers to purchase our satellite system equipment and to pay our monthly subscriber fees. The price
of the equipment and the subscription fees may be higher than the price of many dial-up, DSL and cable modem Internet access services, where available. In some instances, we expect to subsidize our subscribers&#146; customer premises equipment to
encourage the purchase of our service and to offset our higher relative costs but such subsidy may not be possible. Failure to attract or retain subscribers may have a material adverse effect on our business. </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>6. We may fail to manage any potential growth or expansion, negatively impacting our
quality of service or overcapacity impacting profitability. </B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">If we fail to
manage our potential rapid growth and expansion effectively or expand and allocate our resources efficiently, we may not be able to retain or grow our subscriber base. If our assumptions regarding the usage patterns of our subscribers are wrong or
if our subscribers&#146; usage patterns change, we will have either too little or too much satellite capacity, both of which could harm our business. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">If we achieve the substantial subscriber growth that we anticipate, we will need to procure additional satellite capacity. If we are unable to procure this capacity, we
may be unable to provide service to our subscribers or the quality of service we provide may not meet their expectations. Failure to manage any potential growth may have a material adverse effect on our business. </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">- 10 - </FONT></P>


<p Style='page-break-before:always'>
<HR  SIZE="3" COLOR="#999999" WIDTH="100%" ALIGN="CENTER">
<h5 align="left"><a href="#toc">Table of Contents</a></h5>


 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2"><B>V<SMALL>ERDISYS</SMALL>, I<SMALL>NC</SMALL>. </B></FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>7. Our current services may become obsolete due to the highly competitive and continued advancement of the
satellite industry. Larger service providers may provide services reduced pricing. </B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman"
SIZE="2">Intense competition in the Internet services market and inherent limitations in existing satellite technology may negatively affect the number of our subscribers. Competition in the market for consumer Internet access services is intense,
and we expect the level of competition to intensify in the future. We compete with providers of various high-speed communications technologies for local access connections such as cable modem and DSL. We also may face competition from traditional
telephone companies, competitive local exchange carriers and wireless communication companies. As our competitors expand their operations to offer high speed Internet services, we may no longer be the only high-speed service available in certain
markets. We also expect additional competitors with satellite-based networks to begin operations soon. In particular, some satellite companies have announced that in the future they may offer high-speed Internet service at the same price or at a
lower price than we currently intend to offer and are offering our services. Many of our current and potential competitors have longer operating histories, greater brand name recognition, larger subscriber bases and substantially greater financial,
technical, marketing and other resources than we have. Therefore, they may be able to respond more quickly than we can respond to new or changing opportunities, technologies, standards or subscriber requirements. Any such competition may have a
material adverse effect on our business. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>8. We may be mistaken in our
belief as to future growth of the satellite broadband market. </B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">While we
believe that the trend toward satellite broadband information services in the energy market will continue to develop, our future success is highly dependent on increased use of these services within the sector. The number of satellite broadband
users willing to pay for online services and information may not continue to increase. A failure in the market for satellite broadband services to develop as expected may have a material adverse effect on our business. </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>9. We may be subject to significant liability for our products. </B></FONT></P> <P
STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">If our products contain defects, we may be subject to significant liability claims from
subscribers and other users of our products and incur significant unexpected expenses or lost revenues. Our telecommunications products are complex and may contain undetected errors or failures. If this happens, we may experience delay in or loss of
market acceptance and sales, products returns, diversion of research and development resources, injury to our reputation or increased service and warranty costs. We also have exposure to significant liability claims from our customers because our
products are designed to provide critical communications services. Although we attempt to limit such exposure through product liability insurance and through contractual limitations in our customer agreements, such precautions may not cover all
potential claims resulting from a defect in one or more of our products. Failure of our products to perform satisfactorily may have a material adverse effect on our operating results. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT
SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">- 11 - </FONT></P>


<p Style='page-break-before:always'>
<HR  SIZE="3" COLOR="#999999" WIDTH="100%" ALIGN="CENTER">
<h5 align="left"><a href="#toc">Table of Contents</a></h5>


 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2"><B>V<SMALL>ERDISYS</SMALL>, I<SMALL>NC</SMALL>. </B></FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>
<A NAME="tx67395_4"></A>Use of Proceeds </B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">We will not receive any of the
proceeds from the sale of our common stock offered by the selling stockholders. However, we may receive an aggregate of $557,310 upon the exercise of all of the warrants held by the selling stockholders if such warrants are exercised for cash. Such
funds, if any, will be used for working capital and general corporate purposes. We have agreed to bear all costs associated with the registration of the shares covered by this registration statement. </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>
<A NAME="tx67395_5"></A>Selling Security Holders </B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">This
Prospectus covers a total of 4,636,760 shares of our common stock to be sold by the selling stockholders, including: </FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top">&nbsp;</TD>
<TD ALIGN="left" VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">3,296,450 shares of our common stock issued and outstanding; </FONT></TD></TR></TABLE> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top">&nbsp;</TD>
<TD ALIGN="left" VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">1,240,310 shares of common stock issuable upon exercise of outstanding warrants or rights; and shares issuable upon occurrence of indebtedness. </FONT></TD></TR></TABLE> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">After the registration statement of which this prospectus is a part becomes effective and
subject to applicable rules and restrictions of the Securities Act of 1933, security holders may from time to time sell the shares on the OTC Bulletin Board or any other securities exchange or automated quotation system on which the common stock may
be listed or traded, in negotiated transactions or otherwise, at the prices then prevailing or related to the then current market price or at negotiated prices. Verdisys shall neither be involved in determination of the price nor shall receive any
proceeds from the sale of any shares sold by selling security holders. Shares being registered were issued to the selling stockholders in connection with transactions exempt from the registration requirements of the Securities Act of 1933, as
amended. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">The common shares of Verdisys, Inc. are currently traded on the OTC
Bulletin Board under the symbol &#147;VDYS.OB&#148;. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">The
following table lists: </FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top">&nbsp;</TD>
<TD ALIGN="left" VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">all of the stockholders and amount of shares to be registered under this Offering; </FONT></TD></TR></TABLE> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT
SIZE="1">&nbsp;</FONT></P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top">&nbsp;</TD>
<TD ALIGN="left" VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">the number of shares of our common stock (including those shares of our common stock underlying warrants) covered by this Offering; and </FONT></TD></TR></TABLE> <P
STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top">&nbsp;</TD>
<TD ALIGN="left" VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">the amount of shares of our common stock owned by each such selling stockholder as of January 4, 2005 assuming that each such stockholder would sell all of his or her shares of our
common stock that this offering registers. </FONT></TD></TR></TABLE> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">- 12 - </FONT></P>


<p Style='page-break-before:always'>
<HR  SIZE="3" COLOR="#999999" WIDTH="100%" ALIGN="CENTER">
<h5 align="left"><a href="#toc">Table of Contents</a></h5>


 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2"><B>V<SMALL>ERDISYS</SMALL>, I<SMALL>NC</SMALL>. </B></FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>

<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="100%" BORDER="0" STYLE="BORDER-COLLAPSE:COLLAPSE" ALIGN="center">

<TR>
<TD WIDTH="63%"></TD>
<TD VALIGN="bottom" WIDTH="7%"></TD>
<TD></TD>
<TD></TD>
<TD VALIGN="bottom" WIDTH="7%"></TD>
<TD></TD>
<TD VALIGN="bottom" WIDTH="7%"></TD>
<TD></TD>
<TD></TD></TR>
<TR>
<TD VALIGN="bottom"> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="1"><B>Name of Selling Stockholder</B></FONT></P><HR WIDTH="177" SIZE="1" NOSHADE ALIGN="left" COLOR="#000000"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" NOWRAP ALIGN="center"><FONT FACE="Times New Roman" SIZE="1"><B>Number&nbsp;of&nbsp;Shares<BR>of Common Stock<BR>Beneficially&nbsp;Owned<BR>as of January 4,<BR>2005 (1)</B></FONT><BR><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" NOWRAP ALIGN="center"><FONT FACE="Times New Roman" SIZE="1"><B>Number&nbsp;of&nbsp;Shares<BR>of Common Stock<BR>Offered Hereby</B></FONT><BR><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" NOWRAP ALIGN="center"><FONT FACE="Times New Roman" SIZE="1"><B>Number&nbsp;of&nbsp;Shares<BR>of Common Stock<BR>Beneficially&nbsp;Owned<BR>After Offering</B></FONT><BR><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">David M. Adams(2)</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">242,500</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">5,000</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">237,500</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Kevin Bailey</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">21,000</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">21,000</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">0</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">John R. Block(2)</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">171,000</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">2,000</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">169,000</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Joseph W. Brown</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">18,200</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">18,200</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">0</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Michael C. Brown Trust</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">160,465</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">160,465</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">0</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Tess Brown Trust</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">53,488</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">53,488</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">0</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">John Burke Trustee for Trust</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">25,500</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">17,500</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">8,000</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">James and Bernice Campbell</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">17,500</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">17,500</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">0</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Robert E and Rosalie T. Dettle Living Trust</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">30,000</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">17,500</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">12,500</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">D. L. Jack Dunbar</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">7,000</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">7,000</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">0</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Edwards Family Trust</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">32,500</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">17,500</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">15,000</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Donald L. Hynek</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">19,000</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">19,000</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">0</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Venkata Kollipara</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">100,000</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">87,500</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">12,500</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">George C. Koutures</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">44,600</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">19,600</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">25,000</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Carl Landers</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">800,000</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">800,000</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">0</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Larry Narrell</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">19,000</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">19,000</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">0</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Steve Nowell</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">21,000</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">21,000</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">0</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Linden Capital Growth</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">106,977</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">106,977</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">0</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">John O&#146;Keefe(2)</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">190,000</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">5,000</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">185,000</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Joseph J. Penbera(2)</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">947,952</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">5,000</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">942,952</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Jeffrey R. Pendergraft</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">10,000</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">5,000</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">5,000</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Prima Capital Group, Inc.</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">74,130</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">74,130</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">0</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Fred R. Ruiz(2)</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">363,366</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">5,000</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">358,366</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Scooter&#146;s Convenience Inc.</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">300,000</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">300,000</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">0</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Frederick G. Tripp Trust</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">53,488</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">53,488</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">0</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">John Pimentel</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">500,000</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">500,000</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">0</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Jefferey MacKay</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">60,000</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">60,000</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">0</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">The Strickland Group</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">44,000</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">44,000</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">0</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Robert Charles Frazier</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">20,000</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">20,000</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">0</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Edge Capital Group</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">250,000</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">250,000</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">0</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Eric McAfee(2)</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">1,625,789</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">(3)</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">602,456</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">1,023,333</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">(3)</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Berg McAfee</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">9,271,127</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">(4)</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">502,456</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">8,768,671</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Alberta Energy Holdings</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">250,000</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">250,000</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">0</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Jack St. Arnold</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">100,000</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">100,000</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">0</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
</TABLE> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">- 13 - </FONT></P>


<p Style='page-break-before:always'>
<HR  SIZE="3" COLOR="#999999" WIDTH="100%" ALIGN="CENTER">
<h5 align="left"><a href="#toc">Table of Contents</a></h5>


 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2"><B>V<SMALL>ERDISYS</SMALL>, I<SMALL>NC</SMALL>. </B></FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>

<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="100%" BORDER="0" STYLE="BORDER-COLLAPSE:COLLAPSE" ALIGN="center">

<TR>
<TD WIDTH="62%"></TD>
<TD VALIGN="bottom" WIDTH="5%"></TD>
<TD></TD>
<TD VALIGN="bottom" WIDTH="5%"></TD>
<TD></TD>
<TD VALIGN="bottom" WIDTH="5%"></TD>
<TD></TD></TR>
<TR>
<TD VALIGN="bottom" NOWRAP> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="1"><B>Name of Selling Stockholder</B></FONT></P><HR WIDTH="177" SIZE="1" NOSHADE ALIGN="left" COLOR="#000000"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" NOWRAP ALIGN="center"><FONT FACE="Times New Roman" SIZE="1"><B>Number&nbsp;of&nbsp;Shares<BR>of Common Stock<BR>Beneficially&nbsp;Owned<BR>as of January 4,<BR>2005 (1)</B></FONT><BR><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" NOWRAP ALIGN="center"><FONT FACE="Times New Roman" SIZE="1"><B>Number&nbsp;of&nbsp;Shares<BR>of Common Stock<BR>Offered Hereby</B></FONT><BR><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" NOWRAP ALIGN="center"><FONT FACE="Times New Roman" SIZE="1"><B>Number&nbsp;of&nbsp;Shares<BR>of Common Stock<BR>Beneficially&nbsp;Owned<BR>After Offering</B></FONT><BR><HR SIZE="1" NOSHADE COLOR="#000000"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Michael L. Peterson</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">200,000</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">200,000</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">0</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">George Andros</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">233,000</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">200,000</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">33,000</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Osvaldo Diaz-Christians, Jr.</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">70,000</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">50,000</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">20,000</FONT></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Totals</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">16,452,915</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">4,636,760</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">11,816,155</FONT></TD></TR>
</TABLE> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2">(1)</FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">All of the selling stockholders listed in the table shall hold less than 1% of the outstanding shares of our common stock after this offering (assuming the sale of all of the shares
of our common stock covered by this prospectus) with the exception of Mr. Penbera (2.6%), Mr. Ruiz (1.0%), Mr. McAfee (4.5%), and Berg McAfee (25.8%).<B></B> </FONT></TD></TR></TABLE> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT
SIZE="1">&nbsp;</FONT></P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2">(2)</FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">Mr. Adams and Mr. O&#146;Keefe are currently executive officers of the Company and Mr. Block, Mr. Penbera and Mr. Ruiz are currently Directors of the Company. Mr. Landers was a
Director of the Company from October 2003 to March 2004. Mr. McAfee was the former Vice-Chairman and Director of the Company until March 2004. Otherwise none of the named security holders have held any position, office, or material relationship
within the past three years with Verdisys, Inc. or any predecessor or affiliates.<B></B> </FONT></TD></TR></TABLE> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2">(3)</FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">Does not include shares beneficially owned by Berg McAfee.<B></B> </FONT></TD></TR></TABLE> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2">(4)</FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">Includes 375,000 shares owned by Clyde Berg.<B></B> </FONT></TD></TR></TABLE> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">All amounts shown represent shares of common stock of Verdisys, Inc. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">With respect to the above selling stockholders which are entities, to the Company&#146;s knowledge the natural persons that have ultimate beneficial ownership of such
entities are as follows: </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Prima Capital Group, Inc. &#150; Elias Argyropolous;
Scooter&#146;s Convenience Inc. &#150; Jackie Schoonvelt; and Edwards Family Trust &#150; R.V. Edwards Jr. Berg McAfee is owned 50% by Eric McAfee and 50% by Clyde Berg. None of these persons are directors, officers, or employees of Verdisys.
</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">- 14 - </FONT></P>


<p Style='page-break-before:always'>
<HR  SIZE="3" COLOR="#999999" WIDTH="100%" ALIGN="CENTER">
<h5 align="left"><a href="#toc">Table of Contents</a></h5>


 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2"><B>V<SMALL>ERDISYS</SMALL>, I<SMALL>NC</SMALL>. </B></FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>
<A NAME="tx67395_6"></A>Plan of Distribution </B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><B>PLAN OF
DISTRIBUTION </B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">We are registering the shares of common stock
on behalf of the selling stockholders. The shares of common stock may be sold in one or more transactions at fixed prices, at prevailing market prices at the time of sale, at prices related to the prevailing market prices, at varying prices
determined at the time of sale, or at negotiated prices. These sales may be effected at various times in one or more of the following transactions, or in other kinds of transaction: </FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT
SIZE="1">&nbsp;</FONT></P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top">&nbsp;</TD>
<TD ALIGN="left" VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">transactions on any national securities exchange or U. S. inter-dealer system of a registered national securities association on which the common stock may be listed or quoted at
the time of sale; </FONT></TD></TR></TABLE> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top">&nbsp;</TD>
<TD ALIGN="left" VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">in the over-the-counter market; </FONT></TD></TR></TABLE> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top">&nbsp;</TD>
<TD ALIGN="left" VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">in private transactions and transactions otherwise than on these exchanges or systems or in the over-the-counter market; </FONT></TD></TR></TABLE> <P
STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top">&nbsp;</TD>
<TD ALIGN="left" VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">in connection with short sales of the shares; </FONT></TD></TR></TABLE> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top">&nbsp;</TD>
<TD ALIGN="left" VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">by pledge to secure or in payment of debt and other obligations; </FONT></TD></TR></TABLE> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top">&nbsp;</TD>
<TD ALIGN="left" VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">through the writing of options, whether the options are listed on an options exchange or otherwise; </FONT></TD></TR></TABLE> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT
SIZE="1">&nbsp;</FONT></P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top">&nbsp;</TD>
<TD ALIGN="left" VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">in connection with the writing of non-traded call options, in hedge transactions and in settlement of other transactions in standardized or over-the-counter options; or
</FONT></TD></TR></TABLE> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top">&nbsp;</TD>
<TD ALIGN="left" VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">through a combination of any of the above transactions. </FONT></TD></TR></TABLE> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">The selling stockholder and its successors, including its transferees, pledges or donatees or their successors, may sell the common stock directly to the
purchaser or through underwriters, broker-dealers or agents, who may receive compensation in the form of discounts, concessions or commissions from the selling stockholder or the purchaser. These discounts, concessions or commissions as to any
particular underwriter, broker-dealer or agent may be in excess of those customary in the types of transactions involved. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">In addition, any securities covered by this Prospectus which qualify for sale pursuant to Rule 144 of the Securities Act may be sold under Rule 144 rather
than pursuant to this Prospectus. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">We entered into a
registration rights agreement for the benefit of the selling stockholders to register our common stock under applicable federal and state securities laws. We have agreed to bear certain expenses in connection with the registration of the shares
subject to this Prospectus, but we will not receive any of the proceeds from the sale of the shares of common stock subject to this Prospectus by the selling stockholders except for payment of the exercise price in the event that the warrants are
exercised. The registration rights agreement provides for cross-indemnification of the selling stockholders and us and our respective directors, officers and controlling persons against specific liabilities in connection with the offer and sale of
the common stock, including liabilities under the Securities Act. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">- 15 - </FONT></P>


<p Style='page-break-before:always'>
<HR  SIZE="3" COLOR="#999999" WIDTH="100%" ALIGN="CENTER">
<h5 align="left"><a href="#toc">Table of Contents</a></h5>


 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2"><B>V<SMALL>ERDISYS</SMALL>, I<SMALL>NC</SMALL>. </B></FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>
<A NAME="tx67395_7"></A>Legal Proceedings </B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><I><U>Breach of Promissory Note
/ Breach of Security Agreement </U></I></FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">In August 2002, Verdisys settled a
lawsuit filed against it by Peter Verbica in late 2001 in Santa Clara County Superior Court for breach of promissory note and breach of security agreement, by agreeing to pay $228,494. Verdisys agreed to pay $15,000 on October 1, 2002 and $5,000 per
month from November 2002 through August 2004. Verdisys settled the debt in 2003 by paying $180,000 cash and issuing 200,000 shares of common stock for a cashless exercise of 20,000 warrants at $.10 per share. </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><I><U>Lawsuits Involving Edge Capital Group, Inc. </U></I></FONT></P> <P
STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Verdisys initiated a lawsuit against Edge Capital that requested a declaratory judgment that
a purported agreement between Verdisys and Edge was not enforceable. It was filed in Montgomery County, Texas in February 2004. The lawsuit arises from Edge&#146;s contention that one of Verdisys&#146; ex-officers committed the company to purchase
certain alleged oil and gas properties from Edge. Edge filed a counterclaim against Verdisys and asserted claims against Dan Williams (Verdisys&#146; former President and CEO), Eric McAfee (Verdisys&#146; former Vice Chairman), Ron Robinson,
Frederick Ruiz, Joseph Penbera, James Woodward, John Block, and Andrew Wilson. Edge has also made claims against Solarcom, L.L.C., DeLage Landen Financial Services, Inc., Andrew Wilson, and Allen Voight. Edge sought to enforce the agreement Verdisys
challenged, and alleged several causes of action including claims for fraud, breach of contract, negligence, and conspiracy. Edge has asserted actual damages in excess of $85 million, and claimed punitive damages as well. </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Edge and one of its apparent owners, Frazier Ltd., initiated a lawsuit in Summin County, Ohio
against Solarcom, L.L.C., DeLage Landen Financial Services, Inc., Verdisys, Inc., and Firstmerit Bank, N.A. that sought an injunction against the draw against a letter of credit pledged as collateral for a credit advanced to Edge. Edge asserted that
its transaction with Verdisys was the product of fraud and that its creditor, DeLage Landen as assignee from Solarcom, should not be allowed to draw against Edge&#146;s letter of credit from Firstmerit. The pleadings in the Ohio action did not
include any claim for damages from Verdisys and Verdisys is unable to determine whether an adverse judgment would have a material adverse effect on Verdisys&#146; financial condition. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT
SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Effective January 19, 2005, Verdisys, Edge, certain entities affiliated with Edge, and Eric McAfee (the former Vice-Chairman of Verdisys)
entered into a Settlement Agreement and Mutual Release to fully settle and resolve the disputes between Edge and its affiliated entities, Verdisys and its directors, and Mr. McAfee. As part of the settlement, Verdisys issued to Edge an aggregate of
750,000 shares of its common stock, along with warrants to purchase 750,000 shares of common stock. The warrants are exercisable at a price of $1.00 per share, and have a three year term. The shares and the warrants were issued in a private offering
exempt from the registration requirements of the Securities Act of 1933, as amended. Verdisys has agreed to provide Edge with certain registration rights with respect to the shares and warrants. In addition, Verdisys also agreed to provide to Edge a
drilling rig to provide certain lateral drilling services. As part of the drilling services, Edge has agreed to pay Verdisys a fee per well, along with a share of the revenues generated from each well drilled. Also, as part of the settlement,
Verdisys has agreed to sublicense its Landers horizontal drilling technology on a non-exclusive basis to Edge to enable Edge to develop oil and gas fields in which Edge has an economic interest. Under the sublicense, Edge will prohibited from
performing services for others, except that it will have a limited right of first refusal to perform such services in the event Verdisys elects to not perform such services. The sublicense will have a 5-year term and be limited to the United States
and Canada. As part of the settlement, the parties to the agreement have agreed to a mutual release and have agreed to dismiss all pending claims and litigation between them upon performance of the obligations in the settlement agreement. If
Verdisys does not perform its remaining obligations under the settlement agreement, this would cause the release to not be effective and could lead to the underlying lawsuit being reinstituted. An adverse finding in such lawsuit against Verdisys
would have a material adverse effect on Verdisys&#146; financial condition. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman"
SIZE="2"><I><U>Class Action Lawsuits </U></I></FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Verdisys is a defendant in a
consolidated lawsuit brought by former shareholders in March 2004 in the U.S. District Court for the Southern District of Texas, and which seeks class action status. The lawsuit alleges that Verdisys and its former CEO, Dan Williams, and the
Company&#146;s former CFO, Andrew Wilson, violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, and Rule 10b-5 promulgated thereunder. The lawsuit alleges that defendants made materially misstatements about Verdisys&#146;
financial results. More specifically, the Complaints allege that defendants failed to disclose and indicate: (1) that Verdisys had materially overstated its net income and earnings per share; (2) that defendants prematurely recognized revenue from
contracts between Verdisys, Edge Capital and Energy 2000 in violation of GAAP and its own revenue recognition policy; (3) that Verdisys lacked adequate internal controls and was therefore unable to ascertain the true financial condition of the
company; and (4) that as a result of recognizing revenue prematurely, Verdisys&#146; financial results were inflated at all relevant times. Verdisys has filed a motion to dismiss all actions in the litigation against it. If the plaintiffs in the
action prevail, it may obtain significant damages that may have a material adverse effect on Verdisys&#146; financial condition. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><I><U>Securities and Exchange Commission Investigation Inquiries </U></I></FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Verdisys received notice in January, 2004 that the Securities and Exchange Commission has initiated a formal investigation into its reporting practices and public
statements about the Company in 2003. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">The SEC has requested substantiation and
documentary evidence from the Company concerning the performance of certain lateral drilling services by subcontractors in the period from May, 2003 to September 2003, supervision of </FONT>
</P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">- 16 - </FONT></P>


<p Style='page-break-before:always'>
<HR  SIZE="3" COLOR="#999999" WIDTH="100%" ALIGN="CENTER">
<h5 align="left"><a href="#toc">Table of Contents</a></h5>


 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2"><B>V<SMALL>ERDISYS</SMALL>, I<SMALL>NC</SMALL>. </B></FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px">
<FONT FACE="Times New Roman" SIZE="2">such services by the Company&#146;s executive management at the time, revenue recognition related to the performance of such services, the third quarter 2003
earnings restatement, public statements concerning the services performed, and related matters. The SEC has also requested information and documentary evidence related to the Verdisys&#146; acquisition of certain assets of QuikView, Inc., a related
party company, in June, 2003. In its letters to Verdisys requesting documents, the SEC stated that the staff&#146;s inquiry should not be construed as an indication that any violations of securities laws have occurred or as an adverse reflection on
any persons, company or security. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Since December 2003, the Company has taken
several steps to address issues related to the SEC&#146;s inquiries, including the termination and replacement of the previous Chief Executive Officer and Chief Operating Officer and the reassignment of its Chief Financial Officer. Two directors
have resigned from the Company&#146;s board and the Company has appointed a new CFO. Internal controls have been strengthened overall, particularly with respect to the public release of Company information and the recognition of revenue. The Company
has also initiated an internal investigation of the matters of concern to the SEC. Consequently, the Company restated its second and third quarter financial statements from fiscal year 2003 and deferred all revenue related to the aforementioned
period until such time that it can substantiate whether or not the services were performed. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT
FACE="Times New Roman" SIZE="2">Verdisys is cooperating fully with the SEC, including the provision of numerous documents and voluntary testimony by our current executives. In December 2004, the staff of the SEC notified the Company that it was
considering recommending that the SEC bring a civil injunction (including a possible permanent injunction and a civil penalty) against Verdisys alleging violations of provisions of the Sections 10(b), 13(b)(2)(A), 13(b)(2)(B) and 15(d) of the
Securities Exchange Act of 1934 and rules promulgated thereunder in connection with the purchase and sale of securities of the Company, recordkeeping, internal controls, certification and disclosure obligations. Verdisys was notified of its right to
make a Wells submission. The Company has provided information to the SEC setting forth the specific steps it has taken to upgrade the quality and effectiveness of its board of directors, replace the previous management team with industry experts,
improve its recordkeeping, internal and disclosure controls, and revenue recognition procedures. Although the Company is working to bring the matter to a prompt conclusion, it cannot make any assurance that the investigation will be resolved
positively or that it will not have negative effects on the Company&#146;s limited resources or its ability to raise capital and use its stock as acquisition currency during the period of the investigation. </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><I><U>Claims by Investor </U></I></FONT></P> <P
STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">In connection with its financing in October 2003 with Gryphon Master Fund, L.P, Verdisys
agreed to register the shares issued to Gryphon on or before March 2004 or be subject to certain liquidated damages. Gryphon has made a claim against Verdisys for the maximum liquidated damages in an amount of $400,000. It has also claimed it has
sustained actual damages in excess of $6.2 million. In July 2004, Gryphon filed a lawsuit in the state district court in Dallas County, Texas against Verdisys, alleging, among other things, breach of contract and securities fraud by Verdisys. In
connection with the lawsuit, Gryphon has requested liquidated damages, actual damages, punitive damages, interest, costs and attorneys&#146; fees among other claims. If Gryphon prevails on its claims, it may obtain significant damages that may have
a material adverse effect on Verdisys&#146; financial condition. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><I><U>Claim
by Former CEO </U></I></FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">In July 2004 Verdisys was informed that a former Chief
Executive Officer of Verdisys filed a lawsuit against Verdisys for breach of contract and wrongful discharge. These claims seek relief in excess of $500,000 related to an alleged employment agreement and also seeks damages related to an excess of
4,000,000 stock options claimed due pursuant to the alleged agreement. The company has only recently received notice of these claims. The lawsuit was filed in state court in San Diego, California. Verdisys intends to vigorously defend itself.
</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><I><U>Energy 2000 </U></I></FONT></P> <P
STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">In October, 2004 Verdisys entered into an agreement with Berg McAfee Companies, Energy 2000
NGC, Inc. (Energy 2000), and Eric McAfee to settle several outstanding legal issues. Energy 2000 has agreed to settle a Finders Fee and Lateral Drilling services dispute by delivering 300,000 shares of Natural Gas Systems stock into escrow for
Verdisys. The Company plans to have these shares monetized as soon as practical. Furthermore, to settle a contemplated third party legal dispute, Verdisys and the parties have exchanged into escrow 500,000 shares of Natural Gas Systems stock for
500,000 of Verdisys shares and Verdisys has delivered an additional 250,000 shares. Verdisys also has agreed to dismiss the Quikview, Inc. lawsuit, which it had filed against certain individuals. </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Lastly, Berg McAfee Companies and Eric McAfee have loaned $200,000 to Verdisys, to be
evidenced by convertible promissory notes bearing interest at the rate of 8% per annum with a maturity date of May 31, 2006. The notes would be convertible into common stock at a conversion rate of one share of common stock for each $2.00 of
principal and interest outstanding. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">- 17 - </FONT></P>


<p Style='page-break-before:always'>
<HR  SIZE="3" COLOR="#999999" WIDTH="100%" ALIGN="CENTER">
<h5 align="left"><a href="#toc">Table of Contents</a></h5>


 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2"><B>V<SMALL>ERDISYS</SMALL>, I<SMALL>NC</SMALL>. </B></FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><I><U>Concluding Statement </U></I></FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT
SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Verdisys has never been in bankruptcy, receivership or any similar legal proceeding. Other than described above, Verdisys is not aware of
any other threatened legal proceedings. The foregoing is also true with respect to each officer, director and control shareholder as well as any entity owned by any officer, director and control shareholder, over the last five years. As part of its
regular operations, Verdisys may become party to various pending or threatened claims, lawsuits and administrative proceedings seeking damages or other remedies concerning its&#146; commercial operations, products, employees and other matters.
Although Verdisys can give no assurance about the outcome of these or any other pending legal and administrative proceedings and the effect such outcomes may have on the company, except as described above, Verdisys believes that any ultimate
liability resulting from the outcome of such proceedings, to the extent not otherwise provided for or covered by insurance, will not have a material adverse effect on Verdisys&#146; financial condition or results of operations<I>.</I> </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>
<A NAME="tx67395_8"></A>Directors, Executive Officers and Control Persons </B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman"
SIZE="2">The names of our directors and executive officers and certain additional information with respect to each of them are set forth below. The dates set forth under &#147;Year First Became Director&#148; below indicate the year in which our
directors first became a director of our predecessor in interest, Verdisys, Inc. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="100%" BORDER="0" STYLE="BORDER-COLLAPSE:COLLAPSE" ALIGN="center">

<TR>
<TD WIDTH="67%"></TD>
<TD VALIGN="bottom" WIDTH="3%"></TD>
<TD></TD>
<TD VALIGN="bottom" WIDTH="3%"></TD>
<TD></TD>
<TD VALIGN="bottom" WIDTH="3%"></TD>
<TD></TD></TR>
<TR>
<TD VALIGN="bottom"> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="1"><B>Name</B></FONT></P><HR WIDTH="35" SIZE="1" NOSHADE ALIGN="left" COLOR="#000000"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="center"><FONT FACE="Times New Roman" SIZE="1"><B>Age</B></FONT><BR><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="center"><FONT FACE="Times New Roman" SIZE="1"><B>Current Position</B></FONT><BR><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="center"><FONT FACE="Times New Roman" SIZE="1"><B>Year&nbsp;First<BR>Became<BR>Director</B></FONT><BR><HR SIZE="1" NOSHADE COLOR="#000000"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">David M. Adams</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">53</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" NOWRAP ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">President</FONT><br><FONT FACE="Times New Roman" SIZE="2">Co-Chief&nbsp;Executive&nbsp;Officer</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">N/A</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">John O&#146;Keefe</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">55</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" NOWRAP ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">Co-Chief Executive Officer<BR>Chief Financial Officer</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">N/A</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">John R. Block</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">69</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" NOWRAP ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">Director</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">2000</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Joseph J. Penbera, Ph.D.</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">56</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" NOWRAP ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">Director</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">1999</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Ronald J. Robinson, Ph.D.</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">57</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" NOWRAP ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">Director</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">2002</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Frederick R. Ruiz</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">60</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" NOWRAP ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">Director</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">2000</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">O. James Woodward, III</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">68</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" NOWRAP ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">Chairman of the Board</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">2000</FONT></TD></TR>
</TABLE> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Statements below pertaining to the
time at which an individual became one of our directors, executive officers or founders refers to the time at which the respective individual achieved his respective status with our predecessor in interest, Verdisys, Inc. </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B><I>David M. Adams</I></B> has served as our President and COO since January 2004, and
became Co-Chief Executive Officer in May 2004. From 1989 to 2000, Mr. Adams served as General Manager of Baker Hughes, E&amp;P Solutions, and from 2001 to 2004; he served as President and General Manager of Subsea Mudlift Drilling Co., LLC, a
subsidiary of Hydril Co., LP. Mr. Adams has a degree in petroleum engineering from the University of Texas and is a registered Professional Engineer. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B><I>John O&#146;Keefe</I></B> has served as our Executive Vice President and CFO since January 2004 and became Co-Chief Executive Officer in May 2004. From 1999 to
2000, Mr. O&#146;Keefe served as Vice President of Investor Relations of Santa Fe Snyder, and from 2000 to 2003, he served as Executive Vice President and CFO of Ivanhoe Energy. Mr. O&#146;Keefe has a B.A. in Business from the University of
Portsmouth, is a Chartered Accountant and graduated from the Program for Management Development (PMD) from the Harvard Graduate School of Business. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B><I>John R. Block</I></B> has served as a director on our Board since May 2000. He currently serves as President of the Food Distributors International, an organization
that represents the wholesale grocery and foodservice distribution industry. Prior to that, Mr. Block served as Secretary of Agriculture for the U.S. Department of Agriculture from 1981 to 1986. He currently serves as a director of John Deere and
Co. and Hormel Foods Corp. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B><I>Joseph J. Penbera, Ph.D.</I></B> co-founded
our company and has served as a director on our Board since its inception in </FONT>
</P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">- 18 - </FONT></P>


<p Style='page-break-before:always'>
<HR  SIZE="3" COLOR="#999999" WIDTH="100%" ALIGN="CENTER">
<h5 align="left"><a href="#toc">Table of Contents</a></h5>


 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2"><B>V<SMALL>ERDISYS</SMALL>, I<SMALL>NC</SMALL>. </B></FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px">
<FONT FACE="Times New Roman" SIZE="2">April 1999. Since 1985, he has been a Professor of Business at California State University, Fresno, where he previously served as Dean of the Craig School of
Business. Dr. Penbera was Senior Economist at Westamerica Bank, Regency Bancorp and California Bank from 1999 to 2002. Dr. Penbera is on the board of directors of Gottschalks, Inc., a publicly traded regional department store and Rug Doctor, Inc.
Dr. Penbera received his Ph.D. from American University, his M.P.A. from Bernard Baruch School and his B.A. from Rutgers University. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B><I>Ronald J. Robinson, Ph.D.</I></B> was appointed as our interim President and CEO in December 2003 and has served as Chairman of our Board since January 2002. With
the appointment of David Adams as President and Co-Chief Executive Officer, John O&#146;Keefe as Co-Chief Executive Officer and Jim Woodward as Chairman of the Board, Dr. Robinson now serves only as Director. From 1996 to 2001, Dr. Robinson served
as president of Texaco Technologies, a subsidiary of Chevron Texaco. From 2001 to 2003, Dr. Robinson was head of the Petroleum Engineering Department at Texas A&amp;M University. Dr. Robinson currently serves as a director of Ensyn Group Inc. Dr.
Robinson received his Ph.D. in Petroleum Engineering from Texas A&amp;M University, an M.S. in Physics from Baylor University and a B.S. in Physics and Mathematics from the University of Southern Colorado. </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B><I>Frederick R. Ruiz</I></B> has served as a director on our Board since its inception in
April 1999. He co-founded and is Chairman of the Board of Ruiz Food Products, Inc., a privately held frozen food company. Mr. Ruiz currently serves as a director of McClatchy Newspapers, Inc. and Gottschalks, Inc., each of which are publicly traded,
the California Chamber of Commerce and the Hispanic College Fund. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B><I>O.
James Woodward III</I></B> has served as a director on our Board since its inception in April 1999, and was elected Chairman of the Board in May, 2004. From 1992 to 1999, Mr. Woodward was an attorney in private practice in Fresno, California. From
1995 to 2000, he was Chairman of MJ Construction Co., a Fresno, California based construction company, and from 2001 to 2003, he served as a consultant in Fresno, California. Mr. Woodward has been in private practice as an attorney since 2003 and is
currently Of Counsel with Baker, Manock and Jensen. He currently serves on the board of directors of Gottschalks, Inc. Mr. Woodward received his M.B.A. from Stanford Graduate School of Business and his J.D. from the University of California,
Berkeley Law School. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">All Directors will serve in such capacity until the next
annual meeting of our shareholders and until their successors have been elected and qualified. The officers serve at the discretion of the company&#146;s Directors. There are no familial relationships among the our officers and directors, nor are
there any arrangements or understanding between any of our directors or officers or any other person pursuant to which any officer or director was or is to be selected as an officer or director. </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Verdisys, Inc. has group life, health, hospitalization, medical reimbursement or relocation
plans in effect. Further, Verdisys, Inc. has a 401(k) savings plan in effect and agreements which provide compensation on the event of termination of employment or change in control of us. </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Verdisys does pay members of our board of Directors fees for attendance at board and other
committee meetings in the form of cash compensation or similar remuneration, and reimburses them for any out-of-pocket expenses incurred by them in connection with our business. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT
SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Currently, each independent director receives compensation of $500 per month with an additional $500 per month for chairing a committee with
the exception of the audit committee chair who receives an additional $1,000 per month. Meeting fees are paid at a rate of $500 per day for regularly scheduled Board meetings. All independent directors receive options to purchase 12,000 shares per
year. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">No non-compete or non-disclosure agreements exist between the management
of Verdisys, Inc. and any prior or current employer. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">All key personnel are
employees or under contracts with of Verdisys, Inc. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">The directors of Verdisys,
Inc. are aware of no petitions or receivership actions having been filed or court appointed as to the business activities, officers, directors, or key personnel of Verdisys, Inc. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT
SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Verdisys, Inc. has not, nor proposes to do so in the future, make loans to any of its officers, directors, key personnel, 10% stockholders,
relatives thereof, or controllable entities. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">None of Verdisys, Inc.&#146;s
officers, directors, key personnel, or 10% stockholders has guaranteed or co-signed any bank debt, obligation, or any other indebtedness pertaining to Verdisys, Inc. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT
SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">- 19 - </FONT></P>


<p Style='page-break-before:always'>
<HR  SIZE="3" COLOR="#999999" WIDTH="100%" ALIGN="CENTER">
<h5 align="left"><a href="#toc">Table of Contents</a></h5>


 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2"><B>V<SMALL>ERDISYS</SMALL>, I<SMALL>NC</SMALL>. </B></FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>
<A NAME="tx67395_9"></A>Security Ownership of Certain Beneficial Owners and Management </B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT
FACE="Times New Roman" SIZE="2">The following table presents certain information regarding the beneficial ownership of our common stock as of January 4, 2005 (i) by each person who is known by us to own beneficially more than 5% of the outstanding
shares of our common stock, and (ii) by each of our directors, our Named Executive Officers, and all directors and executive officers as a group. Each of the persons listed in the table has sole voting and investment power with respect to the shares
listed. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><I><U>Common Stock </U></I></FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="100%" BORDER="0" STYLE="BORDER-COLLAPSE:COLLAPSE" ALIGN="center">

<TR>
<TD WIDTH="79%"></TD>
<TD VALIGN="bottom" WIDTH="8%"></TD>
<TD></TD>
<TD></TD>
<TD VALIGN="bottom" WIDTH="8%"></TD>
<TD></TD>
<TD></TD></TR>
<TR>
<TD VALIGN="bottom"> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="1"><B>Name and Address of Beneficial Owner</B></FONT></P><HR WIDTH="247" SIZE="1" NOSHADE ALIGN="left" COLOR="#000000"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" NOWRAP ALIGN="center"><FONT FACE="Times New Roman" SIZE="1"><B>Amount&nbsp;and&nbsp;Nature<BR>of Beneficial Owner</B></FONT><BR><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" NOWRAP ALIGN="center"><FONT FACE="Times New Roman" SIZE="1"><B>Percentage<BR>of&nbsp;Class&nbsp;(1)</B></FONT><BR><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Berg McAfee Companies (2) 100600 N. De Anza Blvd., #250 Cupertino, California 95014</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">9,271,127</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">(3)</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">27.9</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">%</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Eric McAfee 100600 N. De Anza Blvd., #250 Cupertino, California 95014</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">1,625,789</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">(4)(5)</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">4.9</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">%(5)</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">David Adams</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">242,500</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">(6)</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">*</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">President and co-CEO</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">John O&#146;Keefe</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">190,000</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">(6)</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">*</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">co-CEO and CFO</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">John R. Block</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">171,000</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">(7)</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">*</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Director</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Joseph Penbera</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">947,952</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">(8)</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">2.9</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">%</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Director</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Ronald J. Robinson</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">692,332</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">(9)</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">2.1</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">%</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Director</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Fred Ruiz</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">363,366</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">(10)</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">1.1</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">%</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Director</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">O. James Woodward III</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">210,000</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">(11)</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">*</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Chairman and Director</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD></TR>
<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="3"></TD>
<TD HEIGHT="8" COLSPAN="3"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Total Shares of 5% or more Beneficial Ownership</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">10,896,916</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">(12)</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">32.7</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">%</FONT></TD></TR>
<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="3"></TD>
<TD HEIGHT="8" COLSPAN="3"></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Total Shares of Officers and Directors as a group</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">2,817,150</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">8.2</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">%</FONT></TD></TR>
<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="6"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Total Shares Issued and Outstanding:</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="4" NOWRAP ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">33,103,505&nbsp;,&nbsp;if&nbsp;all&nbsp;exercised&nbsp;per&nbsp;note&nbsp;(1)&nbsp;35,908,646</FONT></TD>
<TD VALIGN="bottom" NOWRAP><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
</TABLE><HR WIDTH="8%" SIZE="1" NOSHADE COLOR="#000000" ALIGN="left">
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="2%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2">*</FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">Less than 1% </FONT></TD></TR></TABLE> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT
FACE="Times New Roman" SIZE="2"><I>Notes: </I></FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2"><I>(1)</I></FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT FACE="Times New Roman" SIZE="2"><I>Each beneficial owner&#146;s percentage ownership is based upon 33,103,505 shares outstanding at January 4, 2005 and assumes the exercise or conversion of <U>all</U> options,
warrants and other convertible securities held by such person and that are exercisable or convertible within 60 days after January 4, 2005. </I></FONT></TD></TR></TABLE> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2"><I>(2)</I></FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT FACE="Times New Roman" SIZE="2"><I>Berg McAfee Companies is controlled by Clyde Berg and Eric McAfee. Mr. McAfee is the former Vice-Chairman of the Company. </I></FONT></TD></TR></TABLE> <P
STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2"><I>(3)</I></FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT FACE="Times New Roman" SIZE="2"><I>Includes 50,000 shares issuable upon exercise of warrants and 52,456 shares issuable upon conversion of convertible debt. </I></FONT></TD></TR></TABLE> <P
STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2"><I>(4)</I></FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT FACE="Times New Roman" SIZE="2"><I>Includes 50,000 shares issuable upon exercise of warrants and 52,456 shares issuable upon conversion of convertible debt. </I></FONT></TD></TR></TABLE> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">- 20 - </FONT></P>


<p Style='page-break-before:always'>
<HR  SIZE="3" COLOR="#999999" WIDTH="100%" ALIGN="CENTER">
<h5 align="left"><a href="#toc">Table of Contents</a></h5>


 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2"><B>V<SMALL>ERDISYS</SMALL>, I<SMALL>NC</SMALL>. </B></FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>

<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2"><I>(5)</I></FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT FACE="Times New Roman" SIZE="2"><I>Does not include shares beneficially owned by Berg McAfee. </I></FONT></TD></TR></TABLE> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2"><I>(6)</I></FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT FACE="Times New Roman" SIZE="2"><I>In August 2004, Mr. Adams and Mr. O&#146;Keefe were awarded an option grant of 350,000 and 420,000 shares respectively, to equalize their total options to 500,000 each. The
options are three year grants with 1/12 vesting immediately and 1/12 per quarter thereafter and were granted effective July 29, 2004. The exercise price is $0.90 per share. Mr. Adams&#146; options for 237,500 shares and warrants for 5,000 shares are
vested or will vest within 60 days from January 4, 2005. Mr. O&#146;Keefe&#146;s options for 185,000 shares and warrants for 5,000 shares are vested or will vest within 60 days from January 4, 2005. </I></FONT></TD></TR></TABLE> <P
STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2"><I>(7)</I></FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT FACE="Times New Roman" SIZE="2"><I>Includes 79,000 shares issuable upon exercise of options and 2,000 shares issuable upon exercise of warrants. </I></FONT></TD></TR></TABLE> <P
STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2"><I>(8)</I></FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT FACE="Times New Roman" SIZE="2"><I>Includes 79,000 shares issuable upon exercise of options and 5,000 shares issuable upon exercise of warrants. </I></FONT></TD></TR></TABLE> <P
STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2"><I>(9)</I></FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT FACE="Times New Roman" SIZE="2"><I>Includes 392,332 shares issuable upon exercise of options. </I></FONT></TD></TR></TABLE> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2"><I>(10)</I></FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT FACE="Times New Roman" SIZE="2"><I>Includes 79,000 shares issuable upon exercise of options and 5,000 shares issuable upon exercise of warrants. </I></FONT></TD></TR></TABLE> <P
STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2"><I>(11)</I></FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT FACE="Times New Roman" SIZE="2"><I>Includes 88,000 shares issuable upon exercise of options. </I></FONT></TD></TR></TABLE> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2"><I>(12)</I></FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT FACE="Times New Roman" SIZE="2"><I>Includes shares beneficially owned by Berg McAfee and Eric McAfee. </I></FONT></TD></TR></TABLE> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>
<A NAME="tx67395_10"></A>Description of Securities </B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><I>General
</I></FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">The following description of our common stock does not purport to be
complete. For a complete description please refer to our certificate of incorporation and bylaws, which are included as exhibits to the registration statement of which this Prospectus forms a part, and by applicable provisions of California law.
</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><I>Common Stock </I></FONT></P> <P
STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">We are authorized to issue up to 50,000,000 shares of common stock, no par value per share,
of which 33,103,505 shares were issued and outstanding as of January 4, 2005. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman"
SIZE="2">Holders of shares of our common stock are entitled to share equally on a per share basis in such dividends as may be declared by our Board out of funds legally available therefore. There are presently no plans to pay dividends with respect
to the shares of our common stock. Upon our liquidation, dissolution or winding up, after payment of creditors and the holders of any of our senior securities, if any, our assets will be divided pro rata on a per share basis among the holders of the
shares of our common stock. The common stock is not subject to any liability for further assessments. There are no conversion or redemption privileges, nor any sinking fund provisions with respect to our common stock, and our common stock is not
subject to call. The holders of our common stock do not have any pre-emptive or other subscription rights. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT
FACE="Times New Roman" SIZE="2">Holders of shares of our common stock are entitled to cast one vote for each share held at all stockholders&#146; meetings for all purposes, including the election of directors. Our common stock does not have
cumulative voting rights. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><I>Shares Outstanding and Freely Tradable After
Offering. </I></FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">As of January 4, 2005, we had 33,103,505 shares of our common
stock outstanding. The shares to be sold by the selling stockholders in this offering will be freely tradable without restriction or limitation under the Securities Act, except for any such shares held our by &#147;affiliates,&#148; as such term is
defined under Rule 144 of the Securities Act, which shares will be subject to the resale limitations under Rule 144. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><I>Rule 144. </I></FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT
FACE="Times New Roman" SIZE="2">In general, under Rule 144, as currently in effect, a person (or persons whose shares are aggregated) who has beneficially owned shares for at least one year, including an affiliate of us, would be entitled to sell,
within any three-month period, that number of shares that does not exceed the greater of 1% of the then-outstanding shares of our common stock or the average weekly trading volume in our common stock during the four calendar weeks immediately
preceding the date on which the notice of sale is filed with the SEC, provided certain manner of sale and notice requirements and requirements as to the availability of current public information about us is satisfied. </FONT>
</P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">- 21 - </FONT></P>


<p Style='page-break-before:always'>
<HR  SIZE="3" COLOR="#999999" WIDTH="100%" ALIGN="CENTER">
<h5 align="left"><a href="#toc">Table of Contents</a></h5>


 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2"><B>V<SMALL>ERDISYS</SMALL>, I<SMALL>NC</SMALL>. </B></FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px">
<FONT FACE="Times New Roman" SIZE="2">Affiliates of ours must comply with additional restrictions and requirements of Rule 144, other than the one-year holding period requirement, in order to
sell shares of our common stock. As defined in Rule 144, an &#147;affiliate&#148; of an issuer is a person who, directly or indirectly, through the use of one or more intermediaries controls, or is controlled by, or is under common control with,
such issuer. Under Rule 144(k), a holder of &#147;restricted securities&#148; who is not deemed an affiliate of the issuer and who has beneficially owned shares for at least two years would be entitled to sell shares under Rule 144(k) without regard
to the limitations described above. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><I>Effect of Substantial Sales on the
Market Price of our Common Stock. </I></FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">We are unable to estimate the number of
shares that may be sold in the future by our existing shareholders or the effect, if any, that such sales will have on the market price of the common stock prevailing from time to time. Sales of substantial amounts of our common stock, or the
prospect of such sales, could adversely affect the market price of our common stock. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman"
SIZE="2"><B>
<A NAME="tx67395_11"></A>Interest of Named Experts and Counsel </B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Verdisys,
Inc. did not hire or cause to be hired any &#147;expert&#148; or &#147;counsel&#148; on a contingent basis, whereas such &#147;expert&#148; or &#147;counsel&#148; would receive a direct or indirect interest in Verdisys, Inc.; or was a promoter,
underwriter, voting trustee, director, officer, or employee of Verdisys, Inc. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman"
SIZE="2"><B>
<A NAME="tx67395_12"></A>Disclosure of Commission Position on Indemnification for Securities Act Liabilities </B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Every person who was or is a party or is threatened to be made a party to or is involved in any action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that he or a person of whom he is the legal representative is or was a director or officer of the corporation or is or was serving at the request of the corporation for its benefit as a director or officer of
another corporation, or as its representative in a partnership, joint venture, trust or other enterprise, shall be indemnified and held harmless to the fullest extent legally permissible under the general corporation law of the State of California
from time to time against all expenses, liability and loss (including attorney&#146;s fees, judgments, fines, and amounts paid or to be paid in settlement) reasonably incurred and in advance of the final disposition of the action, suit or proceeding
upon receipt of an undertaking by or on behalf of the director or officer to repay the amount if it is ultimately determined by a court of competent jurisdiction that he is not entitled to be indemnified by the corporation. Such right of
indemnification shall be a contract right which may be enforced in any manner desired by such person; and shall not be exclusive of any other right which such directors, officers or representatives may have or hereafter acquire and, without limiting
the generality of such statement, they shall be entitled to their respective rights of indemnification under any bylaw, agreement, vote of stockholders, provision of law or otherwise, as well as their rights under the Articles of Incorporation of
Verdisys, Inc. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the &#147;Act&#148;) may be permitted to directors, officers and controlling persons of the small business issuer pursuant to the foregoing provisions, or otherwise, the small business issuer has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">- 22 - </FONT></P>


<p Style='page-break-before:always'>
<HR  SIZE="3" COLOR="#999999" WIDTH="100%" ALIGN="CENTER">
<h5 align="left"><a href="#toc">Table of Contents</a></h5>


 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2"><B>V<SMALL>ERDISYS</SMALL>, I<SMALL>NC</SMALL>. </B></FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>
<A NAME="tx67395_13"></A>Description of Business </B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:2%; text-indent:-2%"><FONT FACE="Times New Roman"
SIZE="2"><U>Forward-Looking Statements </U></FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">All statements, other than
statements of historical fact, included in this registration statement are forward-looking statements, including, but not limited to, statements identified by the words &#147;anticipate&#148; and &#147;believe&#148; and similar statements concerning
the Company&#146;s business strategy, plans and objectives for future operations. These statements reflect the Company&#146;s current views with respect to future events, based on what the Company believes are reasonable assumptions. There are a
number of factors that may affect the future results of the Company, including, but not limited to, (a) the ability of the Company to obtain additional funding for operations, (b) the continued availability of management to develop the business plan
and (c) successful development and market acceptance of the Company&#146;s products. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman"
SIZE="2">This Prospectus may contain both historical facts and forward-looking statements. Any forward-looking statements involve risks and uncertainties. Moreover, future revenue and margin trends cannot be reliably predicted. </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:2%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2"><U>
<A NAME="tx67395_14"></A>Business Development </U></FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">In September 2000, the
company was incorporated as Rocker &amp; Spike Entertainment, Inc, a California corporation. Until December 31, 2000, operations consisted of organizational matters and the search for an operating company with which to perform a merger or
acquisition. Effective January 1, 2001, the company purchased the assets and web domain of Accident Reconstruction Communications Network from its sole proprietor. Following the acquisition, the company changed its name from Rocker &amp; Spike
Entertainment, Inc. to Reconstruction Data Group, Inc. At that time, the company provided research, communication and marketing exposure to the accident reconstruction industry through our website and seminars. </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">In April 2003, the company entered into a merger agreement with Verdisys, Inc.
(&#147;Verdisys&#148;). Verdisys was initially incorporated as The AgZone Inc. in 1999 as a California corporation. Its purpose was to provide e-Commerce satellite services to agribusiness. They changed their name to Verdisys in 2001, and in 2003,
with the acquisition of exclusive rights to a proprietary lateral drilling process throughout most of the U.S. and Canada, they changed their market focus to concentrate on services to the oil and gas industry. </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">The merger agreement with Verdisys called for us to be the surviving company. In connection
with the merger, our name changed to Verdisys, our articles of incorporation and bylaws remained in effect, the officers and directors of Verdisys became our officers and directors, each share of Verdisys&#146; common stock was converted into one
share of our common stock, and our accident reconstruction assets were sold. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman"
SIZE="2">Verdisys&#146; historical financial statements replaced ours. We now provide specialty services to oil and gas production companies located primarily in Oklahoma, Texas and Louisiana, and we have exclusive rights to the lateral drilling
process throughout the vast majority of the U.S. and Canada. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:2%; text-indent:-2%"><FONT
FACE="Times New Roman" SIZE="2"><U>
<A NAME="tx67395_15"></A>Business Segments </U></FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Verdisys, Inc. currently
operates in the oil and gas service industry in two distinct business segments. Our mission is to substantially improve the economics of existing and evolving oil and gas operations through the application of Verdisys licensed technologies.
</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Our primary segment is providing a service that enhances the recovery of oil
and gas from new and existing wells. This service is performed by our specially fabricated mobile drilling rigs equipped to utilize a proprietary lateral drilling system known as Verdisys Lateral Drilling Services, or VLDS. With VLDS, we offer
drilling services up to 300 feet horizontally from an existing well bore, in selected formations, down to a depth of 5,800 feet. We can provide our services in a few days at a fraction of the cost of conventional methods. The combination of low
front-end costs, effectiveness and speed of the process should make VLDS attractive to oil and gas companies. We believe that there exists a large potential market in North America for the application of the VDLS technology. </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Our secondary business segment is providing satellite services to oil and gas producers,
allowing them to remotely monitor and control well head, pipeline and drilling operations. Using satellite, and other wireless technology, we provide oil and gas producers the ability to dispense with a manual structure and move to a real-time,
automated, energy management program. With our services, production levels can be optimized to respond to current market conditions and commitments. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">- 23 - </FONT></P>


<p Style='page-break-before:always'>
<HR  SIZE="3" COLOR="#999999" WIDTH="100%" ALIGN="CENTER">
<h5 align="left"><a href="#toc">Table of Contents</a></h5>


 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2"><B>V<SMALL>ERDISYS</SMALL>, I<SMALL>NC</SMALL>. </B></FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:2%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2"><U>
<A NAME="tx67395_16"></A>Industry </U></FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Verdisys, Inc. operates in the oilfield
service industry. This industry provides a wide range of services to oil and gas companies including exploration support, equipment supply, construction, logistics, drilling and completion, production enhancement, etc. The oil and gas industry out
sources service functions to augment its in-house capability and to take advantage of the expertise of the specialty service providers. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">The energy industry is comprised of a diversity of operators, ranging from the very small to the extremely large. While the major portion of oil and gas production is
provided by large international oil companies, there are also a large number of smaller independent companies which own the vast majority of existing wells. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">The services industry includes a large number of smaller companies which focus on serving smaller producers or providing specialized services to the large ones. We are
one of the latter category and will be providing lateral drilling and satellite services to both small and large companies. We have positioned ourselves to cater to all segments of the industry in situations where the application of our services can
add value. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Demand for our services depends on our ability to demonstrate
improved economics to the oil and gas production sector we serve. We believe that they will use our lateral drilling service where it costs less than alternative services and/or when it generates additional revenue. It will also be driven by
macro-economic factors driving oil and gas fundamentals. The report of the Energy Information Agency of the U.S. Department of Energy entitled &#147;International Energy Outlook 2000&#148; forecasts that world oil consumption will increase at an
annual rate of approximately 2% through 2020 and that world gas consumption will increase at an annual rate of approximately 3% over the same period. The projected increase in demand for oil is based on worldwide economic and population growth,
primarily in developing countries. The projected increase in gas consumption over this period is expected to result from higher demand across residential, industrial and commercial sectors, as well as from the increasing use of gas as a source of
fuel for electric power generation, particularly in North and South America. We also believe that reliance on traditional sources of oil and gas will be limited due to the inadequate delivery infrastructure and political unrest in major supplying
countries. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">According to the Wall Street Journal, June 20, 2003 &#147;The good
news is that America is swimming in gas: The U.S. Geological Survey estimates there are 1,400 Tcf of recoverable gas resources in the U.S. &#150; enough to last decades. But most of it is off-limits to recover because of restrictive environmental
rules and lawsuits.&#148; This is particularly the case with drilling moratoriums on the East and West Coasts of America, parts of the Rocky Mountain Area and Alaska. According to the website www.naturalgasfacts.org sponsored by the American
Petroleum Institute, the American Petroleum Institute currently advocates with respect to meeting future natural gas demand &#147;A multi-pronged approach is essential for meeting future U.S. natural gas demand: (1) using energy wisely and
conserving where possible; (2) developing more U.S. supplies; (3) diversifying supplies through pipelines to bring Arctic gas to consumers; (4) facilitating more liquefied natural gas (LNG) imports.&#148; Obviously (3) and (4) are going to take time
to develop, are expensive, face significant regulatory problems and political opposition. A more immediate impact can be made by developing more U.S. supplies. Developing such supplies is dependent on drilling new wells in existing fields, or new
reserves in expensive less accessible fields. The alternative to growing domestic supply is to build the infrastructure and logistics to be able to import large quantities of LNG from overseas. Verdisys believes its lateral drilling technology can
access previously uneconomic reserves and bring them to market cost effectively thereby helping to resolve this supply/demand imbalance. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">The Office of Fossil Energy, U.S. Department of Energy, estimates there are nearly 500,000 oil wells and 230,000 natural gas wells that are marginal or classified as
&#147;stripper&#148; wells. These stripper wells produce either 15 barrels or less of oil a day or 60 thousand cubic feet of gas or less a day. Although low producing stripper wells account for the &#147;same of the amount of oil that America
imports from Saudi Arabia&#148; according to the Office of Fossil Energy &#147;Together (stripper wells) account for 1.25 trillion cubic feet of natural gas, or about 8 per cent of the natural gas produced&#148;. Such wells are potentially
considered uneconomic or marginal with the strong potential of being abandoned due to poor production economics. Indeed approximately 150,000 marginal wells were abandoned between 1993 and 2000 &#147;costing the U.S. more than $3.5 billion in lost
economic output&#148; according to the Office of Fossil Energy. In seeking to revitalize marginal and stripper wells both the Department of Energy and American Petroleum Institute have emphasized the need for new technologies to access more of the
reserves available. Verdisys has the ability to generate new business by re-entering existing wells and is not dependent on the production company drilling new wells. With its unique lateral drilling technology, Verdisys can provide potentially
improved recovery rates rather than leaving a field because of the depletion of oil or natural gas. Production </FONT>
</P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">- 24 - </FONT></P>


<p Style='page-break-before:always'>
<HR  SIZE="3" COLOR="#999999" WIDTH="100%" ALIGN="CENTER">
<h5 align="left"><a href="#toc">Table of Contents</a></h5>


 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2"><B>V<SMALL>ERDISYS</SMALL>, I<SMALL>NC</SMALL>. </B></FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px">
<FONT FACE="Times New Roman" SIZE="2">companies now have the ability to enhance the pay zones through lateral drilling to significantly extend economic field life. </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">We believe that producing companies will react to the combination of the increased demand and
the decreased supply of oil and gas in a manner that requires them to utilize both segments of our business. We believe that oil and gas producers have great economic incentive to recover additional production and reserves from known reservoirs
rather than pursuing a more risky exploration approach. Our extraction methods permit producers to add value by potentially recovering a significant additional percentage of the oil and gas from a reservoir. We believe that there exists a large
potential market in North America that comprises logical candidates to apply our lateral drilling method. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT
FACE="Times New Roman" SIZE="2">Activity in the energy services industry tends to be cyclical with oil and gas prices. In addition to the currently positive industry fundamentals, we believe the following sector-specific trends enhance the growth
potential of our business: </FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top">&nbsp;</TD>
<TD ALIGN="left" VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">While oil prices are unpredictable, they have remained and are projected to remain relatively high by historic terms for several years. Continuing high consumption, limitations in
delivery infrastructures and political unrest in major supplying countries are expected to be contributing factors. </FONT></TD></TR></TABLE> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top">&nbsp;</TD>
<TD ALIGN="left" VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">Natural gas prices are projected to remain high for several years due to the combination of strong demand and major supply constraints. About one-half of U.S. reserves have been
depleted with the remainder increasingly expensive and difficult to reach. Significant new supplies from Alaska and the Canadian north require the construction of new pipelines which are estimated to be several years away. The situation is serious
enough that Federal Reserve Bank Chairman Greenspan has expressed concern as to its effect as a constraint to US economic growth. </FONT></TD></TR></TABLE> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top">&nbsp;</TD>
<TD ALIGN="left" VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">There is no substitution threat to oil and gas in the foreseeable future. In particular, any significant substitution by hydrogen is believed to be some decades away.
</FONT></TD></TR></TABLE> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:2%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2"><U>
<A NAME="tx67395_17"></A>Lateral Drilling Services </U></FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Verdisys Lateral
Drilling Service &#147;VLDS&#148; </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Our VLDS segment is our primary
business.<B></B> The process can be equally applied to new and existing wells. We operate specially fabricated drilling rigs equipped with VLDS, a patented horizontal jetting technology licensed to us on exclusive basis for the vast majority of the
U.S. and Canada from the inventor, Carl Landers. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Verdisys has also signed an
exclusive worldwide licensing agreement with Alberta Energy Holdings for the application of their Abrasive Fluid Jet (AFJ) cutting technique to cut through well casing in oil and gas wells. Applications of such cutting techniques are a proven
feature in industries as diverse as munitions disposal in the military, offshore platform dismantlement in the salvage industry and cutting specialty glass and steel in the machining industry. Verdisys would be among the first to apply the proven
techniques to the energy service business. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Abrasive cutting utilizes
high-pressure fluid and a small amount of abrasives, such as garnet sand, up to 20,000 pounds per square inch. It can cut through surfaces as tough as four inches of steel as well as granite. Abrasive cutting represents an off-the-shelf technology
requiring application to drilling rather than developing a new invention. The successful application of abrasive cutting should allow Verdisys the ability to add a new service to its product line, such as milling holes and jetting laterals down to
10,000 feet or more instead of the current limitation of 6,000 feet. It may also facilitate cutting slots in well casings&#151;potentially a large value-added application in conventional drilling and completion operations, especially offshore.
</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">During the past few months, Verdisys has been enhancing its lateral drilling
down-hole equipment in an effort to achieve a more consistent milling process with a higher degree of reliability for their customers. After a series of iterative above and below ground tests, these have significantly improved the reliability of the
milling process. The Company is now applying similar iterative steps in an effort to improve the reliability of the lateral jetting process, which has a direct impact on potentially improving oil and gas production for the customer. In parallel to
these ongoing operations, Verdisys plans to develop and employ abrasive cutting techniques into their future lateral </FONT>
</P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">- 25 - </FONT></P>


<p Style='page-break-before:always'>
<HR  SIZE="3" COLOR="#999999" WIDTH="100%" ALIGN="CENTER">
<h5 align="left"><a href="#toc">Table of Contents</a></h5>


 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2"><B>V<SMALL>ERDISYS</SMALL>, I<SMALL>NC</SMALL>. </B></FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px">
<FONT FACE="Times New Roman" SIZE="2">drilling operations. Funding for developing this abrasive cutting into a lateral drilling application is expected to come from ongoing rig revenues, current
and future capital commitments. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">We have the ability to access previously
uneconomic reserves and bring them to market at cost effective prices, due to our unique and environmentally sound drilling process. These services and our small fleet of drilling rigs have appeal for both small independent operators as well as
large integrated companies. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">In the U.S. and Canada, we have the rights to
provide oil and gas companies with a proprietary lateral drilling service utilizing specially fabricated mobile drilling rigs. This technology is protected by three issued patents. Verdisys has acquired the rights to the vast majority of the North
American market for this drilling technology that has great potential for increasing the production of oil and gas </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">A significant volume of the known oil and gas in the U.S. remain untapped in existing well bores. By extending 2&#148; channels up to 300 feet in 4 or more directions
from the casing of the well at any given depth, the Verdisys drilling solution provides an economic way to enhance production levels of existing reservoirs, thereby reducing the need for new or foreign sources of oil and gas. The lateral drilling
operation uses a patented ultra-high pressure water jetting process, which is capable of drilling lateral holes from existing wells up to 300 feet in length in wells as deep as 5,800 feet. </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">With this technology, Verdisys has the ability to drill up to 4 or more laterals in only two
days into an existing pay zone at an average price ranging from $25,000 to $40,000 per well depending upon the size of the project. Specialized drilling competitors typically charge an average of $250,000 to drill horizontally in only one direction
and in only one horizon and require up to two weeks per well. Verdisys&#146; ability to target new or previously untapped deposits makes its technology potentially very compelling. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT
SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">At these lower comparative costs, Verdisys has made it feasible to enhance production from a large potential market in North America that
would otherwise be cost prohibitive to recover. The existing oil and gas independent producers in North America are potential customers of this patented lateral drilling service. According to the Department of Energy Report &#150; Natural Gas
Fundamentals, June, 2003, there are &#147;Over 7,000 small independent businesses (that) drill 85% of wells and produce 65% of natural gas in the U.S. from over 350,000 U.S. wells.&#148; All 7,000 independent producers are potential customers for
the service. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">In the same report it estimates 10,000 to 15,000 new natural gas
wells are drilled and completed each year costing anywhere from less than $100,000 to several million. These new wells are necessary just to replace depleted supplies from existing wells in an effort to maintain current U.S. production levels.
Verdisys&#146; lateral drilling service directly competes with the need for new wells by laterally drilling from existing wells to extend the pay zone and bring new supplies through existing well bores. By extending the accessibility of reserves
through the existing well Verdisys&#146; technology can negate the need for new wells to be drilled in existing fields. This is not only compelling economically but also is very environmentally friendly in using previously established well bores
rather than drilling new holes. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">With VLDS, we believe we can provide an
economic production recovery service. With conventional horizontal drilling, the transition from drilling vertically to horizontal drilling may take 200 feet or more and take many days to accomplish. Verdisys, with its patented technology, can make
this transition in 2 feet instead of the industry normal of 200 feet and do it in a matter of minutes not hours. This enables Verdisys to be more precise in targeting and staying within specific pay zones for a potentially significant enhancement to
the production of the well. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Many of the nation&#146;s old oil and gas fields
contain new infield reservoir compartments and bypassed pockets of reservoirs that have not been economic to produce. VLDS will make it economically viable to produce from those deposits for the first time. </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">- 26 - </FONT></P>


<p Style='page-break-before:always'>
<HR  SIZE="3" COLOR="#999999" WIDTH="100%" ALIGN="CENTER">
<h5 align="left"><a href="#toc">Table of Contents</a></h5>


 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2"><B>V<SMALL>ERDISYS</SMALL>, I<SMALL>NC</SMALL>. </B></FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px">

<IMG SRC="g67395image_01.jpg" ALT="LOGO"> </P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">VLDS utilizes patented technology in the areas of
the design and manufacture of the Deflecting Shoe and the process of high pressure water jet drilling. The figure below more precisely illustrates the process. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
<P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center">

<IMG SRC="g67395image_02.jpg" ALT="LOGO"> </P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Verdisys lateral drilling (VLDS) works on both
new and existing wells. Where VLDS may have greater attraction, though, is on marginal wells that may be otherwise ready to be abandoned because they are no longer economically viable. The strong market potential is that this reduces the continual
need for more exploration, new drilling and denser infield drilling. Such fields that may be ready to be abandoned and have remaining resource potential can have their production re-established and their economic lives extended. </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">- 27 - </FONT></P>


<p Style='page-break-before:always'>
<HR  SIZE="3" COLOR="#999999" WIDTH="100%" ALIGN="CENTER">
<h5 align="left"><a href="#toc">Table of Contents</a></h5>


 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2"><B>V<SMALL>ERDISYS</SMALL>, I<SMALL>NC</SMALL>. </B></FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">The figure below demonstrates how lateral drilling can drastically expand the production area within a given field
relative to vertical wells. An average well will recover petroleum from an area of up to 120 feet from the well bore. However, each VLDS Lateral extends up to 300 feet from the well bore, thus potentially increasing the area of production several
fold. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center">

<IMG SRC="g67395image_03.jpg" ALT="LOGO"> </P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Features of Lateral Drilling: </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top">&nbsp;</TD>
<TD ALIGN="left" VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">The lateral drilling process is fast. Average time the rig is on the well is only two days. </FONT></TD></TR></TABLE> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT
SIZE="1">&nbsp;</FONT></P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top">&nbsp;</TD>
<TD ALIGN="left" VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">Cuts a two inch diameter hole horizontally up to 300 feet from the well bore in multiple directions. </FONT></TD></TR></TABLE> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT
SIZE="1">&nbsp;</FONT></P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top">&nbsp;</TD>
<TD ALIGN="left" VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">Lateral holes can be drilled at several vertical producing horizons down to 5,800 feet. </FONT></TD></TR></TABLE> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT
SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Potential Benefits: </FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top">&nbsp;</TD>
<TD ALIGN="left" VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">Increase production rate and recoverable reserves from marginal wells. </FONT></TD></TR></TABLE> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top">&nbsp;</TD>
<TD ALIGN="left" VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">Improves injection rates in water disposal/injection wells. </FONT></TD></TR></TABLE> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top">&nbsp;</TD>
<TD ALIGN="left" VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">Allows multi-layer application in thicker reservoir zones. </FONT></TD></TR></TABLE> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top">&nbsp;</TD>
<TD ALIGN="left" VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">Enhances recovery most effectively on old, low productivity wells. </FONT></TD></TR></TABLE> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top">&nbsp;</TD>
<TD ALIGN="left" VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">Provides an economic alternative to denser infield drilling programs. </FONT></TD></TR></TABLE> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top">&nbsp;</TD>
<TD ALIGN="left" VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">Dispenses with large, expensive rotary rigs. </FONT></TD></TR></TABLE> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top">&nbsp;</TD>
<TD ALIGN="left" VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">Dispenses with mud pits that can damage the environment. </FONT></TD></TR></TABLE> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top">&nbsp;</TD>
<TD ALIGN="left" VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">Dispense with casing milling equipment. </FONT></TD></TR></TABLE> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top">&nbsp;</TD>
<TD ALIGN="left" VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">Rapid drilling rates limit the time the well is out of production. </FONT></TD></TR></TABLE> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">- 28 - </FONT></P>


<p Style='page-break-before:always'>
<HR  SIZE="3" COLOR="#999999" WIDTH="100%" ALIGN="CENTER">
<h5 align="left"><a href="#toc">Table of Contents</a></h5>


 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2"><B>V<SMALL>ERDISYS</SMALL>, I<SMALL>NC</SMALL>. </B></FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><I>
<A NAME="tx67395_18"></A><U>Major Customers</U> </I></FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">When the Company
commenced its lateral drilling operations in 2003 it was dependent upon three customers, two of which were related parties, and one that had no experience in the oil and gas industry. Since that time it has discontinued doing business with two of
the customers due to disputes regarding the services performed and payment for those services, and has revised its contract with the third. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">In January, 2004 the Company changed its customer focus to small to medium size independent oil and gas production companies seeking to enhance production from their
existing fields in the U.S. and Canada. It also adopted a new business model that emphasizes a payment for services rather than production participation rights. To date the Company has signed pilot contracts to perform drilling services for Amvest
Osage, Inc., Esperada Energy Partners, L.L.C. and Maxim Energy, Inc. It is also in discussion with a number of other Companies regarding pilot projects to prove out the technology with a view to further work. As of January 2005, Verdisys is testing
the abrasive fluid jet concept in drilling rigs equipped with the new abrasive fluid jet technology. The Company expects to continue its focus on developing a new drilling rig equipped with the new abrasive fluid jet technology. </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><I>
<A NAME="tx67395_19"></A><U>Customer Acceptance</U> </I></FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">The Company is
encouraged by the level of interest from several customers in the lateral drilling technology as it relates to both conventional oil and gas production as well as coal bed methane opportunities. Recent experience in Oklahoma revealed that, due to
operator error and possible equipment issues, the Company did not completely mill through the casing of certain wells. Verdisys plans to re-drill certain wells to gain additional insight and to perfect the technique. </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">The Company has instituted a successful above-ground milling test with redesigned down hole
equipment, which visually demonstrated that improved operating procedures will resolve the milling issue. The Company plans to make continued improvements to the technology and operating procedures in order to provide its customers with a quality,
value added and consistent service. All components of the down hole drilling equipment have been upgraded by the end of 2004 and the Company is undertaking field testing in an attempt to thoroughly commercialize the equipment. </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><I>
<A NAME="tx67395_20"></A><U>Market</U> </I></FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">The United States was the
world&#146;s largest consumer of natural gas in 1999 according to the World Energy Council &#150; Survey of Energy Resources, consuming 21.7 trillion cubic feet (Tcf) of Natural Gas or 26 per cent of the World&#146;s total consumption. Natural Gas
meets 24 per cent of U.S. energy requirements according to the American Petroleum Institute and heats 61 per cent of U.S. households. Natural Gas, as a clean and efficient fuel, has become ubiquitous to the American lifestyle in heating the home,
cooking, drying clothes and running cars. The advent of the additional need for electricity in America has also spawned heavy demand from Power Plants along with traditional users in pulp and paper, cement and asphalt, chemicals, plastics and
petroleum refining. In the last several years 95 per cent of the new power generation capacity in the U.S. was fueled by natural gas, according to the U.S. Department of Energy 2003 Report. </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">The U.S. Department of Energy expects U.S. demand to grow at 1.5 per cent per year between
2001 and 2025 representing a 50 per cent growth from 23 Tcf to 35 Tcf. &#147;Today, domestic supplies meet 84 per cent of our Nation&#146;s natural gas requirements, with nearly all of the balance coming from Canada.&#148;, according to the U.S.
Department of Energy Report, &#147;But future natural gas consumption is expected to increase more rapidly than domestic production&#148;. &#147;In 2001 about 19.5 Tcf of natural gas was produced from over 350,000 U.S. wells&#148; according to the
same report, &#147;Most production came from Texas (26%), Gulf of Mexico (8%) and Oklahoma, Louisiana and Wyoming (7% each). However, according to the American Petroleum Institute U.S. production has been &#147;essentially flat for the past two
decades&#148;. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Indeed, to Business Week in their March 1, 2004 edition said
&#147;Demand for clean-burning natural gas has marched steadily upwards during the past two decades, and the output from North American gas fields hasn&#146;t kept pace. Last year, in fact, U.S. production fell by 3%, while demand rose 2.2%. Prices
have doubled since the 1990s, to around $5 per thousand cubic feet (mcf).&#148; The ability of the United States to meet such demand will have a major effect on the economy for the next two decades. How will the U.S. meet the supply shortfall?
</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">- 29 - </FONT></P>


<p Style='page-break-before:always'>
<HR  SIZE="3" COLOR="#999999" WIDTH="100%" ALIGN="CENTER">
<h5 align="left"><a href="#toc">Table of Contents</a></h5>


 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2"><B>V<SMALL>ERDISYS</SMALL>, I<SMALL>NC</SMALL>. </B></FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><I><U>
<A NAME="tx67395_21"></A>Competition</U> </I></FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Verdisys&#146; lateral drilling
service directly competes with the need for new wells by laterally drilling from existing wells to extend the recovery from the pay zone and bring new supplies through existing well bores. By extending the accessibility of reserves through the
existing well bores, Verdisys&#146; technology can negate the need to drill more densely spaced wells in existing fields. This is not only compelling economically but also is very environmentally friendly in using previously established wells rather
than drilling new ones. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center">

<IMG SRC="g67395image_04.jpg" ALT="LOGO"> </P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Source: Department of Energy &#150; Natural Gas
Fundamentals, June, 2003 </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">We operate in a niche that lies below the more
expensive and higher impact horizontal drilling business and the much cheaper and lower impact perforation business. Our lateral drilling service can provide significant reservoir exposure, and therefore greater production potential, like horizontal
drilling at closer to the cost of the perforation service. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Conventional
horizontal or directional drilling is slow and significantly more expensive to the extent that it is only being used if its much longer drilling radius was required as is necessary in offshore or environmentally sensitive areas. Companies offering
this service include Halliburton, Baker Hughes, Schlumberger and other independent drilling companies. They traditionally drill one lateral through the existing well bore. That lateral can take over 200 feet to achieve the turn to the horizontal and
be limited to only one &#147;pay&#148; zone. It usually costs over $250,000 and positive financial returns require very high producing rates. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Other water jet drilling methods in use have a limited radius of about 10 feet and can be repeated 4 or more times in any direction around the well bore. The competitive
advantage of the Verdisys system is sustainable through the life of the patents. A key patent involving the nozzle design was issued in 1998. A further patent was issued in 2003 covering a variation of the process and further patents can be expected
as the process is further refined to extend its range, depth, and other capabilities. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">- 30 - </FONT></P>


<p Style='page-break-before:always'>
<HR  SIZE="3" COLOR="#999999" WIDTH="100%" ALIGN="CENTER">
<h5 align="left"><a href="#toc">Table of Contents</a></h5>


 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2"><B>V<SMALL>ERDISYS</SMALL>, I<SMALL>NC</SMALL>. </B></FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Our VLDS offers several advantages over conventional oil and gas recovery enhancement services provided by our
competitors because: </FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top">&nbsp;</TD>
<TD ALIGN="left" VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">The lateral drilling process is fast. Average time the rig is on the well is two days. </FONT></TD></TR></TABLE> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT
SIZE="1">&nbsp;</FONT></P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top">&nbsp;</TD>
<TD ALIGN="left" VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">It cuts a two inch diameter hole horizontally up to 300 feet from the well bore. </FONT></TD></TR></TABLE> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT
SIZE="1">&nbsp;</FONT></P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top">&nbsp;</TD>
<TD ALIGN="left" VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">Lateral holes can be drilled at numerous vertical producing horizons. </FONT></TD></TR></TABLE> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top">&nbsp;</TD>
<TD ALIGN="left" VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">It increases production rate and recoverable reserves. </FONT></TD></TR></TABLE> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top">&nbsp;</TD>
<TD ALIGN="left" VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">There is no need for large, expensive rotary rigs. </FONT></TD></TR></TABLE> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top">&nbsp;</TD>
<TD ALIGN="left" VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">There are no mud pits that may damage the environment. </FONT></TD></TR></TABLE> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top">&nbsp;</TD>
<TD ALIGN="left" VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">Casing milling equipment is not necessary. </FONT></TD></TR></TABLE> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top">&nbsp;</TD>
<TD ALIGN="left" VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">Logging expenses are not required. </FONT></TD></TR></TABLE> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top">&nbsp;</TD>
<TD ALIGN="left" VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">Additional stimulation services such as acidizing may be substituted by VLDS. </FONT></TD></TR></TABLE> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
<P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">However, many of our competitors are better financed, equipped and staffed than Verdisys, Inc. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT
SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:2%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2"><U>
<A NAME="tx67395_22"></A>Satellite Services </U></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">The &#147;Satellite Private
Network (SPN&#146;s)&#148; services utilize two-way satellite broadband to provide oil and gas companies with a wide variety of remote energy management applications. Our satellite services can be optimized to provide cost effective applications
such as Voice over Internet &#147;VoIP&#148;, Virtual Private Networking &#147;VPN&#148; and Real-time Supervisory Control and Data Acquisition Systems, commonly referred to as SCADA. SCADA permits oil and gas companies to dispense with a manual
structure and move to a real-time, automated, energy management program. Utilizing SCADA, production levels can be optimized to meet current market conditions and commitments. At present, the Company is shipping modem hardware from ViaSat and
Spacenet, space segment services from SES and Loral and hub services from Spacenet and Immeon. The current product line supports QoS (Quality of Service), multiple protocols, including the ones most used for Point of Sale and SCADA. </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">SPN uses satellite communications that are low cost and that ensure worldwide availability,
even in geographic areas with a poor communications infrastructure. SPN is based on industry standards to lower implementation costs and to simplify the integration into existing systems Reliability and availability are critical considerations for
SCADA. SPN is provided twenty four hours a day seven days a week with 99.99% availability virtually anywhere in the world and there are fewer points of failure than comparable terrestrial services. It provides uniform service levels, and is faster
and more cost effective to deploy. SPN is also very flexible and easily accommodates site additions, relocations, bandwidth expansion, and network reconfiguration. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT
SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Additionally, security, integrity, and reliability have been designed into SPN to ensure that information is neither corrupted nor
compromised. SPN communications are more secure than many normal telephone lines. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman"
SIZE="2">Verdisys Satellite Private Networks, or SPN, allow energy companies to control their production effectively by providing worldwide real-time access to information. SPN enables real-time Supervisory Control and Data Acquisition and provides
a new opportunity for energy companies to automate functions that are currently manual. Applications include oil and gas exploration, production, refining, power distribution, and many other related energy management functions. </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">It is common practice today to gather much of the data involved in energy management
manually. This is not only expensive but also causes a significant time lag in the availability of critical management information. Supervisory control also has many manual components that raise costs and cause companies to be unable to react
quickly to problems or changing market conditions. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">The local site utilizes
Wi-Fi, a wireless Local Area Network (LAN) that provides high-speed data transmission at less than $300 average cost per connection. Wi-Fi is inherently flexible and does not incur the normal high wiring costs of a cable LAN. Internet connections
are also used to provide maximum flexibility and to reduce costs. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">- 31 - </FONT></P>


<p Style='page-break-before:always'>
<HR  SIZE="3" COLOR="#999999" WIDTH="100%" ALIGN="CENTER">
<h5 align="left"><a href="#toc">Table of Contents</a></h5>


 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2"><B>V<SMALL>ERDISYS</SMALL>, I<SMALL>NC</SMALL>. </B></FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px">

<IMG SRC="g67395image_005.jpg" ALT="LOGO"> </P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">SPN provides uniform service levels, and is
faster as well as more cost effective to deploy. SPN is also very flexible and easily accommodates site additions, relocations, bandwidth expansion, and network reconfiguration. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT
SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Secure encryption is used and the Wi-Fi implementation does not allow access to unauthorized users. SPN is based on industry standards such
as TCP/IP and IEEE802.11b to lower implementation costs and to simplify the integration into existing systems. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">- 32 - </FONT></P>


<p Style='page-break-before:always'>
<HR  SIZE="3" COLOR="#999999" WIDTH="100%" ALIGN="CENTER">
<h5 align="left"><a href="#toc">Table of Contents</a></h5>


 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2"><B>V<SMALL>ERDISYS</SMALL>, I<SMALL>NC</SMALL>. </B></FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><I><U>
<A NAME="tx67395_23"></A>Major Customers</U> </I></FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Our current satellite
services customers include Apache Corporation with 40 remote sites, British Petroleum with 9 remote sites and Noble Energy with 25 remote sites. Contracts are usually for hardware, backhaul, and 36 months of bandwidth. The Company is dependent upon
a small number of customers which tend to be large companies with extensive remote operations. However, virtually any oil and gas producer, of which there are thousands, is a potential customer for our satellite services. </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><I><U>
<A NAME="tx67395_24"></A>Market</U> </I></FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">There are an estimated 1.7 million
petroleum wells that could benefit from the economics of Verdisys&#146; high speed connectivity services. The Company&#146;s focus is serving the needs of oil and gas producers worldwide to control their production effectively and to enhance
customer satisfaction by providing worldwide real-time access to information. This market for satellite services is very competitive with increasing pressure on margins as Verdisys&#146; larger competitors offer services at substantially discounted
prices. Verdisys attempts to compete against such competitors by addressing niche market needs and offering alternative solutions that solve customers&#146; more difficult communication problems at more cost effective rates. Verdisys utilizes
satellite, Wi-Fi and other wireless technology for the last mile of wellhead connectivity for these customers and focuses almost exclusively on the oil and gas market. The common denominator throughout is MPLS/ATM (Multiple Protocol Label Switching)
network transport services. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><I><U>
<A NAME="tx67395_25"></A>Competition</U> </I></FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">The satellite communication
industry is intensely competitive due to overcapacity, but the competition is less severe in the oil and gas producing sector. Other satellite services providers in the oil and gas industry include Petrocom, Stratus, and Caprock. Caprock and Stratus
are focused on the top 5% of the market, particularly offshore platforms, and Petrocom is focused on the offshore market using a traditional wireless network. Our satellite services offer advantages over those services by: </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top">&nbsp;</TD>
<TD ALIGN="left" VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">Customizing the provided service to better meet the customer&#146;s needs; </FONT></TD></TR></TABLE> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top">&nbsp;</TD>
<TD ALIGN="left" VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">Offering superior speed; </FONT></TD></TR></TABLE> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top">&nbsp;</TD>
<TD ALIGN="left" VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">Providing single vendor convenience; and </FONT></TD></TR></TABLE> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2">&#149;</FONT></TD>
<TD WIDTH="1%" VALIGN="top">&nbsp;</TD>
<TD ALIGN="left" VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">Offering lower up-front infrastructure and operating costs. </FONT></TD></TR></TABLE> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px; margin-left:2%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2">
<A NAME="tx67395_26"></A><U>Patents &amp; Licenses</U> </FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">On April 24, 2003 we
entered into an agreement to license the Landers Horizontal Drilling Process, based on U.S. Patent Nos. 5,413,184, 5,853,056, and 6,125,949 relating to certain oil and gas well production enhancement techniques and devices and related trade secrets
with the inventor and holder of the patents and trade secrets, Carl Landers. The license gives us exclusive rights to apply the technology in all of the U.S. (except for part of Colorado West of the Rockies, and Utah) and Canada to use the Landers
Horizontal Drill and the related trade secrets. Mr. Landers also reserves the rights to certain applications in which he has a direct interest. The license terminates upon the expiration of the underlying patents, the earliest date being October 1,
2013. We amended the license on September 4, 2003, to provide for consideration to Mr. Landers of a fixed amount of $500 for every well drilled in which the Landers Horizontal Drill method is utilized, instead of the original 10% royalty payment,
and 500,000 shares of our restricted common stock. In addition, in exchange for a reduction of the note payable associated with the license from $2,750,000 to $2,500,000, we issued an additional 125,000 shares of our restricted common stock and
agreed to register the shares in a subsequent Registration Statement. Additionally, Mr. Landers was appointed as one of our directors for the duration of the license, subject to shareholder approval. He has since resigned his appointment.
</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">We amended the license again in February 2004 when $1,695,000 of outstanding
payment obligations to Mr. Landers for technology fees were waived in exchange for the issue of 300,000 common shares in Verdisys, Inc. and the payment of $100,000 in cash and the promise to pay $400,000 in cash prior to May 15, 2004. The final
payment was made on May 14, 2004. The Company also agreed to register the 500,000 common shares previously granted in this Registration Statement. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">- 33 - </FONT></P>


<p Style='page-break-before:always'>
<HR  SIZE="3" COLOR="#999999" WIDTH="100%" ALIGN="CENTER">
<h5 align="left"><a href="#toc">Table of Contents</a></h5>


 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2"><B>V<SMALL>ERDISYS</SMALL>, I<SMALL>NC</SMALL>. </B></FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">The licensor retains some self use rights but may not compete with the licensee. Any improvements to the technology
remain the sole property of the licensor but are provided to Verdisys without additional licensing fees. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT
FACE="Times New Roman" SIZE="2">In November 2004, Verdisys signed an exclusive worldwide licensing agreement with Alberta Energy Holdings for the application of their Abrasive Fluid Jet (AFJ) cutting technique to cut through well casing in oil and
gas wells. The agreement is for a term of ten years, and automatically extends for additional two-year terms unless Verdisys gives notice at least thirty days prior to the expiration of any term. The license is automatically renewable provided
Verdisys pays a minimum royalty payment of $50,000 per year beginning immediately following commercial deployment of the first mobile drilling unit. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Under the terms of the licensing agreement, Alberta Energy Holdings will earn warrants for Verdisys common stock as specific phases of the AFJ process are successfully
applied, a consulting fee during development as well as a royalty fee for each well where AFJ technology is used. Under the terms of the agreement, Alberta is entitled to receive four tranches of warrants. Each tranche will entitle Alberta the right
to purchase 250,000 shares of Verdisys common stock, and each award is contingent upon the attainment of certain specific milestones as fully described in the agreement. The warrants will have a three-year term, with a strike price of $0.50 per
share for the first tranche and $0.62 per share for the remaining tranches. The initial tranche will be fully vested as of the date of the agreement, and the remaining warrants will vest at 31,250 shares per quarter from the date of issuance.
</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Verdisys has agreed to pay Alberta a $10,000 per month consulting fee for six
months beginning on November 30, 2004. In addition, royalties are payable by Verdisys at the rate of $1,000 per well for services billed at $40,000 or less, and for services above $40,000, a royalty of 2% per well is payable quarterly. </FONT></P>
<P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">The agreement also provides for the mutual sharing of the proceeds from the sale of the
technology by Verdisys, subject to a cap of $10 million. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">The lateral drilling
technology and related trade secrets are instrumental to our competitive edge in the oil and gas service industry. We are committed to protecting the technology. We cannot assure our investors that the scope of any protection we are able to secure
for our license will be adequate to protect it, or that we will have the financial resources to engage in litigation against parties who may infringe on our exclusive license. We also cannot provide our investors with any degree of assurance
regarding the possible independent development by others of technology similar to that which we have licensed, thereby possibly diminishing our competitive edge. See &#147;Risk Factors.&#148; </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:2%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2"><U>
<A NAME="tx67395_27"></A>Governmental Regulation </U></FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Our operations are
subject to various local, state and federal laws and regulations intended to protect the environment. Our operations routinely involve the handling of waste materials, some of which are classified as hazardous substances. Consequently, the
regulations applicable to our operations include those with respect to containment, disposal and controlling the discharge of any hazardous oilfield waste and other non-hazardous waste material into the environment, requiring removal and cleanup
under certain circumstances, or otherwise relating to the protection of the environment. Laws protecting the environment have become more stringent in recent yeas, and may in certain circumstances impose &#147;strict liability,&#148; rendering a
party liable for environmental damage without regard to negligence or fault on the part of such party. Such laws may expose us to liability for the conduct of, or conditions caused by, others, or for our acts, which were in compliance with all
applicable laws at the times such acts were performed. Cleanup costs and other damages arising as a result of environmental laws, and costs associated with changes in environmental laws could be substantial and could have a material adverse effect
on our financial condition. Management believes that it conducts our operations in substantial compliance with all material federal, state and local laws as they relate to the environment. Although we have incurred certain costs in complying with
environmental laws, such amounts have not been material to our financial results. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman"
SIZE="2">We depend on the demand for our products and services from oil and natural gas companies. This demand is affected by changing taxes, price controls and other laws relating to the oil and gas industry generally, including those specifically
directed to oilfield operations. The adoption of laws curtailing exploration and development drilling for oil and natural gas in our areas of operation could also adversely affect our operations by limiting demand for our products and services. We
cannot determine the extent to which our future operations and earnings may be affected by new legislation, new regulations or changes in existing legislation regulations or enforcement. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT
SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">- 34 - </FONT></P>


<p Style='page-break-before:always'>
<HR  SIZE="3" COLOR="#999999" WIDTH="100%" ALIGN="CENTER">
<h5 align="left"><a href="#toc">Table of Contents</a></h5>


 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2"><B>V<SMALL>ERDISYS</SMALL>, I<SMALL>NC</SMALL>. </B></FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:2%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2"><U>
<A NAME="tx67395_28"></A>Employees </U></FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">As of December 31, 2004, we had less
than 10 full-time employees. A new president and chief financial officer were brought into the Company in January 2004<B><I>. </I></B>We also utilize a number of independent contractors and consultants to assist us conducting the drilling
operations, installing the telecommunications equipment, maintaining and supervising such services, and the like, in order to complement our existing work force, as needed from time to time. Our agreements with these independent contractors and
consultants are usually short-term. We are not a party to any collective bargaining agreement with any employees, and believe relations with our employees, independent contractors and consultants are good. </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">- 35 - </FONT></P>


<p Style='page-break-before:always'>
<HR  SIZE="3" COLOR="#999999" WIDTH="100%" ALIGN="CENTER">
<h5 align="left"><a href="#toc">Table of Contents</a></h5>


 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2"><B>V<SMALL>ERDISYS</SMALL>, I<SMALL>NC</SMALL>. </B></FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>
<A NAME="tx67395_29"></A>Management&#146;s Discussion and Analysis or Plan of Operation </B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT
FACE="Times New Roman" SIZE="2">The following discussion does not purport to be complete and should be read in conjunction with the Financial Statements and Notes thereto included in this report. This discussion contains certain forward-looking
statements that involve substantial risks and uncertainties. When used in this report the words &#147;anticipate,&#148; believe,&#148; &#147;estimate,&#148; &#147;expect&#148; and similar expressions as they relate to our management or us are
intended to identify such forward-looking statements. Our actual results, performance or achievements could differ materially from those expressed in, or implied by, these forward-looking statements. Historical operating results are not necessarily
indicative of the trends in operating results for any future period. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:2%; text-indent:-2%"><FONT
FACE="Times New Roman" SIZE="2"><U>Overview </U></FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">On July 18, 2003,
Reconstruction Data Group, Inc. and Verdisys merged with and into one another. The merger agreement with Verdisys called for us to be the surviving company. Immediately following the merger, our name changed to Verdisys, our articles of
incorporation and bylaws remained in effect, the officers and directors of Verdisys became our officers and directors, each share of Verdisys&#146; common stock was converted into one share of our common stock, and our accident reconstruction assets
were sold. Additionally, Verdisys&#146; historical financial statements replaced ours. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px; margin-left:2%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2"><U>Financial Summary </U></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><I>Three Months Ended September 30, 2004 Compared to Three Months Ended September 30, 2003 </I></FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT
SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Verdisys incurred $582,425 in revenues and a net loss of $976,378 for the quarter ended September 30, 2004 as compared to revenues of
$27,824 and net loss of $1,653,560 for the quarter ended September 30, 2003. Revenues increased as a result of an increase in lateral drilling and satellite services activity for the quarter. There were no comparable lateral drilling revenues in
2003. The Net Loss decreased as a result of higher gross margins associated with the increased revenues, which were partially offset by higher selling, general and administration expenses (&#147;SG&amp;A&#148;) associated with an increase in
non-cash stock, and warrant expense associated with the issuance of debt and settlement of a certain lawsuit. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px; margin-left:2%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2">Revenues </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px; margin-left:2%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2">Lateral Drilling Services </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Lateral Drilling Services&#146; revenues were $427,519 and $0 for the three months ended September 30, 2004 and three months ended September 30, 2003, respectively. The
increase in revenues for the quarter was primarily associated with revenues from the commencement of a contract with the Department of Energy, work performed for Maxim Energy and the rental of a rig to Advanced Hydraulics. The Company did not have a
Lateral Drilling business in the quarter ended September 30, 2003. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">As noted in
the Subsequent Events section, effective as of October 27, 2004, Verdisys has entered into a Licensing Agreement to develop a new generation of lateral drilling technology. In the short term, the development activity will decrease lateral drilling
revenues until such time as the Landers equipment is retrofitted and the new technology rigs are commissioned. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px; margin-left:2%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2">Satellite Communications Services </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Satellite Communication Services&#146; revenues for the quarter ended September 30, 2004 were $154,906 compared to the quarter ended September 30, 2003 of $27,824.
Revenue increased in the quarter due to higher hardware sales of satellite equipment to Exxon/Mobil and Kellog, Brown and Root and increased satellite bandwidth associated with the services to Noble Energy, Texas A&amp;M, Dynegy and Kellog, Brown
and Root which were not in service in the prior year. As hardware is sold, Verdisys recognizes the revenue in the period it is delivered to the customer. The associated bandwidth revenue is amortized over the period benefited. Cash collected for
bandwidth is recorded as deferred revenue. At September 30, 2004 there was $368,351 reflected on the balance sheet as deferred revenue relating to Satellite Communications. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT
SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">- 36 - </FONT></P>


<p Style='page-break-before:always'>
<HR  SIZE="3" COLOR="#999999" WIDTH="100%" ALIGN="CENTER">
<h5 align="left"><a href="#toc">Table of Contents</a></h5>


 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2"><B>V<SMALL>ERDISYS</SMALL>, I<SMALL>NC</SMALL>. </B></FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:2%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2">Net Loss </FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT
SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">The Net Loss decreased as a result of higher gross margins associated with the increased revenues, which was partially offset by higher
SG&amp;A expense associated with an increase in non-cash stock, and warrant expense associated with the issuance of debt and settlement of a certain lawsuit. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><I>Nine Months Ended September 30, 2004 Compared to Nine Months Ended September 30, 2003 </I></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT
SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:2%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2">Net Loss </FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">The Net Loss for the nine months ended September 30, 2004 decreased primarily as a result of higher revenues and greater margin contribution compared to the prior year,
offset by liquidated damages resulting from the failure to file a timely registration statement and non-cash compensation expense associated with the renegotiation of the Landers note payable partially offset by the absence of debt forgiveness
income in 2004. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><I><U>Fiscal Year ended December 31, 2003</U> </I></FONT></P>
<P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:2%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2"><U>Financial Summary</U> </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><I><U>Fiscal Year ended December 31, 2003 Compared to the Fiscal Year Ended December 31,
2002</U> </I></FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">We had $885,441 in revenues and $7,356,045 in net losses for the
year ended December 31, 2003 as compared to $287,190 in revenues and $3,128,782 in net losses for the year ended December 31, 2002. The significant increase in revenues for the year ended December 31, 2003 was due to lateral drilling services
utilizing our proprietary lateral drilling technology for which we commenced recognizing revenue in 2003. Initial start-up costs and low initial operating margins adversely affected total cost of services provided resulting in a negative gross
margin of $717,228 for the year ended December 31, 2003. The deferral of a significant amount of revenue relating to the lateral drilling services that the Company is currently attempting to substantiate also had a negative effect on the gross
margin for the year. The Company increased selling, general and administrative expenses for the year ended December 31, 2003 as it expanded its operations and incurred several non-recurring expenses. This contributed to significantly increased
losses for the year. There were no comparable lateral drilling revenues in 2002 as the license to the proprietary lateral drilling technology was acquired in April 2003. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT
SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">In January, 2004 the Company focused to small to medium size independent oil and gas production companies seeking to enhance production from
their existing fields in the U.S. and Canada. It also adopted a new business model that emphasizes a payment for services rather than production participation rights. The Company expects to continue such focus for the balance of fiscal year 2004.
</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:2%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2"><U>Revenues</U> </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><I><U>Lateral Drilling Services(See Financial Notes 3 and 22)</U> </I></FONT></P> <P
STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Lateral Drilling Services&#146; revenues were $465,194 and $0 for the year ended December
31, 2003 and the year ended December 31, 2002, respectively. During the fourth quarter, we drilled 7 wells located in the Monroe Field with our proprietary drilling rigs. These wells were drilled for two related party Companies, Energy 2000 NGC,
Inc. (E2000) and Natural Gas Systems, Inc. (NGS) in the period from October, 2003 through December 2003 by a subcontractor utilizing the first of the Company&#146;s new drilling rigs. These services have been substantiated by the Company.
</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">The Company also drilled an additional 6 wells for Energy 2000 and 29 wells
for Edge Capital Group, Inc. in the second and third quarters of 2003. These additional wells were drilled by different third party subcontractors utilizing the Carl Lander&#146;s drilling rigs. The Company has not been able to substantiate whether
the services, if any, were preformed. Consequently, no revenue has been recognized for the performance of these services. The Company continues to investigate whether it can substantiate and invoice for these services. Edge Capital Group, Inc. has
paid the Company $497,000 for services performed which the Company has deferred recognition of at this time and Edge Capital is disputing whether the service was performed. No revenue was recognized relating to the Energy 2000 wells. </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">- 37 - </FONT></P>


<p Style='page-break-before:always'>
<HR  SIZE="3" COLOR="#999999" WIDTH="100%" ALIGN="CENTER">
<h5 align="left"><a href="#toc">Table of Contents</a></h5>


 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2"><B>V<SMALL>ERDISYS</SMALL>, I<SMALL>NC</SMALL>. </B></FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">E2000 is a subsidiary of Berg McAfee Companies. Berg McAfee Companies beneficially owns 28.6% of our outstanding
common stock Additionally, Eric McAfee, 50 per cent co-owner of Berg McAfee Companies beneficially owns 0.7% of our outstanding common stock and Clyde Berg, 50 per cent co-owner of Berg McAfee Companies, beneficially owns 1.2% of our outstanding
common stock; therefore, Messrs. McAfee and Berg have a total beneficial ownership of 30.4% of our outstanding common stock </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">In addition to the fee of $65,000 per well for our drilling services, we will receive an 80% interest in the net operating income from E2000&#146;s portion of the
properties&#146; income (the &#147;E2000 Royalty&#148;) after E2000 has fully recovered all drilling service fees, capital expenditures, including the cost of acquiring the property, and related expenses incurred for all wells drilled as part of the
contract. The E2000 Royalty will be calculated as 80% of the net lease after recovery by E2000 and/or its third party financing sources of E2000&#146;s costs related to the drilling services, including principal, interest, fees and costs for
financing such drilling services, cost of acquisition of the lease, land owner royalties or other royalties to third parties other than E2000 or us, and field operating costs. Therefore, after completion of the re-development of the field, E2000
will secure for us an 80% listing with the gatherer for direct payment of net proceeds. It is not anticipated that we will receive any royalties from this agreement E2000 is an entity in which Mr. McAfee, co-owner of Berg McAfee Companies, and other
affiliates have an 80% beneficial ownership interest. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Our revenue recognition
policy with regards to drilling operations is to recognize revenue when collectibility is reasonably assured. We have determined that based upon our current contract with E2000, collectibility is reasonably assured when amounts outstanding are paid.
Consequently, we have deferred any revenue associated with the contract with E2000 that has not been paid. During the year ended December 31, 2003, we signed an agreement with NGS to provide drilling services for a number of wells in the Delhi field
in Louisiana. This contract was subsequently modified on January 27, 2004 by a new contract that negated any participation rights the Company had in the Delhi field and formalized a fee for service arrangement. In the year ended December 31, 2003, 2
wells were drilled for NGS for total revenue of $130,000. It is not anticipated that we will receive any royalties from this agreement. NGS is an entity in which Mr. McAfee, co-owner of Berg McAfee Companies, and other affiliates have a 23.0%
beneficial ownership interest. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">In April, 2003 the Company entered into a
licensing agreement with Carl Landers for the exclusive rights to use Mr. Lander&#146;s proprietary lateral drilling technology in North America. The license required the payment of $2,750,000 in the form of a note plus interest at 8 percent. It
also required the Company to pay Mr. Landers 10 percent of the net revenues from services utilizing the lateral drilling technology. The Company amended lateral drilling license agreement with Carl Landers in August, 2003. Mr. Landers agreed to
retroactively eliminate the royalty fees of 10% of the net revenues on our lateral drilling, in exchange for 500,000 shares of our restricted common stock plus a flat fee of $500 per well drilled. The parties also agreed to amend a certain term of
the license regarding the expiration dates associated with the patents to the lateral drilling technology. We capitalized $2,275,000 associated with the 500,000 shares issued and are amortizing the amounts associated with the license over a period
of 14 years. In July 2003, we exchanged 125,000 shares of our restricted common stock for a reduction of $250,000 to the principal balance of the note payable to Mr. Landers. Pursuant to our license agreement with Mr. Landers, we were scheduled to
pay Mr. Landers $500,000 on December 31, 2003. In February, 2004 the license with Mr. Landers was further amended to require the balance of any sums outstanding relating to the note would be paid in the form of 300,000 shares of common stock,
immediate payment of $100,000 and a final payment of $400,000 on or before May 15, 2004. The final payment was made on May 14, 2004. In addition the Company agreed to register the 500,000 common shares previously granted in its next Registration
Statement. (See Financial Note 5) </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">- 38 - </FONT></P>


<p Style='page-break-before:always'>
<HR  SIZE="3" COLOR="#999999" WIDTH="100%" ALIGN="CENTER">
<h5 align="left"><a href="#toc">Table of Contents</a></h5>


 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2"><B>V<SMALL>ERDISYS</SMALL>, I<SMALL>NC</SMALL>. </B></FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><I><U>Satellite Communications Services</U> </I></FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT
SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Satellite Communication Services&#146; revenues for the year ended December 31, 2003 were $419,247 compared to the year ended December 31,
2002 of $287,190. This increase for the year was primarily related to the first full year of service to our largest customer, Apache Corporation, and the large order from Noble Energy. As hardware is sold, the Company recognizes the revenue in the
period it is delivered to the customer. The bandwidth revenue is amortized over the period benefited. Cash collected for bandwidth is recorded as deferred revenue. At December 31, 2003, there was $271,485 reflected in the balance sheet as deferred
revenue relating to Satellite Communication Services. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:2%; text-indent:-2%"><FONT FACE="Times New Roman"
SIZE="2"><U>Net Loss</U> </FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">The net loss for the year ended December 31, 2003
increased to $7,356,045 from $3,128,782 for the year ended December 31, 2002. The increased loss was due to significant increase in selling, general and administrative expenses as the Company built its lateral drilling business and negative gross
margins realized from both its lateral drilling and satellite communications businesses. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT
FACE="Times New Roman" SIZE="2">The level of selling, general and administrative expenses in 2003 was $6,638,817 compared to $3,139,518 in 2002. Several major non-recurring items were incurred during 2003 for a total of $5,843,518. This was composed
of $3,468,650 for stock for service, option, and warrant expenses (see Financial Note 13); $1,000,000 for compensation to a related party (see Financial Note 19); $620,000 for the payment of an option to purchase a gas field and related costs (see
Financial Note 20); and $300,000 for a guarantee of third party debt (see Financial Note 8); In addition to the non-recurring items, legal expenses increased to $496,628 in 2003 from $1,337 in 2002 due to an abnormally high level of legal activity
last year. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:2%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2"><U>Liquidity and Capital
Resources</U> </FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:2%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2"><U>Capital Expenditures</U>
</FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">For the three and nine month periods ended September 30, 2004, capital
expenditures excluding capitalized interest, were $3,705 and $3,705, respectively, as compared to $369,701 and $369,701 for the comparable periods in 2003. The Company ordered four new lateral drilling rigs during the year ended December 31, 2003 to
support its new lateral drilling business. This was the Company&#146;s only significant capital expenditure. As of December 31, 2003 the Company had taken receipt of two of the rigs and took delivery of the two additional rigs in January, 2004.
</FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:2%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2"><U>Liquidity</U> </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">As of September 30, 2004 and December 31, 2003 the Company&#146;s cash balance was $122,764
and $1,373,627, respectively. As noted in the Independent Auditors Report (See Financial Note 2 to the December 31, 2003 Financial Statements) due to the continued substantial operating losses that the Company has incurred raises substantial doubt
as to the Company&#146;s ability to continue as a going concern. The Company is in an early stage of development and is rapidly depleting its cash resources, therefore it has determined that it will need to raise additional financing in the short
term to continue in operation and fund future growth. The Company has also incurred liquidated damages up to a cap of $400,000 related to the timing of providing registration rights for the private financing that it arranged in November 2003. If we
are unable to finance the liquidated damages, this would have a material adverse effect on the Company. The Company is also subject to significant contingent liabilities as more fully described in the Notes to the Financial Statements. See Note 8,
Litigation. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">The Company currently plans to raise additional financing in the
quarter ending March 31, 2005. The use of stock for currency in financing or making acquisitions may be heavily curtailed while the Company is under SEC investigation. (See Financial Note 16 to the December 31, 2003 Financial Statements) If we are
unable to arrange new financing or generate sufficient revenue from new business arrangements, the Company will be unable to continue in its current form and will be forced to restructure or seek creditor protection. </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">In October 2004, Verdisys entered into an agreement to accept 300,000 shares of common stock
of Natural Gas Systems, Inc. (the &#147;NGS Shares&#148;) to settle certain disputes with a related party, Energy 2000 NGC. As part of the settlement, the related party has agreed to sell the NGS Shares for gross proceeds of at least $1.25 per
share, with the net proceeds after commissions, to be distributed to Verdisys. In addition, as part of the settlement, the Berg McAfee </FONT>
</P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">- 39 - </FONT></P>


<p Style='page-break-before:always'>
<HR  SIZE="3" COLOR="#999999" WIDTH="100%" ALIGN="CENTER">
<h5 align="left"><a href="#toc">Table of Contents</a></h5>


 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2"><B>V<SMALL>ERDISYS</SMALL>, I<SMALL>NC</SMALL>. </B></FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px">
<FONT FACE="Times New Roman" SIZE="2">Companies and Eric McAfee have made an investment of $200,000 in Verdisys evidenced by convertible promissory notes bearing interest at the rate of 8% per
annum with a maturity date of May 31, 2006. The notes are convertible into common stock at the rate of one (1) share of common stock for each $2.00 dollars of principal and interest outstanding. Verdisys believes the proceeds from sale of the NGS
Shares and the amount received from the convertible promissory note investment will improve the company&#146;s cash outlook. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">During the third quarter of 2004, Verdisys issued $350,000 in Convertible Notes to third party lenders, carrying an 8% interest rate and 175,000 shares in warrants at an
exercise price of $0.001. The Convertible Notes mature December 31, 2005. Verdisys has an option to convert the shares at $2 per share when they have traded above that level for more than 20 trading days. </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">During the second and third quarter of 2004, officers and directors of Verdisys loaned
Verdisys $185,000. The notes mature in 12 months, carry interest of 8% and have one year warrants attached with an exercise price of $2.00. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">During the fourth quarter of 2004, Berg McAfee purchased 400,000 shares of our common stock at a purchase price of $0.50 per share in a private transaction with the
Company. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:2%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2"><U>Restatement of Second and Third
Quarters of 2003</U> </FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Verdisys, Inc. has restated its second and third quarter
of 2003 financial results to reverse the effects of certain revenues that could not be substantiated and to reclassify a software impairment expense to compensation (see Financial Notes 19 and 22 to the December 31, 2003 Financial Statements).
</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:2%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2"><U>Research and Development, Patents and
Licenses</U> </FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">The Company believes that its future success depends on the
ability to effectively utilize the lateral drilling technology obtained in a license granted by Mr. Landers. See &#147;Patents and Licenses&#148; in the Description of Business section of this prospectus. </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>
<A NAME="tx67395_30"></A>Description of Property </B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><I><U>Office
Facilities</U> </I></FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Verdisys recently relocated its office to 14550 Torrey
Chase Boulevard, Suite 330, Houston, Texas. The Company&#146;s lease is for twelve (12) months at $2,800 per month. The Company terminated its prior lease in The Woodlands, Texas, effective August 6, 2004. Rent expense was $42,325 and $47,627 in
2003 and 2002, respectively. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Verdisys&#146; prior office was in Houston,
Texas. The offices for 2001 and part of 2002 were in Aliso Viejo, California. The Aliso Viejo lease was for $1,800 per month and expired August 2002. The Houston office was in the home of an employee on a monthly basis for $900 per month through
August 2002. In September 2002, Verdisys signed a 13-month office lease for $1,483 per month. Future minimum lease payments under the lease as of December 31, 2002 were $13,343 in 2003. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT
SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><I><U>Property and Equipment</U> </I></FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Property and equipment consisted of the following at December 31, 2003: </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="90%" BORDER="0" STYLE="BORDER-COLLAPSE:COLLAPSE" ALIGN="center">

<TR>
<TD WIDTH="83%"></TD>
<TD VALIGN="bottom" WIDTH="3%"></TD>
<TD></TD>
<TD VALIGN="bottom" WIDTH="3%"></TD>
<TD></TD>
<TD></TD>
<TD></TD></TR>
<TR>
<TD VALIGN="bottom"> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="1"><B>Description</B></FONT></P><HR WIDTH="73" SIZE="1" NOSHADE ALIGN="left" COLOR="#000000"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="center"><FONT FACE="Times New Roman" SIZE="1"><B>Life</B></FONT><BR><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="2" ALIGN="center"><FONT FACE="Times New Roman" SIZE="1"><B>Amount</B></FONT><BR><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Lateral drilling equipment</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">5&nbsp;years</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">427,420</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Computer equipment</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">3&nbsp;years</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">56,949</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Office furniture and equipment</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">7&nbsp;years</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">20,712</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">505,081</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Less: accumulated depreciation</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(65,714</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">439,367</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="3" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="3" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="3" NOSHADE ALIGN="left" COLOR="#ffffff"></TD></TR>
</TABLE> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">- 40 - </FONT></P>


<p Style='page-break-before:always'>
<HR  SIZE="3" COLOR="#999999" WIDTH="100%" ALIGN="CENTER">
<h5 align="left"><a href="#toc">Table of Contents</a></h5>


 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2"><B>V<SMALL>ERDISYS</SMALL>, I<SMALL>NC</SMALL>. </B></FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">The primary plant and equipment of Verdisys, Inc. are four mobile lateral drilling units, which can be driven to oil
and gas fields throughout North America. Lateral drilling equipment consists of heavy trucks mounted with high powered water compressors, flexible hose and other assorted downhole equipment which is used to conduct the lateral drilling process with
high pressure jetting technology. Verdisys, Inc. also maintains certain satellite communication and computer equipment at its home office. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><I><U>Insurance</U> </I></FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT
FACE="Times New Roman" SIZE="2">Our operations are subject to hazards inherent in the oil and gas industry, such as accidents, blowouts, explosions, craterings, fires and oil spills. These conditions can cause: </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2">a)</FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">personal injury or loss of life </FONT></TD></TR></TABLE> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2">b)</FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">damage to or destruction of property, equipment and the environment </FONT></TD></TR></TABLE> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2">c)</FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">suspension of operations </FONT></TD></TR></TABLE> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT
FACE="Times New Roman" SIZE="2">In addition, claims for loss of oil and gas production and damage to formations can occur in the well service industry. Litigation arising from a catastrophic occurrence at a location where our equipment and services
are being used may result in us being named as a defendant in lawsuits asserting large claims. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT
FACE="Times New Roman" SIZE="2">We maintain insurance coverage that we believe to be customary in the industry against these hazards. However, we may not be able to maintain adequate insurance in the future at rates we consider reasonable. In
addition, our insurance is subject to coverage limits and some policies exclude coverage for damages resulting from environmental contamination. The occurrence of a significant event or adverse claim in excess of the insurance coverage that we
maintain or that is not covered by insurance could have a materially adverse effect on our financial condition and results of operations. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">- 41 - </FONT></P>


<p Style='page-break-before:always'>
<HR  SIZE="3" COLOR="#999999" WIDTH="100%" ALIGN="CENTER">
<h5 align="left"><a href="#toc">Table of Contents</a></h5>


 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2"><B>V<SMALL>ERDISYS</SMALL>, I<SMALL>NC</SMALL>. </B></FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>
<A NAME="tx67395_31"></A>Certain Relationships and Related Transactions </B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman"
SIZE="2"><I><U>Energy 2000 and Natural Gas Systems</U> </I></FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">In April 2003,
Verdisys signed a drilling service contract with Energy 2000 NGC, Inc. of Louisiana (&#147;Energy 2000&#148;), whereby Energy 2000 would have paid Verdisys a minimum of $1,800,000 for lateral drilling of 45 wells. This contract was for a fixed
amount due to Verdisys, dependent upon the number of wells serviced and offshoot lateral bores drilled. In addition, Verdisys would receive an 80 percent interest in the net operating income after payback from these properties and also be reimbursed
for 20 percent of its field costs. In September, 2003 Verdisys entered into another contract with Energy 2000 for an additional 57 wells with terms similar to the original contract. These contracts have been suspended for lack of payment.
</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">In September 2003, Verdisys signed a drilling service contract with Natural
Gas Systems, Inc. (&#147;NGS&#148;), whereby NGS would have paid Verdisys a minimum of $7,800,000 for lateral drilling of 120 wells. This contract was for a fixed amount with the total price dependent upon the number of wells serviced and offshoot
lateral bores drilled. In addition, Verdisys would receive a 70 percent interest in the net operating income after payback from these properties. This contract has been renegotiated in February 2004 for a reduced number of wells but with an initial
four well commitment. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Energy 2000 is a subsidiary of Berg McAfee Energy, LLC,
which is a wholly owned subsidiary of Berg McAfee Companies. Natural Gas Systems is an independent company with substantial shareholdings owned by Eric McAfee, a 50 per cent owner of Berg McAfee Companies and former Director of Verdisys, and Berg
McAfee Companies. They are beneficially owned 80% and 23% respectively by Berg McAfee or Eric McAfee personally. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Verdisys billed $666,250 and $153,960 to Energy 2000 and NGS, respectively, for services performed in 2003. Verdisys received $397,500 and $130,000, respectively.
However, for Energy 2000 Verdisys has inadequate documentation to substantiate whether some of the services were performed. For Energy 2000, Verdisys was able to substantiate $328,750 of revenue leaving $68,750 in deferred revenue. Because of the
uncertainty of collection, all services not collected are deferred. As of December 31, 2003, deferred revenues total $92,710. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Lateral drilling services for these two customers ceased in December 2003 because of a change in Verdisys management, and are expected to resume for NGS in the second
quarter of 2004. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><I><U>Software Purchase</U> </I></FONT></P> <P
STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">In April 2003, Verdisys issued 2,000,000 shares of common stock for what management believed
was satellite communications management software pursuant to an asset purchase agreement with a related party. Management in place as of August 2003 maintained the software was not useful and impaired it as of June 30, 2003. In early 2004, following
an internal investigation, new management determined that the agreement is likely subject to rescission. Verdisys is evaluating its options to rescind the agreement and cancel the shares issued. The majority shareholder of Verdisys and former
director, who was also a principal to the counterparty in the transaction, acquired 11.5% of the 2,000,000 shares. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><I><U>Additional Transactions</U> </I></FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">In December 2003, Verdisys granted 500,000 options to purchase Verdisys common stock to the chairman and interim CEO. The options expire in 10 years, have an exercise
price of $9.55 based upon price at date of grant. 50,000 vested immediately, 50,000 were performance options and did not vest, and the remaining 400,000 options vest evenly over 12 months in 2004. </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Verdisys had a consulting agreement with its current majority stockholder for $10,000 per
month through April 30, 2005, with $120,000 due during 2004 and $40,000 in 2005. $0 was accrued and unpaid under this agreement as of December 31, 2003. This agreement was cancelled with two months notice in February, 2004 effective upon the
resignation of the director. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">In April 2002, Verdisys entered into a three-year
employment agreement with its then CEO. The base salary under the agreement was $250,000 per year with quarterly performance bonuses and 2,000,000 stock options granted in 2002 and exercisable at $.10 per share and vesting quarterly over a two-year
period. $400,000 and $175,000 in </FONT>
</P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">- 42 - </FONT></P>


<p Style='page-break-before:always'>
<HR  SIZE="3" COLOR="#999999" WIDTH="100%" ALIGN="CENTER">
<h5 align="left"><a href="#toc">Table of Contents</a></h5>


 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2"><B>V<SMALL>ERDISYS</SMALL>, I<SMALL>NC</SMALL>. </B></FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px">
<FONT FACE="Times New Roman" SIZE="2">expense was incurred in 2002 relating to the vested portion of these options and unpaid salary, respectively. In November 2002, this CEO resigned. In 2003
Verdisys agreed to pay accrued salary of $204,320 in cash of which $161,306 was paid as of December 31, 2003 and the balance is accrued as of December 31, 2003. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
<P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Effective May 2004, a group comprised primarily of directors and officers of the Company loaned to Verdisys an aggregate of $185,000. The notes are evidenced by a
promissory note with a term of one year and an interest rate of eight percent (8%) per annum. In connection with the loans, the directors and officers received immediately exercisable warrants to purchase 37,000 shares of common stock of the Company
at a exercise price of $2.00 per share. The warrants have a one-year term. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">In
December 2004, Berg McAfee purchased 400,000 shares of common stock at a purchase price of $0.50 per share in a private transaction with the Company. Berg McAfee beneficially owns approximately 28% of the outstanding common shares of the Company.
</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">In January 2005, the Company, Edge Capital Group and certain affiliated
entities, and Eric McAfee (the former Vice-Chairman of the Company) entered into a settlement agreement and mutual release to settle certain litigation relating to the Company&#146;s dispute with Edge Capital Group. See &#147;Risk Factors-General
Risks Relating to the Company&#148; and &#147;Legal Proceedings.&#148; </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">- 43 - </FONT></P>


<p Style='page-break-before:always'>
<HR  SIZE="3" COLOR="#999999" WIDTH="100%" ALIGN="CENTER">
<h5 align="left"><a href="#toc">Table of Contents</a></h5>


 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2"><B>V<SMALL>ERDISYS</SMALL>, I<SMALL>NC</SMALL>. </B></FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>
<A NAME="tx67395_32"></A>Market for Common Equity and Related Stockholder Matters </B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman"
SIZE="2">Our common stock was listed for trading on the OTC Bulletin Board on January 13, 2003 under the symbol &#147;RDGI,&#148; but active trading in our common stock did not begin until May 2, 2003. After the consummation of the merger between us
and Verdisys, our common stock commenced trading on the OTC Bulletin Board on July 18, 2003 under the symbol &#147;VDYS.OB&#148; On March 10, 2004 trading was halted until March 24, 2003 when trading resumed on the Pink Sheets as
&#147;VDYS.PK.&#148; On November 11, 2004, the Company resumed trading on the OTC Bulletin Board under the symbol VDYS.OB. The following table sets forth, for the periods indicated, the high and low prices of a share of our common stock as reported
on the OTC Bulletin Board or the Pink Sheets for the applicable time periods. The quotations provided are for the over the counter market which reflect interdealer prices without retail mark-up, mark-down or commissions, and may not represent actual
transactions. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="100%" BORDER="0" STYLE="BORDER-COLLAPSE:COLLAPSE" ALIGN="center">

<TR>
<TD WIDTH="88%"></TD>
<TD VALIGN="bottom" WIDTH="2%"></TD>
<TD></TD>
<TD></TD>
<TD VALIGN="bottom" WIDTH="2%"></TD>
<TD></TD>
<TD></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="2" ALIGN="center"><FONT FACE="Times New Roman" SIZE="1"><B>HIGH</B></FONT><BR><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="2" ALIGN="center"><FONT FACE="Times New Roman" SIZE="1"><B>LOW</B></FONT><BR><HR SIZE="1" NOSHADE COLOR="#000000"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">2003</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Second Quarter (from May 2, 2003)</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">1.72</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">1.53</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Third Quarter</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">6.32</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">5.65</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Fourth Quarter</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">11.03</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">10.14</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">2004</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">First Quarter</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">9.54</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">3.35</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Second Quarter</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">4.75</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">1.50</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Third Quarter</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">1.95</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">0.26</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Fourth Quarter</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">0.92</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">0.47</FONT></TD></TR>
</TABLE> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">The company has never paid cash
dividends. At present, the company does not anticipate paying any dividends on its common stock in the foreseeable future and intends to devote any earnings to the development of the company&#146;s business. </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:2%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2"><U>Holders </U></FONT></P> <P
STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">As of January 4, 2005, Verdisys, Inc. had 33,103,505 shares of common stock issued and
outstanding and held by approximately 798 shareholders of record. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">- 44 - </FONT></P>


<p Style='page-break-before:always'>
<HR  SIZE="3" COLOR="#999999" WIDTH="100%" ALIGN="CENTER">
<h5 align="left"><a href="#toc">Table of Contents</a></h5>


 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2"><B>V<SMALL>ERDISYS</SMALL>, I<SMALL>NC</SMALL>. </B></FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>
<A NAME="tx67395_35"></A>Executive Compensation </B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><I><U>Compensation of
Executive Officers </U></I></FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Dr. Robinson served as interim CEO from January to
May 2004 and President for a brief period in January 2004 until Mr. Adams was elevated to CEO. Other than for Dr. Robinson, Mr. O&#146;Keefe, Mr. Adams, we have no other person that is a named executive officer as of December 31, 2004. </FONT></P>
<P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><I><U>Compensation Summary </U></I></FONT></P> <P
STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">The following table provides certain summary information concerning compensation paid or
accrued during the last year to our Chairman of the Board and current interim CEO, our former President and CEO, and other officers who had compensation in excess of $100,000 during the last fiscal year (the &#147;Named Executive Officers&#148;):
</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><B>SUMMARY COMPENSATION TABLE </B></FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="100%" BORDER="0" STYLE="BORDER-COLLAPSE:COLLAPSE" ALIGN="center">

<TR>
<TD WIDTH="42%"></TD>
<TD VALIGN="bottom" WIDTH="2%"></TD>
<TD></TD>
<TD VALIGN="bottom" WIDTH="2%"></TD>
<TD></TD>
<TD VALIGN="bottom" WIDTH="2%"></TD>
<TD></TD>
<TD VALIGN="bottom" WIDTH="2%"></TD>
<TD></TD>
<TD VALIGN="bottom" WIDTH="2%"></TD>
<TD></TD>
<TD VALIGN="bottom" WIDTH="2%"></TD>
<TD></TD>
<TD VALIGN="bottom" WIDTH="2%"></TD>
<TD></TD>
<TD VALIGN="bottom" WIDTH="2%"></TD>
<TD></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="5" ALIGN="center"><FONT FACE="Times New Roman" SIZE="1"><B>Annual Compensation</B></FONT><BR><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="3" ALIGN="center"><FONT FACE="Times New Roman" SIZE="1"><B>Award(s)</B></FONT><BR><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="3" ALIGN="center"><FONT FACE="Times New Roman" SIZE="1"><B>Payouts</B></FONT><BR><HR SIZE="1" NOSHADE COLOR="#000000"></TD></TR>
<TR>
<TD VALIGN="bottom"> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="1"><B>Position</B></FONT></P><HR WIDTH="52" SIZE="1" NOSHADE ALIGN="left" COLOR="#000000"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="center"><FONT FACE="Times New Roman" SIZE="1"><B>Year</B></FONT><BR><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="center"><FONT FACE="Times New Roman" SIZE="1"><B>Salary<BR>($)</B></FONT><BR><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="center"><FONT FACE="Times New Roman" SIZE="1"><B>Bonus<BR>($)</B></FONT><BR><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" NOWRAP ALIGN="center"><FONT FACE="Times New Roman" SIZE="1"><B>Other Annual<BR>Compensation<SUP>(1)<BR></SUP>($)</B></FONT><BR><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="center"><FONT FACE="Times New Roman" SIZE="1"><B>Restricted<BR>Stock<BR>Award(s)<BR>($)</B></FONT><BR><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="center"><FONT FACE="Times New Roman" SIZE="1"><B>Securities<BR>Underlying<BR>Options/SARs<BR>(#)</B></FONT><BR><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="center"><FONT FACE="Times New Roman" SIZE="1"><B>LTIP<BR>Payouts<BR>($)</B></FONT><BR><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="center"><FONT FACE="Times New Roman" SIZE="1"><B>All Other<BR>Compensation<BR>($)</B></FONT><BR><HR SIZE="1" NOSHADE COLOR="#000000"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2"><B>Ronald J. Robinson</B></FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2"><B>2004</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2"><B>90,000</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2"><B>&#151;&nbsp;&nbsp;</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2"><B>10,000</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2"><B>&#151;&nbsp;&nbsp;</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2"><B>12,000</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2"><B>&#151;&nbsp;&nbsp;</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2"><B>&#151;&nbsp;&nbsp;</B></FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Director</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">2003</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">70,000</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">&#151;&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">&#151;&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">&#151;&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">700,000</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">&#151;&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">&#151;&nbsp;&nbsp;</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Interim CEO </FONT><FONT FACE="Times New Roman" SIZE="1" COLOR="#000000"><SUP>(1)</SUP></FONT><FONT FACE="Times New Roman" SIZE="2"
COLOR="#000000"></FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">2002</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">0</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">&#151;&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">&#151;&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">&#151;&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">50,000</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">&#151;&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">&#151;&nbsp;&nbsp;</FONT></TD></TR>
<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2"><B>David M. Adams</B></FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2"><B>2004</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2"><B>185,000</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2"><B>50,000</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2"><B>&#151;&nbsp;&nbsp;</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2"><B>&#151;&nbsp;&nbsp;</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2"><B>500,000</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2"><B>&#151;&nbsp;&nbsp;</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2"><B>&#151;&nbsp;&nbsp;</B></FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Co-CEO</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">2003</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">N/A</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">N/A</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">N/A</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">N/A</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">N/A</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">N/A</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">N/A</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">COO</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">2002</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">N/A</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">N/A</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">N/A</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">N/A</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">N/A</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">N/A</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">N/A</FONT></TD></TR>
<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2"><B>John O&#146;Keefe</B></FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2"><B>2004</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2"><B>175,000</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2"><B>40,000</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2"><B>&#151;&nbsp;&nbsp;</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2"><B>&#151;&nbsp;&nbsp;</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2"><B>500,000</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2"><B>&#151;&nbsp;&nbsp;</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2"><B>&#151;&nbsp;&nbsp;</B></FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Co-CEO</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">2003</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">N/A</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">N/A</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">N/A</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">N/A</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">N/A</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">N/A</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">N/A</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">CFO</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">2002</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">N/A</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">N/A</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">N/A</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">N/A</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">N/A</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">N/A</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">N/A</FONT></TD></TR>
</TABLE> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2"></FONT><FONT FACE="Times New Roman" SIZE="1" COLOR="#000000"><SUP>(1)</SUP></FONT><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000"></FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">During the periods indicated, perquisites for each individual named in the Summary Compensation Table aggregated less than 10% of the total annual salary and bonus
reported for such individual in the Summary Compensation Table. Accordingly, no such amounts are included in the Summary Compensation Table. </FONT></TD></TR></TABLE> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><B>OPTION GRANTS IN 2004 </B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="100%" BORDER="0" STYLE="BORDER-COLLAPSE:COLLAPSE" ALIGN="center">

<TR>
<TD WIDTH="65%"></TD>
<TD VALIGN="bottom" WIDTH="3%"></TD>
<TD></TD>
<TD VALIGN="bottom" WIDTH="3%"></TD>
<TD></TD>
<TD></TD>
<TD VALIGN="bottom" WIDTH="3%"></TD>
<TD></TD>
<TD></TD>
<TD VALIGN="bottom" WIDTH="3%"></TD>
<TD></TD>
<TD></TD>
<TD VALIGN="bottom" WIDTH="3%"></TD>
<TD></TD></TR>
<TR>
<TD VALIGN="bottom"> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="1"><B>Name</B></FONT></P><HR WIDTH="35" SIZE="1" NOSHADE ALIGN="left" COLOR="#000000"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="center"><FONT FACE="Times New Roman" SIZE="1"><B>Number of<BR>Securities<BR>Underlying<BR>Options<BR>Granted</B></FONT><BR><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="center"><FONT FACE="Times New Roman" SIZE="1"><B>Percent<BR>of Total<BR>Granted&nbsp;to<BR>Employees<BR>in Fiscal<BR>Year</B></FONT><BR><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="2" ALIGN="center"><FONT FACE="Times New Roman" SIZE="1"><B>Exercise<BR>Price</B></FONT><BR><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="2" ALIGN="center"><FONT FACE="Times New Roman" SIZE="1"><B>Market<BR>Price<BR>on<BR>Date of<BR>Grant</B></FONT><BR><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="center"><FONT FACE="Times New Roman" SIZE="1"><B>Expiration<BR>Date</B></FONT><BR><HR SIZE="1" NOSHADE COLOR="#000000"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Ronald J. Robinson</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">12,000</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">1</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">%</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">4.28</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">4.28</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">1/21/2014</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">David M. Adams</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">150,000</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">13</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">%</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">4.28</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">4.28</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">1/21/2014</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">350,000</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">30</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">%</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">0.90</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">0.90</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">7/29/2014</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">John O&#146;Keefe</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">80,000</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">7</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">%</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">4.28</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">4.28</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">1/21/2014</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">420,000</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">36</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">%</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">0.90</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">0.90</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">7/29/2014</FONT></TD></TR>
</TABLE> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">The preceding table
provides certain information with respect to options granted to our Named Executive Officers named in the Summary Compensation Table during the fiscal year ended December 31, 2004 under our stock option plan. </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">- 45 - </FONT></P>


<p Style='page-break-before:always'>
<HR  SIZE="3" COLOR="#999999" WIDTH="100%" ALIGN="CENTER">
<h5 align="left"><a href="#toc">Table of Contents</a></h5>


 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2"><B>V<SMALL>ERDISYS</SMALL>, I<SMALL>NC</SMALL>. </B></FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><B>AGGREGATED OPTION EXERCISES IN 2004 </B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"
ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><B>AND OPTION VALUES AT DECEMBER 31, 2004 </B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="100%" BORDER="0" STYLE="BORDER-COLLAPSE:COLLAPSE" ALIGN="center">

<TR>
<TD WIDTH="51%"></TD>
<TD VALIGN="bottom" WIDTH="3%"></TD>
<TD></TD>
<TD VALIGN="bottom" WIDTH="3%"></TD>
<TD></TD>
<TD VALIGN="bottom" WIDTH="3%"></TD>
<TD></TD>
<TD VALIGN="bottom" WIDTH="3%"></TD>
<TD></TD>
<TD VALIGN="bottom" WIDTH="3%"></TD>
<TD></TD>
<TD></TD>
<TD VALIGN="bottom" WIDTH="3%"></TD>
<TD></TD>
<TD></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ROWSPAN="2" ALIGN="center"><FONT FACE="Times New Roman" SIZE="1"><B>Shares<BR>Acquired<BR>on<BR>Exercise</B></FONT><BR><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ROWSPAN="2" ALIGN="center"><FONT FACE="Times New Roman" SIZE="1"><B>Value<BR>Realized</B></FONT><BR><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="3" ALIGN="center"> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="1"><B>Number of Securities<BR>Underlying Unexercised<BR>Options Held at</B></FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="1"><B>December 31, 2004</B></FONT></P><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="5" ALIGN="center"><FONT FACE="Times New Roman" SIZE="1"><B>Value of Unexercised In-<BR>The-Money Options Held at<BR>December 31, 2004</B></FONT><BR><HR SIZE="1" NOSHADE COLOR="#000000"></TD></TR>
<TR>
<TD VALIGN="bottom"> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="1"><B>Name</B></FONT></P><HR WIDTH="35" SIZE="1" NOSHADE ALIGN="left" COLOR="#000000"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="center"><FONT FACE="Times New Roman" SIZE="1"><B>Exercisable</B></FONT><BR><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="center"><FONT FACE="Times New Roman" SIZE="1"><B>Unexercisable</B></FONT><BR><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="2" ALIGN="center"><FONT FACE="Times New Roman" SIZE="1"><B>Exercisable</B></FONT><BR><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="2" ALIGN="center"><FONT FACE="Times New Roman" SIZE="1"><B>Unexercisable</B></FONT><BR><HR SIZE="1" NOSHADE COLOR="#000000"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Ronald J. Robinson</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">None</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">&#151;&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">389,332</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">6,000</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">94,000</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">-0-</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">David M. Adams</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">None</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">&#151;&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">170,834</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">329,166</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">&#151;&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">&#151;&nbsp;&nbsp;</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">John O&#146;Keefe</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">None</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">&#151;&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">130,000</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">370,000</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">&#151;&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">&#151;&nbsp;&nbsp;</FONT></TD></TR>
</TABLE> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Note: </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Value of Unexercised In-The-Money Options Held at December 31, 2004 computed based on the
difference between aggregate fair market value and aggregate exercise price. The fair market value of our common stock on December 31, 2004 was $0.57, based on the closing price on the OTC Bulletin Board on December 31, 2004. </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">The preceding table sets for the information concerning option exercises and the value of
unexercised options held by our Named Executive Officers named in the Summary Compensation Table as of the end of the last fiscal year. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><B>EQUITY COMPENSATION PLAN INFORMATION </B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">The following table provides information as of December 31, 2004 regarding compensation plans (including individual compensation arrangements) under which equity
securities are authorized for issuance: </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="100%" BORDER="0" STYLE="BORDER-COLLAPSE:COLLAPSE" ALIGN="center">

<TR>
<TD WIDTH="59%"></TD>
<TD VALIGN="bottom" WIDTH="8%"></TD>
<TD></TD>
<TD VALIGN="bottom" WIDTH="8%"></TD>
<TD></TD>
<TD></TD>
<TD VALIGN="bottom" WIDTH="8%"></TD>
<TD></TD></TR>
<TR>
<TD VALIGN="bottom"> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="1"><B>Plan Category</B></FONT></P><HR WIDTH="88" SIZE="1" NOSHADE ALIGN="left" COLOR="#000000"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="center"><FONT FACE="Times New Roman" SIZE="1"><B>Number&nbsp;of&nbsp;securities<BR>to be issued<BR>upon exercise of<BR>outstanding&nbsp;options,<BR>warrants and rights</B></FONT><BR><HR SIZE="1" NOSHADE
COLOR="#000000"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="2" ALIGN="center"><FONT FACE="Times New Roman" SIZE="1"><B>Weighted-average<BR>exercise price of<BR>outstanding&nbsp;options,<BR>warrants and rights</B></FONT><BR><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="center"><FONT FACE="Times New Roman" SIZE="1"><B>Number of securities<BR>available for future<BR>issuance under equity<BR>compensation plans<BR>(excluding
securities<BR>shown&nbsp;in&nbsp;first&nbsp;column)</B></FONT><BR><HR SIZE="1" NOSHADE COLOR="#000000"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Equity compensation plans approved by shareholders</FONT><FONT FACE="Times New Roman" SIZE="1" COLOR="#000000"><SUP>(1)</SUP></FONT><FONT
FACE="Times New Roman" SIZE="2" COLOR="#000000"></FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Equity compensation plans not approved by shareholders</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">8,000,000</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">0.10</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">3,887,624</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Total</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">8,000,000</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">0.10</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">3,887,624</FONT></TD></TR>
</TABLE> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2"></FONT><FONT FACE="Times New Roman" SIZE="1" COLOR="#000000"><SUP>(1)</SUP></FONT><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000"></FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">Consists of shares of our common stock issued or remaining available for issuance under our stock option plan. </FONT></TD></TR></TABLE> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">- 46 - </FONT></P>


<p Style='page-break-before:always'>
<HR  SIZE="3" COLOR="#999999" WIDTH="100%" ALIGN="CENTER">
<h5 align="left"><a href="#toc">Table of Contents</a></h5>


 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2"><B>V<SMALL>ERDISYS</SMALL>, I<SMALL>NC</SMALL>. </B></FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><I><U>Employments Agreements </U></I></FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT
SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>Ronald J. Robinson </B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">In July 2003, we entered into an advisory agreement with Dr. Robinson, and we amended the agreement in December 2003. Pursuant to the agreement, as amended, Dr. Robinson
agreed to serve as our interim President and CEO until a suitable replacement is found. For his services as interim President and CEO, he received an option to purchase 500,000 shares of our common stock pursuant to a 12 month vesting schedule
(except with respect to 50,000 shares that were tied to certain revenue milestones for the fourth quarter of 2003 and which milestones were not met), and he receives monthly compensation of $20,000 and a monthly office allowance of $2,500. Dr.
Robinson also serves as Chairman of the Board. In January 2004, David Adams was selected to serve as President thus terminating Dr. Robinson&#146;s service as interim President. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT
SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>David M. Adams </B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">In January 2004, we entered into an employment agreement with David Adams. The term of the agreement is for one year, and it may be renewed at the pleasure of both
parties. Pursuant to the agreement, Mr. Adams serves as our President and COO in exchange for a base salary of $185,000 per year. Mr. Adams also received an option to purchase 150,000 shares of common stock to vest quarterly over the initial term of
the employment agreement. Mr. Adams also received a signing bonus in the amount of $50,000 on the effective date of the employment agreement, and is also entitled to participate in an annual incentive compensation program of the company with a
potential bonus being up to fifty percent of his base salary. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>John
O&#146;Keefe </B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">In January 2004, we entered into an employment agreement
with John O&#146;Keefe. The term of the agreement is for one year, and it may be renewed at the pleasure of both parties. Pursuant to the agreement, Mr. O&#146;Keefe serves in the position of Executive Vice President and Chief Financial Officer in
exchange for a base annual salary of $175,000 for the first twelve months of his employment. Mr. O&#146;Keefe also received an option to purchase 80,000 shares of common stock to vest quarterly over the initial term of the employment agreement. Mr.,
O&#146;Keefe received a one time payment of $40,000 as a sign-on bonus and will be included in the company&#146;s Executive Compensation Program whereby senior management are eligible to receive annual bonuses of up to 50% of their base
compensation. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">- 47 - </FONT></P>


<p Style='page-break-before:always'>
<HR  SIZE="3" COLOR="#999999" WIDTH="100%" ALIGN="CENTER">
<h5 align="left"><a href="#toc">Table of Contents</a></h5>


 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2"><B>V<SMALL>ERDISYS</SMALL>, I<SMALL>NC</SMALL>. </B></FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>
<A NAME="tx67395_33"></A>Changes In and Disagreements with Accountants on Accounting and Financial Disclosure </B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">The Board of Directors of Verdisys, Inc. approved a change in accounting firm as of September 25, 2003, dismissing the prior accounting firm and engaging the new
accounting firm as of that date. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Verdisys, Inc. elected to change from the
accounting firm of: </FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">Cordovano and Harvey, P.C. </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">201 Steele Street, Suite 300 </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">Denver,
Colorado </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">To the accounting firm of: </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">Malone &amp; Bailey, PC </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">2925 Briar Park, Suite 930 </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">Houston, Texas
</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">The company&#146;s management believes the new auditing accounting firm will
provide quality service in a timely manner. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">The new accounting firm was not
consulted prior to engagement on any specific accounting matter either completed or proposed. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT
FACE="Times New Roman" SIZE="2">Verdisys, Inc. has never had nor anticipates having, nor had during the two most recent fiscal years or any subsequent interim period preceding the date of change any disagreements with accountants on matters of
accounting, financial disclosure, matter of accounting principles or practices, or auditing scope or procedure; nor has any principal accountant, currently or in past recent years, resigned or declined to stand for re-election. </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">The financial statements audited by the principal accountant for the past two years do not
contain an adverse opinion or disclaimer of opinion or were modified as to uncertainty, audit scope or accounting principles. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">- 48 - </FONT></P>


<p Style='page-break-before:always'>
<HR  SIZE="3" COLOR="#999999" WIDTH="100%" ALIGN="CENTER">
<h5 align="left"><a href="#toc">Table of Contents</a></h5>


 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2"><B>V<SMALL>ERDISYS</SMALL>, I<SMALL>NC</SMALL>. </B></FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><B>
<A NAME="tx67395_36"></A>AVAILABLE INFORMATION </B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">We have
filed with the SEC a registration statement on Form SB-2 under the Securities Act with respect to the shares of our common stock offered by this prospectus. This prospectus does not contain all the information set forth in the registration statement
and the exhibits and schedules thereto. For further information about us and shares of our common stock, we refer you to the registration statement and to the exhibits and schedules filed with it. Statements contained in this prospectus as to the
contents of any contract or other documents are not necessarily complete. We refer you to those copies of contracts or other documents that have been filed as exhibits to the registration statement, and statements relating to such documents are
qualified in all aspects by such reference. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">We are subject to
the information requirements of the Exchange Act of 1934, as amended (&#147;Exchange Act&#148;); therefore, we file reports and other information with the SEC. You can inspect and copy the reports and other information that we file at the public
reference facilities maintained by the SEC at the Public Reference Room, 450 Fifth Street, N.W., Washington, D.C., 20549. Please call the sec at 1800-SEC-0330 for further information on the Public Reference Rooms. The SEC also makes electronic
filings publicly available on its web site at www.sec.gov. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">Our
common stock is traded on the OTC Bulletin Board under the symbol &#147;VDYS.OB.&#148; Certain information and reports of ours are also available for inspection at the offices of the National Association of Securities Dealers, Inc., 1735 K Street,
Washington, D.C. 20006. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">- 49 - </FONT></P>


<p Style='page-break-before:always'>
<HR  SIZE="3" COLOR="#999999" WIDTH="100%" ALIGN="CENTER">
<h5 align="left"><a href="#toc">Table of Contents</a></h5>


 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2"><B>V<SMALL>ERDISYS</SMALL>, I<SMALL>NC</SMALL>. </B></FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>
<A NAME="tx67395_34"></A>Financial Statements </B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><B>Index to
Financial Statements </B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="100%" BORDER="0" ALIGN="center">

<TR>
<TD WIDTH="94%"></TD>
<TD VALIGN="bottom" WIDTH="2%"></TD>
<TD></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="center"><FONT FACE="Times New Roman" SIZE="1"><B>Page</B></FONT><BR><HR SIZE="1" NOSHADE COLOR="#000000"></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Annual Financial Statements for Fiscal Year 2003</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD></TR>
<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">
<A HREF="#tx67395_40">Independent Auditor&#146;s Report</A></FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">51</FONT></TD></TR>
<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">
<A HREF="#tx67395_41">Balance Sheet at December 31, 2003</A></FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">52</FONT></TD></TR>
<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Statements of Operations</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD></TR>
<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:5.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">
<A HREF="#tx67395_42">Years ended December 31, 2003 and 2002</A></FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">53</FONT></TD></TR>
<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Statements of Stockholders&#146; Equity</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD></TR>
<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:5.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">
<A HREF="#tx67395_43">Years ended December 31, 2003 and 2002</A></FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">54</FONT></TD></TR>
<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Statements of Cash Flows</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD></TR>
<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:5.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">
<A HREF="#tx67395_44">Years ended December 31, 2003 and 2002</A></FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">56</FONT></TD></TR>
<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">
<A HREF="#tx67395_45">Notes to Financial Statements</A></FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">57&nbsp;-70</FONT></TD></TR>
<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Financial Statements for Period Ended September 30, 2004</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD></TR>
<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">
<A HREF="#tx67395_46">Balance Sheet at September 30, 2004</A></FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">71</FONT></TD></TR>
<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Statements of Operations</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD></TR>
<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:5.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">
<A HREF="#tx67395_47">For the nine months ended September 30, 2004 and 2003</A></FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">72</FONT></TD></TR>
<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Statements of Cash Flows</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD></TR>
<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:5.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">
<A HREF="#tx67395_48">For the nine months ended September 30, 2004 and 2003</A></FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">73</FONT></TD></TR>
<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">
<A HREF="#tx67395_49">Notes to Financial Statements</A></FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" NOWRAP ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">74&nbsp;-77</FONT></TD></TR>
</TABLE> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">- 50 - </FONT></P>


<p Style='page-break-before:always'>
<HR  SIZE="3" COLOR="#999999" WIDTH="100%" ALIGN="CENTER">
<h5 align="left"><a href="#toc">Table of Contents</a></h5>


 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2"><B>V<SMALL>ERDISYS</SMALL>, I<SMALL>NC</SMALL>. </B></FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><B>
<A NAME="tx67395_40"></A>INDEPENDENT AUDITORS&#146; REPORT </B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">To the Board of
Directors </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Verdisys, Inc. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">The Woodlands, Texas </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">We have audited the accompanying balance sheet of Verdisys, Inc. as of December 31, 2003 and
the related statements of operations, stockholders&#146; equity and cash flows for each of the two years then ended. These financial statements are the responsibility of Verdisys&#146; management. Our responsibility is to express an opinion on these
financial statements based on our audits. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">We conducted our audits in
accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Verdisys, Inc. as of December 31, 2003 and
the results of its operations and cash flows for each of the two years then ended in conformity with accounting principles generally accepted in the United States of America. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT
SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">The accompanying financial statements have been prepared assuming that Verdisys will continue as a going concern. As discussed in Note 2 to
the financial statements, Verdisys suffered recurring losses from operations and has a working capital deficiency, which raises substantial doubt about its ability to continue as a going concern. Management&#146;s plans regarding those matters also
are described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">MALONE &amp; BAILEY, PC </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">www.malone-bailey.com </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Houston, Texas </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT
FACE="Times New Roman" SIZE="2">April 2, 2004 </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">- 51 - </FONT></P>


<p Style='page-break-before:always'>
<HR  SIZE="3" COLOR="#999999" WIDTH="100%" ALIGN="CENTER">
<h5 align="left"><a href="#toc">Table of Contents</a></h5>


 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2"><B>V<SMALL>ERDISYS</SMALL>, I<SMALL>NC</SMALL>. </B></FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">V<SMALL>ERDISYS</SMALL>, I<SMALL>NC</SMALL>. </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">
<A NAME="tx67395_41"></A>BALANCE SHEET </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">December 31, 2003 </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT
SIZE="1">&nbsp;</FONT></P>
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="100%" BORDER="0" STYLE="BORDER-COLLAPSE:COLLAPSE" ALIGN="center">

<TR>
<TD WIDTH="89%"></TD>
<TD VALIGN="bottom" WIDTH="4%"></TD>
<TD></TD>
<TD></TD>
<TD></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="1"><B>ASSETS</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD COLSPAN="2" VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Current Assets</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Cash</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">1,373,627</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Accounts receivable, net of allowance for doubtful accounts of $50,000</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">140,146</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Accounts receivable from related parties</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">23,960</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:5.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Total Current Assets</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">1,537,733</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Property and equipment, net of accumulated depreciation of $65,714</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">439,367</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">License, net of accumulated amortization of $195,811</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">4,829,189</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Deposits on two new rigs</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">340,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:5.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Total Assets</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">7,146,289</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="3" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="3" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="3" NOSHADE ALIGN="left" COLOR="#ffffff"></TD></TR>
<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="4"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2"><B>LIABILITIES AND STOCKHOLDERS&#146; EQUITY</B></FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Current Liabilities</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Accounts payable</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">320,687</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Accrued expenses</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">472,456</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Related party deferred revenues</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">92,710</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Deferred revenue</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">639,440</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Customer deposit</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">68,282</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Guarantee of third party debt</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">300,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Notes payable on license to related party</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">1,651,240</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:5.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Total Current Liabilities</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">3,544,815</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Long Term Liabilities</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Deferred revenue, less current portion</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">129,045</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:5.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Total Liabilities</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">3,673,860</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Commitments &amp; Contingencies</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Stockholders&#146; Equity</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Common Stock, $.001 par value, 50,000,000 shares authorized, 29,627,265 shares issued and outstanding</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">29,586</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Additional paid-in capital</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">21,743,321</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Accumulated deficit</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(18,300,519</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:5.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Total Stockholders&#146; Equity</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">3,472,429</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:7.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Total Liabilities and Stockholders&#146; Equity</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">7,146,289</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="3" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="3" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="3" NOSHADE ALIGN="left" COLOR="#ffffff"></TD></TR>
</TABLE> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">The accompanying notes
are an integral part of these financial statements. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">- 52 - </FONT></P>


<p Style='page-break-before:always'>
<HR  SIZE="3" COLOR="#999999" WIDTH="100%" ALIGN="CENTER">
<h5 align="left"><a href="#toc">Table of Contents</a></h5>


 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2"><B>A<SMALL>NNUAL</SMALL> F<SMALL>INANCIAL</SMALL> S<SMALL>TATEMENTS</SMALL> </B></FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">V<SMALL>ERDISYS</SMALL>, I<SMALL>NC</SMALL>. </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">
<A NAME="tx67395_42"></A>STATEMENTS OF OPERATIONS </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">Years Ended December 31, 2003 and 2002 </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="100%" BORDER="0" STYLE="BORDER-COLLAPSE:COLLAPSE" ALIGN="center">

<TR>
<TD WIDTH="80%"></TD>
<TD VALIGN="bottom" WIDTH="2%"></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD VALIGN="bottom" WIDTH="2%"></TD>
<TD></TD>
<TD></TD>
<TD></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="2" ALIGN="center"><FONT FACE="Times New Roman" SIZE="1"><B>2003</B></FONT><BR><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="2" ALIGN="center"><FONT FACE="Times New Roman" SIZE="1"><B>2002</B></FONT><BR><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Revenue</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Satellite Services</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:5.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Third parties</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">419,247</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">287,190</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Drilling Services</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:5.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Third parties</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">7,444</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:5.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Related parties</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">458,750</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:5.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Total Revenue</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">885,441</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">287,190</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Cost of Services Provided</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Satellite Services</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:5.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Third parties</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">588,498</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">276,454</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Drilling Services</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:5.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Third parties</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">787,560</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:5.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Related parties</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">226,611</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Total Cost of Services Provided</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">1,602,669</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">276,929</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Gross Margin (Loss)</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(717,228</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">10,736</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Selling, general &amp; administrative</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">5,669,538</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">3,002,470</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Depreciation and amortization</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">219,692</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">11,380</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Bad debts</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">172,003</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">9,368</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Debt forgiveness income</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(460,235</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Gain on sale of property</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(120,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Interest income</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(417</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(21</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Interest expense</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">1,158,236</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">116,321</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Total expenses</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">6,638,817</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">3,139,518</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">NET LOSS</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(7,356,045</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(3,128,782</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="3" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="3" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="3" NOSHADE ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="3" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="3" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="3" NOSHADE ALIGN="left" COLOR="#ffffff"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Basic and diluted net loss per share</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(.33</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(.23</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Weighted average shares outstanding</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">22,180,185</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">13,553,139</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
</TABLE> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">The accompanying notes
are an integral part of these financial statements. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">- 53 - </FONT></P>


<p Style='page-break-before:always'>
<HR  SIZE="3" COLOR="#999999" WIDTH="100%" ALIGN="CENTER">
<h5 align="left"><a href="#toc">Table of Contents</a></h5>


 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2"><B>A<SMALL>NNUAL</SMALL> F<SMALL>INANCIAL</SMALL> S<SMALL>TATEMENTS</SMALL> </B></FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">V<SMALL>ERDISYS</SMALL>, I<SMALL>NC</SMALL>. </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">
<A NAME="tx67395_43"></A>STATEMENT OF STOCKHOLDERS&#146; EQUITY </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">Years Ended December 31, 2002 and 2003 </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="100%" BORDER="0" STYLE="BORDER-COLLAPSE:COLLAPSE" ALIGN="center">

<TR>
<TD WIDTH="66%"></TD>
<TD VALIGN="bottom" WIDTH="2%"></TD>
<TD></TD>
<TD></TD>
<TD VALIGN="bottom" WIDTH="2%"></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD VALIGN="bottom" WIDTH="2%"></TD>
<TD></TD>
<TD VALIGN="bottom" WIDTH="2%"></TD>
<TD></TD>
<TD></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="center"><FONT FACE="Times New Roman" SIZE="1"><B>Shares</B></FONT><BR><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="2" ALIGN="center"><FONT FACE="Times New Roman" SIZE="1"><B>Amount</B></FONT><BR><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="center"><FONT FACE="Times New Roman" SIZE="1"><B>Shares</B></FONT><BR><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="2" ALIGN="center"><FONT FACE="Times New Roman" SIZE="1"><B>Amount</B></FONT><BR><HR SIZE="1" NOSHADE COLOR="#000000"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Balances, December 31, 2001</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">650,000</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">325,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">13,553,139</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">13,553</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Series B preferred stock issued for cash</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">760,000</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">380,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Options issued for services</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Warrants issued for services</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Warrants issued for interest</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Net loss</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Balances, December 31, 2002</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">1,410,000</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">705,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">13,553,139</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">13,553</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Series B preferred stock exchanged for common stock</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">(1,410,000</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(705,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">1,410,000</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">1,410</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Stock issued for:</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Cash, net of fundraising costs</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">2,740,733</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">2,741</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Services</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">4,679,194</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">4,679</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Accounts payable</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">33,333</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">33</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Notes payable and accrued interest</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">2,890,688</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">2,891</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Cash exercise of warrants and options</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">1,995,178</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">1,995</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Cashless exercise of warrants for note payment</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">200,000</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">200</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Note payment on lease</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">125,000</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">125</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Reduction of royalty</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">500,000</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">500</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">RDGI merger</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">1,500,000</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">1,500</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Fair value of options and warrants issued for services</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Contribution to capital</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Net Loss</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Balances, December 31, 2003</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&#151;&nbsp;&nbsp;</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">&#151;&nbsp;&nbsp;</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">29,627,265</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">29,627</FONT></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="3" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="3" NOSHADE ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="3" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="3" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="3" NOSHADE ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="3" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="3" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="3" NOSHADE COLOR="#000000"></TD></TR>
</TABLE> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">The accompanying notes
are an integral part of these financial statements. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">- 54 - </FONT></P>


<p Style='page-break-before:always'>
<HR  SIZE="3" COLOR="#999999" WIDTH="100%" ALIGN="CENTER">
<h5 align="left"><a href="#toc">Table of Contents</a></h5>


 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2"><B>A<SMALL>NNUAL</SMALL> F<SMALL>INANCIAL</SMALL> S<SMALL>TATEMENTS</SMALL> </B></FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">V<SMALL>ERDISYS</SMALL>, I<SMALL>NC</SMALL>. </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">STATEMENT OF STOCKHOLDERS&#146; EQUITY </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">Years Ended December 31, 2002 and 2003 </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="100%" BORDER="0" STYLE="BORDER-COLLAPSE:COLLAPSE" ALIGN="center">

<TR>
<TD WIDTH="70%"></TD>
<TD VALIGN="bottom" WIDTH="2%"></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD VALIGN="bottom" WIDTH="2%"></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD VALIGN="bottom" WIDTH="2%"></TD>
<TD></TD>
<TD></TD>
<TD></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="2" ALIGN="center"><FONT FACE="Times New Roman" SIZE="1"><B>Paid-In<BR>Capital</B></FONT><BR><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="2" ALIGN="center"><FONT FACE="Times New Roman" SIZE="1"><B>Retained<BR>Deficit</B></FONT><BR><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="2" ALIGN="center"><FONT FACE="Times New Roman" SIZE="1"><B>Totals</B></FONT><BR><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Balances, December 31, 2001</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">5,300,833</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(7,815,692</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(2,176,306</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Series B preferred stock issued for cash</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">380,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Options issued for services</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">401,291</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">401,291</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Warrants issued for services</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">392,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">392,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Warrants issued for interest</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">4,800</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">4,800</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Net loss</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(3,128,782</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(3,128,782</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Balances, December 31, 2002</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">6,098,924</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(10,944,474</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(4,126,997</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Series B preferred stock exchanged for common stock</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">703,590</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">&#151;&nbsp;&nbsp;</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Stock issued for:</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Cash, net of fundraising costs</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">6,559,409</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">6,562,150</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Services</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">1,619,660</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">1,624,339</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Accounts payable</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">16,633</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">16,666</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Notes payable and accrued interest</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">1,503,299</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">1,506,190</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Cash exercise of warrants and options</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">366,820</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">368,815</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Cashless exercise of warrants for note payment</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">19,800</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">20,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Note payment on lease</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">249,875</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">250,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Reduction of royalty</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">2,274,500</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">2,275,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">RDGI merger</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(1,500</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">&#151;&nbsp;&nbsp;</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Fair value of options and warrants issued for services</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">1,844,311</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">1,844,311</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Contribution to capital</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">488,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">488,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Net Loss</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(7,356,045</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(7,356,045</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Balances, December 31, 2003</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">21,743,321</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(18,300,519</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">3,472,429</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="3" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="3" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="3" NOSHADE ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="3" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="3" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="3" NOSHADE ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="3" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="3" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="3" NOSHADE ALIGN="left" COLOR="#ffffff"></TD></TR>
</TABLE> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">The accompanying notes
are an integral part of these financial statements. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">- 55 - </FONT></P>


<p Style='page-break-before:always'>
<HR  SIZE="3" COLOR="#999999" WIDTH="100%" ALIGN="CENTER">
<h5 align="left"><a href="#toc">Table of Contents</a></h5>


 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2"><B>A<SMALL>NNUAL</SMALL> F<SMALL>INANCIAL</SMALL> S<SMALL>TATEMENTS</SMALL> </B></FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">
<A NAME="tx67395_44"></A>V<SMALL>ERDISYS</SMALL>, I<SMALL>NC</SMALL>. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman"
SIZE="2">STATEMENT OF CASH FLOWS </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">Years Ended December 31, 2003 and 2002 </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT
SIZE="1">&nbsp;</FONT></P>
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="100%" BORDER="0" STYLE="BORDER-COLLAPSE:COLLAPSE" ALIGN="center">

<TR>
<TD WIDTH="80%"></TD>
<TD VALIGN="bottom" WIDTH="2%"></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD VALIGN="bottom" WIDTH="2%"></TD>
<TD></TD>
<TD></TD>
<TD></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="2" ALIGN="center"><FONT FACE="Times New Roman" SIZE="1"><B>2003</B></FONT><BR><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="2" ALIGN="center"><FONT FACE="Times New Roman" SIZE="1"><B>2002</B></FONT><BR><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2"><B>Cash Flows From Operating Activities</B></FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Net loss</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(7,356,045</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(3,128,782</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Adjustments to reconcile net loss to net cash used in operating activities:</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:5.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Stock issued for services</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">1,624,339</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:5.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Issuance of options and warrants for services</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">1,844,311</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">793,291</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:5.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Issuance of stock options for interest expense</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">4,800</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:5.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Depreciation and amortization</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">219,692</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">11,380</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:5.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Debt forgiveness income</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(460,235</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:5.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Guarantee of third party debt</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">300,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:5.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Gain on sale of property</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(120,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:5.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Bad debts</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">172,003</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">9,368</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:5.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Changes in:</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:7.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Accounts receivable</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(201,747</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">47,490</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:7.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Accounts receivable &#150; related party</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(23,960</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:7.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Employee advances</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">42,620</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(42,620</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:7.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Accounts payable</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(277,755</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">1,099,557</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:7.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Accrued expenses</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(171,815</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">687,435</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:7.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Deferred revenue</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">724,648</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">136,547</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:7.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Customer deposit</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">68,282</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Net Cash Used In Operating Activities</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(3,615,662</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(381,534</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2"><B>Cash Flows From Investing Activities</B></FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Purchase of property and equipment</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(459,493</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(5,286</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Cash payments for license</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(100,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Proceeds from sale of property</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">120,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Deposit on purchase of two (2) new rigs</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(340,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Loan to third party</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(100,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Net Cash Used In Investing Activities</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(879,493</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(5,286</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2"><B>Cash Flows From Financing Activities</B></FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Proceeds from sales of common stock</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">6,562,150</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Proceeds from exercise of options and warrants</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">368,815</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Proceeds from notes payable to stockholders</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">50,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">3,558</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Payments on notes payable to stockholders</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(363,558</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Payments on note payable related to license</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(748,760</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Proceeds from sales of preferred stock</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">380,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Net Cash Provided By Financing Activities</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">5,868,647</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">383,558</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Net change in cash</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">1,373,492</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(3,262</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Cash at beginning of year</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">135</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">3,397</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Cash at end of year</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">1,373,627</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">135</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="3" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="3" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="3" NOSHADE ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="3" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="3" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="3" NOSHADE ALIGN="left" COLOR="#ffffff"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Cash paid during the year for:</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Interest</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">176,240</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">&#151;&nbsp;&nbsp;</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Income taxes</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">&#151;&nbsp;&nbsp;</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">&#151;&nbsp;&nbsp;</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
</TABLE> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">The accompanying notes
are an integral part of these financial statements. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">- 56 - </FONT></P>


<p Style='page-break-before:always'>
<HR  SIZE="3" COLOR="#999999" WIDTH="100%" ALIGN="CENTER">
<h5 align="left"><a href="#toc">Table of Contents</a></h5>


 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2"><B>A<SMALL>NNUAL</SMALL> F<SMALL>INANCIAL</SMALL> S<SMALL>TATEMENTS</SMALL> </B></FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><B>
<A NAME="tx67395_45"></A>N<SMALL>OTES</SMALL> <SMALL>TO</SMALL> F<SMALL>INANCIAL</SMALL> S<SMALL>TATEMENTS</SMALL> </B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>NOTE 1 - SUMMARY OF ACCOUNTING POLICIES </B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Business. Verdisys, Inc. (&#147;Verdisys&#148;) was formed in California on April 7, 1999 as TheAgZone, Inc. In January 2001 the name was changed to Verdisys, Inc. In May
2001, Verdisys began selling secure intra-company and wide-area network satellite communications systems to energy companies to manage distant oil and gas producing wells, power distribution and other equipment sites by remote computer control.
</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">In June 2003, Verdisys began selling a lateral drilling technique using high
pressure water jetting for the enhancement and production of oil and gas reserves using licensed technology acquired in April 2003. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">On July 18, 2003, Verdisys signed an Agreement and Plan of Merger with Reconstruction Data Group, Inc. (RDGI), a publicly-reporting inactive entity. The shareholders of
Verdisys received 25,202,539 shares of RDGI in exchange for all of the 25,202,539 shares of Verdisys then outstanding. Verdisys became a wholly-owned subsidiary of RDGI. As of that transfer, Verdisys shareholders owned 94.4% of the outstanding stock
of the combined entity. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Certain amounts in financial statements of prior years
have been reclassified to conform to the presentation of the current year for comparative purposes. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT
FACE="Times New Roman" SIZE="2">Management estimates. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that
affect the reported amounts of assets, liabilities, revenues and expenses, as well as certain financial statement disclosures. While management believes that the estimates and assumptions used in the preparation of the financial statements are
appropriate, actual results could differ from these estimates. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Cash
Equivalents. Highly liquid investments with original maturities of three months or less are considered cash equivalents. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Revenue Recognition. All revenue is recognized when persuasive evidence of an arrangement exists, the service or sale is complete, the price is fixed or determinable and
collectibility is reasonably assured. Revenue is derived from sales of satellite hardware, satellite bandwidth, satellite service and lateral drilling services. Revenue from satellite hardware is recognized when the hardware is installed. Revenue
from satellite bandwidth is recognized evenly over the term of the contract. Revenue from satellite service is recognized when the services are performed. Verdisys provides no warranty but sells commercially obtained 3 to 12 month warranties for
satellite hardware. Verdisys has a 30 day return policy. Revenue for lateral drilling services is recognized when the services are performed and collectibility is reasonably assured and when collection is uncertain, revenue is recognized when cash
is collected. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Allowance for Doubtful Accounts. Bad debt expense is recognized
based on management&#146;s estimate of likely losses per year, based on past experience and an estimate of current year uncollectible amounts. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Property and equipment is valued at cost. Additions are capitalized and maintenance and repairs are charged to expense as incurred. Gains and losses on dispositions of
equipment are reflected in operations. Depreciation is provided using the straight-line method over the estimated useful lives of the assets, which are three to seven years. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT
SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Impairment of Long-Lived Assets. Verdisys reviews the carrying value of its long-lived assets annually or whenever events or changes in
circumstances indicate that the historical cost-carrying value of an asset may no longer be appropriate. Verdisys assesses recoverability of the carrying value of the asset by estimating the future net cash flows expected to result from the asset,
including eventual disposition. If the future net cash flows are less than the carrying value of the asset, an impairment loss is recorded equal to the difference between the asset&#146;s carrying value and fair value. </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">- 57 - </FONT></P>


<p Style='page-break-before:always'>
<HR  SIZE="3" COLOR="#999999" WIDTH="100%" ALIGN="CENTER">
<h5 align="left"><a href="#toc">Table of Contents</a></h5>


 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2"><B>A<SMALL>NNUAL</SMALL> F<SMALL>INANCIAL</SMALL> S<SMALL>TATEMENTS</SMALL> </B></FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><B>N<SMALL>OTES</SMALL> <SMALL>TO</SMALL> F<SMALL>INANCIAL</SMALL> S<SMALL>TATEMENTS</SMALL>
</B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Stock options and warrants. Verdisys accounts for non-cash stock-based
compensation issued to non-employees in accordance with the provisions of SFAS No. 123 and EITF No. 96-18, Accounting for Equity Investments That Are Issued to Non-Employees for Acquiring, or in Conjunction with Selling Goods or Services. Common
stock issued to non-employees and consultants is based upon the value of the services received or the quoted market price, whichever value is more readily determinable. Verdisys accounts for stock options and warrants issued to employees under the
intrinsic value method. Under this method, Verdisys recognizes no compensation expense for stock options or warrants granted when the number of underlying shares is known and the exercise price of the option or warrant is greater than or equal to
the fair market value of the stock on the date of grant. The following table illustrates the effect on net loss and net loss per share if Verdisys had applied the fair value provisions of FASB Statement No. 123, Accounting for Stock-Based
Compensation, to stock-based employee compensation. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="90%" BORDER="0" STYLE="BORDER-COLLAPSE:COLLAPSE" ALIGN="center">

<TR>
<TD WIDTH="76%"></TD>
<TD VALIGN="bottom" WIDTH="4%"></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD VALIGN="bottom" WIDTH="4%"></TD>
<TD></TD>
<TD></TD>
<TD></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="2" ALIGN="center"><FONT FACE="Times New Roman" SIZE="1"><B>2003</B></FONT><BR><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="2" ALIGN="center"><FONT FACE="Times New Roman" SIZE="1"><B>2002</B></FONT><BR><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Net loss as reported</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(7,356,045</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(3,128,782</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Less: stock based compensation determined under fair value - based method</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">( 828,737 </FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">&#151;&nbsp;&nbsp;</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Pro forma net loss</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(8,184,782</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(3,128,782</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="3" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="3" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="3" NOSHADE ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="3" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="3" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="3" NOSHADE ALIGN="left" COLOR="#ffffff"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Basic and diluted net loss per common share:</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">As reported</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(.33</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(.23</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Pro forma</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(.37</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(.23</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD></TR>
</TABLE> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">The weighted average fair value of the
stock options granted during 2003 and 2002 was $7.30 and $.50, respectively. Variables used in the Black-Scholes option-pricing model include (1) 1.5% risk-free interest rate, (2) expected option life is the actual remaining life of the options as
of each year end, (3) expected volatility is zero, and (4) zero expected dividends. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman"
SIZE="2">Income Taxes. Income tax expense is based on reported earnings before income taxes. Deferred income taxes reflect the impact of temporary differences between assets and liabilities recognized for financial reporting purposes and such
amounts recognized for tax purposes, and are measured by applying tax rates in effect in years in which the differences are expected to reverse. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Basic and diluted earnings per share. Basic earnings per share equals net earnings divided by weighted average shares outstanding during the year. Diluted earnings per
share include the impact of common stock equivalents using the treasury stock method when the effect is dilutive. There were no dilutive securities during the periods presented. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT
SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Recently issued accounting pronouncements. Verdisys does not expect the adoption of recently issued accounting pronouncements to have a
significant impact on their results of operations, financial position or cash flow. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman"
SIZE="2"><B>NOTE 2 &#150; GOING CONCERN </B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">As shown in the accompanying
financial statements, Verdisys incurred recurring net losses of $7,356,045 and $3,128,782 in 2003 and 2002, respectively, has an accumulated deficit of $18,258,759 and a working capital deficit of $1,837,467 as of December 31, 2003. These conditions
create an uncertainty as to Verdisys&#146; ability to continue as a going concern. Management is trying to raise additional capital through sales of common stock or convertible instruments as well as seeking financing from third parties. The
financial statements do not include any adjustments that might be necessary if Verdisys is unable to continue as a going concern. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">- 58 - </FONT></P>


<p Style='page-break-before:always'>
<HR  SIZE="3" COLOR="#999999" WIDTH="100%" ALIGN="CENTER">
<h5 align="left"><a href="#toc">Table of Contents</a></h5>


 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2"><B>A<SMALL>NNUAL</SMALL> F<SMALL>INANCIAL</SMALL> S<SMALL>TATEMENTS</SMALL> </B></FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><B>N<SMALL>OTES</SMALL> <SMALL>TO</SMALL> F<SMALL>INANCIAL</SMALL> S<SMALL>TATEMENTS</SMALL>
</B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>NOTE 3 &#150; RELATED PARTY ACCOUNTS RECEIVABLE AND REVENUES
</B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">In April 2003, Verdisys signed a drilling service contract with Energy
2000 NGC, Inc. of Louisiana (&#147;Energy 2000&#148;), whereby Energy 2000 would have paid Verdisys a minimum of $1,800,000 for lateral drilling of 45 wells. This contract was a fixed amount due to Verdisys dependent upon the number of wells drilled
and offshoot lateral bores drilled. In addition, Verdisys would receive an 80 percent interest in the net operating income after payback from these properties and also be reimbursed for 20 percent of its field costs. In September, 2003 Verdisys
entered into another contract with Energy 2000 for an additional 57 wells with terms similar to the original contract. This contract was suspended for lack of payment. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT
SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">In September 2003, Verdisys signed a drilling service contract with Natural Gas Systems, Inc. (&#147;NGS&#148;), whereby NGS would have paid
Verdisys a minimum of $7,800,000 for lateral drilling of 120 wells. This contract was a fixed amount due to Verdisys dependent upon the number of wells drilled and offshoot lateral bores drilled. In addition, Verdisys would receive a 70 percent
interest in the net operating income after payback from these properties. This contract was renegotiated in February 2004 to a smaller agreement with an initial four well commitment and removed the Verdisys&#146; rights to post-production.
</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Energy 2000 is a subsidiary of Berg McAfee Energy, LLC, which is a wholly
owned subsidiary of Berg McAfee Companies. Natural Gas Systems is an independent company with substantial shareholdings owned by Eric McAfee, a 50 per cent owner of Berg McAfee Companies and former Director of Verdisys, and Berg McAfee Companies.
They are beneficially owned 80% and 23% respectively by Berg McAfee or Eric McAfee personally. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT
FACE="Times New Roman" SIZE="2">Verdisys billed $666,250 and $153,960 to Energy 2000 and NGS, respectively, for services performed in 2003. Verdisys received $397,500 and $130,000, respectively. However, Verdisys has inadequate documentation to
substantiate whether some of the services were performed. For Energy 2000, Verdisys was able to substantiate $328,750 of revenue leaving $68,750 in deferred revenue. As of December 31, 2003, deferred revenues totaled $92,710. </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Lateral drilling services for these two customers ceased in December 2003 because of a change
in Verdisys management, and are expected to resume for NGS in the second quarter of 2004. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT
FACE="Times New Roman" SIZE="2"><B>NOTE 4 &#150; PROPERTY AND EQUIPMENT </B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman"
SIZE="2">Property and equipment consisted of the following at December 31, 2003: </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="90%" BORDER="0" STYLE="BORDER-COLLAPSE:COLLAPSE" ALIGN="center">

<TR>
<TD WIDTH="83%"></TD>
<TD VALIGN="bottom" WIDTH="3%"></TD>
<TD></TD>
<TD VALIGN="bottom" WIDTH="3%"></TD>
<TD></TD>
<TD></TD>
<TD></TD></TR>
<TR>
<TD VALIGN="bottom"> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="1"><B>Description</B></FONT></P><HR WIDTH="73" SIZE="1" NOSHADE ALIGN="left" COLOR="#000000"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="center"><FONT FACE="Times New Roman" SIZE="1"><B>Life</B></FONT><BR><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="2" ALIGN="center"><FONT FACE="Times New Roman" SIZE="1"><B>Amount</B></FONT><BR><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Lateral drilling equipment</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">5&nbsp;years</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">427,420</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Computer equipment</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">3 years</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">56,949</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Office furniture and equipment</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">7 years</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">20,712</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">505,081</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Less: accumulated depreciation</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(65,714</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">439,367</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="3" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="3" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="3" NOSHADE ALIGN="left" COLOR="#ffffff"></TD></TR>
</TABLE> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Lateral drilling equipment consists of
two heavy trucks mounted with high powered water compressors, flexible hose and other assorted downhole equipment which is used to conduct the lateral drilling process with high pressure jetting technology. </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Depreciation expense totaled $23,881 and $11,380 in 2003 and 2002, respectively. </FONT></P>
<P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">- 59 - </FONT></P>


<p Style='page-break-before:always'>
<HR  SIZE="3" COLOR="#999999" WIDTH="100%" ALIGN="CENTER">
<h5 align="left"><a href="#toc">Table of Contents</a></h5>


 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2"><B>A<SMALL>NNUAL</SMALL> F<SMALL>INANCIAL</SMALL> S<SMALL>TATEMENTS</SMALL> </B></FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><B>N<SMALL>OTES</SMALL> <SMALL>TO</SMALL> F<SMALL>INANCIAL</SMALL> S<SMALL>TATEMENTS</SMALL>
</B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>NOTE 5 &#150; LATERAL DRILLING LICENSE &amp; NOTE PAYABLE ON LICENSE TO
RELATED PARTY </B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">In April 2003, an individual licensed his lateral drilling
technology and equipment to Verdisys for $2,750,000 plus 10% of related gross revenue from lateral drilling operations. Verdisys paid $100,000 upon signing and signed a note payable for $2,650,000 plus effective interest of 12.14% due in monthly
installments from May 2003 through March 2004. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">In July 2003, Verdisys issued
125,000 shares in exchange for a $250,000 reduction of the note payable. In August 2003, Verdisys and the licensor amended the agreement whereby, in exchange for 500,000 shares of Verdisys common stock and the grant of a board seat, the licensor
agreed to eliminate the 10% royalty and instead receive $500 per well serviced. The stock price at the time of the amendment was $4.55 per share, resulting in a $2,275,000 increase in the carrying value of the license. </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">At December 31, 2003 the total cost of the license was $5,025,000 with $195,811 of
accumulated amortization. The license is amortized over the remaining life of the patent, or 14 years. The balance of the note payable at December 31, 2003 was $1,651,240. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT
SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Verdisys did not make the December 2003 or January 2004 payment on the note payable. In February 2004, Verdisys and the licensor agreed to
restructure the note payments. Verdisys agreed to issue the licensor 300,000 shares of common stock, $100,000 cash and a note payable for $400,000 due on May 15, 2004 for the unpaid amounts due under the original note. If Verdisys fails to pay the
$400,000 by May 15, 2004, the license may be revoked. The 300,000 shares had a value of $1,920,000 with $975,000 reducing the overall note balance and $945,000 recognized as interest expense. </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>NOTE 6 &#150; DEPOSITS ON 2 NEW RIGS </B></FONT></P> <P
STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Verdisys paid $340,000 in December 2003 for two flatbed trucks with attached drilling
equipment that Verdisys took possession of in January 2004. This brings the total number of lateral drilling units owned by Verdisys to four. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>NOTE 7 &#150; DEFERRED REVENUE/CUSTOMER DEPOSIT </B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Typical satellite bandwidth contracts cover 36 months. Verdisys receives the cash in advance and recognizes revenue evenly over the contract. Deferred revenue related to
satellite services totaled $271,485. $142,440 will be recognized in 2004 and $129,045 will be recognized during 2005 and 2006. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Verdisys also deferred revenue collected for lateral drilling service contracts. In June 2003, Verdisys signed an agreement to drill wells for Edge Capital
(&#147;Edge&#148;). Edge, through a third party financing source, paid Verdisys $497,000 in 2003. Edge currently disputes whether services were actually performed and is requesting the $497,000 be returned to the third party financing source but has
not initiated any court action. Verdisys has inadequate documentation to substantiate what services were actually performed. Management is attempting to substantiate what services were actually performed and continues to gather evidence to
substantiate the services. As of December 31, 2003, the $497,000 is included in deferred revenue. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">- 60 - </FONT></P>


<p Style='page-break-before:always'>
<HR  SIZE="3" COLOR="#999999" WIDTH="100%" ALIGN="CENTER">
<h5 align="left"><a href="#toc">Table of Contents</a></h5>


 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2"><B>A<SMALL>NNUAL</SMALL> F<SMALL>INANCIAL</SMALL> S<SMALL>TATEMENTS</SMALL> </B></FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><B>N<SMALL>OTES</SMALL> <SMALL>TO</SMALL> F<SMALL>INANCIAL</SMALL> S<SMALL>TATEMENTS</SMALL>
</B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>NOTE 8 - GUARANTEE OF THIRD PARTY DEBT </B></FONT></P> <P
STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">In July 2003, Verdisys guaranteed Edge&#146;s purchase of oil and gas properties from
another entity for $450,000. Edge paid $150,000 and signed a note payable for $300,000 plus 12% interest due in 2004. Edge defaulted on this note and requested Verdisys pay the amounts due. In accordance with FASB Interpretation 45 (&#147;FIN
45&#148;) &#147;Guarantor&#146;s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others,&#148; Verdisys recorded a liability of $300,000. </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">In November 2003, Verdisys loaned $100,000 to Cypress Drilling, Inc. (&#147;Cypress&#148;),
with 8% interest and due on demand. Cypress leased drilling equipment from Mixon Bros. Drilling, Inc. (&#147;Mixon&#148;). Mixon was in default on the equipment note payable to Homeland Federal Savings Bank (&#147;Homeland&#148;). Cypress agreed to
give Mixon $64,384, which Mixon agreed to give to Homeland to bring the note to Homeland current to release the equipment to Mixon. Mixon then released the equipment to Cypress so Cypress could do subcontract work for Verdisys. Verdisys agreed to
guarantee Mixon&#146;s remaining note payments to Homeland which approximated $68,000. The guarantee is for one year beginning October 30, 2003. If Verdisys were required to honor the guarantee, Verdisys would receive the equipment. Verdisys fully
reserved the Cypress $100,000 note receivable because collectibility is uncertain. Verdisys has not recorded any liability under the guarantee as of December 31, 2003. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT
SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>NOTE 9 - NOTES PAYABLE </B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">At the beginning of 2003, Verdisys owed $1,579,562 in notes payable to stockholders. In early 2003, Verdisys issued a convertible promissory note in the amount of $50,000
with 100,000 $.01 warrants that expire in January 2008 to a stockholder. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">In
2003, Verdisys settled the entire $1,629,562 of notes payable by paying $360,000 in cash, allowing a cashless exercise of 200,000 $.10 warrants for $20,000, reclassifying $4,562 to accrued interest and issuing 2,890,688 shares of common stock for
$1,245,000 of principal plus accrued interest of $261,190. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>NOTE 10 - INCOME
TAXES </B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Verdisys uses the liability method, where deferred tax assets and
liabilities are determined based on the expected future tax consequences of temporary differences between the carrying amounts of assets and liabilities for financial and income tax reporting purposes. During 2003 and 2002, Verdisys incurred net
losses and, therefore, has no tax liability. The net deferred tax asset generated by the loss carry-forward has been fully reserved. The cumulative net operating loss carry-forward is approximately $13,000,000 at December 31, 2003, and will expire
in the years 2019 through 2023. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">At December 31, 2002, deferred tax assets
consisted of the following: </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="80%" BORDER="0" STYLE="BORDER-COLLAPSE:COLLAPSE" ALIGN="center">

<TR>
<TD WIDTH="87%"></TD>
<TD VALIGN="bottom" WIDTH="5%"></TD>
<TD></TD>
<TD></TD>
<TD></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="2" ALIGN="center"><FONT FACE="Times New Roman" SIZE="1"><B>2003</B></FONT><BR><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Deferred tax assets</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Net operating losses</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">4,500,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Less: valuation allowance</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(4,500,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Net deferred tax asset</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">0</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="3" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="3" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="3" NOSHADE ALIGN="left" COLOR="#ffffff"></TD></TR>
</TABLE> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">- 61 - </FONT></P>


<p Style='page-break-before:always'>
<HR  SIZE="3" COLOR="#999999" WIDTH="100%" ALIGN="CENTER">
<h5 align="left"><a href="#toc">Table of Contents</a></h5>


 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2"><B>A<SMALL>NNUAL</SMALL> F<SMALL>INANCIAL</SMALL> S<SMALL>TATEMENTS</SMALL> </B></FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><B>N<SMALL>OTES</SMALL> <SMALL>TO</SMALL> F<SMALL>INANCIAL</SMALL> S<SMALL>TATEMENTS</SMALL>
</B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>NOTE 11 - PREFERRED STOCK </B></FONT></P> <P
STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">3,436,996 shares of Series A preferred stock were issued in 1999 and 2000 at $1.50 per
share, and all were converted prior to 2002 to common stock on a one-for-one basis. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman"
SIZE="2">650,000 and 760,000 shares of Series B preferred stock were issued in 2001 and 2002, respectively, for $.50 per share. In early 2003, Verdisys converted all 1,410,000 shares of Series B convertible preferred stock into 1,410,000 shares of
common stock. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">There are currently no preferred shares issued or outstanding.
Verdisys currently has no authorized preferred stock. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>NOTE 12 &#150; COMMON
STOCK </B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">In the second quarter of 2003, Verdisys sold 1,239,000 shares of
common stock in private placements for between $.50 and $.75 per share for total proceeds of $779,250 before $15,100 costs of fundraising. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">In the second quarter of 2003, Verdisys converted $1,506,190 of notes payable and accrued interest to investors to 2,890,688 shares of common stock. </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">In the second quarter of 2003, director and employee options were exercised at $.10 per share
for 2,409,291 shares of common stock. In lieu of cash, Verdisys agreed to expense the exercise price as compensation of $240,929. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">In the second quarter of 2003, 1,580,000 warrants were exercised for 1,580,000 shares of common stock. $56,500 in cash was received for the exercise of 430,000 warrants,
accounts payable was reduced by $95,000 for the exercise of 950,000 warrants and notes payable to investor was reduced by $20,000 for the exercise of 200,000 warrants. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT
SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">In April 2003, Verdisys issued 2,000,000 shares of common stock purportedly to acquire the assets of Quikview, Inc. The shares were valued
at $1,000,000 and have been accounted for as compensation expense. See Note 19 for details. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT
FACE="Times New Roman" SIZE="2">In June 2003, 100,000 shares valued at $75,000 were issued to a consultant. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT
FACE="Times New Roman" SIZE="2">In May 2003, Verdisys issued 33,333 shares of stock for a $16,666 reduction in accounts payable. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">On July 18, 2003, Verdisys signed an Agreement and Plan of Merger with Reconstruction Data Group, Inc. (RDGI), a publicly-reporting inactive entity. The shareholders of
Verdisys received 25,202,539 shares of RDGI in exchange for all of the 25,202,539 shares of Verdisys then outstanding. RDGI was renamed Verdisys and the former Verdisys Entity was extinguished. As of that transfer, Verdisys shareholders owned 94.4%
of the outstanding stock and RDGI shareholders owned 1,500,000 shares or 1.6% of the combined entity. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT
FACE="Times New Roman" SIZE="2">In July and August 2003, Verdisys sold 609,000 shares of common stock at $2.00 per share in a private placement for total proceeds of $1,218,000. Offering costs consisted of 59,400 shares of restricted common stock
and 9,501 warrants exercisable at $2 per share anytime through September 5, 2008. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman"
SIZE="2">In the third quarter of 2003, 269,547 warrants were exercised for 269,547 shares of common stock. $177,751 in cash was received for the exercise. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">In the third quarter of 2003, Verdisys issued 625,000 shares of common stock to the licensor of the lateral drilling license. 125,000 shares were for a reduction of the
note payable by $250,000 and 500,000 were for an amendment to the royalty agreement. The 500,000 shares were valued at $2,275,000. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">In September 2003, 144,903 shares granted in 2001, but never recorded, were issued to former employees and valued at the 2001 value of $52,160. </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">- 62 - </FONT></P>


<p Style='page-break-before:always'>
<HR  SIZE="3" COLOR="#999999" WIDTH="100%" ALIGN="CENTER">
<h5 align="left"><a href="#toc">Table of Contents</a></h5>


 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2"><B>A<SMALL>NNUAL</SMALL> F<SMALL>INANCIAL</SMALL> S<SMALL>TATEMENTS</SMALL> </B></FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><B>N<SMALL>OTES</SMALL> <SMALL>TO</SMALL> F<SMALL>INANCIAL</SMALL> S<SMALL>TATEMENTS</SMALL>
</B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">In October 2003, Verdisys sold 833,333 shares of common stock to Gryphon
Master Fund, L.P. at $6.00 per share for $5,000,000 total proceeds. Offering costs associated with the sale were $420,000 in cash, 83,334 warrants at $6 per share that expire October 24, 2008, 9,501 warrants at $2 per share that expire in September
2008 and 20,000 shares of common stock. The warrants are exercisable at any time prior to October 24, 2008 by paying cash at the exercise price or by electing a cashless exercise. If a cashless exercise is elected, the holder would receive a
percentage of the shares defined as the market price at the time of exercise less the exercise price multiplied by the number of warrants exercised. If Verdisys fails to meet certain milestones related to registration of such shares, Verdisys is
required to pay in cash liquidated damages equal to 1 percent of the purchase price of the shares paid for the first 30 days the event is not cured and 2 percent of the purchase price paid for each thirty day period thereafter until cured. In no
event shall Verdisys be required to pay more than aggregate liquidated damages of 8 percent of the purchase price or $400,000. In addition, if in the ten months subsequent to the agreement, the 30 day average closing price of Verdisys&#146; common
stock drops below $6 per share, such drops could result in the issuance of a maximum of 277,778 additional shares of common stock for no additional compensation. If this occurs, a total of 1,111,111 common shares will have been issued for an average
price of $4.50 per share. As of April 2, 2004, Verdisys incurred approximately $283,333 of liquidated damages for failing to file a registration statement timely. In the fourth quarter of 2003, Verdisys issued 25,000 shares of common stock valued at
$256,250 to a consultant for services. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">In the fourth quarter 2003, 245,631
warrants and 100,000 options were exercised for $29,564 and $10,000, respectively. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman"
SIZE="2"><B>NOTE 13 - STOCK OPTIONS AND WARRANTS </B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:2%; text-indent:-2%"><FONT FACE="Times New Roman"
SIZE="2"><U>Options </U></FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">In April 2003, Verdisys issued 1,280,000 ten year
$.10 options to employees. 30,000 options vest monthly over three months, 750,000 options vest quarterly over four years, 300,000 options vest quarterly over one year and 200,000 options vest quarterly over two years. The intrinsic value of these
options totals $512,000 which approximated their fair value. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">In August 2003,
Verdisys issued an employee 100,000 five year options with an exercise price of $4.10. There was no intrinsic value associated with the issuance. The fair value of the options was $321,024. </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">In December 2003, Verdisys granted 500,000 options to purchase Verdisys common stock to the
chairman and interim CEO. The options expire in 10 years, have an exercise price of $9.55, which equaled the closing price on the date of grant. 50,000 vest immediately, 50,000 were to vest by December 31, 2003 if Verdisys could collect all of the
Edge disputed accounts receivable by December 31, 2003 and the remaining 400,000 options vest evenly over 12 months in 2004. Because Verdisys was unable to collect the accounts receivable from Edge, 50,000 of the 500,000 options were forfeited. The
fair value associated with these options totaled $4,061,703 of which $507,713 is presented as a pro forma expense. See note 1 for details. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">$714,524 of intrinsic value associated with options vesting in 2003 was expensed in 2003. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT
SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">- 63 - </FONT></P>


<p Style='page-break-before:always'>
<HR  SIZE="3" COLOR="#999999" WIDTH="100%" ALIGN="CENTER">
<h5 align="left"><a href="#toc">Table of Contents</a></h5>


 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2"><B>A<SMALL>NNUAL</SMALL> F<SMALL>INANCIAL</SMALL> S<SMALL>TATEMENTS</SMALL> </B></FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><B>N<SMALL>OTES</SMALL> <SMALL>TO</SMALL> F<SMALL>INANCIAL</SMALL> S<SMALL>TATEMENTS</SMALL>
</B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">In 2002, Verdisys issued 7,155,000 ten year options to employees and
directors with exercise prices of $.10. Intrinsic value associated with these options totaled $2,862,000 which will be recognized as the options vest from 2002 to 2006. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT
SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:2%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2"><U>Warrants </U></FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P>
<P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Verdisys issues warrant to non-employees from time to time. The board of directors has discretion as to the terms under which the warrants are issued. All warrants
vest immediately unless specifically noted in warrant agreements. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">In April
2003, Verdisys issued 200,000 $.10 warrants, of which 100,000 expire in January 2007 and 100,000 expire in January 2008. The warrants have a fair value of $80,000 which was expensed when the warrants were granted. </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">During the summer of 2003, Verdisys negotiated settlements with 9 vendors plus the two
original founders for various debts carried on the books. One of the founders was issued 150,000 warrants exercisable at $.10 and valued at $.40 or $60,000. The difference resulted in a contribution to capital. See note 18 for details. </FONT></P>
<P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">During the fall of 2003, Verdisys issued 92,835 warrants, 83,334 at $6 per share that
expire October 2008 and 9,501 at $2 per share that expire September 2008. The warrants were issued in connection with raising the $5,000,000 from Gryphon (see note 12) and their fair value of $822,738 was treated as a cost of fundraising. The
warrants are exercisable at any time prior to expiration by paying cash at the exercise price or by electing a cashless exercise. If a cashless exercise is elected, the holder would receive a percentage of the shares defined as the market price at
the time of exercise less the exercise price multiplied by the number of warrants exercised. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT
FACE="Times New Roman" SIZE="2">Verdisys issued 2,644,438 in warrants in 2003 at an exercise price $.10. The fair value of $1,050,687 has been expensed accordingly in 2003. 83,133 of the warrants were exercised in 2003. </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">In early 2003, 232,334 previously expired warrants were extended and exercised. The extension
resulted in the granting of 232,334 warrants to purchase Verdisys stock at $.75 when the stock was selling for $.50 in private placements. Using the minimum value method, the modification resulted in no additional compensation expense. The warrants
were exercised in the summer of 2003. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">During 2002, Verdisys issued 120,000
warrants with an exercise price of $.10 to investors. 100,000 expire in March 2006 and 20,000 expire in November 2007. The fair value of $4,800 was recognized as interest expense for the issuance. </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">During 2002, Verdisys issued 980,000 warrants with an exercise price of $.10 to consultants.
The fair value of $392,000 was recognized as compensation cost. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">- 64 - </FONT></P>


<p Style='page-break-before:always'>
<HR  SIZE="3" COLOR="#999999" WIDTH="100%" ALIGN="CENTER">
<h5 align="left"><a href="#toc">Table of Contents</a></h5>


 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2"><B>A<SMALL>NNUAL</SMALL> F<SMALL>INANCIAL</SMALL> S<SMALL>TATEMENTS</SMALL> </B></FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><B>N<SMALL>OTES</SMALL> <SMALL>TO</SMALL> F<SMALL>INANCIAL</SMALL> S<SMALL>TATEMENTS</SMALL>
</B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Summary information regarding options and warrants is as follows:
</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="100%" BORDER="0" STYLE="BORDER-COLLAPSE:COLLAPSE" ALIGN="center">

<TR>
<TD WIDTH="65%"></TD>
<TD VALIGN="bottom" WIDTH="4%"></TD>
<TD></TD>
<TD></TD>
<TD VALIGN="bottom" WIDTH="4%"></TD>
<TD></TD>
<TD></TD>
<TD VALIGN="bottom" WIDTH="4%"></TD>
<TD></TD>
<TD></TD>
<TD VALIGN="bottom" WIDTH="4%"></TD>
<TD></TD>
<TD></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="center"><FONT FACE="Times New Roman" SIZE="1"><B>Options</B></FONT><BR><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="2" ALIGN="center"><FONT FACE="Times New Roman" SIZE="1"><B>Weighted<BR>average<BR>Share&nbsp;Price</B></FONT><BR><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="center"><FONT FACE="Times New Roman" SIZE="1"><B>Warrants</B></FONT><BR><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="2" ALIGN="center"><FONT FACE="Times New Roman" SIZE="1"><B>Weighted<BR>average<BR>Share&nbsp;Price</B></FONT><BR><HR SIZE="1" NOSHADE COLOR="#000000"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Outstanding at December 31, 2001</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">5,065,161</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">.11</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">2,668,271</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">.47</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Year ended December 31, 2002:</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Granted</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">7,155,001</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">.07</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">1,100,000</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">.10</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Forfeited</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">(2,717,973</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">.10</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">(217,362</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">.21</FONT></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Outstanding at December 31, 2002</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">9,502,189</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">.10</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">3,550,909</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">.33</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Year ended December 31, 2003:</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Granted</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">1,880,000</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">2.83</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">3,319,607</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">.26</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Exercised</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">(2,509,291</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">.10</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">(2,092,961</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">.10</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Forfeited</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">(4,760,522</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">.23</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">(352,840</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">.31</FONT></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Outstanding at December 31, 2003</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">4,112,376</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">1.35</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">4,424,715</FONT></TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">.38</FONT></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="3" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="3" NOSHADE ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="3" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="3" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="3" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="3" NOSHADE ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="3" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="3" NOSHADE COLOR="#000000"></TD></TR>
</TABLE> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Options outstanding and exercisable as
of December 31, 2003: </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="100%" BORDER="0" STYLE="BORDER-COLLAPSE:COLLAPSE" ALIGN="center">

<TR>
<TD></TD>
<TD></TD>
<TD VALIGN="bottom" WIDTH="25%"></TD>
<TD></TD>
<TD VALIGN="bottom" WIDTH="25%"></TD>
<TD></TD>
<TD VALIGN="bottom" WIDTH="25%"></TD>
<TD></TD></TR>
<TR>
<TD COLSPAN="2" VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="3" ALIGN="center"><FONT FACE="Times New Roman" SIZE="1"><B>&#151; Outstanding &#151;</B></FONT><BR><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="bottom" COLSPAN="2" NOWRAP ALIGN="center"><FONT FACE="Times New Roman" SIZE="1"><B>Exercise Price</B></FONT><BR><HR WIDTH="84" SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="center"><FONT FACE="Times New Roman" SIZE="1"><B>Number<BR>of Shares</B></FONT><BR><HR WIDTH="58" SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" NOWRAP ALIGN="center"><FONT FACE="Times New Roman" SIZE="1"><B>Remaining<BR>life</B></FONT><BR><HR WIDTH="65" SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="center"><FONT FACE="Times New Roman" SIZE="1"><B>Exercisable<BR>Number<BR>of Shares</B></FONT><BR><HR WIDTH="70" SIZE="1" NOSHADE COLOR="#000000"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="top" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">4.10</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">100,000</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">5 years</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">&#151;&nbsp;&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="top" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">.10</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">5,000</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">7 years</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">4,247</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="top" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">.10</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">138,000</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">8 years</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">104,099</FONT></TD></TR>
<TR>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="top" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">.10</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">3,369,376</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">9 years</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">1,040,021</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="top" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">9.55</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">500,000</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">10 years</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">&#151;&nbsp;&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">4,112,376</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">1,148,366</FONT></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="3" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="3" NOSHADE COLOR="#000000"></TD></TR>
</TABLE> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Warrants outstanding and exercisable
as of December 31, 2003: </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="100%" BORDER="0" STYLE="BORDER-COLLAPSE:COLLAPSE" ALIGN="center">

<TR>
<TD></TD>
<TD></TD>
<TD VALIGN="bottom" WIDTH="26%"></TD>
<TD></TD>
<TD VALIGN="bottom" WIDTH="26%"></TD>
<TD></TD>
<TD VALIGN="bottom" WIDTH="26%"></TD>
<TD></TD></TR>
<TR>
<TD COLSPAN="2" VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="3" ALIGN="center"><FONT FACE="Times New Roman" SIZE="1"><B>&#151; Outstanding &#151;</B></FONT><BR><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="bottom" COLSPAN="2" NOWRAP ALIGN="center"><FONT FACE="Times New Roman" SIZE="1"><B>Exercise Price</B></FONT><BR><HR WIDTH="84" SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="center"><FONT FACE="Times New Roman" SIZE="1"><B>Number<BR>of Shares</B></FONT><BR><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" NOWRAP ALIGN="center"><FONT FACE="Times New Roman" SIZE="1"><B>Remaining<BR>life</B></FONT><BR><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="center"><FONT FACE="Times New Roman" SIZE="1"><B>Exercisable<BR>Number<BR>of Shares</B></FONT><BR><HR SIZE="1" NOSHADE COLOR="#000000"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="top" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">.10</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">8,331</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">1 years</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">8,331</FONT></TD></TR>
<TR>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="top" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">.15-2.00</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">1,763,677</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">2 years</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">1,763,677</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="top" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">.10-1.00</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">494,039</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">3 years</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">494,039</FONT></TD></TR>
<TR>
<TD NOWRAP VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD NOWRAP VALIGN="top" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">2.00-6.00</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">92,835</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">5 years</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">92,835</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="top" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">.10-.15</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">1,190,833</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">7 years</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">1,190,833</FONT></TD></TR>
<TR>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="top" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">.10</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">375,000</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">8 years</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">375,000</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="top" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">.10</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">500,000</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">9 years</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">500,000</FONT></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">4,424,175</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">4,424,715</FONT></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="3" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="3" NOSHADE COLOR="#000000"></TD></TR>
</TABLE> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">- 65 - </FONT></P>


<p Style='page-break-before:always'>
<HR  SIZE="3" COLOR="#999999" WIDTH="100%" ALIGN="CENTER">
<h5 align="left"><a href="#toc">Table of Contents</a></h5>


 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2"><B>A<SMALL>NNUAL</SMALL> F<SMALL>INANCIAL</SMALL> S<SMALL>TATEMENTS</SMALL> </B></FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><B>N<SMALL>OTES</SMALL> <SMALL>TO</SMALL> F<SMALL>INANCIAL</SMALL> S<SMALL>TATEMENTS</SMALL>
</B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>NOTE 14 - CONCENTRATIONS </B></FONT></P> <P
STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">One customer accounted for 38% and 87% of total revenues in 2003 and 2002, respectively.
Related parties accounted for 52% of total revenue. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Verdisys maintains its
cash balance in one financial institution. The balance is insured by the Federal Deposit Insurance Corporation up to $100,000. At December 31, 2003, Verdisys uninsured cash balance totaled approximately $1,485,000. </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>NOTE 15 &#150; COMMITMENTS &amp; CONTINGENCIES </B></FONT></P> <P
STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Verdisys&#146; current office is in The Woodlands, Texas. In December 2003, Verdisys renewed
the Woodlands lease for 12 months for $6,071 per month. Future minimum lease payments under the lease as of December 31, 2003 are $66,781 in 2004. Rent expense was $42,325 and $47,627 in 2003 and 2002, respectively. </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Verdisys has a consulting agreement with its current majority stockholder for $10,000 per
month through April 30, 2005, with $120,000 due during 2004 and $40,000 in 2005. $0 was accrued and unpaid under this agreement as of December 31, 2003. The advisory agreement was cancelled with two months notice in February, 2004 effective upon the
resignation of the director. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">In April 2002, Verdisys entered into a three-year
employment agreement with its then CEO. The base salary under the agreement was $250,000 per year with quarterly performance bonuses and 2,000,000 stock options granted in 2002 and exercisable at $.10 per share and vesting quarterly over a two-year
period. $400,000 and $175,000 in expense was incurred in 2002 relating to the vested portion of these options and unpaid salary, respectively. In November 2002, this CEO resigned. In 2003 Verdisys agreed to pay accrued salary of $204,320 in cash of
which $161,306 was paid as of December 31, 2003 and the balance is accrued as of December 31, 2003. Verdisys is in negotiations over the unvested options. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Verdisys billed Edge $1,496,000 for drilling services in the third and fourth quarters of 2003. Edge disputes services were ever performed and refuses to pay. Verdisys
has been unsuccessful to date in substantiating that the work was performed. Due to these uncertainties, the account receivable and the revenue have been removed from the books. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT
SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">In August 2003, Verdisys obtained a 75% net revenue interest in property located in Monroe, Louisiana from a third party in exchange for
agreeing to perform lateral drilling services on the property. In October 2003, Verdisys assigned the net revenue interest to Edge for $200,000. Edge paid Verdisys $120,000 and agreed to pay the balance of $80,000 by March 31, 2004. As of April 2,
2004, Verdisys has not collected the $80,000. Due to the disputes with Edge, Verdisys has not recorded the remaining $80,000 receivable. Verdisys agreed to refund the money to Edge if Verdisys did not deliver a lease between Edge and the original
owner within 90 days if Edge desired. As of April 2, 2004, Verdisys has not delivered the necessary lease and Edge has the right under the agreement to request a refund of the $120,000. See Note 21. </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">If Verdisys fails to pay $400,000 to the licensor of Verdisys&#146; lateral drilling license
by May 15, 2004, he has the right to revoke the license. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">- 66 - </FONT></P>


<p Style='page-break-before:always'>
<HR  SIZE="3" COLOR="#999999" WIDTH="100%" ALIGN="CENTER">
<h5 align="left"><a href="#toc">Table of Contents</a></h5>


 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2"><B>A<SMALL>NNUAL</SMALL> F<SMALL>INANCIAL</SMALL> S<SMALL>TATEMENTS</SMALL> </B></FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><B>N<SMALL>OTES</SMALL> <SMALL>TO</SMALL> F<SMALL>INANCIAL</SMALL> S<SMALL>TATEMENTS</SMALL>
</B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>NOTE 16 &#150; LITIGATION </B></FONT></P> <P
STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">In August 2002, Verdisys settled a lawsuit filed against it in late 2001 for breach of
promissory note and breach of security agreement, by agreeing to pay $228,494 and issued 400,000 warrants with an exercise price of $.10 per share. Verdisys agreed to pay $15,000 on October 1, 2002 and $5,000 per month from November 2002 through
August 2004. Verdisys settled the debt in 2003 by paying $180,000 cash and issuing 200,000 shares of common stock for a cashless exercise of 20,000 warrants at $.10 per share. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT
SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Verdisys initiated a lawsuit against Edge Capital that requests a declaratory judgment that a purported agreement between Verdisys and Edge
is not enforceable. The lawsuit arises from Edge&#146;s contention that one of Verdisys&#146; ex-officers committed the company to purchase certain oil and gas properties from Edge. Although Verdisys contends that the alleged agreement is not
binding, if the court does not grant Verdisys&#146; request for declaratory judgment, Edge may seek to enforce the terms of the agreement. An enforcement action may lead to damages for breach of contract or specific performance, either of which may
have a material adverse effect on Verdisys&#146; financial condition. Edge, however, has not asserted any claim to enforce the purported agreement. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Verdisys has learned that it is a defendant in two purported class action lawsuits brought by former shareholders. The lawsuits, which according to press releases about
the lawsuits issued by the plaintiffs&#146; lawyers appear in substance to be practically identical, allege that Verdisys and its former CEO, Dan Williams, and the Company&#146;s former CFO, Andrew Wilson, violated Sections 10(b) and 20(a) of the
Securities Exchange Act of 1934, and Rule 10b-5 promulgated thereunder. The lawsuits allege that defendants made materially misstatements about Verdisys&#146; financial results. More specifically, the lawsuits allege that defendants failed to
disclose and indicate: (1) that Verdisys had materially overstated its net income and earnings per share; (2) that defendants prematurely recognized revenue from contracts between Verdisys, Edge Capital and Energy 2000 in violation of GAAP and its
own revenue recognition policy; (3) that Verdisys lacked adequate internal controls and was therefore unable to ascertain the true financial condition of the company; and (4) that as a result of recognizing revenue prematurely, Verdisys&#146;
financial results were inflated at all relevant times. Verdisys has not yet been served in the lawsuits and continues to evaluate its defense to these allegations, as well as the potential impact that an adverse judgment would have on it.
</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Verdisys has received notice that the Securities and Exchange Commission has
initiated a formal investigation into its reporting practices and public statements about the Company in 2003. The SEC has requested substantiation and documentary evidence from the Company concerning the performance of certain lateral drilling
services by subcontractors in the period from May 2003 to September 2003, supervision of such services by the Company&#146;s Executive Management at the time, revenue recognition related to the performance of such services, the third quarter 2003
earnings restatement, public statements concerning the services performed, and related matters. The SEC has also requested information and documentary evidence related to Verdisys&#146; acquisition of certain assets of QuikView, Inc., a related
party company, in June, 2003. In its letters to Verdisys requesting documents, the SEC stated that the staff&#146;s inquiry should not be construed as an indication that any violations of securities laws have occurred or as an adverse reflection on
any persons, company or security. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Since December 2003, Verdisys has taken
several steps to address issues related to the SEC&#146;s inquiries, including the termination and replacement of the previous Chief Executive Officer and Chief Operating Officer and the reassignment of its Chief Financial Officer based upon his
desire not to relocate to Houston. Internal controls have been strengthened overall, particularly with respect to the public release of Company information and the recognition of revenue. The Company has also initiated an internal investigation of
the matters of concern to the SEC. Consequently, the Company is restating its second and third quarter financial statements and has decided to defer all revenue related to the aforementioned period until such time that it can substantiate whether or
not the services were performed. Further, the Company is evaluating its options for rescinding its purchase of certain assets from QuikView, Inc. As such, the Company&#146;s purchase consideration of two million common shares may be cancelled.
</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">- 67 - </FONT></P>


<p Style='page-break-before:always'>
<HR  SIZE="3" COLOR="#999999" WIDTH="100%" ALIGN="CENTER">
<h5 align="left"><a href="#toc">Table of Contents</a></h5>


 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2"><B>A<SMALL>NNUAL</SMALL> F<SMALL>INANCIAL</SMALL> S<SMALL>TATEMENTS</SMALL> </B></FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><B>N<SMALL>OTES</SMALL> <SMALL>TO</SMALL> F<SMALL>INANCIAL</SMALL> S<SMALL>TATEMENTS</SMALL>
</B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Verdisys is cooperating fully with the investigation, including the
provision of numerous documents and testimony by our current executives. Verdisys is not aware of any pending or threatened enforcement or other actions that might be initiated by the SEC. Although the Company is working to bring the matter to a
prompt conclusion, it cannot make any assurance that the investigation will be resolved positively or that it will not have negative effects on the Company&#146;s limited resources or its ability to raise capital and use its stock as acquisition
currency during the period of the investigation. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Verdisys has never been in
bankruptcy, receivership or any similar legal proceeding. Other than described above, Verdisys is not aware of any other threatened legal proceedings. The foregoing is also true with respect to each officer, director and control shareholder as well
as any entity owned by any officer, director and control shareholder, over the last five years. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT
FACE="Times New Roman" SIZE="2">As part of its regular operations, Verdisys may become party to various pending or threatened claims, lawsuits and administrative proceedings seeking damages or other remedies concerning its&#146; commercial
operations, products, employees and other matters. Although Verdisys can give no assurance about the outcome of these or any other pending legal and administrative proceedings and the effect such outcomes may have on the company, except as described
above, Verdisys believes that any ultimate liability resulting from the outcome of such proceedings, to the extent not otherwise provided for or covered by insurance, will not have a material adverse effect on Verdisys&#146; financial condition or
results of operations. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>NOTE 17 &#150; NON-CASH TRANSACTIONS ON CASH FLOW
STATEMENT </B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="80%" BORDER="0" STYLE="BORDER-COLLAPSE:COLLAPSE" ALIGN="center">

<TR>
<TD WIDTH="87%"></TD>
<TD VALIGN="bottom" WIDTH="5%"></TD>
<TD></TD>
<TD></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Non-cash transactions for year ended December 31, 2003:</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Seller financed purchase of license with note</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">2,650,000</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Stock issued for license amendment</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">2,275,000</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Stock issued for reduction of note payable on license</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">250,000</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Contributions to capital by founders for debt forgiveness income</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">488,000</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Conversion of notes payable to investors to common stock</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">1,245,000</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Conversion of accrued interest on notes payable to investors to common stock</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">261,190</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Conversion of Series B preferred stock to common</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">705,000</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Stock issued for accounts payable</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">16,666</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Warrants exercised with notes payable to investors</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">20,000</FONT></TD></TR>
</TABLE> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>NOTE 18 - DEBT FORGIVENESS INCOME
&amp; CONTRIBUTION TO CAPITAL </B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">During 2003, Verdisys negotiated
settlements with 9 vendors for various debts originally recorded on the books at $520,501 for $43,600 cash and 33,333 shares of stock valued at $.50 or $16,666 resulting in debt forgiveness income of $460,235. During the same period, Verdisys
negotiated settlements with the two original founders for various debts recorded on the books at $576,000 for $28,000 cash and 150,000 warrants exercisable at $.10 and valued at $.40 or $60,000 resulting in a contribution to capital of $488,000.
</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>NOTE 19 &#150; ALLEGED SOFTWARE PURCHASE </B></FONT></P> <P
STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">In April 2003, Verdisys issued 2,000,000 shares of common stock for what management believed
was satellite communications management software pursuant to an asset purchase agreement with a related party. Management in place as of August 2003 maintained the software was not useful and impaired it as of June 30, 2003. In early 2004, following
an internal investigation, new management determined that the agreement is likely subject to rescission. Verdisys is evaluating its options to rescind the agreement and cancel the shares issued. The majority shareholder of Verdisys and former
director, who was also a principal to the counterparty in the transaction, acquired 11.5% of the 2,000,000 shares. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">- 68 - </FONT></P>


<p Style='page-break-before:always'>
<HR  SIZE="3" COLOR="#999999" WIDTH="100%" ALIGN="CENTER">
<h5 align="left"><a href="#toc">Table of Contents</a></h5>


 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2"><B>A<SMALL>NNUAL</SMALL> F<SMALL>INANCIAL</SMALL> S<SMALL>TATEMENTS</SMALL> </B></FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><B>N<SMALL>OTES</SMALL> <SMALL>TO</SMALL> F<SMALL>INANCIAL</SMALL> S<SMALL>TATEMENTS</SMALL>
</B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>NOTE 20 - NATURAL GAS FIELD PURCHASE OPTION </B></FONT></P> <P
STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">On November 10, 2003, Verdisys paid $500,000 for a sixteen day option to place an additional
$10,500,000 deposit to purchase a large natural gas field with significant current gas production for a purchase price in excess of $100 million 2004. As of December 31, 2003, the $500,000 was forfeited and the option expired Verdisys also paid fees
to date of $120,000 associated with the transaction. The additional $10,500,000 would have held the purchase option open until February 2004. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>NOTE 21 - GAIN ON SALE OF PROPERTY </B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">In August 2003, Verdisys obtained a 75% net revenue interest in property located in Monroe, Louisiana from a third party in exchange for agreeing to perform lateral
drilling services on the property. In October 2003, Verdisys assigned the net revenue interest to Edge for $200,000. Edge paid Verdisys $120,000 and agreed to pay the balance of $80,000 by March 31, 2004. Verdisys agreed to refund the money to Edge
if Verdisys did not deliver a lease between Edge and the original owner within 90 days if Edge desired. Verdisys recognized a $120,000 gain for the monies received due to a $0 cost basis by Verdisys. As of April 2, 2004, Verdisys has not collected
the $80,000. Due to the disputes with Edge, Verdisys has not recorded the remaining $80,000 receivable. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT
FACE="Times New Roman" SIZE="2"><B>NOTE 22 &#150; RESTATEMENTS OF SECOND AND THIRD INTERIM QUARTERS </B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px; margin-left:2%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2"><U>Second Quarter </U></FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">In April 2003, Verdisys issued 2,000,000 shares of common stock for what management believed was satellite communications management software pursuant to an asset
purchase agreement with a related party. Management in control as of August 2003 maintained the software was not useful and impaired it as of June 30, 2003. In early 2004, following an internal investigation, new management determined that the
agreement is likely subject to rescission. Verdisys is evaluating its options to rescind the agreement and cancel the shares issued. The majority shareholder of Verdisys and former director, who was also a principal to the counterparty in the
transaction, acquired 11.5% of the 2,000,000 shares. The impairment expense will be reclassified as compensation expense as of June 30, 2003. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">In the quarter ending June 30, 2003, Verdisys recognized revenue to Energy 2000 of $60,000, accounts receivable from Energy 2000 of $230,000 and deferred revenue to
Energy 2000 of $230,000. Verdisys has been unsuccessful in substantiating and documenting the work was performed. As of June 30, 2003, Verdisys is reversing the deferred revenue, accounts receivable and revenue. The $60,000 received from Energy 2000
will be carried as a customer deposit. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:2%; text-indent:-2%"><FONT FACE="Times New Roman"
SIZE="2"><U>Third Quarter </U></FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">In 2004, management discovered that accounts
receivable and deferred revenue as of September 30, 2003 were both overstated. In June 2003, Verdisys signed an agreement to drill wells for Edge. The contracts contained contingencies disallowing revenue recognition until each contingency was
fulfilled. As of September 30, 2003, Verdisys deferred revenues and associated costs of $1,496,000 and $330,000, respectively under this contract. In 2004 Edge disputed whether services were ever performed and refuses to pay. Verdisys has been
unsuccessful in substantiating the work was performed. Due to these uncertainties, the account receivable and the deferred revenue were removed from the books as of September 30, 2003. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT
SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">In 2004, management discovered that revenue recognized for monies received in the quarter ending September 30, 2003 was being disputed. In
June 2003, Verdisys signed an agreement to drill wells for Edge. Edge, through a third party financing source, paid Verdisys $497,000 in 2003. Edge is currently disputing services were actually performed and is requesting the $497,000 be returned to
the third party financing source. Verdisys has been unsuccessful in substantiating the work was performed. Due to these uncertainties, the $497,000 was reclassified from revenue to deferred revenue as of September 30, 2003. </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">- 69 - </FONT></P>


<p Style='page-break-before:always'>
<HR  SIZE="3" COLOR="#999999" WIDTH="100%" ALIGN="CENTER">
<h5 align="left"><a href="#toc">Table of Contents</a></h5>


 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2"><B>A<SMALL>NNUAL</SMALL> F<SMALL>INANCIAL</SMALL> S<SMALL>TATEMENTS</SMALL> </B></FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><B>N<SMALL>OTES</SMALL> <SMALL>TO</SMALL> F<SMALL>INANCIAL</SMALL> S<SMALL>TATEMENTS</SMALL>
</B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">In the quarter ending September 30, 2003, Verdisys recognized accounts
receivable from Energy 2000 of $337,500 and deferred revenue to Energy 2000 of $337,500. Verdisys has been unsuccessful in substantiating whether the work was performed. As of September 30, 2003, Verdisys reversed the deferred revenue and accounts
receivable. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>NOTE 23 &#150; SUBSEQUENT EVENTS </B></FONT></P> <P
STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">In 2004, 395,022 shares were issued for a cashless exercise of 400,000 warrants. </FONT></P>
<P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">409,935 shares were issued for the exercise of 409,935 options for cash of $40,994.
300,000 shares of common stock were issued to the licensor of the lateral drilling license as part of a workout on the note payable. The 300,000 shares had a value of $1,920,000 with $975,000 reducing the overall note balance and $945,000 recognized
as interest expense. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">In March 2004, Verdisys signed an agreement with Maxim
Energy (&#147;Maxim&#148;), a company run by Verdisys former CEO, Dan Williams. Verdisys will drill laterals on Maxim&#146;s wells on an arms length third party basis. Maxim paid Verdisys $100,000 as an advance on the mobilization and drilling of
the first two wells. Verdisys has stipulated that all services to Maxim will be paid for in advance. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">- 70 - </FONT></P>


<p Style='page-break-before:always'>
<HR  SIZE="3" COLOR="#999999" WIDTH="100%" ALIGN="CENTER">
<h5 align="left"><a href="#toc">Table of Contents</a></h5>


 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2"><B>Q<SMALL>UARTERLY</SMALL> F<SMALL>INANCIAL</SMALL> S<SMALL>TATEMENTS</SMALL> </B></FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><B>VERDISYS, INC. </B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT
FACE="Times New Roman" SIZE="2"><B>
<A NAME="tx67395_46"></A>BALANCE SHEET </B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><B>September 30, 2004 </B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"
ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">Unaudited </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="80%" BORDER="0" STYLE="BORDER-COLLAPSE:COLLAPSE" ALIGN="center">

<TR>
<TD WIDTH="86%"></TD>
<TD VALIGN="bottom" WIDTH="6%"></TD>
<TD></TD>
<TD></TD>
<TD></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><B>Assets</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Current Assets</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Cash</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">122,764</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Accounts receivable, net of allowance for doubtful accounts of $100,000</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">65,198</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Accounts receivable from related parties</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">20,547</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Prepaid expenses</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">56,965</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:5.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Total Current Assets</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">265,474</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="4"></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Property and equipment, net of accumulated depreciation of $146,883</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">643,601</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">License, net of accumulated amortization of $460,828</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">4,564,172</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:5.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Total Assets</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">5,473,247</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="3" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="3" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="3" NOSHADE ALIGN="left" COLOR="#ffffff"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><B>Liabilities And Stockholders&#146; Deficit</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Current Liabilities</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Accounts payable</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">581,782</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Accrued expenses</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">777,391</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Deferred revenue</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">881,127</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Guarantee of third party debt</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">300,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Customer deposit</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">275,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Notes payable to related parties, net of unamortized discount of $30,761</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">476,939</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:5.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Total Current Liabilities</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">3,292,239</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="4"></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Long Term Liabilities</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Deferred revenue, less current portion</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">52,975</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:5.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Total Liabilities</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">3,345,214</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Commitments &amp; Contingencies</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD></TR>
<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="4"></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Stockholders&#146; Equity</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Convertible preferred stock, no par value, 40,000,000 shares authorized</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:5.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Series A, none issued and outstanding</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">&#151;&nbsp;&nbsp;</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:5.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Series B, none issued and outstanding</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">&#151;&nbsp;&nbsp;</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Common stock, $.001 par value, 50,000,000 shares authorized, 31,721,727 shares issued and outstanding</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">31,722</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Additional paid in capital</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">24,739,033</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Accumulated deficit</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(22,642,722</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:5.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Total Stockholders&#146; Equity</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">2,128,033</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:5.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Total Liabilities and Stockholders&#146; Equity</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">5,473,247</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
</TABLE> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">- 71 - </FONT></P>


<p Style='page-break-before:always'>
<HR  SIZE="3" COLOR="#999999" WIDTH="100%" ALIGN="CENTER">
<h5 align="left"><a href="#toc">Table of Contents</a></h5>


 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2"><B>Q<SMALL>UARTERLY</SMALL> F<SMALL>INANCIAL</SMALL> S<SMALL>TATEMENTS</SMALL> </B></FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">VERDISYS, INC. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT
FACE="Times New Roman" SIZE="2">
<A NAME="tx67395_47"></A>STATEMENTS OF OPERATIONS </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">Three and Nine Months Ended September 30, 2004 and 2003 </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">Unaudited </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="100%" BORDER="0" STYLE="BORDER-COLLAPSE:COLLAPSE" ALIGN="center">

<TR>
<TD WIDTH="62%"></TD>
<TD VALIGN="bottom" WIDTH="2%"></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD VALIGN="bottom" WIDTH="2%"></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD VALIGN="bottom" WIDTH="2%"></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD VALIGN="bottom" WIDTH="2%"></TD>
<TD></TD>
<TD></TD>
<TD></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="6" ALIGN="center"><FONT FACE="Times New Roman" SIZE="1"><B>Three Months</B></FONT><BR><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="6" ALIGN="center"><FONT FACE="Times New Roman" SIZE="1"><B>Nine Months</B></FONT><BR><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="2" ALIGN="center"><FONT FACE="Times New Roman" SIZE="1"><B>2004</B></FONT><BR><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="2" ALIGN="center"><FONT FACE="Times New Roman" SIZE="1"><B>2003</B></FONT><BR><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="2" ALIGN="center"><FONT FACE="Times New Roman" SIZE="1"><B>2004</B></FONT><BR><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="2" ALIGN="center"><FONT FACE="Times New Roman" SIZE="1"><B>2003</B></FONT><BR><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Revenue</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Satellite Services Third parties</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">154,906</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">27,824</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">401,705</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">362,115</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Drilling Services Third parties</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">427,519</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">&#151;&nbsp;&nbsp;</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">694,180</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">&#151;&nbsp;&nbsp;</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Total revenue</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">582,425</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">27,824</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">1,095,885</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">362,115</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Cost of services Provided Satellite Services Third parties</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">153,668</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">786,021</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">464,874</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">1,176,085</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Drilling Services Third parties</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">272,080</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">&#151;&nbsp;&nbsp;</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">688,906</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">&#151;&nbsp;&nbsp;</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Total Cost of Services Provided</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">425,748</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">786,021</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">1,153,780</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">1,176,085</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Gross Margin (loss)</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">156,677</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(758,197</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(57,895</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(813,970</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Selling, general &amp; administrative</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">936,591</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">770,119</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">3,382,053</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">3,948,498</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Depreciation &amp; amortization</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">130,051</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">62,078</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">395,982</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">108,792</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Bad debts</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">50,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">19,999</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">50,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">19,999</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Debt forgiveness income</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">&#151;&nbsp;&nbsp;</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">&#151;&nbsp;&nbsp;</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">&#151;&nbsp;&nbsp;</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(460,235</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Total operating expenses</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">1,116,561</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">852,196</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">3,827,954</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">3,617,054</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Operating loss</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(959,884</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(1,610,393</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(3,885,849</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(4,431,024</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Other expense</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Interest income</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">31</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">48</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Interest expense</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(14,544</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(43,167</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(454,422</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(140,006</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Loss on sale of equipment</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(1,900</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">&#151;&nbsp;&nbsp;</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(1,900</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">&#151;&nbsp;&nbsp;</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">NET LOSS</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(976,378</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(1,653,560</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(4,342,204</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(4,571,030</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="3" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="3" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="3" NOSHADE ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="3" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="3" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="3" NOSHADE ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="3" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="3" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="3" NOSHADE ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="3" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="3" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="3" NOSHADE ALIGN="left" COLOR="#ffffff"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Basic and diluted net loss per share</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(.03</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(.03</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(.14</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(.21</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Weighted average shares outstanding</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">31,523,265</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">26,783,077</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">30,986,520</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">21,491,391</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
</TABLE> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">- 72 - </FONT></P>


<p Style='page-break-before:always'>
<HR  SIZE="3" COLOR="#999999" WIDTH="100%" ALIGN="CENTER">
<h5 align="left"><a href="#toc">Table of Contents</a></h5>


 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2"><B>Q<SMALL>UARTERLY</SMALL> F<SMALL>INANCIAL</SMALL> S<SMALL>TATEMENTS</SMALL> </B></FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">VERDISYS, INC. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT
FACE="Times New Roman" SIZE="2">
<A NAME="tx67395_48"></A>STATEMENTS OF CASH FLOW </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">Nine Months Ended September 30, 2004 and 2003 </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">Unaudited </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="100%" BORDER="0" STYLE="BORDER-COLLAPSE:COLLAPSE" ALIGN="center">

<TR>
<TD WIDTH="80%"></TD>
<TD VALIGN="bottom" WIDTH="2%"></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD VALIGN="bottom" WIDTH="2%"></TD>
<TD></TD>
<TD></TD>
<TD></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="2" ALIGN="center"><FONT FACE="Times New Roman" SIZE="1"><B>2004</B></FONT><BR><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="2" ALIGN="center"><FONT FACE="Times New Roman" SIZE="1"><B>2003</B></FONT><BR><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Cash Flows From Operating Activities</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Net loss</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(4,342,204</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(4,571,030</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Adjustments to reconcile net loss to net cash used in operating activities:</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:5.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Stock issued for services</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">948,192</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">1,326,329</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:5.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Issuance of options and warrants for services</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">290,844</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">1,861,622</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:5.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Depreciation and amortization</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">390,089</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">108,792</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:5.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Loss on sales of equipment</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">1,900</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">&#151;&nbsp;&nbsp;</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:5.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Amortization of discount on notes payable</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">25,685</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">&#151;&nbsp;&nbsp;</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:5.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Debt forgiveness income</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">&#151;&nbsp;&nbsp;</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(460,235</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:5.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Bad debt</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">50,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">19,999</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:5.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Changes in:</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:7.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Accounts receivable</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">24,947</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(88,833</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:7.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Accounts receivable &#150; related party</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">3,413</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">42,620</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:7.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Other current assets</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">&#151;&nbsp;&nbsp;</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(25,468</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:7.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Accounts payable</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">261,095</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(302,674</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:7.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Accrued expenses</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">281,540</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">261,353</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:7.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Customer deposit</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">206,718</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">60,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:7.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Deferred revenue</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">72,906</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">611,681</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Net Cash Used In Operating Activities</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(1,784,875</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(1,155,844</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Cash Flows From Investing Activities</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Purchase of property and equipment</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(3,705</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(369,701</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Cash payments for license</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">&#151;&nbsp;&nbsp;</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(100,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Proceeds from the sale of equipment</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">12,500</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">&#151;&nbsp;&nbsp;</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Net Cash Used In Investing Activities</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">8,795</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(469,701</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Cash Flows From Financing Activities</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Proceeds from sales of common stock</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">359,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">1,982,150</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Proceeds from exercise of warrants</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">81,217</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">329,251</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Proceeds from notes payable to related parties</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">620,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">50,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Payments on notes payable to related parties</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(35,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(155,894</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Payments on note payable on license</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(500,000</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(379,596</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Net Cash Provided by Financing Activities</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">525,217</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">1,825,911</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Net change in cash</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(1,250,863</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">200,366</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Cash at beginning of period</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">1,373,627</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">135</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Cash at end of period</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">122,764</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">200,501</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="3" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="3" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="3" NOSHADE ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="3" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="3" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="3" NOSHADE ALIGN="left" COLOR="#ffffff"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">NON-CASH:</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Stock issued for notes payable license</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">1,184,808</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2"> &#151;&nbsp;&nbsp;</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Discount on notes payable</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">133,746</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2"> &#151;&nbsp;&nbsp;</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
</TABLE> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">- 73 - </FONT></P>


<p Style='page-break-before:always'>
<HR  SIZE="3" COLOR="#999999" WIDTH="100%" ALIGN="CENTER">
<h5 align="left"><a href="#toc">Table of Contents</a></h5>


 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2"><B>Q<SMALL>UARTERLY</SMALL> F<SMALL>INANCIAL</SMALL> S<SMALL>TATEMENTS</SMALL> </B></FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><B>VERDISYS, INC. </B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT
FACE="Times New Roman" SIZE="2"><B>
<A NAME="tx67395_49"></A>NOTES TO FINANCIAL STATEMENTS </B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>NOTE 1 - BASIS
OF PRESENTATION </B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">The accompanying, unaudited interim financial statements
of Verdisys, Inc. (&#147;Verdisys&#148;) have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules of the Securities and Exchange Commission (&#147;SEC&#148;), and should be read in
conjunction with the audited financial statements and notes thereto contained in Verdisys&#146; Annual Report filed with the SEC on Form 10-KSB. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for
a fair presentation of financial position and the results of operations for the interim periods presented have been reflected herein. The results of operations for the interim periods are not necessarily indicative of the results to be expected for
the full year. Notes to the financial statements which would substantially duplicate the disclosure contained in the audited financial statements for 2003 as reported in the 10-KSB have been omitted. </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Revenue recognition. Revenue is recognized on well drilling operations when persuasive
evidence of an arrangement exists, the lateral drilling is complete, the price is fixed or determinable and collectibility is reasonably assured. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>NOTE 2 &#150; STOCK OPTIONS AND WARRANTS </B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Stock options and warrants. Verdisys accounts for non-cash stock-based compensation issued to non-employees in accordance with the provisions of SFAS No. 123 and EITF No.
96-18, Accounting for Equity Investments That Are Issued to Non-Employees for Acquiring, or in Conjunction with Selling Goods or Services. Common stock issued to non-employees and consultants is based upon the value of the services received or the
quoted market price, whichever value is more readily determinable. Verdisys accounts for stock options and warrants issued to employees under the intrinsic value method. Under this method, Verdisys recognizes no compensation expense for stock
options or warrants granted when the number of underlying shares is known and the exercise price of the option or warrant is greater than or equal to the fair market value of the stock on the date of grant. </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">During the first quarter of 2004, Verdisys granted 310,000 ten year options to officers and
non-employee directors with exercise prices at the then market price of $4.28. The options to officers vest monthly over 12 months and the options to non-employee directors&#146; vest immediately. </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">During the second quarter of 2004, Verdisys granted 72,000 options to non-employee directors
with an exercise price of $2.20. The options vest immediately. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">During the
third quarter of 2004, Verdisys granted 140,000 ten year warrants to employees with an exercise price of $.10 and 770,000 ten year options to employees with an exercise price of $.90. The options vest quarterly over 4 years and the warrants vest
immediately. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">The following table illustrates the effect on net loss and net
loss per share if Verdisys had applied the fair value provisions of FASB Statement No. 123, <I>Accounting for Stock-Based Compensation</I>, to stock-based employee compensation. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT
SIZE="1">&nbsp;</FONT></P>
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="100%" BORDER="0" STYLE="BORDER-COLLAPSE:COLLAPSE" ALIGN="center">

<TR>
<TD WIDTH="60%"></TD>
<TD VALIGN="bottom" WIDTH="2%"></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD VALIGN="bottom" WIDTH="2%"></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD VALIGN="bottom" WIDTH="2%"></TD>
<TD></TD>
<TD></TD>
<TD></TD>
<TD VALIGN="bottom" WIDTH="2%"></TD>
<TD></TD>
<TD></TD>
<TD></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="6" ALIGN="center"><FONT FACE="Times New Roman" SIZE="1"><B>Three Months Ended<BR>September 30,</B></FONT><BR><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="6" ALIGN="center"> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="1"><B>Nine Months Ended</B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT
FACE="Times New Roman" SIZE="1"><B>September 30,</B></FONT></P><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="2" ALIGN="center"><FONT FACE="Times New Roman" SIZE="1"><B>2004</B></FONT><BR><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="2" ALIGN="center"><FONT FACE="Times New Roman" SIZE="1"><B>2003</B></FONT><BR><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="2" ALIGN="center"><FONT FACE="Times New Roman" SIZE="1"><B>2004</B></FONT><BR><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="2" ALIGN="center"><FONT FACE="Times New Roman" SIZE="1"><B>2003</B></FONT><BR><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Net loss as reported</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(976,378</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(1,653,560</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(4,342,204</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(4,571,030</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Add: stock based compensation determined under intrinsic value- based method</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">39,698</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">&#151;&nbsp;&nbsp;</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">290,844</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">&#151;&nbsp;&nbsp;</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Less: stock based compensation determined under fair value- based method</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(89,474</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(299,008</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(1,001,619</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(299,008</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="1" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="1" NOSHADE ALIGN="left" COLOR="#ffffff"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Pro forma net loss</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(1,026,154</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(1,952,568</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(5,052,979</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(4,870,038</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="3" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="3" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="3" NOSHADE ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="3" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="3" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="3" NOSHADE ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="3" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="3" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="3" NOSHADE ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="3" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="3" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR WIDTH="0" SIZE="3" NOSHADE ALIGN="left" COLOR="#ffffff"></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Basic and diluted net loss per common share:</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">As reported</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(.03</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(.06</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(.14</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">$</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(.21</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Pro forma</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(.03</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(.07</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(.16</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">(.23</FONT></TD>
<TD NOWRAP VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD></TR>
</TABLE> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">- 74 - </FONT></P>


<p Style='page-break-before:always'>
<HR  SIZE="3" COLOR="#999999" WIDTH="100%" ALIGN="CENTER">
<h5 align="left"><a href="#toc">Table of Contents</a></h5>


 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2"><B>Q<SMALL>UARTERLY</SMALL> F<SMALL>INANCIAL</SMALL> S<SMALL>TATEMENTS</SMALL> </B></FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">The weighted average fair value of the stock options granted during 2004 and 2003 was $1.19 and $.50, respectively.
Variables used in the Black-Scholes option-pricing model include (1) 2.0% risk-free interest rate, (2) expected option life is the actual remaining life of the options as of each year end, (3) expected volatility is zero, and (4) zero expected
dividends. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>NOTE 3 &#150; LATERAL DRILLING LICENSE &amp; NOTE PAYABLE ON
LICENSE TO RELATED PARTY </B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Verdisys did not make the December 2003 or
January 2004 payment on the note payable. In February 2004, Verdisys and the licensor agreed to restructure the note payments. Verdisys agreed to issue the licensor 300,000 shares of common stock, $100,000 cash and a note payable for $400,000 due on
May 15, 2004 for the unpaid amounts due under the original note. The 300,000 shares had a value of $1,920,000 with $1,184,808 reducing the overall note balance and $735,192 recognized as compensation expense. On May 14, 2004 Verdisys paid the final
installment on the Note. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>NOTE 4 &#150; CUSTOMER DEPOSITS </B></FONT></P> <P
STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">In May 2004, Verdisys agreed to a second contract to drill laterals for Maxim Energy
(&#147;Maxim&#148;), a company controlled by Verdisys&#146; former CEO, Dan Williams. Verdisys has stipulated that all services to Maxim will be paid for in advance. As of September 30, 2004, Maxim had paid Verdisys $270,000 and El Paso Energy had
paid $5,000 for services yet to be rendered. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>NOTE 5 &#150; DEFERRED REVENUE
</B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Satellite bandwidth contracts cover a period between 12 and 36 months. In
select engagements, Verdisys receives cash in advance and recognizes revenue evenly over the contract. Deferred revenue related to satellite services totaled $368,351. $315,376 will be recognized in the year ended September 30, 2005 and $52,975 will
be recognized during the years subsequent to September 30, 2005. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Verdisys also
deferred revenue collected for lateral drilling service contracts. In June 2003, Verdisys signed an agreement to drill wells for Edge Capital (&#147;Edge&#148;). Edge, through a third party financing source, paid Verdisys $497,000 in 2003. Verdisys
has inadequate documentation to substantiate what services were actually performed, and Edge is disputing whether the services were performed at all. Management is attempting to substantiate what services were actually performed and continues to
gather evidence to substantiate the services. As of September 30, 2004, the $497,000 is included in deferred revenue. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">In 2003 Verdisys billed $666,250 to Energy 2000 for services performed in 2003. Verdisys received $397,500. However, Verdisys has inadequate documentation to substantiate
whether some of the services were performed. Verdisys was able to substantiate $328,750 of revenue leaving $68,750 in deferred revenue. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>NOTE 6 &#150; NOTES PAYABLE TO RELATED PARTIES </B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">During the second and third quarter of 2004, officers and directors of Verdisys loaned Verdisys $185,000. The notes mature in 12 months, carry interest of 8% and have one
year warrants attached with an exercise price of $2.00. The notes were discounted by the relative fair value of the warrants which totaled $35,157. $13,387 of the discount was expensed through September 30, 2004. </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">- 75 - </FONT></P>


<p Style='page-break-before:always'>
<HR  SIZE="3" COLOR="#999999" WIDTH="100%" ALIGN="CENTER">
<h5 align="left"><a href="#toc">Table of Contents</a></h5>


 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2"><B>Q<SMALL>UARTERLY</SMALL> F<SMALL>INANCIAL</SMALL> S<SMALL>TATEMENTS</SMALL> </B></FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">During the third quarter, Verdisys issued $350,000 in Convertible Notes to third party lenders, carrying an 8%
interest rate and 175,000 shares in warrants at an exercise price of $0.001. Verdisys has an option to convert the shares at $2 per share when they have traded above that level for more than 20 trading days. The notes were discounted by the relative
fair value of the warrants which totaled $98,589. $12,299 of the discount was expensed through September 30, 2004. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Verdisys also borrowed $35,000 from a director, which loan was repaid by Verdisys within a month. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT
SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>NOTE 7 &#150; STOCKHOLDERS EQUITY </B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">During the first quarter of 2004, Verdisys issued 409,935 shares of common stock pursuant to stock option exercises for total consideration of $40,993. </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">In February 2004, Verdisys issued 395,022 shares of common stock pursuant to the cashless
exercise of a warrant for 400,000 shares of common stock at a price of $0.10 per share. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman"
SIZE="2">In March 2004, Verdisys issued 300,000 shares of common stock to Carl Landers in connection with the renegotiation of the note payable to Mr. Landers for the licensing of his lateral drilling technology. See note 3 for details. </FONT></P>
<P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">During the second quarter of 2004, Verdisys issued 402,241 shares of common stock pursuant
to stock option exercises for total consideration of $40,224. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">During the
second quarter of 2004, Verdisys sold 179,500 shares of common with 71,800 warrants attached for total consideration of $359,000. The warrants were valued at $86,207 and the stock was valued at $272,793. </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">During the third quarter of 2004, Verdisys issued 47,950 shares of common stock for
fundraising commissions and another 300,000 shares of common stock for a lawsuit settlement valued at $213,000. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>NOTE 8 &#150; LITIGATION </B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Except as set forth below, there have been no material developments in Litigation other than as reported in the Company&#146;s Annual Report on Form 10K-SB. </FONT></P>
<P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">As previously disclosed, Verdisys initiated a lawsuit against Edge Capital that requests a
declaratory judgment that a purported agreement between Verdisys and Edge is not enforceable. It was filed in Montgomery County, Texas in February 2004. The lawsuit arises from Edge&#146;s contention that one of Verdisys&#146; ex-officers committed
Verdisys to purchase certain alleged oil and gas properties from Edge. Edge filed a counterclaim against Verdisys and asserts claims against Dan Williams (Verdisys&#146; former President and CEO), Eric McAfee (Verdisys&#146; former Vice Chairman),
Ron Robinson, Frederick Ruiz, Joseph Penbera, James Woodward, John Block, and Andrew Wilson. Edge has also made claims against Solarcom, L.L.C., DeLage Landen Financial Services, Inc., and Allen Voight. Edge seeks to enforce the agreement Verdisys
challenges, and alleges several causes of action including claims for fraud, breach of contract, negligence, and conspiracy. Edge has asserted that is has sustained actual damages in excess of $85 million, and has claimed punitive damages as well.
Verdisys believes it has meritorious and complete defenses to the claims asserted in the lawsuit and intends to vigorously defend itself. If Edge prevails, it may obtain significant damages that may have a material adverse effect on Verdisys&#146;
financial condition. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Edge and one of its apparent owners, Frazier Ltd.,
initiated a lawsuit in Summit County, Ohio against Solarcom, L.L.C., DeLage Landen Financial Services, Inc., Verdisys, Inc., and Firstmerit Bank, N.A. that sought an injunction against the draw against a letter of credit pledged as collateral for a
credit advanced to Edge. Edge asserted that its transaction with Verdisys was the product of fraud and that its creditor, DeLage Landen as assignee from Solarcom, should not be allowed to draw against Edge&#146;s letter of credit from Firstmerit.
The Ohio state court denied Edge&#146;s request for a temporary injunction. The pleadings in the Ohio action do not include any claim for damages from Verdisys and Verdisys is unable to determine whether an adverse judgment would have a material
adverse effect on Verdisys&#146; financial condition. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">In September, Verdisys
settled the claim by Scooter&#146;s Convenience by issuing 300,000 shares of Verdisys to Scooters in a private transaction. In connection with the settlement, the Company agreed to register the resale of the shares issued to Scooter&#146;s with the
SEC. See note 7 for details. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">- 76 - </FONT></P>


<p Style='page-break-before:always'>
<HR  SIZE="3" COLOR="#999999" WIDTH="100%" ALIGN="CENTER">
<h5 align="left"><a href="#toc">Table of Contents</a></h5>


 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2"><B>Q<SMALL>UARTERLY</SMALL> F<SMALL>INANCIAL</SMALL> S<SMALL>TATEMENTS</SMALL> </B></FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">In connection with its financing in October 2003 with Gryphon Master Fund, L.P, Verdisys agreed to provide certain
registration rights to the investors. As part of the registration rights agreement with Gryphon, Verdisys agreed to register the shares on or before March 2004. In the event that Verdisys failed to comply with the required deadlines, Verdisys could
be subject to certain liquidated damages. Gryphon has made a claim against Verdisys for the maximum liquidated damages in an amount of $400,000. Verdisys was notified that legal action has been filed against Verdisys by Gryphon Master Fund, L.P. for
the liquidated damages as well as its entire investment in Verdisys for a total of $6,200,000, together with attorney&#146;s fees and punitive damages. The parties are currently engaged in discovery. The Company intends to vigorously defend itself
in this matter. If Gryphon prevails, however, this may have a material adverse effect on the Company&#146;s financial condition. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">In July, 2004 Verdisys was informed that a former CEO of Verdisys filed a lawsuit against Verdisys for breach of contract and wrongful discharge. These claims seek relief
in excess of $500,000 related to an alleged employment agreement and also seek damages related to an excess of 4,000,000 stock options claimed pursuant to the alleged agreement. The company has only recently received notice of these claims. The
lawsuit was filed in state court in San Diego, California. Verdisys intends to vigorously defend itself. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT
FACE="Times New Roman" SIZE="2"><B>NOTE 9 &#150; SETTLEMENT OF ACCOUNTS PAYABLE </B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman"
SIZE="2">In the third quarter of 2004, Verdisys leased one of its Lateral Drilling Units to Advanced Hydraulic Manufacturing in exchange for the forgiveness of $97,720 in accounts payable. This was recognized as an increase in rental revenue and a
decrease in accounts payable. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>NOTE 10 &#150; SUBSEQUENT EVENTS
</B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Energy 2000 </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT
SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">In October, 2004 Verdisys entered into an agreement with Berg McAfee Companies, Energy 2000 NGC, Inc. (Energy 2000), and certain individuals
to settle several outstanding legal issues. Energy 2000 has agreed to settle a Finders Fee and Lateral Drilling services dispute by delivering 300,000 shares of Natural Gas Systems stock into escrow for Verdisys. The Company plans to have these
shares monetized as soon as practical. Furthermore, to settle a contemplated third party legal dispute, Verdisys and the parties have exchanged 500,000 shares of Natural Gas Systems stock for 500,000 of Verdisys shares and Verdisys has delivered
into escrow an additional 250,000 shares. Verdisys also has agreed to dismiss the Quikview, Inc. lawsuit, which it had filed against certain individuals. Lastly, Berg McAfee Companies and Eric McAfee have loaned Verdisys $200,000 under the same
terms and conditions, with the exception of maturity dates, as the Convertible Notes issued in the third quarter described above. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">- 77 - </FONT></P>


<p Style='page-break-before:always'>
<HR  SIZE="3" COLOR="#999999" WIDTH="100%" ALIGN="CENTER">
<h5 align="left"><a href="#toc">Table of Contents</a></h5>

<HR SIZE="3" NOSHADE COLOR="#000000" ALIGN="left"> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman"
SIZE="2"><B>We have not authorized any dealer, salesperson or other person to give you written information (other than this prospectus) or to make any representations as to matters not stated in this prospectus. You must not rely on unauthorized
information. This prospectus is not an offer to sell these securities or a solicitation of your offer to buy these securities in any jurisdiction where that would not be permitted or legal. Neither the delivery of this prospectus nor any sale made
hereunder after the date of this prospectus shall create an implication that the information contained herein or our affairs have not changed since the date thereof. </B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT
SIZE="1">&nbsp;</FONT></P><HR WIDTH="17%" SIZE="1" NOSHADE COLOR="#000000"> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>Until May
16, 2005, 90 days after the date of this Prospectus, all dealers effecting transactions in the registered securities, whether or not participating in this distribution, may be required to deliver a Prospectus. This delivery requirement is in
addition to the obligations of dealers to deliver a Prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions. </B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><B>V<SMALL>ERDISYS</SMALL>, I<SMALL>NC</SMALL>. </B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">4,636,760 Shares </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"
ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">Common Stock </FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P><HR WIDTH="17%" SIZE="1" NOSHADE COLOR="#000000"> <P
STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><B>PROSPECTUS </B></FONT></P> <P
STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P><HR WIDTH="17%" SIZE="1" NOSHADE COLOR="#000000"> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"
ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">February 14, 2005 </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P><HR SIZE="3" NOSHADE COLOR="#000000" ALIGN="left"> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>


</BODY></HTML>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>GRAPHIC
<SEQUENCE>2
<FILENAME>g67395image_005.jpg
<DESCRIPTION>GRAPHIC
<TEXT>
begin 644 g67395image_005.jpg
M_]C_X``02D9)1@`!`@``9`!D``#_[``11'5C:WD``0`$````/```_^X`#D%D
M;V)E`&3``````?_;`(0`!@0$!`4$!@4%!@D&!08)"P@&!@@+#`H*"PH*#!`,
M#`P,#`P0#`X/$`\.#!,3%!03$QP;&QL<'Q\?'Q\?'Q\?'P$'!P<-#`T8$!`8
M&A41%1H?'Q\?'Q\?'Q\?'Q\?'Q\?'Q\?'Q\?'Q\?'Q\?'Q\?'Q\?'Q\?'Q\?
M'Q\?'Q\?'Q\?_\``$0@!/`&0`P$1``(1`0,1`?_$`,,``0`"`P$!`0``````
M```````%!@,$!P(!"`$!``,!`0$```````````````$"`P0%!A```@$#`P$%
M!0()!`X'!P4!`0(#``0%$1(&(3%!(A,'46%Q,A1""(&1H5)BDB,5%K$S)%3!
M<H)38W/3-+0U=396-]&B0[-$=!?ALM*39-0E@Y2U)B<8$0$``@$"!`((`P<#
M!`,``````0(#$00A,4$241-A<8&1(C(4!<'1%?"AL4)2(S/Q<H*BTB0&X6)#
M_]H`#`,!``(1`Q$`/P#]4T"@4"@4"@4"@\R21QH7D8(BC5F8@`#WDT"*:*9!
M)$ZR(>QT(8'3WB@]4"@4"@4"@4"@4"@4'QW1%+NP5%!+,3H`!VDF@\PSPS)O
MAD65.S<A##4>\4T'N@4"@4"@,RJI9B`H&I)Z``4&."XMYTWP2I*FNFY&##7X
MBDP,E`H%`H%`H%`H%`H%`H%`H%`H%`H%`H%`H.:?>'M>1MZ89'(\=R%UCLGB
M"EZ)+.62%WA0[9D8QD:@1L7T_1KIVDQYD1/*46Y*/>>M5V?NR'D8O''(9HEQ
M"W*MME^L8^6T@8=0XC5I`>WOK6NW_O\`;TY^Q&O!(<-]17]/?27"Y/FM]?YG
M-YR36PL69KB[FDET81H9#T5%=0=3T/O-5OC\S)/;I%8-=(6/C?KE%=\OM.)<
MHX[>\5S613S,8EXR2Q3CKHHD33:QVD`:=O377I5+;?X>ZL]T)U52;[VN"AO,
MU8-QR^EO\7</;6\%NPF\\QR-&SLP0>4HV:]_;6OT,Z1.O"4=R;Y1]Y#"XKDE
MOQS$8*_Y#EC%'-?6UB`6@$B"0H!HQD=%8;@-`.S76L\>UFU>Z9B()LY)Z2YV
M'*6GK#<YV.]NL,;62YFQ<LS1S+$9;AS$"2XC<#P^ZNO<4T\N(Y_Z(CJZ'P+U
M6].>#^B-CGK:QO++%3WD]O8XEI5NKF2?>Q8+(1&NWH6).FGXJY\F"]\LUZIB
M>"3Q7WA\A>//;W?!<OCKPV=Q>XV.X\$=TMK$9G19&1-K%%.W16JMMM$<K1)J
MD+'[P?'KOTCO/43Z)XTLI3;2XHRJ9/J#(J)&)`NGB616UV]GPJ)VL^9V'=PU
M1N1^\QB[/%X/9QZ^O.29ZW^LML!;,LDB0,S")I)`O_:*FX!4)T[:FNTF9GC\
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M`%)G@T?13UPR0X?`G+\;D8\;C;&>[N>87C/+#/Y<OA0,4U9VW[5\1)(TJ=SM
MX[OAF-9GD1*7;[S%M;V=IG<CQ#+67#;Z40VW('\ME.XD!FA4E@OA/VCKW:U7
MZ369B+1W1T.Y7^:YF>;[TG!OHKV1L;>6$4JK'(WDR)(+DAMH.TAETJ^.O]BW
MCK^1/-%<<OO.]7O6&URKSWF'3&Y#ZBP$SJ&A`\:(=2$)74`CLJUXTQXYCGJC
MK*(N.=6.'^[S<7/I_C<IAH;S)>3)<K=M*UF5=7,AF14(673R].G;5ZXM<^EY
MUX&O!?O2CUUN(N#I/S/%Y"QL,1C$GDY->%I$OGWK&JQ$HN^20OX?$=?RUAGV
MT=^E9B9F>7@F)2"?>6M;5,?DL]Q/*8;B^6D6*PSLQC="7&Y3)$AW(-NK="3I
MV:U7Z376*S$VCH=SLL,T4T231,'BD4,CKU!4C4$5R+/RCB(>?<Z]:>:<;AYQ
MEL'9XV>[FMO(GE>-5CN!&L83S(PJ@-W5ZEIKCQ5GMB=5.<I+TF]=.6XK&\W@
MY+<'D]KQ./SK:^5PKRA;@6Q7SMIW*^N]2VI[:C/MJS->WX>XB5OP/WC^.<U^
MFP<>`OPF6M;M<C(2!#`$AD;RQ,%&\NJ::@#;KWUADVLX^.O),6U4[T^]8N&\
M"],VS?'N+7RX:YR[6=Y#->K*T4Q@5UD#&,='52--.[WUKDV]KY.V9XZ(B=(=
M5Y[ZY8KC%SQ>ULL=)F;CE)#6<<4JQ%(V**KMJK]ID_(:YL6WFT3,\.U:9:?,
MO73*8'-W>,Q_!LSF8K$*;F_@0K!H\:R>%E2770-H>SJ*G'MXM&LVB"95KGWK
MQ;\A]$,GR#AT-_#=F=+"[DC8Q7&/8Z2><[1[O`P4*&!^U6N+;=N6*VT_-$VX
M/'HMZXY`<-A7E^,R,.-QEA-=W'+[QGEAN"DH"HK%-6=M^U?$22-*;C;QW?#,
M:S/(B4L?O,6UO:6><R?$,K8<.OY5BM>02>6RG=KHS0J2P7PD_,==.FM5^DUF
M8BT3:.AW.S6US!=6\5S;R++;SHLD,JG561QN5@?80:XUGXM?U=]1^.>J>:S+
MY6^O^-8C-36M]823O)`MO+/(JH(V)5=%0["!T(`KV?(I;'$<K35GK.KI%ISW
M.9#[S\-GC\S<R\:O+*WGM[%9F-JRS64<FX1:[-26U[.VN6V.(V^NG'7\5M>*
MZ9;[P$!S.4QO$^-7_*H\&2N7O;1DCAC*:[Q&6W&4KM/8/A64;;A$VF*Z\C51
M/6GUV.;])\=E^$OD+,7UYY=Y?PNT$ME)"`?(F,>O\[O\.C:'2M]MMM,LUMIP
M_>B9X-S'?>7SF#X/97^;X7DVBMH[2V?)W,OEK=-)$W[97>+Q;O+U[_FJOTD6
MOI%HZI[EQYY]XCC?$K_C=O)927D/(84NFG214^GMY'5%D92&W:^(]H^6L<6U
MM>)GP)MHD+[UILH?52T]/[;%RW<T\"7$^06552%9(S(`8ROB\.W[7VJK&#^W
MWZIUXZ*OE_O3X2+)7\.`XYDN08K%,1DLO:@"!%4^)UZ-JO0]6*Z_"MJ[*=(U
MF(F>B.Y-\C^\+QC'>FEGS[%6LF5L+N[2Q:TWB"6*9D=F6342`,FS\.NH.E4I
MM+3>:3PDFW!1N=^O-AS;T[Y5C\+CK^Q%OBH;T9.76)#)]5`KQ1$:$Z>9\VHU
MT[*VQ;::7KKXHF>#[PGUQL^%^D_"[&:UN.0\DRXE%OC8I?VWE^>ZAW=@Y&K>
M%1IUZ^RHR;?OR6GE6$Q/!=.8?>!M./Y>UXY;<=OLURV6WCN+S#6)$GTWF('V
M-(%8LP4Z^%.SV5ECVW='=,Z5)LM7IKZB1<WQ=W='%7F%O+"X^EO<??+MD23R
MUDU'82NC]"0/A667%V3IKJF)6^LDE`H,-Y:6][9SV=R@DMKF-X9XSV,DBE64
M_$&IB=!^"[;B7(OX]C])YS(V+L\Y),Z$'Q(H"F7N'B@74?VU>Y;)6*>;U[66
MG'1VK[T7`\VUOQ+/XRUN;O&X`F'(0V!*SQ*SQN)8MH8KKL(W`>$Z5Q;')$=U
M9Z^*UH5CB]SZ3YOGO&;G%W/,,]G;?(6H@?)RK)%:+YH8M*[+(VQ3J=%TU]HK
M3)YE:3$]L1IT(T6#[KZ?_P"G^HY9>OU+Z$C_`.KFUTJF]^2G[>!5$XOD$/I/
M]X'EU]RJPNY;3///+BKNVA,K.+F<3(L8U&[HVPZ'H1V5>U?-Q5[9^7F<I07I
M?<M>8OUNN_)D@^JL+B98)5TD7S'N6VN/SAKH:OGC2<<?MT1'5M86/B$WW<N/
M6G+,=D9\=+D[UER>,0/-8R(6*R,K#:R."0035;S:,]IK,:\.:>B0]"<URQ_4
MRVQ?',ME>0<`$3?629>)E2+]F5T0.TH1E?0#8PU&O2J[J*]FLQ$7]!7FI7(>
M&9ZR]3K[T@LB5P>5S<&0BC'=`8V9&U]B02D-[UKHKDCR_-GYHC1&G'1T;U[L
M?32UY79V^9BS7'LABK&VAQG(<5");>6)`VV,KK'H\74:JW97+M9OV\-)B>DI
MMHLGW7LYZA9&'+)R">[R&#B8+AK_`"*$7#("0?$^KE2-O0L>O8:SWL4B8[>?
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MEYO,GY9DYQHK.*N_323BEK@>67'-!F;9`DW'(9-UJ9HM=GDQ2KH@]@*^&M;=
M_=-J]FGBC@O$]O'!Z^>E$<,$UO!'@K%8X+@[I8U$5QI'(P5`63L/0?"N>)_L
MW_W?C">L/F!5O_5[UHZ'KBLGIT[?#2_^/'ZR.<HKAN(R63^ZER6TL+=[FZ6[
M2;R(U+.4BN$=R%'4[5!-7R6B-S$S^W`CDRC-#U']!K7@/'+2\DY+QFWAO;RW
M:/;'*MM(8FBC;=XG*R[U73[.G;3M\K-W6Y6.<*Q;WGI??<7ML3R&7FESG;5!
MKQQ91)`+E%*CREE1M@T/3P:@&M)\R)F8[-/%'!^S.*Q0Q<;QL<(D6)+=%19M
M/,``[&TTZBO'GFT?E#C'IOA^>>O_`#O%9>>[M;>&>\N$DLY!$Y87(70EE?52
M&KU;YIQX:S#.(UEU;U%],>)<#]!^6V/';0Q>=;HUQ<2,9)I2)H^K,?9[.RN7
M#EM?+$V6F-(;7H$FGW>[;PZ,;:^UZ=3XI*KNO\TE>3E_HKPW^+?N[<RP@CW7
M;W3SV((Z_46\4<L6G]LR;?@:ZMSD[,\3Z$1'!$?=]M,MSGU%Q%YED+6G$<='
M:0;M?LL_EZZ]^CN?C5MYICI,1_/.J*\9;G)N223^KG)L7ZHMGI<<LDD7'L-B
MWECAEC$FMN`B,@8/&%;=^=VU%::8XG'IZ9E/7BT_1_%9'(^@GJ;8V-O)/=NT
M#1VZ`F1A&!(P"CJ3M4]*ON;1&:LRB.20P&>3G/H,WI=A;6\/+,7;M>2P-'MA
MD6UNQ)Y0<D>-T?55([1I5+5\O-WS\LRGG&BLXR\],IN)VN"Y5<\T.9MHPDW'
M(I-UL9H@=GDQ2KH@TZ@%?#6MN_NFU>S3Q1P?L3@D,4'"<###%+!%'C[94@N#
MNEC40KHDA`75E[#T%>1DGXI];2'YS])N*X_E'//5CCV4C)L\E<W$3$CJK?4S
ME)$U^TC:,*[]Q>:UQS'2/R4B.:G>BN!S>!^\!;X/-;Q>XWSK1G.NFR--L;(3
M]@IH4]VE;[N];8=8ZHKS8,1@[+T]Y#F\)Z@7/)<-&TI-ED,),T<%TFI&YQV/
MO7KJ#[B*FUYR1$T[9]9R3V4XU@[GT(Y(O!\;F!819:VN2F256GEA1%5KA$C1
M=$U;33KT&NOLRKDGSH[YC73HG3@NEIR?`^J/H-E.)8VUNAE>/X6VFE::/;']
M5:*&"1-J=Q/DD=G8U8]DXLL3/63G#DW#^-Y7U"XGRK)W<;//QO!V]IBN\_T(
M^>P77[16/_K5U9+1BO6(_FF9GVHCBO?W;L;D.9\JY-RS(:QW$EFN-AE))*$P
M+&2-?S0D9K#>:4BM(]::\4;Z;<XB](^/<MX5RO"WHSMU++]`D4.^*Y+0^2%W
MZCP$@$,-=0:OFQ^=:+5GAH1.B!RW$,]Q_P"[*KY6WDMGR?(8+J"VD!#K%]-*
M@9E/R[MNM:TR1;/.G2J)C@[CSY-/NJ2!5T/[FL=0!^G#K7#@_P`_ME:>3@W'
M<1E/3VPX)ZL0H^4Q=P\EODK:50_D$2.@2/77;OBU,9[G'OKNO:,LWQ\IZ*\N
M*X>L&8]+,OS23D'U>=X]F'@MI,?G\9%YMM?126R/&ZD-$Z.@;RFT;[.E8[>,
MD5TX3'A/1,Z.H?=ARWJ!DN(7LW+FN)T6X"XJ\O5*W$D(71MS-XV4-\I;KV]V
ME<V\BD7^%-79:Y%B@4"@QM;6[2"1HD:0=CE06&GOH,E!CCMK:)BT<2(Q[650
M"?Q4'U+>!':1(U61OF<*`3\2*!)!#+M\V-7V]5W`'0^[6@^+;6ZL[+$@:3HY
M"@%@?;[:#ZEO`D9C2-%C/:@4!3K[J!%!#$NV*-8U/4A0%'Y*#F?&_1=L;ZL9
M;U#R66_>5W?^8MK;&'RQ;J^U4`8N^[9$H0=!71?<:XXI$:1"(CBZ;)%%*NV5
M%=?S6`(_+7.E]1$1=J*%4=@`T'Y*#ZRJP(8`@]H/908XK>WB_FHDCU[=JA?Y
M*#Z]O!(X=XU=UZ!F4$C\)H$<$$1)BC5"W5BH`U^.E!\2VMT<R)$BR-\SA0"?
MB:`UM;-()6B1I!V.5!;\=!]>"!W61XU:1/E<@$CX&@"W@$AE$:B1NC/M&X_$
MT"*""+7RHUCW=6V@#7XZ4'R.VMXV+1Q(C-\S*H!/QTH#6ULTGF-$AD_/*@M^
M.@R4'A;>!93*L:"5NV0*`Q_#VT'IE5U*N`RL-"I&H(H/D<442;(T5$_-4`#\
M0H/D4$$((BC6,-U.T!=?Q4'Q+>W1S(D2*[?,X4`GXD4'UX('=7>-6=?E9E!(
M^!-`C@@B+&*-8RW5BJ@:_'2@^);6Z.9$B17;YG"@$_$B@-;6S2>:T2&0=CE0
M6_'09*#P((!(91&HD/:X`W'\-!\:WMVD$C1(TB]CE06'X:#[+##*NV5%D7V,
M`P_+0?4CC1=J*%7\T``4'F*WMXB3%$D9/;M4+K^*@1V]O&Q:.)$9OF95`)^.
ME!]CMX(B3%&B%OF*J!K\=*!);P2D&6-7*_*64'3X:T'V2**1-DB*Z?FL`1T]
MQH'E1>7Y6Q?*TTV:#;I[-*#S]-;>5Y/E)Y7;Y>T;?Q=E!\-G:&-8S!&8T^5"
MJZ#7V#2@R@```#0#L`H%`H%`H%`H%`H%`H%`H%`H%`H%`H%`H%`H%`H%`H%`
MH%`H%`H%`H/CNB(SN0J*"68]``.I-!@Q^1L,C:1WEA.EU:2ZF*>)@R,`=#HP
MZ'J*F8T(EL5`4"@4"@4"@4"@4"@4"@4"@4"@4"@4"@4"@4"@4"@4"@4"@4"@
M4"@4"@4"@4"@4"@4"@4"@ULFS+C;ME)#+#(01T((4U:O.$3R<PXSGLE;<0Y$
M+F^DN%M,?+<0SW;^8_FR^<`"[=P*JJBNG+2-894GFU^)9F2'T?DAQ]UI+:7$
MEH\L3>)$E??JATW*0DG0Z=HJ.W7)Q3K\+H/`ED7B..26YFO'5&4W5R_F32;9
M&&YWZ;C6.7YEZ<D_6:Q08+^]AL;.:[GU\F!2[[1J=![!4UC6=$3.B"N^;8YN
M+93-8YUDDQ]N\HAF\/[3R]\2N!U`<Z5><<Q,1*.[AJ]8OF%K+P^QY!?Z1_50
MI(\<0/\`.'HR(&.IT.OX.M/+GNT@[N&J<LKN*\M(;J'413('0,-#H>O4528T
MG1,2S5"2@4"@4"@4"@4"@4"@4"@4"@4"@4"@4"@4"@4"@4#6@:T#6@4"@4"@
M^/)'&NYV"K[6.@_+4Q&HC;OE'&;-2UWEK.!1VF2XB3^5A6U=MEMRK:?9*-81
M4WJ?P&+3_P#-02ZG0>1NGU^'E*];Q]MW$_R3[>'\4=\(W/\`J;8KAL@^&MLC
M/>QVTLEM.N/N3"LBH65G9T5-H(Z]>RML'VVW?7OFL5UC7XHU1-^'!7?2CUDY
M)R^Z6QO,`T@CT%QEK1M+>/\`QBR'H3[%8GW5V?=?M&/;QW5O_P`9Y_N5IDF>
MB,]1^7\@O>1W>-M9Y+3&6;&V^GB=E-Q(`"[2%=#IXMJH#[SKW1]NV-+8^Z\:
MZE[3JL/!,OD$X/E[O(SRSV>]H<>9I-Y8+"L;K$S^)E#ZCM[0=*\7[MFI@[KT
MCNBD:Z0TQU[N$]5/L,U'%@,E9O89"!KQ88=9X51MJ2M,Q41M/KT\/7OKP\'_
M`+%3+DBMXK6-)GN[N'JXQ#6VUFL<)U>L9E188*\P<UI<-)=W$,A2TB+11$:(
MS)YA35-NUF\1/;71]P^]4V]OAB+VXZQKRZ^$\^BN/;S:/!U#TSRD-WQJ&W6*
M6WEM6>-H;D*DVF\MN**SZ`[NG6K[+??4UF^FG'3QCE'H@OC[)TU6RNQ4H(GE
MG^[>1_Q#5IB^:%;\G(+.Z:3TZSPM]DC7LF.BC+:A3YD<9'=WZ5TWCXH95Y2V
M1D)H_2:T%TT:?NV^FAFV;B$1$D?3J.I7?W:].\U%(^.?4FWRNK<2D67C&*E4
MZK):Q.I[-0R`@US9/FEI7DV+C.X6WODL)[^WBOG&Y+9Y$60@]AVDZ]:HLWJ!
M0*!0*!0*!0*!0*!0*!0*!0*!0*!0*".R,]Q&SF*0J5`T7H1\=#4UCBB90<G.
MH[-RN0A8H.V6'K^-#6_TTSR5G)$)K%<BPN6CW8^[CG;OC!T<:>U#UK*V.U><
M)BT2T\URVVQ%\MO<V=T\)0.UW#&'C74D:$`[SIIUT%13'-B9T2UC?VE_:QW5
MI*LUO*-4D7L(JJS-(XCC9R"0@+$*"S'0:]`.I-3$:CAN?]>LV_-L=AL;BKBS
ML5O(X[B*Y01WET"VWRT278L88^T_A%?48/L5/(M>UHFW;PT^6/=S83EG71T8
M\HYS,H-KPZ1-?ZW?6T1'X(_.KQOIL$<\ONK,_DTUGP>A<^J<[>"QP]E&?[[<
M7$[C\"1H#^.H[=K'6\^R(_$^(&*]39RWG9_'VBGL%K8,Y'X9IF!_%4^;MHY4
MM/KM^4&EO%\_@WD\ZZ7O,;]CWFTAM;;^2.2GU>*/EQ5]LVG\3MGQ>CZ<8^4J
M;S,9F\T[1)D)D4_%83$OY*C]0M'RUI'_`!C\=4]CU'Z7<$5_,DQ:W$G>UQ+-
M/K\?,=A2?N>?33NT]41'\#LA(V?"^(60TM,)8P>]+:('\>VL;[S-;G>T^V4]
ML)6&WMX%VPQ)$OL10H_)7/-IGFE]N((KB"2"9=\4RM'(I[U8:$?BI6TQ.L#!
MB\5C<38Q6&-MH[2SA&V*")0J@?@[_?5\N6V2TVM.LRB(T0V;X!Q7*O=7$^-A
M:]ND*R2G>H=M-`T@C9-WQ[:MCS6KPUGM)AYY#P/"9OCMOA[Z`316*ZV2HS0!
M)$C*)IY9&@`.E7P[FV._=7AJRS8:Y*Z6XJ7QCT*PT?F/G('?54$:1W4VH8$[
MB2K*-""!^"NO)]TR=)CW0YJ_;\?6/WRV+_T(XV^%6*UC=<HNFLS7-P4.A)/0
ML>T>ZJU^Z9=>,QIZH3/V_%IR_?*P\!]-\+Q5#=P0%<M/&T-U-YLDH9/,+@#>
M>G=W5AN=Y?+PF>$-L&VICXQ'%<*Y'04%)]5<YE<;A$AL<9>7L=WO^INK)5<V
MZQ[3JRL"I#ZD=>G2JY=C?<XK4IDC%?AI,ZQU]'%G?/Y<Q/;-H]#CT&2Y!?V+
MP6&+RUS:1L'NM+.+;M,0"`K`85'[/70D=A]E8[+[%NL%YM?<8[:\-)M>?XSS
M9WW];1PQ7]T,DF3Y'8602\Q.6M\-(ZFW@>TC\HCRRJH?.:56_9J!J`#HOLJ?
MN'V/<[BVN/<8Z::\K7CAZ=.ICW\5CCBO/LAUCTFS>7O\.]K?8R]LX+18S:7E
MZBQ^>DF[0(B*J`(%'R].M:X=A;;8JUODC+?CKIK.GMGBTIN/,F?AFD>E'/A^
M8X^+D&,MK>66_P`OF&R%EFXTM9H3;2R1L([A9]=IMXE,:^`]%4@]U6:,#Q^J
M:W&7DB%V(F>.>RMY6A<%XKBY5X%EC92B2Q?3L"$T'80?%0=0MS*8(S*NR4HI
MD0D-HVG4;AH#U[Z#W0*!0*!0*!0*!0*!0*!0*#Q<-M@D;<4VHQW@;BN@[0.N
MNE!R6QYOF<1CKU%-K?Y,&W\C*+),]G=M,DL@66%F4VEVWE>.,MIU73M"T&PW
MJ;RIOJ7M8;"3ZFXM(\>+EGMX($GQT5Y^WG+$-YLDC11D`=5/;\M!H7'*C:9V
M_D;);IK?)Y(I83WDGD],'#/Y#]=?+2XW!?#X3KH->E!N1>I?)4@E:SAL&AE.
M.CQJW#/#!`ESCENB]Q<,QW*\NL,9Z>+VGI0=,BB%[9P2W<*I-)$C21J2VUF`
M)4/HI(!]U!`YC@EK?`^5<O"3W,`X_L&NC'N)JSMCB7(N=>F',,7YF0QX-S#`
MID-U:N4E0+U)*ZAN@'=7J;?>8[<+./-@O'&JC9GUZY[PW$06-_#+>W]VK2V+
MY./6(6[(`DB2#1Y"')U&NGMKCWWEQ?X.#?:]_;\39X+Z^^JF)XS>9W*X6TO,
M1,WFP7+;K4NP(5RBIN5E'>=!7+3%-ZS/@VF\1I#].\=Y;QSD%I'<XC(6]XLB
MAML,BN1J-=-`>ZLNV=-=%NZ-=&YD,-B,GY7[PLH;HPNLD+2HK,CHP960D:J0
M1KTJ^/->GRS,:DPW:S2^B@4"@4"@4"@4"@4"@4"@4"@4&*[M(+NVDMKA=\,R
ME9%U(U!]XZU,3I.I,(K]U8KC^%R$F.M$C58'E=-2=YBB(4,2=>Q=*FUYGFB*
MQ#2XJUMRO@''<AE[6*1LCC;*]EA52(UDGMT=@@U)`&\@=>RE;3'(F-6;D>;7
MC&,LUL[19HVD2WCA+F-537N.U^P=@J]*=\JVG1`^H'.;BPPV"O<3.86R%]&L
MGA4E[90PF7QJVWKMT.E37'QF))MP3/)>9_NC-XK$PVPN)LA)MF9W,8CBT)W+
MHK[F.T].E13'K&J9MI*S5DL4"@4"@4"@4"@4"@4"@4"@4'S:OL'4ZGXT`JI&
MA`T]E`V)^:/Q4#:NFF@T]E!]-!\H(KDUO=7&#O+>U=XYY8RB&-%E)W=-NQM`
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M`!!SZS_S_C,=V@UW38R\1^G=I'<+`W7XUX7D;>WRY-/]U?QC5KK/@?\`J7@X
M.F6L\CAR--QO;.8(-?\`"Q"6/_K4_3KS\DUOZK1_"=)1WPE\;R[BV3Z8_+6E
MRVNA2.9"X/L*Z[A^*L,FTRT^:MH]BT6B4M7.DH%`H%`H%`H%`H%`H(_D?^[V
M4_\`*3_]TU!"^D__`"LX;_L/&_Z''0:GJD)3C<?Y2L["[C.B*7.FX`G103IU
MZFKTSX\?&]HKZYT4O69Y0YYS>*XEP'&<>DS0-!!-O30%C)+*$2,Z@G<X#;1V
M=.T5MCR5O,VK,6CT*S$Q$1*8Y++/=<GX?DA'+(LD-H)Y`A<(SJ['S"@*K\W4
M]@K+ZK#2)K:]8GPF83-+3.L0[`""-1U!K-H4"@4"@4"@4"@4"@4"@4"@4"@4
M"@4`T'B21(T:21@D:`L[L0``.I))J8C44:/U?XQ?<QL>+80G*75R[K<7<1_H
M\*QHSL=_VSX=/#T]]>I/VG+7#.6_PQ'3K/Y*>9&ND)OG&#O\SQ^6UL'5+Q'2
M6$,=%8IVJ3W:@UP8,D4O$SR1DK,UTA5O3_A_)K?*C(YY%MTM`PM8`X<N[C;O
M.WH`JDUON\U;?*IAI,<W2-*X8;M'(X'$Y'K>6J2N.@D(T<?!AUJ\7F.2LUB4
M;'Q-+1]]E*2@[(I.OXF%:>=,\T=B9Q\$D43&1=LCMN9===.X=GN%93*[9J`H
M%!$Y+B7%\GUR&)M+ENT/)"A<'VAM-P_'71CW66GRVM'M1-8E$?\`IG@8/]4W
M61PY`(465Y,J#7K_`#<AEC_ZM;_J.2?GBM_76/XQI*O9!_#W/;,?T#E"7:#3
M;#D[..3I[Y8&@;7WZ5/U&WM\V/3_`&V_"=32?%SKU6YUZG8#)8*UB2V3(&26
MX1<<9ITN(E`3RYH'0-H2W<3[NRO8^U[':Y:WF=>WA'Q:1I/HE2]K0Z+A.=27
M'#Y,[R#'3\>E@32>*Z7M<]%,(^9P[$!5TUUZ5XFYVM:9>REHR1Z&D6X<7/,M
MZM\KNFV6NF.M%U0E%C>Z)VD;I"V^-/%UT0'XUZF'[36>-O<SG)+QAO43E%EN
MN_KI+ZVA;S+NSN@DFZ$`%O*E`1E?:#IKJ->VJ;O[;2M9FO!-;R[G7@M6.2YM
MXCI)(JGV$T&/]X66_;YJZ_D_'09U=77<I#*>PCJ*#[0*"/Y'_N]E/_*3_P#=
M-00OI/\`\K.&_P"P\;_H<=!2_6"/F39&%UMK2;!AUBL3Y\T$_F2*N_S#&RZC
M<.GNJN?[/M-Y%?-M>MZZ\HK,<=/&)\&%MQGQVGLBLUGQU5>UXCSZ\L;;*1V5
MH;:\"00*;V3IYG[)6T9&.X?G:FK[3[3M=M$TIER:<?Y:<YZ\O<K?<;B_&:T]
M\M+)X;FF(RUIA[NRMGOKW;].3?7!'5FV[BNQ>U#]GW5R9?\`UG8YK3DMDRS,
M\_AI^2T;S<UX=M/?+OO%5SZ8*U3/K`F40,LRVI)B"JQ$>A;K\FFOOKMR5QUG
M3'KV1RUYM,<WFOQZ=WH2U47*!0*!0*!0*!0*!0*!0*!0*!0*!0*")Y5F\;A,
M#=7^13SK=5\M;4`.T\DG@2!$/S-(QV@5T;7#;)DBM>$^/AZ?8BTZ0H7`?1J/
M!9^QY7-*MMD7BN&O<5"H^FA>YZK'`>T+$IV>_MKU=]]XG+CG%'&O#2T\YT\?
M7S9UQZ3JZGI7A-2@4"@4"@4$=R'(9#'8:ZOK"R.1N;9#(MDK^6\BKU8(=&\6
MG8.^ML&.M[Q6T]L3U1,N=\!]=8^8<DAPD.'-F71Y9)Y;A#M6,=BIM!9BQ`T%
M>OO_`+).WQ3>;:^QG7)K.CJM>$U*!0>?*B\SS=B^:!MWZ#=IVZ:]NE3K.F@Y
MSZT^>;+$ARRV`FD,C@[8Q<;`MOYC=WS/MUZ;M._2O1^US6,G%2_)RA[*[24D
MJ^PC4N6``&A!U)Z=E?3=\:,=%DX3Q.7.W7TL/F-C?,TR=ZI_9B-5!,"/TW22
M;MOA^522>H&OC?<=]&G;7FO2KMF:D=+5=C,NK@$KVZ:&O`;*^Q)4^($D=_0]
M:#6N(+ID5(Y&^9B[GIT))T&WN772@W\?>W%E;)"LH*IKKN'3J=>^@W8>3PF:
M*%TW-*P163734G3OH)R@C^1_[O93_P`I/_W34$+Z3_\`*SAO^P\;_H<=!9I[
M6VN`%GB24*=5#J&`/M&M3$S!HJW.,E>X_)<,MK*4P07^=2UNT4#1X!87DVSL
MZ#S(4/3V5`M$MI:RR)++"DDD6OE.RAF74:':2.FHJ=1EJ`H%`H%`H%`H%`H%
M`H%`H%`H%`H%`H%!1\4!S'DXSK^/C>#D>+"+]FYO%U2:\]ZQ=8XO?N;V5Z>7
M_P`?%Y?_`.E_F]%>E?;SGV0I'&=>B\5YBY0*!0*!0:N6;(KC+I\8L;Y!8F:T
M277RVD`U56T*G1CT[:TQ=O='=\O5$N6>GOKK?\HY##Q^XX^T%\^\S2PS`I$L
M?SLZR!6\)Z:`GK7N[_[)7!CG)%]:^KFSIDUG31UVOGFJI#TJX-ORCOC49LK<
M"[F;JK12A=-8'7:T7BU;PGM)KT/U3/\`#\7RQI_KXJ=D,'T?.^,];"8\HPR_
M^#N66/)1*/[W.=(Y]/9)HWZ56[\&;YH\J_C'RSZXYQ[/<<8]*9X]S+`YUGAM
M)FBR$/\`G.,N5,%W$?TX7T;\(U'OKFW&TR8N,Q\,\ICC$^U,6B4W7,L4&.XM
MK>Y@>"XB6:"0;9(I%#*P/<0>AH*^_`>(0>=<086WDG*#;"PUC)0>$*C'8NO?
MH!KWUI%YG2)G@C1L<;QF1L(BDJ10V[ZM]/&/E8DGIIX0/=6NXO2W)$0W\M;R
MSVZK$I8JX8@'0Z:&N99`R0S1C;(K*=`-'7W^V@QE"NO334-\IH-?)'^B2==>
MH[1H:"/%O)<"T@$T]L96"+<1E59-6'BBW!AJ/>*"P_P5=_\`%&:_^;;?_;T&
M.?@DT\,D$W)LR\,JM'(AEMM"K#1ATM^\&@P8GTW_`'5BK+%V7)<S'9V$$5K;
M1B6VT6*%!&B_YOW*HH-K^"KO_BC-?_-MO_MZ#4O_`$TAOYK*:\Y#F)I<=<?5
MV3--;CRYQ&\6\:0#4^7,Z]>G6@V)N#Y!X72/EF;AD8$)*)+1BI]H#6Q4_AH/
M=OP_,Q8&[Q;\LRLUU<R+)'EW%G]5`JE28X]MNL.UMIUW1D]30?+[AV9N</86
M$7+<M:W%GO\`.R4(LOJ+G>=1YV^W>/P=@V(OOH,M_P`4RUU)BWBY1D[08^.-
M+A(1::7AC(+/<;X'.Y]/%Y>T=>FE!8Z!0*!0*!0*!0*!0*!0*!0*!0*"G\UO
M[O)WL'"\3*T5YD4\W+7D?;:8[7:[`CLEF_FX_P`+=U>CLZ12LY[QPK\L?U6_
M*.<^Y2TZ\%IL+"SQ]C!8V42P6EM&L4$*#151!HH%<.2\WM-K3K,KQ#/5`H%`
MH%`H%!4;GTMXG(;^>V@:RR=]=&_&4MVV7,-SIH&B<?*O:2GRG4ZBO0K]SS1V
MQ,]U:QV]L\ICT_FIV0\XKE62Q5_#@N8;(KN9O+QN:C&RTO?8I_O,_MC/0_9/
M=3+M:Y*SDP\HYUZU_.OI]Y%M.$KA7GKE!#<AXA@<^J'(6_\`2H>MM?0L8KF$
M^V.9-'7X:Z5T[?=Y,7RSPGG'.)]<(FL2A/,YYQCI*K<KPR?]I&%CRD2_I)X8
MKG0>S:Q]AKITP9N7]J__`$3^-?WPKQCTI[C_`"K`Y^%Y,7=+*\1VW%LP,<\3
M?FRQ.%=#\17+GVN3%/Q1[>D^J5HM$I:N=)0*!0"`1H1J/90:TV.LYOFC`/M7
MPG\E!H7?&X9XS&LSHC$$Z@,>GOH,MGQW&6I1@AED30J\A)T(]@[!02=`H%`H
M%`H%`H%`H%`H%`H%`H%`H%`H%`H%`H%!%<HY%:\?PTV1G1IG4K%:VL?62>XD
M.V*&,=[.QT_+6^VV\Y;Q6/;/A'643.C2X7QZZQ=E/>Y5EFY!EI/JLO.O50^F
MB01G^]P)X$_'WUKO-Q%[16G#'3A7\_7/.45C18JXUB@4"@4"@4"@4&KE,5CL
MM836&1MTNK.==LL,@U!']@CN(ZBM,66V.T6K.DPB8U5`7V9X,1%E))<KQ`';
M%E&UDN[`'L6ZTZRPCNE'B7[7MKT.RFZXUTKF_IZ6_P!OA/H]RNO;ZEVM[B"X
M@CGMY%F@E4/%*A#*RGJ"I'0@UYEJS$Z3S7>Z@*"!Y!PG!9J9;R1'L\M$-+?+
M6;&"ZC__`%%^8?HOJ/=77@WF3'&D<:?TSQA6:Q*)_>O-N,^',6QY%B%[,I81
MA;V-1WSV@Z2:=[1?JUOY6#-\D^7?^FWR^RW3V^]&LPLF#Y#A<[9B\Q-Y'=P=
MC%#XD;\UT.C(WN8:UQYMO?%;MO&DK1,2D*Q24"@4"@4"@4"@4"@4"@4"@4"@
M4"@4"@4"@4"@4"@4"@4`D`:GH!VF@I&$7^+^1CDLOBP&(>2#CT9'AGGZI/?>
M\=L<7NU;OKT\W_CX_*C_`"7XW]$=*_C/N4CC.J[UYBY0*!0*!0*!0*!0*#XR
MJRE6`*D:$'J"#04JXP67XE/)?\6A-YA7)>^XR"`4).K2V!/1&[S"?"W=H:].
MN>FXCMRSI?I?\+?GS4TTY+-@>08G/8];_&3B:!B4<:%7CD7HT<B'1D=3VJ>M
M<6?!?%;MM&D_MR6B=4A6*2@4%;S?!,1D;PY.T>7$9P?+E;$B.5O=*NA29?<Z
MFNS#OKTKVS\=/Z9Y>SP]BLU1W\2\KXWX.4V7[QQJ]/W_`(R-FVC\ZYM!N=/>
MT>Y?A6WTV+-_BGMM_3;\+=?;HC68YK5B\MC,M9I>XRZBO+23Y)H6#J?=J.P^
MZN'+BMCMVVC25HG5MUFDH%`H%`H%`H%`H%`H%`H%`H%`H%`H%`H%`H%`H%`H
M*=S&\N<SD8N%8R1HY+N/S\[=QG0VV/)VE`1V2W/5$]B[F[J]':4C'6<]NG"L
M>-ORKSGV0I;CP6RSM+6SM(;2UB6&VMT6*&%!HJH@T50/8`*X+WFTS,\9E=EJ
MH4"@4"@4"@4"@4"@4"@JV=XC=+D'Y!QB9+#/$#ZF)P?I;Y5[([E%^U^;*OB7
MWCI7=@W4=OEY8[L?3QKZORY*S7K#;XURZUS+364\+X[.68'U^)G(\V/7L=".
MDD3?9D7H?<>E9[G:SCTM$]U)Y6C]N$^@BVJ>KE6*!0*"JY7T_L)+Q\I@KB3C
M^:?J]W9@>5*==?Z1;G]E*/>1N]]=V+?VB.S)'F4\)Z>J><*S7P:HYGF\`1%S
M.P$5J.BY^P#RV9'<9X_%+;GXZK^E6GT=,O'#;C_3;YO9TM_'T([ICFMUG>V=
M[;1W5G/'<VTHW131,'1A[0RZ@UY]Z36=+1I*[-50H%`H%`H%`H%`H%`H%`H%
M`H%`H%`H%`H%`H%!$<JY%#@,/)?-&UQ<,RP6-FGSW%S*=L4*>]F[?8-3W5T;
M7;SEOV\HYS/A'646G1K\-X[/B,?+-D)!<9W)R?5Y>Z'8T[#01I_@XET2,>P>
M^K[O<1DMI7A2O"L>C\YYRBL:)^N18H%`H%`H%`H%`H%`H%`H%!!\FXE8YU89
M_,>QRUF2V.RMOH)X&/L)Z.C?:1O"U=6VW5L6L?-2>=9Y3_\`/I5FNK0PO++Z
MVR,7'^5QI9YB3I97L>HL[\#OA8_)+^=$W7V:BM<VUK-?,Q<:=8_FKZ_1Z2+=
M)6NN!8H%`H#*&!5AJ#T(/8105&\]/X[6ZDR/$[QL!?R$O+!$N^PG;_#6I(74
M_G)M:O0IO^Z.W+'F5_ZH]5OSU4[?!CBYY=XF5+3FEC^Z78A(\O"3+C92>S]K
MINA)_-E`^-3.QC)&N">__P"O*T>SK[#NTYIG#<PX]F<ID<9C;M+B[Q;(MTJD
M$:2*&#(1\R]="1WUSYMIDQUK:T:1;DM%HE,US)*!0*!0*!0*!0*!0*!0*!0*
M!0*!0*!0*#XS*JEF("@:DGH`!04OCRMRO/\`\5SC7#8\R0<:B/9(3X)K\@_W
MSJD7Z&I^U7I;C^QC\J/GMQO^%?9SGT^I2.,ZKK7FKE`H%`H%`H%`H%`H%`H%
M`H%`H-'-8/%YO'28[)VZW-K+IJC:@JPZJZ,-&5E/4,.HK7#FOBMW5G243&JK
M19C,<-E6TY%,^0XXS!+3D+#66WU.BQWX'=W"<=/SM.VNZ<5-Q&N..W)UIX^F
MO_;[E==.?)=HY$D19(V#HX#(ZG4$'J""*\V8T7?:@*!0*##?6YN;*>W78&EC
M9%,B"1`6&@+(>C#W5:EM+1(Y'Q+T%RG%N26^;QO)-9(F/GPM;!5EC<_M(V"O
MH%;N]AT-?0;O[Y7/BG';'^_EZ>3&N+2==6_Z@^I%Y:9=L=Q^X"2VP$=]=,`R
M(Y)UCC1O"\@Z;F/1>SJ==./8['S*ZVC@M:VBB+RGD#2N;G(W4DNNID-W(H/0
M]@0HB_+V`5ZT?;\41PA3NEU#TNSV5N_K<9?W#7BVL<$]K<2L'F"3;U,<C#3=
MM:+56/7KU[*\#?8*X[_#REI2=5^KB7*!0*!0*!0*!0*!0*!0*!0*!0*!04[E
MMQ/GLI'PNP=DBEC$_([J,Z&&R8Z"!6'9)<D%?<FX^RO1VM8Q5\^WJI'C;Q]5
M?XZ*6X\%MM[>"VMXK>WC6*"%%CBB0:*J*-%4`=@`%>?:TS.L\Y79*@*!0*!0
M*!0*!0*!0*!0*!0*!0*#S+%%+$\4J+)%("KQL`RLI&A!!Z$&IB9B=8%)DQ>8
MX5(US@8I,EQ<DM<X%?%/:`]6DL23XD[S`?[CV5Z49:;GADGMR]+=+?[O^[WJ
M::<N24POJ)Q+-YI</B[Y;F\:U^MT4:`)N"[3KH1(-=2A&H[ZQS?;\V.G?>-(
MUT_;T>E,7B962N)8H%`H%!^:,GB[RUNWL;UMF4MG9;D.1&S.93)YZ@_,DN_>
M"/;[:^MV>>DTX.>T%K:![E;>366ZD<)%:0%7>1G.WVZ*/$"2Q`]]3FW=*1PX
MD0[CP+B\^#Q;O>D'*7I5[L(VY(P@TCA0]-0BGJ>]B37R^?-.2TVEO$:+-6*2
M@4"@4"@4"@4"@4"@4"@4"@4"@K?(>=8C&VM]'9R)?YJVECM(<3&W[9[N=0T,
M97M`8,&+=@74]U=N#97O,3/PTGCW=-(YRK-FQQ#CLF&QK?5R"YS%_(;K+W@&
MGFW+@;MOL1``D8[E`JF[W'F6X<*5X5CPC\YYSZ2L:)RN58H%`H%`H%`H%`H%
M`H%`H%`H%`H%`H/,BLT;JKF-F!"N`"5)':`=1TJ8'`;_`(%B>#<UM<]#RYCE
M([@7$]G=0&2:=)B1,"T'YZL=25`%?41]SG<89Q3BX3&D=O33EPGP8=FDZZNF
MV/JSQ2ZN5A?ZBT5Y%BBGGCTB8NVU265GV`G3Y]O:*\#)LLM(UF.#6+0N=<JQ
M0*!0:UWC,;>E3>6D-R4U"&:-9-NNFNFX'372@@<OC[&*>."VMTMHHB)=L"K&
M#(V@W$*!UT4"M<>6:1.G5$P\W>:R,4$LL6^>6.-V2W30/(RJ2$77IN8C0:UD
MEKR9_(PS>5%N9^A;<=PZ^Z@L469M&T#ZH?>.GY*#<CGAE_FW#?`T'N@4"@4"
M@4"@4"@4"@^&AHKN>Y]QK".8KRY!G_O2>)OR5T8]K>_)G;)6O-`IZU<3+:,D
MZ+^>4.E;_IUV?U-%BQ7...9.'S;:Y\([2P(ZGNKFMMLE><-HO$N48_TIY9G_
M`%(R/,7OFPEB;UY+"XC`:ZEB3]FA53JJ*R+IX^[NKZ._W3#BVU<.G?;MX^$3
MS9]DS;5W500H!)8@:%CVGW]*^6;/M`H%`H%`H%`H%`H%`H%`H%`H%`H%`H!U
MT.G;W:T'YSN.*\P%_))=XN]DR$C;KV?R9)1)*W5V$L2NK*2?#H>@Z:#LKZ;;
M[W!7'I$Z,)K*6XEP7,9:_-K-%)C[*,@W\EPOER[-W6.&)O%N?;\[#0#N)TKG
MWV_B::5CGU6K5W:O!:E`H%`H*_FAK?'IKX4[#H>TT&@Y.FFI^UT84!5&I(7M
M/:A]U!J9"ZFA\M8VTW]O3K^"@W>-%_WY*&!72(^$MN(ZKWT%MH%`H%`H%`H%
M`H%`H-+,SRP8^22+HXT`/Q(!K3%$=W$?F7-I=KF;P79)N/-8NQ[P3JOX-"-*
M^BQZ=O!Y62)[IU;%EE%ACC@LL=#)>L=OU$JF:1F)Z;$/@'NZ5$UX\9(OTB$E
M>W-Y874$5U<F[S+%05)!AM"S#0*@\)D_(*KVZ\>4-=9K,1KQ3=MZF9O`9V]M
MG_I>/CN'40L?$J@Z>$UA;9UR5\++3N)K;1U[CO(<?G<<E]9/N1OF4]JMW@UX
M^7%-)TEV5MK&J4K-8H%`H%`H%`H%`H%`H%`H%`H%`H%`H%`H-:#'V%J[S1Q*
MCMJ9)3J6/>=2:O;):T:3*-&OC\U9W]C]8C>5$--1*0I4,H="W7IN1E8#V&J)
M:=WRW&0Z+#*D_;OFW%8$T!(W3:,FK$:*.\T&6+(9V[C1X;..Q1U#!KIB\@!&
MO6*/L/Q>@B,3-D;WF-[#+?//!C%0/Y:B.,2,I.S0$Z[MYUU_,H+?089[.VGZ
MRQAC^=W_`(Z#4?"6VNL;LGN)W#K\:"N<:%]F,#:Y1HXP]P9-T<9*Z;)'CZ:_
MVNO;0,AB,E-+"D=N[%1XB=`!U_.H)?!X&XL[QKN78@9"@A34Z:Z?:/PH)V@4
M"@4"@4"@4"@4"@\RQI(A1QN1AHP--1R[G/`4NW\Q3Y4ZC2WNM-59>Y)/A7K;
M;=<-&.3#%E'MY#QBTN#+9R#.,QCBN77=`D9'SQOV$UV3\;FC2D<8XH;"K]1G
M+,S/\\Z/)(Y[=&W$EC\*TR3I7@QQQK>-7S.R))FK^2-@Z-<2%67J"-QTTJV/
MDKDGBZ)Z&R7@O,@GB^C*`J3\OF:]=#\.VO.^Y:=L>+LVLS.NKL->0ZR@4"@4
M"@4"@4"@4"@4"@4"@4"@4"@4"@QRRP!EAD90\VH2,D`MH-6T'?H*"C8?&6EK
MR1;"ZM3=7$</DS22(TJ!(NMI/JVY%WQ`QL/SE%!,\GM(<A#8X60:6]_.1.HZ
M:101M*2`/TU2@C3E.0OCTO96>*RQX,.36W57NI9(04GE34-H$===NFK#4^S4
M-W@-FD6%^H\Y)[_(3/>Y&1&#Z33G=L)7\Q-JZ4%IH%`H*OZ9_P"YEFO<DMVB
M_!;R51^04%HH%`H%`H%`H%`H%`H%`H%!K9"W>>SEB4`LPZ`]^AUTJV.=)UD4
M_+8\0MY<PB(?Y[8'?IKUZ@C32N_%DU\2T:QI*O3<)X]>N?Z$JN>K&(LG9VG0
M'3\E=/G37FQG!66SC_27$R:2"W)370>;(Y'M^4::UE;?JQMJPOV#P-GB+?RK
M=0.@'A&T`#N`%>=DS3>>+HB(B$G684"@4"@4"@4"@4&KE<G8XK&7>4R$H@L+
M&&2YNIR&8)%$I=VT4%CHHUZ"@\87-8S-XFUR^+G%SCKZ-9K6X`90\;=C:.%8
M?A%!NT"@4"@4"@4"@4"@H'+LQFILIY-CBVFCL_/@^H2XAC8-/"$UVR-&P*[M
MPT[?;01=SD\]BXK&ZL8-<J\7_P"0@E,EX1J7V"0VYVDA3T/XJ"5Q_)7ERD-W
MDHGW6MO-#NACT0RR3#716;<-(XE[?::#[<<AAA.:%HDZK?0^;;-M4;;HQF)Q
M\W378C:^W6@R\2&#QER%QB7;":"*&2WV!@/+/A?PG[(8@GO[Z"\4"@4%=]/X
M5AXQ%"I)6.ZOU!/;H+V:@L5`H%`H%`H%`H%`H%`H%`H*QF>;V=E=2V,4;M/&
M=KR$:*I]NAZM4UTUX\A!"=;C67?YA<ZEM=237J4M7MT@9$F:+<RZ!NFC'IH1
MU!!J+1$QQ&27U#O(I606T,J+IHX9AKTKSKUB)'I_5.WMHQ+>8VX>/4!OHQY[
MC7[7EC1B!W[=3[JS%DPO*^.YK5<;?QSS)_.6Q)CG3IKXX7"R+^%:D2U`H%`H
M%`H%`H-7+75U:8J]N[2V-Y=6\$LMO9J=K32(A9(P=#H78;>R@_,7J!SGG',X
MX;3.>G>=LX(4DC>TL<Q])'*LNBN)D^G/F#1=!KT[:#QZ=\OYIPQY+?`>G6>N
MXIHTA2QO,S]5#&J$E?)C^G41_-ITH/TMQC*9+*<>L,CE,>V(R%U"LEUC9&WM
M`Y[8RVB:Z?`4$IJ/;0*!0*!0*!0*!0:66Q461M'MS--:F336XMF$<H`/8'T;
MM[#05[%^F''L?>&Z%Q?73%=K175R\D;>PE>FI7N]E!,_PK@/ZH/UW_\`BH/=
MOQS"VTPF@ME25=0&U9NT:=C$B@D%BC4ZJ@4^T`"@]4"@4%=X%)OP$@TT\K(Y
M.+X^7D;A-?PZ4%BH%`H%`H%`H%`H%`H%`H%!IWV'QE_UN[:.8CL9AXOUAUH(
MF3@F`9BT:RPG_!R$?RZTU$'A>/8C*7.0LKHW-KD\9.8KFU,H<&)]6MYXR5ZQ
MS1]1[&#+VK4]TB:CX!@%^;SG]QDT_D`J!(V/&\+8N'MK5%D7LD;Q,/PMK0,S
MQCC^:5?WI817+Q_S4S+I*G?JDJZ2)_<M017\-\FQFK8'./-$.JX_+J;J/^U6
MX4I<)_=,_P`*!_&&1QWAY'A;BR1>V_LM;^TT'VB8E$Z#^WB'QH)O%9O#Y>W^
MHQ=[#>P][P.K@'V-H>A]QH-V@4"@4"@4'"O6[@G&,QPS,9W)62W&2QMI?M87
M!W(8VC1G7Q*1N`8:[6Z4#T#]/L!B.*<=Y-C\?'#>Y6UM?K;W<S2.S:%@`Q.T
M%NT+I0=AO&0W,JRNP4*-BCLUT%!4,AZM^E6.R,MCD>56MO>V;M%=022$/'-&
M="A&WM!!H+9B9UGF29'\R.1-\;ZZAE8`@CXB@EZ!0*!0*!0*!0*!0*"`YO>7
M]KA(C8W#6D]Q?XZT-Q&%9UCN;Z&&3:'#+KLD(ZB@^?PSE?\`B3(_JVO^0H'\
M,Y7_`(DR/ZMK_D*!_#.5_P"),C^K:?Y"@U[#A%S80-!:<@R$43RS7#+I;'62
MXE::5NL)^:21C0;'\,Y7_B3(_JVO^0H(IL9G1RJ/%CD=_P#3-8/<D[;7=YBS
M(@Z^3V;6H)&XXIF)8)(X^4Y*%W4JLJ+9EE)[QN@(U^(H,</#\U'Q^?%-RW*R
M7<TPF3,,ME]5&@"CRD`MQ#L.T]L9/4]:#UD>)9J[P]ACX>5Y.RGM-?/R4*V9
MN+DGH/-\RW>,:?H(M!DON+9:YOL9<Q<FR5K%8)$MQ:1+:>7=F)MS-/O@9]9!
MT;RV7IV:4'M^-99^3+F/XCR"V2D']Q*MJ+,@)LT),)G[?%_.=ONZ4$_0*!0*
M!0*!0*!05GEV/O;:>WY1B86FR>+1DNK2,>*\L&.Z:`#IK(FGF0_I#;V.:">Q
M^0LLC8V]_8S+<6=U&LMO,AU5T<:J1^"@V*!0*!00>6X7QS)W'UDUIY&1'RY&
MT9K:Y!_QT)1S\&)%!I_NOG&+_P!79.'-6J]EIE%\J<`=RW=NNA_NXC\:`O/+
M6S(CY%87.!?H//N%$MH2?9=0[XA_=[:"QVMW:7D"7%I-'<6\@U2:)@Z,/<RD
M@T&6@4&+ZJWU(#@D=M!RWU5AR!]..5(T;?3QX[(2*=.S="^IUH.>W_,LOQ?[
MNG%\A@7%IF(X\;&EZRI*`LG:/+<,O90;S6OW@)HDO#S.,PSL(XY1B8=K.3M"
M@^W4:4%&]7..^IECQ#+3\BS-G<1NB27$/[IM[:>7=,HW"=1O'B[3KUH.F8OU
M7]2\3AK>YE],KIK2ULE=I_WE;`&**($R;=A.FU==*#J7`N<VG+>(8KD0@-E^
M\XO-%H6\TIXRNW>%3=\OLH+-0*!0*!0*!0*!0*"L^H#$8K'`=CYG$`_@R,!_
ML4%FH%`H%`H*\_\`S!A_V3+_`*3'06&@4"@4"@4"@4"@4"@4"@4"@J-G_P#U
M;DG[M;P\?STKR8UOLVN0;5Y;;]%+CK)'^GO'VE%!;J!0*!0*!0"`P((U!Z$'
ML(H*Y=<!X^\[W6.67"WS]6NL8YMBQ]KQKK#)_=H:#"1ZA8K3:;7D=H#U#?T&
M]T^(WV\A'PCH,MMS_`^>MKE/.P=Z_1;?)Q_3AB/S)M6@D_N)#0<A]?;*ZR7J
M#Z<X:.[O+;&96]NXKY["9X2T3FVT.].G83H30:/.O1?C=APODM]%DL\TEACK
MJ>%9\E))#(T<3,`Z%0&4Z=1WT'-.2\LREUZ)8'#2\:R%I:0_NX)FI=GTLGE_
M*5T\7C^S0?HN"YA'',;%^\65TNT9K3:FD0$K'S`=NXZ?-U-!1OO)7$4_",HT
M=\U^!;1`RLJJ1_2!X=%5!07K,,O\"2#IN&"E[==>MDW9W4&O]WY-_I5Q,?\`
MTNOXI7-!U>@4"@4"@4"@4"@4%8]0?]5XS_;6(_\`Y"&@L]`H%`H%!7G_`.8,
M/^R9?])CH+#0*!0*!0*!0*!0*##<7MI;C6>9(_[9@#^*KTQVMRC52V2M><M"
M3D^%0_S^_P#M58_V*WC999Z,9W>..KP.5X4_]HP_N&_Z*M]#D\$?68_%L1\@
MQ$BDI<J2!KMT.[\`TU-9SM<D=%XW..>J'ON9.&*6D&@_/FU!_5%=F/[?_5/N
M<N3??TQ[T#E,I>92W-M>L)+<LC^5M`&^)Q(C#3J"KJ&!UKJKL\<='-;=9)ZO
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MHK`32%6@NK=87T)7S$0@A%8#704$)G^;<US&#R^*G].LND&6M9K61TO+4LBS
M(4+)J"-0&Z4%"Y:_,;[TYQ_#(.&9"SAQ[V:I>W5Q;N=EL?M(FWJP]E!V?&Y^
M>>TLL.)K2"&VE%Q'/.^T;HRTNCMKIH2=.R@I/WB,O-D>#Y62XEMI)%M8`IM7
MW+HTRMH=23N&[K03$.(]:,AQJ.R.=XTEI>6"V_6UG\U8I8-FF[S/F"M^.@V>
M#<*];^.8*RP>(SO'7L<;%Y5N\UI<NY4L6\3+(H)U-!UGBL/*XL0J<IN+.ZRV
M]R\N/CDB@\O7P`+(S-KIV]:"7H%`H%`H%`H%`)T%!!<KLY[V#&1PQ&819.RG
MF4==J0S"3>?<I4&@FIIX($,D\BQ1CM=V"C\9H-&RY!B[Z]DL[.7SY(AK(Z`E
M!T!TW=G8PH)&@PS7EM!-##+(%EN&*P)WL5&IT`]@[30>R^W4GY>\]U!6GR..
M/)XLJLKR(;.:TABCBDD:5EG0N\94$%4*[3\:#/F>192UQ=S>P8_RDB35'O)%
MCU9CM0;$\QNK$=NE!)8&:\GQ4$]W()9)E\Q7"["4?JNHT7KI[A0;]`H%`H%`
MH%!6.2Y^YAN&LK4^65`\V4?-JPUT7V=#7I[/:UF.ZSS]UN9B>VJKLS.Q9R68
M]K$ZG\M>I$:/.F=7RB`::C7H._2@L>,S&`Q\!:&&5KG3JS@;F/LW`Z`5YV;;
MY<D\9C1WXL^*D<(G5I7W)<C<DA=D,9^RJ@G\+&ML>SI7TL<FZO;T(DDDZGJ3
M76YB@4"@R07,\#[X7*-[15;4BW"5JVFO)-V'+[R(A;I!/'WLH"N/Q=#7%EV%
M9^7A+KQ[VT?-Q:&:N[&\N_J;5'0R#]JK`#Q#O&A[^^M]MCM2O;9CN+UM;6J/
MKH8/44LL+AXG:-QV,I(/Y*BU8GA*8M,<EQXUF9[N"9;LC^C@$SG0#:=?F[NF
ME>/O<%:3$QU>KM,TWB8GHTYN<K?2M:\5LVSMPI*27:-Y6/B8=OF79#*Q'YL0
M=OA7"['E.&7N4<3\MR+9(=HQ%L#;XY>_1HP3)/I_A6(_1%!OMQ2V+$K.RJ22
M%"J`![!\*"I9K[OWIQG<Q)E\Q9/>7LQ3SG,TJ!PBA0-J.H'A'=08O_\`FKT7
M_P"'A_\`N;K_`"M!'<@^ZSZ39'#W-EC\>V*O)@!#D(Y9YFB(8$D1R2%&U`TZ
MT&_!]VGT=C@CC?"&1T15:0W-T"Q`T+$"70:]M!T#C_'\3Q_#VN'Q,'TV/LT\
MNWAW,^U=2=-SEF/4]YH)"@4"@4"@4"@4"@JEUE<M:\FFAC19(II(X/VSE8XU
MDB4P,H4,=&E253TZMH-:#[R&'-KBY9WNXY+A"@MK)(@MO),[".-)2Q9V0NXU
M&HH,-A>\;@BQ^^-KG(W4(D"N#/,"`2^XN=J;2C=-1\IT[*#-P7SKFVNLY<`A
M\Q.\UNA^S:ABL'3VL@#?#2@M5!6.:V<DAM9UG^FCVR6SW>@/D/*T<D,IUZ!?
M-@52?TJ#UBK#'93'6]]=>;>23+K(ES(759%.V1/+&V/PNI'RT$18W46,S-_D
MA$397[SVUK;PJ.DEB0BI$!V><1(Q[M5UH,.3N,KR&^LL!=Q16RFY,^4M(R[2
M1V]KHX#N=%9)F9`K*!^0T%_B)TTTT4=E![H%`H%`H-'+9>VQL(>75I'Z1Q#M
M;3^Q6^#!;).D,<V:,<<56N>6965CY16!.X*-3^-J]2FQQQSXO.OO+SRX(J>X
MFN)6EF8O(WS.>TZ#2NJM(K&D<G-:TVG66.K*E`H%`H%`H%`H%`H%`H%!F::V
MN+']W9&TBOL:9%E>UE!"LRG4;M/F'N;45RY]K7)QZNC#N;4X=%]P]U97&/B:
MSC$,"#RU@4!1'M'R@#H-/=7CYL4X[:2];%EB]=8;M9-'QW1$9W8*B@EF)T``
M[2300^)Y;A\K-'':&8K.K26D\D,L<4\:@$O#(RA77Q#KW]U!,T"@4'E9(W+!
M&#%#M<`@Z'370^_0T'J@4"@4"@4"@4$+R[D-AA,+<W%S>1V<[Q2K9-(0-TPC
M9D"@]"=1V4%/O>5XC-7=SD!+"<;A)$^HN8Y"%EADF4KJZM_V?E^9H?M:4$Y%
MR+$\ADQO[NG$UM]49I'Z!2+9&8:>X2E/PT&ME+;'Q6')+*9$.D9R%LRL$?21
M6((<=1LG5_@#03'%!FH('L\L(BT"Q"VFB"JK+MVL@520-C)T_1(H)/+Y:SQ.
M/DO[PLMM%MWLJEB-S!1T'QH.>6.=EREM%BO.<V%['.L@*%F;>UW+KO.N@VQ(
M.OO%!N8?U$M86>PGLA!'9>:)+D26ZQD1L0NV*)F(W=!II0;(R.+@XE9[+^W;
M(V*1WP02IN:=3YLR=O:^YT_#0:G(9+#,9Z":QS$%CY%EJER)0A=I9"5#$'J8
MM@(0_G4%XQ.0AO;.-EGAGG1%%S].X=%D*C<`1[^R@YAR"ZR'T_)G,TT?/8;]
MUXM;[W&Z'6/Z,0Q*=KV[C^?.A^WN(TZ!*<;Y2F4YI9))/'#<!\]9M:03.T4G
MTEW`L<I1CH79`S:Z>W3I0=(H%`H*ES7R_JK;1OVFP[D[@NO0_AZUZWV[7MGP
MU>9O].Z%<KT7`4"@4"@4"@4"@4"@4"@4"@4"@O?&4MUP\)A4KO),F[M+ZZ$_
MDZ5X6\F?,G5[.TB/+C1*URNEIYG&197#WV+E=HXK^WEMI)$Z,JS(4)7W@-05
M@8+F4O#Q@I7L[>ZLX(8(+R%Y2MR("FJLFQ6@29$*/M9R`W2@J>=]/\Y:8[-7
MQC+VXPV23'6%G/=32VMW<,KVT5HB(I(0JWC70^/;IM%!O/Z?\DO;9IE>&.TO
MO.=<0T]PJ6DL\,"1W<<FQ7\Z.2%Y-A5="YT(.I(8LKZ7\GO</DK-9[?ZV[O;
MN:/(27$YG$;V[+:R!]AV,EPV\Q@$*#X"*#8N_3'+W%U(Y=(K:YR-Q?W,5I=2
MVSL]PD1CG,B1EB]NT;JJ]-0VNH/2@Z<.R@4"@4"@4"@4&CD\/9Y$PM<`EX"Q
MB(/86&A[0105>YX/E[J3RY;N"/'R>&>T1"RLATUUW#1CX=1K098?33'0#;!=
M/"O<L:(H'?T`Z#K098O3RP60-+=S3)H0T9T74$=FHZT$QC>-XO'S&:!&:3IM
M:1M^W3O77L[:"0N+:&XC\N9=Z:JP&I&C*=RD$>PB@JO(>,<JOII8\;D[:RL'
M&U4>*:24@J-=S^:!\P.F@%!DL.#1K;1F_G1[_J9IK>&.)"VXD%00S#IIVL>M
M!M'AED?_`!$W_4_^&@VK?C&*BC"/&9F&NLCDACJ>_:0/R4$G!!#!$L4*A$4:
M`#V4'N@4"@4"@@^28*6_V7%N1]1&NTH>@9==>A]HUKNVFYC'PGDX]UMYOQCF
MJ%Q:7-NVV>)HF_2!'XC7K4O6W*=7EVI-><,575*!0*"3XX%?+PQNJO&^X.K`
M,#HI/?7-N^&.9AT;7C>(>DQT=W]9<RS^2L$P0@1ZC1FVKH`143FFG;6(UUCQ
M3&*+:S,Z:2R1X:"&7)1W+EVLX]5*CH=PU#:$]H]E5G<3,4FO\TK1@B)M$_RP
MUY,,\=H)Y)`K-%YZH=`"FO9J3\VG732M(W$3;2(ZZ?MZ%)P3%=9GIJ]7F)M[
M61(WN]9)!&R($.I60Z'OTZ5&//-HU[?'KX%\,5G37P9+SCYA2;RKCSI()$B=
M-A7K)IMT.I_.JN/==VFL::Q,^Y:^VTUTG72?XO,F#$-Q'%)/KK,L,H4`-X@#
MN4$]1W=:F-SK$S$=-43M])B)GKHU<K!!!D)X8-1'&Q4`]VGX3K6N"TVI$RSS
M5B+3$-2M610*#>PEE#>Y**WF)$9W,P'0G:-=-:PW.2:4F8YMMOCB]XB5_AAB
MAB6*)0D:#15'8!7@6M,SK+VZUB(TA[J$E`H%`H%`H%`H%`H%`H%`H%`H%`H%
M`H%`H%`H%`H%`H%`H%!I9;%Q9&U\ESL93NC<=S5M@S3CMK#'-AC)725.O..Y
M6U)UA,J#L>+Q#\7;7L8]WCMUT>7?;7KTU1S*Z'1U*GV,"/Y:Z(G5A,:/.H]M
M2A]H-G'WS6-RMRD:R2)KLW$Z#4:=U9Y<??7MF6F+)V3JS1Y9DBN(E@39<NLC
MC<W0J=PTZ^VJ3@UF)UY+QFTB8TYO;9R=KFZG,,9^K0)-&=Q7H-`1UJL;:(K$
M:S\*9W$ZS.D?$PSY.2>UB@FBC=H5V1SD'>$_-[=*O7#%;3,3/'HI;-,Q$3$<
M"\R3W5S%.\2JT050JEM"$.HUU-,>'MK,1/,OE[IB=.3//GKB9;@>4B-<NDCL
MI;4-'IM(U/Z-4KM8C3CR_%>VXF=>'-BN<M+/<I=&&*.X5E9I$!U<IV;M3_)5
MJ8(K7MUG16^:;3KI&K!>W;7=R]PR+&TAU94UTU]O6M,=.RNBF2_=.K!5U"@`
M$D`=2>P#MH+=Q?"36Q-Y<KLE9=L49[0#VD^\UY.]W,6^&O)ZFTV\U^*>:Q5Y
MSN*!0*#1R6<Q>-N+&WO9O*FR4WTUDNQV\R7:6V:JK`>$$]>X&@T5YOQ=K66Y
M%[^RAN7L6'E3;S<Q#5XDCV;W90"3L!H)3'Y&QR-G'>6,Z7%K+KLE0Z@[258>
MXJP(([C0;%`H%`H%`H%`H%`H%`H%`H%`H%`H%`H%`H%`H%`H%`H/+QQO\ZAO
MB`:F)F$3$2QFRLSU,$?ZB_\`15O,MXRCLKX*9RI$3+LJ*%7RTZ`:#O\`97L[
M&9G'Q\7D[R-,GL1%=;E*!0*!0*!0*"2P6(3)S2QM*8O+4,"H!UU.G?7-N=Q.
M.(G375T;?#YDS&J=BX78J?VD\C^X:+_TUPV^XVZ1#LC8UZS*4LL-C;([H(0'
M_OC>)OQFN7)N+WYRZ<>"E.4-VL6I0*!0*"K\WP^4REQQZ.R280VN2^IO;FWF
M2"2&+Z::'<I;JWBG&H`[-:"LVF!Y3B+FWSYQMQ?-A[C+#]W-<0RW=S;7[1R1
MSQ-N6,S+Y.W8[+T8]?:%A]-8",/?WSMMERV1N<A+9Z,#:M.5/D,'"G>H`,G3
MYRU!;:!0*!0*!0*!0*!0*!0*!0*!0*!0*!0*!0*!0*!0*!0*!04CEO\`KEO\
M6G]FO;V'^/VO(WO^3V(:NQR%`H%`H%`H%!8N%?YW=?XM?_>->=]Q^6/6[]A\
MTK=7DO3*!0*!0*!0*!0*!0*!0*!0*!0*!0*!0*!0*!0*!0*!0*!0*!0*!0*!
M0*!0*"D<M_URW^+3^S7M[#_'[7D;W_)[$-78Y"@4"@4"@4"@L7"O\[NO\6O_
M`+QKSON/RQZW?L/FE;J\EZ90*!0*!0*!0*!0*!0*!0*!0*!0*!0*!0*!0*!0
M*!0*!0*!0*!0*!0*!0*!00V5XU%D+LW+3M&2H7:`".GQKLP;R<=>W1R9MK%[
M:ZM3^";?^MO^JM;?J,^#/Z"/$_@FW_K;_JK3]1GP/H(\3^";?^MO^JM/U&?`
M^@CQ/X)M_P"MO^JM/U&?`^@CQ/X)M_ZV_P"JM/U&?`^@CQ/X)M_ZV_ZJT_49
M\#Z"/$_@FW_K;_JK3]1GP/H(\3^";?\`K;_JK3]1GP/H(\6_A\!'C)9)$F:4
MR*%(8`::'7NKGW&ZG)$1IIHVP;:,<S.J5KE=)0*!0*!0*!0*!0*!0*!0*!0*
M!0*!0*!0*!0*!0*!0*!0*!0*!0*!0*!0*!0*!0*!0*!0*!0*!0*!0*!0*!0*
A!0*!0*!0*!0*!0*!0*!0*!0*!0*!0*!0*!0*!0*!0?_9
`
end
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>GRAPHIC
<SEQUENCE>3
<FILENAME>g67395image_01.jpg
<DESCRIPTION>GRAPHIC
<TEXT>
begin 644 g67395image_01.jpg
M_]C_X``02D9)1@`!`@``9`!D``#_[``11'5C:WD``0`$````/```_^X`#D%D
M;V)E`&3``````?_;`(0`!@0$!`4$!@4%!@D&!08)"P@&!@@+#`H*"PH*#!`,
M#`P,#`P0#`X/$`\.#!,3%!03$QP;&QL<'Q\?'Q\?'Q\?'P$'!P<-#`T8$!`8
M&A41%1H?'Q\?'Q\?'Q\?'Q\?'Q\?'Q\?'Q\?'Q\?'Q\?'Q\?'Q\?'Q\?'Q\?
M'Q\?'Q\?'Q\?_\``$0@`\@#Z`P$1``(1`0,1`?_$`+X``0`"`P$!`0``````
M```````%!@,$!P(!"`$!``,!`0$```````````````($!0,!!A```0,#`@,#
M`@\*#0,$`P```@$#!``1!1(&(1,',4$B411A<8&1T3(C4Y-4%55U%A="4K*S
MTW34-94VH6)RDJ+2,R24M#<(&+&"0\'AXF/"@S01``(!`0,'"0<%`0$!`0``
M```!`@,1!`4A,5$24A0506%Q@:&QP3(T\)'1(G(3,^%"8H(&DB/QPO_:``P#
M`0`"$0,1`#\`_5-`*`4`H!0"@.'_`.X'=?5#$Y"#$V^U"CX4V7)0SWI)1WU?
M8:=YH+I<#P`)MF*6XE9./90'3]@93<V6VACLEN6+&AYB6!.O1X9*;"`1DK*@
M2DY[9K22^+M6@+#0"@%`*`4`H!0"@%`*`4`H!0"@%`*`4`H#F/7?/]0</@H2
M[4C0W8TMY(^3E2GRCFT3CK0QT:(7&E]T4C0U[DH#<Z'[AWMG=FA*W2S$`V36
M+!DQ'5>\X;C>X..NDIN7-76RNO"_;0'0J`4`H!0"@%`*`4`H!0'&^M$J#)W;
MA\1(DLQW`A2)0><OI':-I20)3)'=/_Z&AY")_'U)Q&@+STKS#&7V!AYK#G-;
MY1,(:]MX[A,JG#R*W:@+70"@%`*`4`H!0"@%`*`4`H!0"@%`*`4`H#FO7*?%
M:Q.$@/21AG/R0#&DF:-BT^TT;C#Q&JI9&GT`_)PLO;0&7HEDX4C`Y/'1'&S#
M$SSC*++G-:%>4V1:'/NA,]3@KWH27XT!T6@%`*`4`H!0"@%`*`4!Q/>.48D]
M0<\SC,I&Q>=AM1H<B9+?;8;&(D=9"QTYB^)QXI7@)$]S4=2K]R0%LZ/Y?;\R
M!F86"L$"#.NS%0D,F$?8;-QLR12U$DCG>+4M^VZHM`=`H!0"@-%K.X9[*NXA
MJ:R>48'6]"0TYHC9%NH=MO$GKT!L3)L6%%<E2W19C,IJ==-;"*>55H#-0&*+
M*CRXS4F,XCL=X4-IP>PA)+HJ>G0&ME<[AL0#)Y2:S"!\T:9-\T;0C7CI12MQ
MH#>H!0&*3*CQA`GW$;%QP&@5>\W"00'TR);4!EH!0"@%`*`4`H#E'5/+0?KM
MB,>DMJ%FHT!V1BI<AT&F8YR9#8E)=5Q1$VP",0$WVGKTI:^I`/72C+XGZTY/
M%1I#3V1<A,R<N;3HO\^8TZ;;DH7!545MT'&M")[5/#9--J`ZK0"@%`*`4`H!
M0"@%`*`_.^>R.2DED<MC8,[#3OE-\!W&SCY$IR8P]-1AH!06G(Y-"QITJXI%
MJ3P"/:0%TZ7OA%W;/@#A)&*\ZA`;TV0P^R$]Z,Z2<\5E(CY.:)'NB.74>"(1
M#:@.J4`H!0%+G]-8DS-S,P4DPES)K$@C`WPTQFFFFW(XH#HB*NJS<C%$54\*
MW2@(A_I9N5_'E#>W*Y(;/PN-O^<F!K8$\X+^\(2O$H*JC?E>);!0&ZWT_P!T
M#DDE.;A)^*U(0VH1H^+9L\^2_9U0>$E,5EH(VL-FQN*]P&C,Z<;HB8\'XV;D
MSIS.A'6!<>!)+0@R"LJ)R6P%%5HB54(5\7MJ`V9'3G*9S:6W8.6F%'R&+,Y,
MA"-QWF.&#@BT\0NW<;]T1'!4R0ANE^^@-:+TMW:S&;;7=LDI*/$XY*(GSX&"
M`9MM*Z@"Y=+C>XCW#0&WC^F698A(R_N28<AEEP(<A'7R)I\W!,7E0W%%S3I7
MP&BIQ6UD6U`9CZ>9P7W_`#?<+[<=385E")]PU!J0R]H=4GE#P@R38J`BJH:Z
M]7>!+$F5VO@L8W'8/+1(3>C+&A.NS"32FI]D35PG5UW(@4M5O:W5-*@3N.R,
M')069T!\),20.MEYM;B2?^W8J=U`;%`*`4`H!0'$M]RI,S=V?Y.+E<['HPD+
M<K,.3)6*K497#:8Y`&A$IN^Z"ZJ-V7BA]B`>.G\Z3&W3M^3-Q4QR;D&W6)>Z
MI$1Z.,AN4PCXLN\T&T;(7F`1L&KM*BJJ:5X*!W"@%`*`4`H#4RF*C9.+YM).
M0VWJ0M463(B.73_[(QM.6]#5:@(CZA8/XUE_VUE_TJ@'U"P?QK+_`+:R_P"E
M4`^H6#^-9?\`;67_`$J@'U"P?QK+_MK+_I5`<^Z@[3Q.)E;?PN/=R#.,EI))
MV-\J9,@18JLFSI$I*B.DRU<$[:RL8O$Z-'6@['K+Q-'#*$*M75FK5JOP)[8^
MT<+GMJX+/9!W)EDGX@N*\F8RUQ5Y$YB`OG5Q0M*7M6C2MU%:[78BE5LUW8K%
M:RQ_4+!_&LO^VLO^E5T.8^H6#^-9?]M9?]*H!]0L'\:R_P"VLO\`I5`/J%@_
MC67_`&UE_P!*H!]0L'\:R_[:R_Z50#ZA8/XUE_VUE_TJ@'U"P?QK+_MK+_I5
M`/J%@_C67_;67_2J`?4+!_&LO^VLO^E4!AE["QJ175B2<HLI`7D([F\P@*=O
M#JM*O:]1E;9DSGJLMRG*<SF=QX:03&1P.49(45=:9S.&VJ)VJC@25%4]6L2M
MB5>F[)4S0A=*<E:I$2G49%2Z0IUOI_-?I-5^.SV4=>'1TLB7-X.PYGGF)A2V
M&S)QR?CAS>7`)+CEKNZTD(0O>'VRJJ$G!?+4H8ZV['%(C+#ER,V,5U>Q^4;=
M.'%G%R#Y;PKGLVA"=D6RIYSZE=*^*U:32E!92-.YPFLC>0WOM%3XC._;^;_2
M:X\=ELHZ<.CI8^T5/B,[]OYO])IQV6RAPZ.EC[14^(SOV_F_TFG'9;*'#HZ6
M/M%3XC._;^;_`$FG'9;*'#HZ6:H[O5Z7%BX]F1C#FSFBENEE\F^+R$J(Z!LO
MO.-.$Z`Z/$-0J8S.<))*QZN=9T=*-PBIQM=N7E,DW>:-3I4'(LN9`<?)%(/+
MRF1B`R#38$T*,QGFFA-M56RH-[6XU&ABTZ=.*:<G9G=NE]A.]7&,JCLR+F1/
M;>RVX=P2@CXW#9$D-+K(<SN<!@17[HG%D6MZ5_0J]=\2KU79&!3J76G!6N1V
MK"X&'B0-([DMPGM*N>=S9<VRI]XLIU[3V_<VO6XC.)*@%`*`4`H!0"@%`<TZ
MK_O'M;^1D/P6*Q/]!Z?^R[F:V#?F?TOP)_I/_IKMO\Q9_!K7I>2/0NXS*GF?
M2RV5T("@%`*`4`H!0"@%`*`*B*BHJ71>"HM`4O<_27:.;%UUN.F/GG=4E1O"
MBEQXFU[0N*\>"*OEK.O.%T:N6S5EI1:I7N<.6U'-Y/0/=P.J,>9"?:[G#)QI
M5_[=#G_6L:6!U;<CC9[<Q>6(0T,U&?\`;WNMAQQQCY-:-VW-(''!4K7MJLSQ
MM=:E+![Q)).2=G.SQ7RDG:DS-]@^]O?H'PSOY*H<#K:8^W42XA3YQ]@^]O?H
M'PSOY*G`ZVF/MU#B%/G'V#[V]^@?#._DJ<#K:8^W4.(4^<?8/O;WZ!\,[^2I
MP.MIC[=0XA3YR.S'2[<>VBQN5R7FCT4,A%;TM.N*:$ZYH$D10!%TJ7>M0JX5
M5I4Y3;5BB\QUH7R$ZD4D\YT_I!#B.8K-FXRV9KEW[D0HJK9EFW%4K;PJ"=V@
M[.3Q90Q)O>)>W(CH0B(B@BB"*)9!3@B)6FD4#[0"@%`*`4`H!0"@%`<TZK_O
M'M;^1D/P6*Q/]!Z?^R[F:V#?F?TOP)_I/_IKMO\`,6?P:UZ7DCT+N,RIYGTL
MFH>X\-*=<9"2#;P2'8J-.D(&3C!:#T"JW)+UT(&<,QB#MHG1RN)N)9T%N#:J
MAEV]@JBW7NH#PF>P:@3B9&,H#;4:/-V35=$NM^^RT!K-[KP)M3'2E"TW!-X'
ME<5!5?-P0W"!.TQ05O=*`2=V8"/%CRBE@;$@V`$@5%T^<_V9.(JHH"J<;E0'
MK,[EQV*89=,799/R$B-,Q`YSBO**DHZ17N05O0'V)NG;TJ&W+">RVTX',TO&
MC1BB$H+K!S20*)HHJA)P5+4!E8SN+==5I9#;3JF0-MN&`DYH[2`=5U&@,4_<
MV$@M17')0&DV0S%C(T0FIN/O"P.E$7BB&::E3LH"4H!0"@%`>4=:5Q6T,>8B
M74+IJMY;4!ZH`)"2(0JBHO%%3BE`?"(12Y*@IV77AV\*`^T!1>L?[KPOI;'?
MYD:HXGZ:?TENX?GATF/H[^I\W],2/Q3-0PGTT.A][)XGZB?5W(OU:)1%`*`4
M`H""W'N@\/+B16<;(R3\IJ0_RXRMH0M1>7S%LX0:E]U2PHO&@,;'4+9#S1.-
MYN&O+%DG0YHZP22HHRA!?4BFIHB)Y5M0&`.I.T.:^V[D6&2!S1$0G6U64/);
M>0XZ(7C$D>1!\JT!F@=0]E360<:S$4#)EF0<=QT!=`)&CEZP5;HJ\T$M_&3R
MI0$EMW-,9S`X_,QP)MC(QVY+0'920710D1;<.Q:`HG5?]X]K?R,A^"Q6)_H/
M3_V7<S6P;\S^E^!/])_]-=M_F+/X-:]+R1Z%W&94\SZ6>9W2[;$YZ2]*YQG*
M<)TUU`BBI2AED@$@:PN8VX+?3Z]="!7]S]/MMXK',N'YU/D2%;Q<9A3BQQ-R
M0#D5I2<!@4;T-R#3PI8N&H3.@(G,;?VE$?C#-D#A,K'EN3\D$=M)3("2O2>6
M#GFW*YA(VI-@X*KI14LJV6@,;6WNCJSF7FRR"RV?[DRP[$<-Q534RC;2/1R<
M0@5Q=2MJB\4UJJ)9`/L;$]'U61+QC[TKSX!-O^[$;,A0<8:5OF!'YKHJZ\T#
MC>I=-^"#0&QC<ULIK9F$Q[D_*XJ1B]4Q)K44G9'-9"1S775=8EM7<%IYQ4)%
M5$2@,4J/T>G1I@,Y*6;D=TFI#\=DGW5-&)@/EXH[O,0T623A:536FI++:@)?
M`[%V-NB#/DMM2^0LGS12>40,DA/*:&T7+0Q%V_&R\4X4!)X[H[M7'.0SB./M
M>:/,R-`#%`7"CO(^UJ$&!0;&G%6]*E]TI4!>J`4`H",E;EP,7*LXE^:V&2?T
M\N+=5.QJJ`I(E]"&J*@ZK77LH"FYK9NXI.[)^1QT2(P^])CRH.?<=57F1CQ@
M;-CD(%R%P@(2\=M)*O:E`:4:%UB"5C<=)G\XU:?=F3"!E&$09$5$!U1:+4I-
MJ^@".A;+?[F]`:\':74J*S"QV0SD=B$P<(,=';,&Q18Q-ERT/2CKA:&SU)]W
MZ'<!E/:_5V;C(D++Y-B:*2F'9=N4S?DR8KRE<6BU-V9>T@FDO$B*MDX`=0D2
MXL8$.2\#($0MB3A(**9KI`45>\B6R)0%*ZQ_NO"^EL=_F1JCB?II_26[A^>'
M28^COZGS?TQ(_%,U#"?30Z'WLGB?J)]7<B_5HE$4`H!0%<W9N+(8Z;C,=`6(
MS(R2OJDR>1"P"1P0U&P64G#U7$=2>%"7NM0%7SNYMH9Q^,U/9GOSH^N+'/&2
M#9;DJ^ZQ'D--FV\TI-*ZXTGNNFZ<1OQH"O2\ETPD,LRH<3(8E))Q\HXXRB!I
MCLG#E:P$'DY?-20S_9>/M\/"@/7RATO9BN3\3MZ6],B1D>981U`ULMPDE-:R
M5XD0.2*%9?$A=UUH#.<_I=#DNN.X7(1%;5CFRFS72VXV\S'!P"![F:T=;:%2
M%+K:@)W"]2MJ8[;\"'B\9D6H<9@&H[$AI0-IH3;CLJXKY\Q4,G@\7B[[]BT!
M$[SRSF8<V-E7&%BG.B3)!1U)#T*XW'+3J3@MKUB?Z#T_]EW,UL&_,_I?@7#I
M/_IKMO\`,6?P:UZ7DCT+N,RIYGTLM9&`^V)$OV76U3;2SD4FS6R$/&9&&["G
M-M28CZ:767+$))V]B^1>*5YK+2-5D2ULC930@(8N*B-M.,#<47W-U"0Q55OJ
MNCA)=?*OEIK+2-5F/,;%VGE!:1V,TV3<CSI5;TCK<4M:HYWJ)&B$5E1;HG&F
MLM(U61.V,=M<LD[#R.%@X_<T1L%<!D11EY@'`4)$7_ZU-AM53VP$B(7<J^ZR
M%C)N5@=D,MJW*BP6P<$P47-`H0N`Z!IQ^^!]Q%_E+7*I>*</-)+I9TA0G+RQ
M;ZC`&,Z>`;A"&/172(S36W;4X!MFJ#>R:@>-%MVZEKGOU#;A_P!(Z;G6V)>Y
MF_`E[5Q["L09$.,RI*:MMN-B.HN*K9%[5IOU#;A_TAN=;8E[F;/R[A/G"-\,
M'LTWZAMP_P"D-SK;$O<Q\NX3YPC?#![--^H;</\`I#<ZVQ+W,?+N$^<(WPP>
MS3?J&W#_`*0W.ML2]S'R[A/G"-\,'LTWZAMP_P"D-SK;$O<R!?PI3,ID)>&S
M[<:-E4;3*LM@#SNIMOE(<=Y#'DDK:(BZ@-.%Q1%NJ]85Z<_+)/H9RG1G'S)K
MJ(9OI+")M@9>55Y&'1<1H`)ME+/Q7#0`YI*/-;B$#GB6ZN&7"^FIZRTD-5FK
M%Z0Y'SJ5S\P3;#3S"P2$3(WFF8T8.7)]T2[!.,FA,I:_;KXVJ1X9HW2;$ERH
MCN5\YR6.%I>:H>Z-"K<D!TBKA*"&KUTX_<6H#Y,Z*1'6.5'RS\85YFL`YP@Y
MK*.0B[RWFS416.7`3'VZ\?*!MKTCA')CR'LBZ\XT\#[BN"1JYRBBDV)*;A+X
M%B<%6Z^-?5`R]8_W7A?2V._S(U1Q/TT_I+=P_/#I,?1W]3YOZ8D?BF:AA/IH
M=#[V3Q/U$^KN1?JT2B*`4`H#7GX['Y&.L;(169D950E8?;%T%45NBZ314X+0
M&-<7C6C-]F`PKY\O60M@)%R?[*Y6_P#']SY.ZO)-I9#U)<I#2L=@!R$/(2L.
MC3T%LV(CN@-#8N<I;B(^'4/FS>DNT42R=]59WK5\T6EU%F-VUO+)-D$U+7`&
MYJ@-YO$NJ9.OLQFV\@&NZ$KK8H+<I%%;*0:3MVB7;2-^IOE/)72HN0E\?N[8
M61=$(3D=Z00J]R4;%'D1MQ-2DV2(X*@[:^I+H5K\:.^065V^X1NDWH-QEW:K
M#7*8@,M-7ORPC@(W4D/L1+>V1"].H[_3YR6Y5.8I?45UF3F=M'#9)(D0)H.$
M+:BVWJ%E`%53PC?2NE/0K)QJ\PJ4+%M+Q-'"KO*%;+LOP)SIKDF8&P<##EMN
MLR6(;0/-&VHD)(G%%1;*E:D+[344N9%"=SFY-\[)Z;D\+,8-B0"N`2*/B!%5
M-26NE[V6HU;S1J1<9*WJ)TKO6IRMB[.LY7/;8B9,X&I#<%%,>''EWL)$B>UU
M=UZ^)O%V^W)KDY'I/KJ-?7BGRFE*RF)B7\ZE,LJG<9BB^M>]<HTF\R.KFERG
MS&Y3&Y)HW8+HOM-ERR,45$U61;<43RTG3<<Z$9VGG*XAC(-!XE8E,%S(<MM$
MYC3EK72_:BIP(5X$G!:G2JZCS6Q>=:?;D9SJT]=:&LST$5AMX0Y.==VS,TM;
M@BM*[);:\3)`BC8VR[?$AH6E>(]]6*MR<:?W8Y:;]_7W<Y7I7Q2G]N7G7N+'
M5(NB@%`*`U\CD(N.A.3)1*+#5E-42Z\504LGIK4H0<G8CQNQ&+&YO%9($*%)
M!Y>\$6QIZ8+XJE.E*.='D9)YC<51U:5MJM>W?:N=A*TSPX12I`L@EK\2)$3P
MBG:M=KO0^Y*PY5JNI&TZ9'ST*+&;9%ISEL@@ZB456PIVJMZ^UA?H1223L1\C
M.YSDW)M6L@-C9YIR#,S;K+G.STIR:*K:Z1T1&8J<5]X:!?5KI*_Q3LL9SC<I
M-6VHLGUEC^\G_1]FH\1CH9+<):4/K+']Y/\`H^S3B,=#&X2THJ/5#(_*.W8K
M,=ATC#)P'2L.JP!($C(M-["*)Q5:KWV^1G0FLWRG:ZW24*T'GRGOI1):A8O+
MA+0F%=RC[K*F)(AMDTTB$*VXC<52]>X9>81N\$WEL\6>8A=YRKR:7M8B\M9.
M"\XC;;NHR[!1"]BM&-YIR=B>4HRN\XJUHVJ[G$4`H!0"@/A")"HDB**]J+Q2
MO&K3U.PCI.!A.DIA=HE[AMIOY;+52I<H2=N8LT[Y.*LSE-F]),.N[0W@#9GG
M6P1D9#;SC>II!4=!M(J-D-E[%_\`2J\[K54=5--'>-XIN6LTTR3<ARV[\QDQ
M0>U5%;)ZO95"5&<<Z9=C5@\S14=WDTF6PHE(<!U4E\N(**K;J(C6HC*]D5OA
MINB^V7LJC?\`\+Z5XENY_FS_`+7X&]LLF2VGB29DN3&EC!HE/"HN.)]\0DIJ
MB^K5R6<K1(OJ!N'<V+A<K!8MZ2\X/CG"*.`RGH`ER(O32R5RG)HL481;RLX8
MRWN;*9!Z,TDN5/>+7(;36KBD/#4:?Q;VX]E5^<OZUGM[=OO)!GIWNLW-+\-(
MI=I<\Q1>/H(I*M<ZM6,'8SV"<E\N;V]N\N^S=M3,&Q)"2^#O/("$&T6PJ**B
M\51+WO6?>*RG98=Z<-4L55SJ87(4-R2W*-ALI32*C3ZBG,%%X*B'[9$7R5.-
M225B>0BX)NUK*9J@2%`*`4!$;GP)YO')$&1YOI/F=FH25$5$0K*G#C7:C5U'
M;80G&WE.;Y'9VY,6:.HR3HC=1D154E3T?#8QK0A7A+E*[@U[>WMSF./N[/,/
M1S.03RQ2N".<24%X$"DG%15$[ZE]J.7G/+7I]N?_`.]IW;8F4Q66Q"9"$YJ=
M<L,EHO;M$G'0J?PW[ZZW2@H1YRI>ZLI.QYD>.I,/=LW:KT/:C@-9:2XVRIN:
M=",.W!Y24D6U@*]TX\.%:%!Q4K99C.K*35D2P8^.<:!&C'HU,--M%RA4&[@*
M#X!5241X<$5:Y2=K.J5B-BO#T4!!;R'*+BF?D[7J29&67H5$_NJ.)SM5_N=/
M;7.O9]N5NRR5.W7C9I/6QX^9>BS&Y(N'JFNK`0K*B1=#:"J6[`UZ^VO;G#6I
MP45EL\6>7F>K4DY9K?`Z+C,<W#9152[YHG,+_P#%/0KZ&[7=4U_(Q+Q7<WS&
M[5DKB@%`*`4`H!0"@%`<SZK``[EVN2"B$0Y#4J)Q7PL=M8>/I;O;_)=S-?!F
M_O?U?@2G2[$0'^G6W'#!=906M2H2I=;7OPJ_&Z4Y13:Y$4W>IQ;2?*RT?(.-
M^\+^<7LU[N-+1VGF^5-)JR=F[<E.@](ABX^VMVWE5>8*IY#3Q)Z]>/#Z3SH]
M5^JK,Q.VCAYC"MF!"Y:P/:E4A7N7CV^E7*OA5&I&QKK.M'$ZL)6K-H*1E]FY
MC'*1B'G49/\`RM(MT3^,':GJ7KYJ]X-5I95\T>;X'T%UQ6G5R/Y9$#60:@H!
M0"@%`*`4!L0<?-R#_F\-I7752]AMP3LNJKP1*[W>[3JRU8*UG&O>(4HVS=B)
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M]N1%\K2*`H!0"@%`5[>F^,-M"'$EY5'%9F2/-F^7HNA<HW5]N07\+161+DJ\
M$15H#=<W7MEI0%W*Q&R<X-B;S8JJZE&R(J]NH53U%H`FZ]L*ZK*9:'S4=Y"M
M\]O4COB\%M7MO<RX>@M`&]U[8<Y>C+0RYK9O-V?;\3;>K6:>+VHZ"NOH+Y%H
M#W@<_CLY"<FX\^;&!]^,CJ*)"91W":(@45)%%2%;+0%%ZK_O'M;^1D/P6*Q/
M]!Z?^R[F:V#?F?TOP)_I/_IKMO\`,6?P:UZ7DCT+N,RIYGTLME="`H!0"@(#
M([(P<TR=0"C.FMR-E;(JWNJZ511X^E65><'H5<MFJ^;VL-*[XK6IY+=9<Y`2
M>F\T23S:8VX*WOS!(%3R>UUWK)J_YV7[)KK]F:=/'H_NB^HCEV)N1%5$9;5$
M7@O,'CZ-4W@=Y3S+WEM8Q=]+]QC?V7N1D-2Q>9QM9LQ)?6O4)8->4K=7M1*.
M+7=NS6[&8/JMN+YO=_H^S7'AEYV'V'7B-WVT/JMN+YO=_H^S7O#+SL/L'$;O
MMHF\/T^END#N3-&6>U6&UNXO'L5;:43TJU+I@$F[:KL6A9S-O6-Q2LIK+I9>
M(<&'"81B(T++2<=(I;CY5\JU]/2HQIQU8JQ'SU6K*I+6D[69ZZ',4`H!0"@%
M`47K'^Z\+Z6QW^9&J.)^FG]);N'YX=)CZ._J?-_3$C\4S4,)]-#H?>R>)^HG
MU=R+]6B410"@%`0NZ,])Q3<!J&RT[-R<H8<99+BLL`9`1ZG#037L!4$42Y%9
M.';0%/WEE=IYF$.-W.<@'\<3OG1XI7"8)\HI@_%%W2A&IQGSN&F]N^Z4!6C+
M8A&1O.Y%E'9V1>G1&8KK1NB\W)%QH;D2BTT&/>%RWMC0E2VI*`VF`Z6/:&\:
M.5DH+D=<:,='+$#;DIEEN,2HA(TAMO`O%.':NF@-"-'Z2.Q&)<['9-MU^$AR
M7'`5[E-N-([IYPC[GR&YOA1K2*)W4!;]O=0=CXO$D$!<D_'<?DR3>>C/D9ZU
M\X>D7(0U-+S+H0I;NH"$WAG?EV5M')^;'$1U<L",N*BDG)<;:O=+>VT7K$_T
M'I_[+N9K8-^9_2_`NG2?_37;?YBS^#6O2\D>A=QF5/,^EELKH0%`*`4`H#RK
MK2***8HIKI!%5/$J(JV3RKP6@/5`>4=;(R;$T5P+*8(J72_9=/1H#7^5L7K,
M//&-;1*VX/,"XF**2B27X*B"JVH#+YW%\X\VYP><J.M&=2:]/WVF][4!EH!0
M'E76D=1I3%'2121NZ:E%+(JV[;<:`]4`H!0"@%`47K'^Z\+Z6QW^9&J.)^FG
M]);N'YX=)CZ._J?-_3$C\4S4,)]-#H?>R>)^HGU=R+]6B410"@%`8)^/@9"(
MY#GQFID1U+.QWP%ULDO>Q`:**T!4=V3]D[/9C/RMNBXPZWYH+T2''4&VA5"%
MDB)6T$%7B(]G"JE[OD:"3DI-<QVHT'4=B:*=D>I72C(NQ')>`D'YF^4D&_-H
MN@W#!\5Y@\RQI>6Z=E^[75VU0X[1T2[/B6>'STKVZA/ZI]/C;D/8K%.XW+/$
M#J9`8,(R5QLE(5<17$4T\1(OB1;$ME1>-..T=$NSXCA\]*]NHPXOK7T\)AN%
ME=M%%GZ.6K+4:,<=P4$1]Q(C&XZ&QN"I<41$[$1:Z/&*6KK)2:ZLG3E(;E.V
MQM+Q)`.K/2X.8@;>='G*9.Z8D1-:N(B.*5G..M$1"OVUSX[1T2[/B3X?/2O;
MJ(3.[ZV[N/<FWHF&AO0VX;4]PFW&VFP]T5F^E&S/BI+=:H8IB$*]!J*>22S]
M?.7\,NTJ=:UV98OP/FS>MT'#;/PN+:Q3LHH<4&7G2=%I%,/"NE$%RZ<.U;>E
M5N>,QIO4U;=5)9RGN+E:[<[9,?\`(9CYB/\`Q*?DJAQY;';^A[P[^78/^0S'
MS$?^)3\E3CRV.W]!P[^78?0_W#15,4/!N""JFHAD"JHG>J(K:7]>O5CRV.W]
M#QX<]HGH77/8\A31]94/3;3SF=6J_DY*N]GHVJU3QFA+/:NE?"TY2N%1:&=!
MK6*1S69TVW8!N2</FQA2')TZ<C3FIYH')+;K;+K*F-VB07K&-E"_B1+IQ`WX
MVUNHXQH;3FYK614R&L1><7W543ENHTPG]@:_^-/&(KQ2]P,F>VANN3FI\_$9
M1,>$H`TJ!D)J;,5YMKF>YN)I1]P"7T$7TE`K<CIAN!YI<:.4B/&#\R<\RZZ1
M.(4XLD@FMFM7B&:WV\+B=O1`D]X=.=T9'=I;DPF19AR@C-QHO,X*V7+>;-\2
MY+A(:"\H"-U!=2DJ:A&@,<G:75PV$:8W&(*3#(.O$^*NZVG3(D;480@*F!"A
M.*!7TVT)>]`2S6UM^75QS<A"ZXZ/,1$0PY(,-:=`\MM!-9+1:^%E`R[%M8#3
MC;1ZBGYJLS-`*MNCSS;=(W>0IQB=$'ECMJO,Y3RHFE-.M!OPU4!T$1TB@W5;
M):Z\5X4!]H!0"@%`47K'^Z\+Z6QW^9&J.)^FG]);N'YX=)CZ._J?-_3$C\4S
M4,)]-#H?>R>)^HGU=R+]6B410"@%`*`PS846;%=B2VA>C/BH.M$ET(5[4J,X
M*2:>9GL9-.U'*-R=`XKJF]MZ9R#(KI$E*I-(G&Z"X*$:>JBUA7C`T\M-V/0S
M1I8@UYD5J3T)WJRP;C;D*08I=&6G30R]!.8V`^N54I8)62SQ?7^AW6(4^<H^
M?VGF,>VC.:QKT<"7W,G05!U"O!0-.]%[%1:SY4JM%IM.)94H5%D=I`8.#EH3
M+S61FI/4CUM/**B2(J<15%5>"=U>WJK3FTX1U2-&$XY).TLFT?WSQ_YM+_"8
MKB_Q2Z8__HMW?\JZ)>!!8G]7,>D7X:UTO7Y)=)PI^4VZX$Q0"@+KT[Z<Y'<F
M2;?DLFQA6"$Y+QHH\U/;(VU>VK5WDG8GJ5IX?ATJTDVOD*EYO*@K%YC])5]B
M89K9*/*DP'V(DE8<EP%1F4(B:MEW%I*Z+4)Q;32=C)TY*,DVK5H.`YC>&^1F
M.PYV6D@_$<-HQ:+D>(5LM^4C>KLX7KYRK>:UMCD[5U=Q]=1N=W<5*,58^OO-
M'ZV;J^>9W^)>_K5RWBIM2][.VZ4=B/N1'Y#.;I5\<E$R<M<G'%1`ED.B3K2\
M28([WTDO$?(5E\M=*=YG;8Y2L?/F.=2YT\\8QM7,LIF@;^SL]HG(N>F.:%TN
M@DEW4V=KJ!IJX$G>E>3JUHO+*7O8IT;O-?+&.3F63I-KZV;J^>9W^)>_K5#>
M*FU+WLZ;I1V(^Y#ZV;J^>9W^)>_K4WBIM2][&Z4=B/N0^MFZOGF=_B7OZU-X
MJ;4O>QNE'8C[D2V%7J7FB7Y-EY)T$2_.*0ZVW_/,A%?46N]+>*GE<O>5ZVZT
MO,H>Y%IQFQ.I\E!*;N!Z`"WN*RGGG$5.SP@2!9?Y=6Z=TO#SS:ZVRA5OUUCY
M8*74E[>XLV!V7N.`YKF;IFRD4D4FD05$A1."7?YY#Q7CI5*N4;K..>;?MSVE
M"\7RG-?+3BO;FL+A5TSA0%%ZQ_NO"^EL=_F1JCB?II_26[A^>'28^COZGS?T
MQ(_%,U#"?30Z'WLGB?J)]7<B_5HE$4`H!0"@%`*`4!AFPH<Z,Y%F,A(C.I9Q
MET4(23T46HS@I*QJU'J;3M1Q[>/0MY"=F;9<UH1$:XUY4'2*\=+3B]O'N/UZ
M^>O>"O/2]WP-.C?UFG[SGF#Q&5QF^8#&1B/1'4C3$TN@0W\3'8J\%]2L:K1G
M"E-2366/B:MTFI5$T[?EEX%?PV-R3F+CFW#?,"15$Q:<(5127BBHEEJ=YI3=
M1M)G"$E9G-U,3EE6WF,GX%S^K7'[$]#):\=*+;@NCV]<JHF[&3&QU7B[+725
MKV6S27-5MQ2Z(B^6KU#":T\ZU5S_``*]2^TXYLIU7:?1_;&#T2)0?*D\;+S9
M`HK8DG&X-<1])5NM;MUPJE2ROYI<YG5KY.>19$7M$1$1$2R)P1$K4*@H!0%&
MZ@].$W`83\:33&4&PO*ZI"#H=B:E%"L0]W#CV5GWRX_=^:.21JX?B/V?EEEA
MW'.W.E.^1<(1@@:"JHAB^SI)$[TU$*V7T4K+>'5M':C96*T+,_8S5G].]YP&
M>>]C'"!+W5D@>5+)>ZHV1+:HSN-6*M<2<,2H2=BEX%-@X3&8A^5YJPD0Y1HY
M)9XBFM$]MH7VJ\:XU:TI6*7(6:-&$+7!>8WVD5TT;:17'"]J`)J)>_@B76N2
MRYCJ\F5DOB-H;ER[I-PL>Z6CVYN)R@3TR<TI7>E=JDWD16K7RE35LI+O.D[3
MZ/18;J2L^;<QT5NW#;NK"6[%-205/TK6].M6[X:HNV>7FY#$O>,.2LI_*M/+
M^ATAIIIIL6F@1ML$00`41!1$X(B(E:B5ABMVY6>J]/!0"@%`47K'^Z\+Z6QW
M^9&J.)^FG]);N'YX=)CZ._J?-_3$C\4S4,)]-#H?>R>)^HGU=R+]6B410"@%
M`*`4`H!0"@%`<TZK_O'M;^3D/P6*Q/\`0>G_`++N9K8-^9_2_`G^D_\`IKMO
M\P9_!K8I>2/0NXS*GF?2RV5,@:\C(0(Y.#(D-M$TT4AU#)!TLA[9PKKP%.]:
M`SJ0HJ(JHBDMDOWK0'V@%`:C^7Q<=N4X_+9:;@V\](S$49U"A)S%5?#<21>-
M`9HDN+,C-RHCP2(SPH33S1(8$*]XDET6@,M`?#,&P)PU00!%(B7L1$XJM`81
M9@R!%\6VW1=1"%S2):D5."W]*O'%$E)KE/818P$A`R`DG80BB+_!110<F^4R
M5Z1%`*`4`H!0"@*+UC_=>%]+8[_,C5'$_33^DMW#\\.DQ]'?U/F_IB1^*9J&
M$^FAT/O9/$_43ZNY%^K1*(H!0"@%`16<W3@,$K"9:6,7SA#)K4)DBBUIYA*H
M"6D1UI=2X4!*`X!@A@2$!(A"2+=%1>**BT!K,Y.`\LM&WQ7S%Q6I:KP1LT`7
M50E6R<`-"H#.Q(8D,@\PX+K+HH;;@*A"0DEQ)%3M14H#%CLA#R,"//A.H]$E
M-BZPZB*B$!I<5LJ(O%*`YYU7_>/:W\C(?@L5B?Z#T_\`9=S-;!OS/Z7X$_TG
M_P!-=M_F+/X-:]+R1Z%W&94\SZ66RNA`I^]-G9?-RG2@2X[$?(8Y_#Y(9#9F
M8QY!(I.,Z21-:#J1$+AV+W64"L[OVA/C.,S9.?E))>DOGCV6$E2G?.W4DJR3
M#"&H^XMO#W(-@XV2@,43";J^4X9_+OF<8`<G/H](D@<<"E1S%E6)+O,*[8&W
M=U-*(:V[K@8,%MG=10L)-G;V\U-D8WGD`)O-$7^2PKBDZ9/\TRY+EV[Z/$JI
M0$DSM((VV=S8S+[CC.2<F49)$U7C5P/-V&V2)PG'",7'%CF:(*II7L[*`B<1
MLV8$(FL9O8%A2X:AC&VY1,7%]4-ITVTU&KCIFCCAH2$1$O<M`3$3:F8&8Z_E
M-Y^<1Y4IDG&AE.,MKRG$)QAH!-";X*@<'%54]MQH#8Q>V<UDV861QFZW9\$U
M)"DF3PJJ,NJ'@;$A;+6V"-N<P5XZC&RK0%FV=MV?A8D@9\\\C)>,%1XB<41!
MMD&]`B9$@^,"+PV[:`L%`*`4`H!0"@%`*`HO6/\`=>%]+8[_`#(U1Q/TT_I+
M=P_/#I,?1W]3YOZ8D?BF:AA/IH=#[V3Q/U$^KN1?JT2B*`4`H"(SNXODQZ)$
M8A/Y'(SN84>)'Y8KH91%<<,W2`!$=8IV]JI0%;W3D<3.FL2F-R1<).QC#T:>
MP^VW)<`)ZLBH**.B(N"8"*+XQU+946@*6[MC:#=G,'NR*\S.E0D:;F2'76T8
MAOQG"!4YW*<$6]`@B`'`^)<:`2=M]/H0#DW=X%*8QH(CK*...*?*C-KX09=;
M0W#;:U>-#10[K)>@,T/:NQ(\XPC[Q;!XFXC8Q'W'-*+'6.@MN,J^#7*)8R)H
MT"2*2^/C90+KM?<VQL%M3#XQG<$68Q#BA$CR!,$5Y8Z"TND15415)133?M5$
M[TH"N;^RT/,3MEY6$2E$FQYK["DEET&#"I=.Y:Q/]!Z?^R[F:V#?F?TOP+7T
MG_TUVW^8L_@UKTO)'H7<9E3S/I9;*Z$!0$9G<!'R[<=2D/PY<-WGPIT50%YI
MS2H*H\P7&R0@)1(3`A7R4!`O]+<#)><>F2I<MQZQ/$\3*J;ON:$Z2HTBKK%D
M14/[-/N01>-`1V2Z,X*0]#&*\<:()O\`GX"+*DXV\W,11"[:B*ZL@::K7THE
MK*EZ`W<?TDVK!F><-J^X(DV33#RM&V*-%),4XMZS\4YQ=3A$79QX4!\^R':*
MLBT0O%I:%E'%Y6O2`Q@1=2-W1;0@[/*7EX`55_;_`$9VZ;V'ES'8KH(X"LG&
MTJ*.BR.I"",B&2#'"SBZB7C<EJG4Q"C!ZLG8^A_`[QNU22M2[BQ83J)TPPV,
M9QL/,?W=C5HULOZO&:FM]+0IVEY*Y\5N^UV/X$MSJZ.XB<AU)VAB<@[F,%E/
M.FI)(66PRMOIS5X)SXRD""#Z"G$55!<3R%QHL4N^UV/X#<ZN@L,?K)TVD,B\
MUF1("[%Y$CM3M1?<^"IWI4I8G0B['+L?P/(W6HU:EW'O[7.G?SN/P,C\G4>*
MW?:['\#W<ZNCN'VN=._G<?@9'Y.G%;OM=C^`W.KH[A]KG3OYW'X&1^3IQ6[[
M78_@-SJZ.X?:YT[^=Q^!D?DZ<5N^UV/X#<ZNCN'VN=._G<?@9'Y.G%;OM=C^
M`W.KH[A]KG3OYW'X&1^3IQ6[[78_@-SJZ.X?:YT[^=Q^!D?DZ<5N^UV/X#<Z
MNCN*WU)WGM;-[:@-XS)L2'CRT#2PA:'509`J2\H])V1$\E<+Y?*56[S49)O5
M.]TH3A6A:N4R=+=S;=QN/S<?(9.+$D?*SY<E]YML[*RS9=)*B\:89>*<+O!2
MDD[-/.R6(TI2KR:3>7P1?(.ZMLSY(Q8.6B2I)W4&&7VS-=*76PBJKP1+UH0O
M-.3LC*+?2494II6M,E*[G,4`H",SFW,9FA8\\1UMZ*2E&E1GG8S[:FFD]#S)
M`:(0\"2]EH#0C[`VLQ)"2W&-76C%QG4^\2-F+@/$0"1J@JXXR!N6]NJ(I7H"
M*?Z<;+6;#7F<N%#B'`=Q_G#FEX+16VQ=7F7(0;@B*@5T*]RXI7-UH+.U[SHJ
M4WR,P9';6R,!CGI4>$[,C*/(EMM2G7#:ADPL8N4VIJJ@TSP0`XHG$>->?>AM
M+WATIZ&;SFV^GDZ*CI(W+B3$%U%%YQQMP><,H5\)*BBK@"7H]G97D[Q3CG9[
M&A.69'F-M+8$>.L=MLN6HB*HKKZKI!T'@2]_N39"WH);LJ&^4M)/=:F@K'4#
MY,9R^T(./7^[Q69S307)50`".*)<N*\*R,;K0G=_E=OS+N9I832E"ME7[7X%
MBZ5Y7'M].-N@;R(0P6D5+$O%$]!*U87JG&*3>6Q=QGSN\W)M+E9:OEG&>_IZ
MQ>Q4M\I:2.ZU-`^6<9[^GK%[%-\I:1NM30/EG&>_IZQ>Q3?*6D;K4T#Y9QGO
MZ>L7L4WREI&ZU-!E'(0"1%20W9?*2(OK+715Z>TO>0^S/0S*W(8<15;<$T3@
MJBJ+_P!*E&I%YFB$H26='NID2,SVV\+GH91,K%"0TOM27@8+VW`T\0^HM<:]
MWA55DU:=*=64'\KL.4;AZ!26FW'L#/\`.%1548DE$`M-NQ'1X*OIBE8%XP-K
M+3=O,S1I8@GDDCGN6V5NS$"1Y#%2&6@2Y/(',:1/1<;U@GKUD5;I5I^:+7MI
M+L*T)9F4Z?`R:Y&/*Q;[;3>M"R$<E6SR)P[D5$+3W]_"NE*M#4<:B;R?*]!&
M=.6LG'(K<O.2U4SN*`4`H!0"@%`?8WZXPWTC&_"6NU']WT2/%YH_4C)DOW@S
MGY\7XAFO*GEA]/BR53SR^KP1V+HGL.2PY]9LFR31*-L4)*HEI,2$W2'R$)6&
M_I^2M_![BX_^DET&5?KPG\BZSL%?0&8*`4`H!0%>ST$VWUE`EVG+:U\A=G\-
M9%^HM2UUF9J7*JG'5>=$36>7BB;CGYK9N0BNX3$OY3!Y.2'G\9D5(8"FX/-?
M:0-1:7!554+:4)-7"ZI5B$5-.UV-=I7D]3,K;2]KV^6JY8*KN^2\&9P<44'D
MR!F$ZJ@*DBMHSITFJ:A]NM[+Q[^RJM_7_B_J7B=KH_\`V_J_`W]D2WY>T,1*
MD(*//1@)Q``6QOZ`"@B/J)5R2L97@\A-U$D*`4`H!V]E`;\/#2I#@\T%::^Z
M(DLMD[D1>-6Z-SG-Y58BM5O48K([66A$1$1$[$K<,84`H`0B0J)(BBJ65%XH
MJ4!#9'9NU,BPK$O%13;O=+-"!(MK70A023MJO.Z4I*QQ1UC6FG:FR@9OH#C7
MG7'<-D"ABJ>YQ7A5T$*WOFK7;U%K)KX'%MN#LYBY3Q!KS*TJDWH5O5EQ1CG$
ME-H-T-'";55\FDAJC/!*RS6,L1O]-Y[40R]*NH2+;Y%<]/F,?E*K\+O&SW'7
M>Z6DR,=)NH+KP-KB2:0ELKCCK*`/HKI,E_@KV.%7AORGCOE-<I8T_P!OVX[)
M?)PT7O32ZO\`Z5<X%4VD<.(QT,QR>@6Z6V2-B=#?=3VK7N@7_P"Y15*C+`ZB
M61H]6(0T,T/L/W[[W$^'7^I7/@M;F)[_`$^<C<STPW7M]S%9/(C'2*UDH@FK
M;NLKN.:!LFE.\J\EAM6E"<Y66:K.E*]0G4BEGUB^]+=B[9R;F<S.2B),E_*K
MK8`]XFA1MEFRH'9?AWWK3PRY4YT83DK96>+*N(UYQK2BG8K?!'741$2R<$3L
M2MLRQ0"@%`*`4!\,!,5$D0A)+*B]BI7C2:L9ZG8[41<G;T8U4F25I5^Y[1]F
MJ-3#XORY"Y3OTEGRD4>&R0%;DZO1%4M_"J50E<ZJY"ZKU3?*8G<?.9'4XR0C
MWKVHEO+:]JA.[SBK6B<:\)9F5#=TZ4UE<-``D2+-26<@+)<E81KEV7M2W,+L
MK/O\?_%O^2\2Y<Y-5OZOP)[847+9K9V(RDMP/.)<8''"MIU*J=ND4LE:\+A)
MJU9$9DKY&+L>5D_]6Y7OK?\`#[%3X=/2B._QT,?5N5[ZW_#[%.'3TH;_`!T,
MRAMI=*:Y%B[T0;IZZJE36':9$'?]"-MG`0&RN2$[Y$->'K):K$+C37.<97V;
MYC=9C1V$LRV(>DE684XQS*PKSJ2EG=IDJ9`4`H!0'PE)!512Y6X(O#C1@A2W
M&X)*)1=)"MB13XHJ?]M9CQ!IV./;^AHJXIJU2[#Y]92^+I_/_P#C7G$GL]OZ
M'NX?R[`FY2^+?T__`(TXE_'M_0\W#^789PW'#);&!@GE5$7_`*+76.(0>=-'
M.5QGR6&3ZP8[RG_-6I;_`$^<CN50]-YS&G?W10M]\*I4HWVF^4C*Z5%R'OY8
MQOOZ>LOL5+>Z6DCNM30/EC&^_IZR^Q3>Z6D;K4T%(ZNY&$_MN"VTZA&N6QUD
MX_&17O2JF(7B$KO-)Y=4LW.A.-:+:Y3QTDGPV,5F@>=0"^5Y'!;^\L^2H89>
M(0NT$WEL\63O]&<J\VE[6(O7RQC??T]9?8J]O=+24]UJ:#99>;>;1QHM0%V$
MGH<*[PFI*U9CE*+B['G/=2(B@%`*`4`H!0"@.:=5_P!X]K?R,A^"Q6)_H/3_
M`-EW,UL&_,_I?@3_`$G_`--=M_F+/X-:]+R1Z%W&94\SZ66RNA`4!5MS[HR,
M*="C8GS)T76I;\EV6Z0-H,/1J!#;0M*W.RJJ+I\E`1^/ZP;:FLH3<7("\JL-
M\HHK@B3TA1'D@Z>ELC;-Q!--7"@-6%UEP;LQ^,K+\@W"UX\8L=TTY"M`0+(-
M$(6E)TB"ZV3AZM`;&,ZP[;FBRV4::U,<".G)2.X0+(DHTJ1P?LC1F/G`W\7E
M\E`:>5ZH92'@-I9-F`TZYN)`*0V2F@-(:`OMTN@)[I[<^"=]`;K76;9SD1N8
M8S6(CNM0?D1'6040:%X2%7$'5S!-.6@W4EX(G"@,[75?;1L)()B<RP#/G$IQ
M^,;/F[7-)E#>%S22(I#PLB\.-`>9'5/!"-T%^/H<L?G#!7,`>5A]`02OJ;=3
M06KO\M`9X.\-L9M)Q.Q9,9V`PU)D`\R0OJR\".`;;;2FXXFE42XHO'P]J*E<
M:EWA/.CK3KSAF9&OR,K,6V`P<QX57@_D5""S9>*%X]3]O_U7JG/#E^UEN%^?
M*BM;NV;O[-8U8<C.!@'%=;<:7&M&I#H-%*\DR$G/!?@(!QM?A5:S[3RQ]_MX
MEBW[B^619L?$6'!8BJ^[*5D$!9$@M;KBHG$C*R75:J-VLLQ5BL-BO#T4`H!0
M$+NPI:8H/-H@2U62PCR."A<II7$YCPW5+$VG%%KE7L^W*W9)TK?N1LTGS:92
MU@2?.(H1124XD<@1!YS6D+/'95N1%J&_\6O+M9]J/1XL]KV_=ET^!;(&%DR"
M0GA5IGO5>!+Z25I4+G*3MEDB4*UZC%6+*RQL,ML-"TVE@!+(E;,(**L68RIS
M<G:\Y[J1$4`H!0"@/#SHM-$X2*HBEUTHJK;TDJ,Y**M9*,=9V(T?E_&_?E_-
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M><GC=CY-Q7)D!DW''6GGW.0B$\K*W`7ETW<%%^Y*Z4WZEI[!N50D8^*VU(=:
M,,2QK8L3#I10'0NE!10)1X>$43AW5VIUE/-;[CE.DXY[/>9G-L;:=4U<Q,,U
M=;!EQ2CM+J:;MH;*X\1'2FE.Q+5V.1G7#XA8[498,=8S+:LLL*T&@&R32H"-
MK(*HEK)0&NWM?;+:BK>(A`H&3H*,=I%1PQTD:6'VQ"EE7R4!FB8+"0VU:B8^
M-';4="@TRV`Z-2GIL*)PU$I6\M`?"P6$-R0Z6/C$[+(3E&K+:DZ0)85<6WB4
M>Z]`9(V*QD60Y)C0V&)+P@#S[;8`9BVFD!(A1%5!3@*+V4!M4!\(1(5$D0A7
MM1>*5XU:$[#57$XU55>0/'TZX;K3V3OO-32>',+C31$Y6FW>*JE1E<Z3Y"2O
M=1<IB<V]!*VA3#RV6]_7O7.5PIO-:B:OLUGL9X^K<7WUS^C[%1X=#2R6_P`M
M"'U;B^^N?T?8IPZ&EC?Y:$4[JEC$Q^WH;T=]T2+*0&S1"TZ@-\1(2TVN*HO%
M*K7VY1A0G*W]IWNM[E.K%<YGZ1M"_C<L\_=UQG+/@RIJI:`1IJPC?VJ(JJMD
MKIA-&/V(2LRV>+(8E5E]Z<;<GZ(Z!6J9HH!0"@%`*`4`H",G8*.^JN,KR7%3
ML1/`J^BGL52K7*,\JR,MTKY*.1Y40<R!)B'I='@OM33B*^K676H2IO*:5*M&
M:R%0W<0)E,,*RC;,DE:82(2@_9&KD9(NE.5?AJ3[I;=]9U__``O)RKQ+ES_+
MG_:S>V:8'M7%$$LYX+'!1FNB0FZGWQ":D2+Z:U<E[BM$B]V[%D;DSN*F/Y9V
M-BL:A*[BF@10E*X2*8R%(M)-D(H*AI\M=J=;5BU9E?80J4W)IVY$6P1$1011
M!$41!%."(B<$1$K@=21B8.8^MS3DAY2[?42KE*Y3EGR(JU+W".;*R<AXJ'%L
M0#J<3_R%Q7U/)6G1NL(9LYG5;S.>?,;=6#@*`4`H!0"@%`*`4`H!0"@%`*`H
MO6/]UX7TMCO\R-4<3]-/Z2W</SPZ3'T=_4^;^F)'XIFH83Z:'0^]D\3]1/J[
MD7ZM$HB@%`*`4`H!0"@%`?"$3%1)$(5X*BI=%KQI/(SU-K,4;?.SLADLSA9N
M+CMJW"&4,KQ("^[(T@61;)_XUO63BEQ=2E937S:RYM)I8?>U"I;4>359O=/M
MLI`V3A862B<J?'BMMR6R6ZB:)XDX+:KL;I"Q6K+857>9VNQY"P?(^-]X3UU]
MFO=TI:#S>JFDRL0(;!:FF1$OONU?76ND*$(9D0G6G+.S/74Y"@%`*`4`H!0"
M@%`*`4`H!0"@%`*`KF^]M2]Q8=B%%=;9=9FQ9:D[JTJ,=U'"'PHJW5$X56OE
M%U:4H+/)'>[553J1D\R9XV%MB=MZ!D(\QQIPY<]V6VK*DJ(#@-BB%J$?%<%K
MRXT'2HQA+.OB2O=95:LIK,_@6:K16%`*`4`H!0"@%`*`4`H!0"@%`*`4`H!0
M"@%`4GJ/%WE'@/YG;^9.*$-E7)&/5IHQ,0XJ39$!$A6[EX+Z%9U_C647.G*R
MSD+5V<&]62S\IQK[5^H7STY\%'_)U\YQ6\;78C4W2EH'VK]0_GISX*/^3IQ6
M\;78ANE+0/M7ZA_/3GP4?\G3BMXVNQ#=*6@?:OU#^>G/@H_Y.G%;QM=B&Z4M
M!NQ.M&_X[:@4MF2M[ZWV14O2]SY:?P5TAC%=9W:1E<J;Y+"4B=?=TM,H$F#$
MDNW6[OC;X=R:44JL1QRHEE29R>'PY&S/_P`@L_\`-43^>Y4N.SV4><.CI8_Y
M!9_YJB?SW*<=GLH<.CI9GA_[@\DCMYF'9-JW8RZ0E?TR0DJ4,>E;EB>2PY<C
M-W_D-&^8G/\`$C^3KIQY;';^A#ASVNP?\AHWS$Y_B1_)TX\MCM_0<.>UV#_D
M-&^8G/\`$C^3IQY;';^@X<]KL-K&=<W<I/9@0=NNO2GR0``9"6XJB7)>7X12
M_%5KI2QEU):L86OI_0C.XZJM<NPZH"FH"IH@FJ)J%%NB+WHBV2];:S93/9]K
MT"@%`*`4`H!0"@(C=68EXC#^=PV0?E.28<1EMTE!O7-EM14(B%"6P\[5P3NH
M"O-=6]MQ7C@9USS#*1B?&:#0NR([:1U).8KX@B"!\M=.I$XHH]J4!F#JWLHH
MS4HY#[,8Q4W'78S[8M)S183FZA31J<<%!\MTM0&Y@NHFVL[(B,8TI#KLP7G&
MQ*,\WI!CEZR<Y@CH1>>WI5?;7X4!"8#JRQ)626:@N8YA'WPAR`;?<`V([_(=
M>-5;&P-D3>IP;AXTLO`K`2\?J!C)V6Q,''"3H9%TA(W0-I>2L9Y]E]I#1-;;
MO(5!).';0$!ANM6)=F3H^88*$C,]Z!$)D'WB/D.FT9&/+14$$$")P;AXT35=
M"L!,_:OLSSIB*LA\9$C6H-+&?0A$#)M#<33[F)F!(*G:]J`R!U.VL?*!"D^<
M/B)LQ/-GN>0NZ5:5&M.KW5"50X<4$OO2L!ZQ._\`!966[%:<\Y9<!9##K33J
MM^:>;M/<QXB%!'5STLG?Z=Z!,Y!O/8PRI13]CXO(38)!S'8Q1W6`'A?4PY+Y
M7-$OO1U+Y*^<OF#9=:GFT?`TZ%_R63SG-27.*X;:LL1#`M)@ZINN#;@J$*(V
MB%Z'&L9QIQSZS?N^)?3F]%GO,.'Q^4B%)*=D"F<UQ58;44$6POP[M5_5M7MX
MJTYV:D=6Q9><\I0FFW)VDE58["@%`*`4`H`JHB75;)Z-`2N*VIN3*O(U`QLA
MXEM<N60@B%V*IEI%$]&]6*=TJS=D8LY3K0CG9?MM]!\U(>;>S[[<*+>[D9DD
M<?5+JFG4GN8=W%%*M6[X)-NVH[%HY2G5O\5Y<K.OX+:NW\"UR\5!:C$HH!O"
M**Z:)]^XOB+U5KZ"A=J=)605AFU*LI^9DK7<YB@%`*`4`H!0"@%`:N3Q6-RL
M%R!DXK4V$]I5V,^`N-DH$AC<214\)"A)Z*4!J!M/;`#&`,3$$88JW%%&6T1L
M"OJ$>'!%U+?TZ`U$V#M),C'G)C6-41LFXS'+#D@I.(ZK@AIX'J'MH"1Q^W\'
MCC$X&/CQ3`3`"9;$%$75$C%%1."$K8JJ>@GDH#RYMO;[@1FSQL8@AN$]$%6@
M5&G#+61`EO"I$MUMWT`B;<P$-[GQ<;&8>1TI".-M`)(\8J!.71+ZE$E15\BT
M!A<VAM5QX'G,1#)YM;@XK#>I%5PG>"VO_:.$?IJJT`:V?M1ISF-8>&#FLW=8
ML-H2FY[<E5$XJ7?0&>3M[!28RQ9&.C.QB;;95HV@4>6S=6@LJ>U"ZZ4[J`R1
M<-B(DA9,6$PQ((=!.M-B!*-A'3=$1;6;%/42@-R@(3<>R]N;AC\K)Q!,A52;
M?;]S=$E[50A[?26Z55O%SIUE9)'6E7E!VHYO._V]#X?,,TJ<5UI(90N'=;00
MUD3P%?MD7HXCI1&3>@&XVQ%8>2BR25?&+@N,V3RHJ<V]<9X%->629TCB$>5,
MU/L'WM[]`^&=_)5SX'6TQ]NHEQ"GSGH.@V\U,4.1!$%5$(D==)43O6W*2]%@
M=;3'VZCQXA#0R2_X]93OS;'P!_UZ[\!>UV$.(K03$3_;]@P=$I>4DOMHGC;`
M0;NOH%XK58C@5-/+)G)XC+D2)N#T6V#&$D=BO3%);H3[QHH^@G*5K^&K,,'H
M+.K>E_"PY2OM1\MA9(&T=K0#1R%B8C#B#IY@,@AV\BE:]7(76E'-%+J.$JLW
MG;)9$MP3LKN<Q0"@%`*`4`H!0"@%`*`4`H!0"@%`*`4`H!0"@%`*`4`H!0"@
0%`*`4`H!0"@%`*`4`H#_V3\_
`
end
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>GRAPHIC
<SEQUENCE>4
<FILENAME>g67395image_02.jpg
<DESCRIPTION>GRAPHIC
<TEXT>
begin 644 g67395image_02.jpg
M_]C_X``02D9)1@`!`@``9`!D``#_[``11'5C:WD``0`$````/```_^X`#D%D
M;V)E`&3``````?_;`(0`!@0$!`4$!@4%!@D&!08)"P@&!@@+#`H*"PH*#!`,
M#`P,#`P0#`X/$`\.#!,3%!03$QP;&QL<'Q\?'Q\?'Q\?'P$'!P<-#`T8$!`8
M&A41%1H?'Q\?'Q\?'Q\?'Q\?'Q\?'Q\?'Q\?'Q\?'Q\?'Q\?'Q\?'Q\?'Q\?
M'Q\?'Q\?'Q\?_\``$0@`[P'T`P$1``(1`0,1`?_$`+T``0`#``,!`0``````
M```````%!@<"`P0!"`$!``(#`0$```````````````,$`0(&!0<0``$$`0("
M!`<*"P4(`P$```$``@,$!1$&(1(Q$Q8'02)2DA1U-U%AD=$RLU2T%0AQ@;&B
MLN(C4S1T-L%",S478G*"TG.3)%:A)55#$0$``0(#`@<.!@(#`0$``````0(#
M$5$$%18A,9&A$I(%06%Q@='A,E)BHA,4-`:Q(G*R,U/PP4*")"-C_]H`#`,!
M``(1`Q$`/P#]4H"`@("`@("`@("`@("`@("`@("`@("`@("`@(/-D\E1QF/L
MY&_,(*52-TUF9VI#(V#5SCH">`0>3;FY\#N7&_:6#N,O42]T77L#@.=GRAXP
M:>&J"40$!`0$!!$[FW9MW:^/;D<]=90I/D$+9I`X@R.!<&^(''H:4$A2N5KM
M."[5D$M6U&R:"4:Z.CD:'-<->/$%!W("`@("`@("`@("`@("`@("`@("`@("
M`@("`@("`@("`@("`@("`@("`@("`@("`@("`@(""K=ZOLUW/ZLM?-.04W[L
M'LO;_/VORM0:V@@]\Y^SM[9V9SM:)DUC&U);,44FH8YT;2X!W+QT_`@^5MWX
M=M'&/R5J*K<R-:&PV`D\3,T<&^]S'107=5;MU1355$3+,4S+QTMVW)^\C);5
M=!&*=+&U[\=@%W6.?/*^-S2/D\H#."G86E`08U]ZOV;5O6<'S,R#2=B_T1M[
MU93^KL03B`@("`@("`@("`@("`@("`@("`@("`@("`@("`@("`@("`@("`@(
M"`@("`@("`@("`@("`@JW>K[-=S^K+7S3D%-^[![+V_S]K\K4&MH*AWP>RS=
M7JRS\V4%"W1_&;.]74/T@N4[;^JM>+]R>WZ,K/B?;UG_`%!1^L2KJT#14!!C
M7WJ_9M6]9P?,S(-)V+_1&WO5E/ZNQ!.("`@("`@("`@("`@("`@("`@("`@(
M"`@("`@("`@("`@^!S3T$%!]U"!J.CPH"`@("`@("`@("`@("`@("`@JW>K[
M-=S^K+7S3D%-^[![+V_S]K\K4&MH*AWP>RS=7JRS\V4%"W1_&;.]74/T@N4[
M;^JM>+]R>WZ,K/B?;UG_`%!1^L2KJT#14!!C7WJ_9M6]9P?,S(-)V+_1&WO5
ME/ZNQ!.("`@("`@("`@("`@("`@("`@("`@("`@("`@("`@("#IN4ZUVI/3M
M1B6M9C=%/$[H<QXY7-/X04'YOHT,+L>/?6Y,#3KT;N$W-5QU>XYI>VMCK#JC
M;#-'DM:SDE>23T=*#OW5OZSGLU1M#<%>CCL9O5]#&YIK8WPPU?LHNYB3^S?X
M\CM'/X>'H0<3WE;FEHU]Q/DKV,M3VWN6:EF!`UOI`H6XXZ]EC/DADS0'%HX%
M!*9#O)[PL2,W0M9F*81MV_8=FW5(V#'5\L]S+<IC;XKV0AFK2_737CJ@L7=]
MWD;MO5LY(^O)O"GCLS-0BR&/;6KO]%CBA='((7OC$I<9"=6GW^C1!:?]5MLP
M$-R]?(X60\WBWZ-A@+F'1S6R1MDB>?#XCB-$$UB=X[3S`'V5F*5TDM'+#/&]
MVKQJT%H.H)]Q!,("`@("`@("`@("`@(*MWJ^S7<_JRU\TY!3?NP>R]O\_:_*
MU!K:"H=\'LLW5ZLL_-E!0MT?QFSO5U#](+E.V_JK7B_<GM^C*SXGV]9_U!1^
ML2KJT#14!!C7WJ_9M6]9P?,S(-)V+_1&WO5E/ZNQ!.("`@((#<>]\%@9X:<[
MI;>5M:^BXJE&ZQ;D`TU(C;\EO'Y3R&^^@R"[:VU?R>[\MO+=-_![APV:]$Q$
M56W+'+5J-,?HG446ES)_2.8EQ,;^;4^X@D[7?+N"'O,;@JL]*[B'V[F.+70R
M0"*:I3-C]I:>\<S^<:2!L7(T?WM4%:?WP[IRNR-R19XUQD:]2AD*U>LV6N.J
MGO1PN=%:K6)6RP^,.5P>UQ\+=$%M_P!4-[-W/XWH#L"S=K]K&HV*3TIS'0=:
MR;K>?D#FGAR\O%!T]WW>[NO/[GVS5O6,7)2W+#DK3\?58\6Z`INY8X9G&1P)
M/A):..HT0;2@("`@("`@("`@("`@("`@("`@("`@(.I]2J^.6-\+'1S?XS"T
M$/UX>,"./XT'$X^@8^K-:+J_(Y&\OR>7HT\GA^!!]%.F&-8((PQK.K:WD;H&
M'^Z!I\GWD$=N3:V+W!BY<=;ZV!DIC=Z14D,$[71.YF%LC./`^`ZCW0@ZMH[.
MQ&U:$]3'&:5UNP^W=MVI#-///(`'22/.G'1H`T```03B"$R^R-GY@?\`V6&I
MVGZ!HE?"SK6@'F`;(`'MX\>!00_^E>%K?Y-DLMA`.;2.E>E,0#^)#89^OB:.
M;CXK0@^G;_>73'-1W5!D"&C]AE*$8#BT]`EJ.@+0X=)+7>\@^C.=YU(\M[;5
M3)M!(Z_%WFQN(TU:>IMMBT'@/[3\2#C_`*HXVNWFS&&S.(;R<[I;-"62(:?+
MUDK=>&AGA+M!H@E<3OW967>(\=FZ<\Q)`@$S&R^*-3^S<6OZ./0@G6N:YH<T
M@M(U!'$$%!]0$!`0$!`05;O5]FNY_5EKYIR"F_=@]E[?Y^U^5J#6T%0[X/99
MNKU99^;*"A;H_C-G>KJ'Z07*=M_56O%^Y/;]&5GQ/MZS_J"C]8E75H&BH"#&
MOO5^S:MZS@^9F0:3L7^B-O>K*?U=B"<0$$?G-P83`T'7\Q=BHU&D-ZV9W*"X
M]#6CI<X^!K1J@J?VGO?>`Y<,R3;&WG\P^U[48.0L-Z!Z/5D_AVGB0^4<WN,\
M*"P[:V9MW;<<HQ=;ELV#K;O3.=-:G=Y4T\A=(_\`&=$'KM;=V_;R4.4M8RI8
MR5;A7O2P1OGC'^Q*YI>W\10=(VEM491^6^QZ7VI(]LK[WH\77E[1RA_6<O-S
M`'375!UU-D[.IP6J]7!T((+SFONPQUH6LF<UW,TR-#='<KN(UZ"@]GV#@^;F
M^SZW-Z3Z=S=3'KZ5IIZ1KI_BZ<.?Y7OH*?MCN>P^"W4-Q_:%J]:A%@4V3MKM
MY#;(ZY\DD44<D[R&AH=*XD!!?D!`0$!`0$!`0$!`0$!`0$!`0$!`0$!`0$!`
M0$!`0$!`0$$9E=K[;RX(RN*J7M2'$V((Y22T:`ZN!Z`@KX[I]IP%PQ4E_#%S
M>5S<=?LP-\/*>0/<SQ?[HY=/>6,8XA][*;[I/YL7O"2Q&'!PKY:G!9!X:.!D
M@]%?IX1IX5D?#E.];'C_`,K"8W-,#3X^/MR59"6GIZJS&YNKQT-$G`_WD'UW
M>0:CR,SMO,XQ@+=;!K"W"UKN`<Y]-]C3CPTZ4'LQ_>9L&^\Q09VHR=H//7L/
M]&E;H>4AT<_5O:0?`1J@LK7L>-6N#A[H.J#Z@(*MWJ^S7<_JRU\TY!3?NP>R
M]O\`/VORM0:V@J'?![+-U>K+/S904+='\9L[U=0_2"Y3MOZJUXOW)[?HRL^)
M]O6?]04?K$JZM`T5`08U]ZOV;5O6<'S,R#2=B_T1M[U93^KL034DD<4;I97!
MD;`7/>X@-:T#4DD]`""E6-_W\U-)1V)1&5<Q_539Z<\N*@=PYM'@\]ES->+(
MOQN"#UX+N_JUL@S-YVW)GMQMUY;]D<L4&O\`=J5@3'`/?'C'PE!;$!`0$!`0
M$!`0$!`0$!`0$!`0$!`0$!`0$!`0$!!4N\[=63VWMJ.QB8XGY7(7:F,H/L:F
M&.:[,V%LLH:02UG,7::\>A!!6]U[IV!C\E<WIE*F?HM-5F*DJQ,I7'V;3S%U
M,L1<861\VA;*7CAKKT(.FIWZT+]?&LQF$M7\MD+-ZC]G02UW".QCXFS2`S\_
M4NC=&\.:]IT/X>"".9W^33Y.M<KX29VV'[9L;BGF+HQ8:8)`QS>4OTY6.:8^
M'$N(/R4'JRW?Y#A\1CLME-LWJ5.^T3CKYZ;)!7D>UD3V1];S2O=S\W5MX@=*
M#K;WF;@;NJUC99`Z)FZ#AJ<$,+"98!C/2Q$][WMY"9/[_'W-$'9_K]1BIY6>
M[@+=1^-O08E@?/6,,V0GUUKML"3JF]4T<TKB[1OX>"#T4^_6AD78*OB,'<R.
M0S<ER$U(7P?^._'R,CLF24OZMS&B3F:YA/,.CI0:>@("`@("`@("#Q9+"8;*
M1B/)4*]V,:@-L1,E`YAH[3G!TU""N2=TNQQS.H4Y<1*2US)<99L5.1[=-'M9
M$]L7-PZ2Q!P[$[KI_P"3[SO,8.;EAR4,&0:`[CP>6Q3:@^%TAX<$'TV>]RDT
MF2EALPUH:[]A-8HRNT^4T,E;987'P$O:$%>[Q-Y9E^P]PT<OM;)8Y\]&S$+4
M74W*K2Z(EI=)"\O:WW7.C`;X2@KWW<-Z;3QFQ&8K)9:M2R#KTSF5[,@A<\2N
M`86%_*'ZD?W2=/"@VZI=IW(NNJ3QV(M2WK(GM>W4=(U:2$%.[V\A1F[N-Y4X
MIV/MU<7,;,`(+V"2(EA</!S#H04K='\9L[U=0_2"Y3MOZJUXOW)[?HRL^)]O
M6?\`4%'ZQ*NK0-%0$&-_>K&O=O5`_P#TX/F9D'/8??9A+.%K8#%8ZYE<UC:=
M6O6IU6:^D<E:,22&1W*R&..75CG//X-==$%G;LG/;DD;8WU<9)3'&+;6.=(R
MD.C^)E);):/#H<&L_P!E!=X*\%>%D%>-L,$8#8XHVAK&M'0&M&@`0<T!`0$!
M`0$!`0$!`0$!`0$!`0$!`0$!`0$!`0$!`01FY=MX?<N%LX;,0>D4+0'.T.+'
M-<QP>Q['M(<Q['-#FN!X%!4V=R6SSC<E5M3Y"_<RCZ\EC,6[3IK[74G<]8QS
M.&C.J=Q:`W\.J"0Q?=A@*%C#VC9NV[F&DNSP6K4_6/DDR$?5SNE\4`^+\EK0
M`WW$$4[N+V=Z%2I16<A!7IXNSA',CL`=?2MN<]\<VK#S:/=S-(TXZ(.6YNXW
M9FXIH);LMZ(PXZ+$N%><,$E:!P?$'ZL<>9KQS:MTU\.J#W6>Z;;,]V6\9;D=
MN7(NRYFCF#7-MNJ>A<S2&\`(N(_VN*"+H]P^U:>"^Q&9/+24(I8[6/9)::XT
M[,4AE;/7TC'+(7.=S%VNNIU03F'[M<#B[V&OQSW+-W"16X:]BS.97R>G.:^=
MTQ(\8ZL'+IH!X`@Z']UV*K/,N`R>2P$FI>&4[3WU^8NY^-:QUT.G-KXK6@<2
M@XF'O:Q0UCL8O<L#`-62LDQMIV@(T#V&>'7@#Q:`?]E!R/>6R@>7<N!R>#:#
MHZV^$6Z@X@#6>H9@WY72X`>#5!/83=FV<ZSGP^4JW]`"YD$K'/;KQT>P'G:?
M><$$J`?"=5B(D%D$!`0$!`0$%6[U?9KN?U9:^:<@HOW;<=C[_=3U%ZM%:A?>
MM-?%.QLC2WF:="UP(T07BUW5[!GG])CQ$=&SJ"+&/=)1D&C>7@ZLZ(C5O`^Z
M@R7??<QE<3CMX;K?N2V8&XZ>*O3+S-++5CAY6PVIY/EMX=&FH\K5!,[H_C-G
M>KJ'Z07*=M_56O%^Y/;]&5GQ/MZS_J"C]8E75H&BH"#&_O5G3NWJD=/VG!\S
M,@M?=IL39V-P6"S=#$5ZV6FQU=TMV-G+(XS0-,G,1T\Q.I07E`0$!`0$!`0$
M!`0$!`0$!`0$!`0$!`0$!`0$!`0$!`0$!`0$!`0$!`0$`@ZCCT>#W5B8$!G-
M@[-SCA)D\17FG;KRV6MZJ<:ZZZ2Q\DG'F/#F61%=@<YCG<VV]U7Z;?H>1TR=
M<D:>&<B=H.G'27P\-$'UN6[T,62R_@ZF>A!X6L78%64MXZ:UK?BZ\!KI-\*#
M[!WL;28YL68-G;]IW`P9:O+5&O#@)B#`[Y0/BO/!!:J.1Q^0KMLT+45NN[Y,
MT#VR,.ATX.82.D(/0@("`@(*MWJ^S7<_JRU\TY!3?NP>R]O\_:_*U!K:"H=\
M'LLW5ZLL_-E!0MT?QFSO5U#](+E.V_JK7B_<GM^C*SXGV]9_U!1^L2KJT#14
M!!C7WJ_9M6]9P?,S(-)V+_1&WO5E/ZNQ!.("`@("#)<WWYOQ&\MW;:M4(XSA
MJ#[>$MN<X1VK,5/TM]60Z:->6G5H;TM!03N-[Y-JRSXJA>?)#D;\5'TJ2.&1
M].M;R$+98*TMC3E:^3F\0'WM>E!V-[YME=?E89G7*QQ-2?(2NL5)HA-5JOZN
M::#G:#(UC^'Y$'5G^]2.'NYFWOA*4L]&M-#UD=Z*6J]U5T[(Y9F,>`[0,?SM
M.FA""HWOO"7(<GN^K!BHI8<0WEVW/SNTR$S+,=.5AT\F>9H\7P(+3<[Y]N-J
MY>"F739;'4K\]8OBE92MV,9$YUF&O8(TDZI[=':?BU05VSW\9.M7ELS8N$PP
MNVWU@C,LC^7.Q&2?E8T$N=%II&!\I!;/]9=FNQD-N(79K<UN7'LP\=25V0%J
MNWGFC=6TYQU;"'N)X:$(#N^G877XF&&S/8.:K>FU'PUY7L97;(8I99W!O[%L
M3VD2<^G+IQ02.T.\G;&[+$U;%/G;/%"RW'':@DKNFJRDB.S")`.>)Y;P<$%'
MM][F^:D>X<^_#XZ;:&VLO8QE\LL3-R'4UY6QOL-8YAB=RAX<6\W'B@MS^]C:
M4>X9L%*;<5F-EA\<\E65E>8TXNNL,AE<`'NCCXG3A[A*"';]X3NZ,0F+L@R$
MPP6^M=1L-:*EEW(RT26\(>?Q2_W?=03S^\_:\>[&;8F]*AN2R/@AM25I64WS
MQP]>^)EAP#'.;%XW#A[Z",H]^7=];<\^DV*T`J6,C';LUIH89:=4AK[$3W-T
M>PDZ-TXGW$$_M'?.#W5';^SNOALT'L9<I7(7U[$76LZR)SHW@'ED9XS3X4%@
M0$!`0$!`0$!`0$'AS>>PN"QTF2S-V''X^(M;):LO;'&TO/*T%SM!Q)T"#HV]
MNK;6XZTEK`92KE*\3N262I*R4-=TZ.Y2=#^%!RSNY]O8%E9^9R$%!MR45ZO7
MO#>LE=Q#&#PE!Z<9E,=E:$.0QMF.Y1L`N@LPN#XW@$@EKAP/$(/4@CX-P8*Q
M<@I5[]>:W9A?9KPQR-<Z2&-P8^1@!.K6N.A(\*"00'.:UI<X@-`U)/``!!7,
M7WC["RSKS<;N"A;=C(WS7Q%.QW511_+D=H?D-TXNZ$$]4M5K=6&W5E;/6L,;
M+!,PAS'QO`<US2.D$'4(.U`0$!!QEABFB?%,QLD4@+7QO`<UP/`@@\"$%5O=
MUNR[%EURM2=BK[B'&YBY9:,A<#TGJ',:X\2-7`G1!YAMCO#Q8TPVZ&Y"!H(C
MJYRL)G:<HT!LUS!(>(Z7-/3QU*#[VQWGCM1G-HV)(VG1UO#31WF$<VG-U+NH
ML::$'0,<>GW$'LQ?>;L7)3LJQ9:*O=?II2N!U2?4@'3JK`C<>GP#1!:`01J.
M(0$%6[U?9KN?U9:^:<@IOW8/9>W^?M?E:@UM!4.^#V6;J]66?FR@H6Z/XS9W
MJZA^D%RG;?U5KQ?N3V_1E9\3[>L_Z@H_6)5U:!HJ`@QK[U?LVK>LX/F9D&D[
M%_HC;WJRG]78@G$!`0$!!F^[>Y#![GBW6R_<D#MRS5+,,C6-YJ4]*#J&/B.O
MC<S=>;73@2$'A@[@<7!N.KE8\BUU9AHRW*LM.O-)+/CX6PL='/)S.A:_JVN<
MUHZ1P(0>&E]W.&"3+R3[BGM2Y;&WL5+8DKL,YBO2"7K)92\NEDC(T!/#3AH$
M&DY/:M/);-L;6LO+JMF@<>^70<W*8NJY^7HU'2@SK!]R6S+F,V:S'YKT]FR;
MLTDEJ'DD%N9T[;$L<Y:X@:3-:[I/0@]%#[OV+I6\HZ+)#T*[!DHJ47H5?TBN
M[*M>V1[K1UED$8E<&#Q>!T.J#ML=Q4$E>6.#.SUYW'!.BL-AC<Z-^`C,<3@"
M=#UI/,=>A!S@[EK=66+,U=R2Q[Q;D+62ES;JL3XY#=A;7EA-0NY`P11,#=':
M@C5!Z\%W+8;$RQ?^?/9KC"VL);CD:T.F]/LNM6;!>WY+GR2.\4#0(.[NS[I:
MVR+$T_IS+\IJQ4:KVTZ]5[*\1U_:/B!?*]YTYG%VAT^2@C9^Y2[9L9>I8W18
M.U<YE)<MDL#'5@9UKII1*Z$V?&EZLE@#@.D(.D=PL1W?8W'+GIII)9+[HF20
M,?*V+(P.@="Z<NYG,A#_`-DW0!ON'I0=UKN*I6,1-C3F)FMFV]1VX9.J82&4
M)>M;/IS?*?T%O0$'&;N,BEWT=V39J2T]ER2Y#4GA:YP;-7-=]7TCFYQ#RN\1
MK6CE]]!3-M]S6[LO9BP^YHK5+;F/PEW"US/+4D=&VS+&8&UC7\:01MA!,DS6
MDZ-'*@U;NZ[O(]GPWRZU%=N9!\9FG@IP46!D#.2-@9#J3TN<2YQXDZ:(+@@(
M"`@("`@("`@(,][]J5ZWL+EITI\A)#D<=8DJU8G3RNBAN1R2%L;`2[1C24&=
M;K@W=E,EN+=>S,)DL'CIJF-H7@ZM+2NW`RZ9+4T5=@;/^SKNY.<#G()Y4'W!
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M6&LR$=/K/%BL-J`@1LTTX:#71!U90;]^RYQAQG!L`YJ#JQ<%\Y/T3T-W7\(_
M_/\`1O2^7H\;_A0:UL"7=E+NQH39**QE\[%`][8+(]%M2LZQQB9+UKG\L@BY
M02\ZGP\4$AA^\';F1O-Q<LDF,S1Z<5D&&O8U`!(9S>))T],;G(+*@("`@(/%
ME<)A\O5=5RM&"]7=TQ6(VR-Z"-='`Z'B>*"LN[K,+5>)=NWK^W)FDD-H6'&N
M=3J0:L_70:=/`,'2@X^C=[&)'[&WC=S0!OR++'XVSJ`>B2+KX7:Z#I8WB?`$
M&9=YG?+FNOSNTK^WYJD4V(FAM1M<RP^"Q,QSHY3)"7,,18X<VNA"#N^[[W@[
M*P'=\VAF<Q7HW/3+$G42DAW(XMY3P'A1O3;JJC&(F?$TK_6/NP_]CI^<?B3%
MM\"YZM7)*L=Y_>EW>Y+N[W'0HYZK8N6<?8BKP,<2Y[W,(:T<.DIBQ-FN.&:9
MY)1FZ/XS9WJZA^D%RG;?U5KQ?N;V_1E)6]T[>V[WY9JQG+\5""?!THX7S$@.
M<)Y20-`?`NK14T55<43*T?ZQ]V'_`+'3\X_$F+?X%SU:N23_`%C[L/\`V.GY
MQ^),3X%SU:N266_>,W_LW<.PX*6%RT%ZVR_%*Z&(DN$;8I07<0.`+@C6JW53
MPS$QXFT;%_HC;WJRG]78C1.("`@("`@((_.Y_$8'&RY+*V6UJD0XO=Q+G'Y+
M&-&KGO<>#6M&I05$TMT[Z).0])VWM)VH;CVGJLC>8=1K.]IYJT3@1^S'CGCS
M%O0@NN-QN/QE**CCJT=2G`WEAKPM#&-'O-;H$'I0$!`0$!`0$!`0$!`0$!`0
M$!`0$!`0$!`0$!`0>+,X3#YO'R8[+TX;]&70R5YV!["6G5IT/A!X@H..$P.%
MP6/9CL/2AH48R7-KP,#&\SCJYQTZ23TDH/>@("`@\&;P&%SE(TLO2BO52=>K
MF:':$=#FGI:[WQQ05M^TMTX1KG;4S)DKM#>7#YDR6H3R](CLEWI$7,/=YQ[R
M#M@[PX:4L=;=F/FVW8DT#+%AS9:#W$Z:,N1ZQM.O0).0Z(+77L5[,+)Z\K)H
M)`'1RQN#F.:>@M<-00@YH"`@(""I=Z,$,?=SNJ2.-K))<;9,CV@`N/4D>,1T
M\$'XKI:^CC3RBH+G&^F?:>/R?_>K_3O\;WU&Z7A=5S7T2?\`W'?D6U/'#S>V
M<?D[OZ)?I/='\9L[U=0_2"YWMOZJUXOW/D]OT99]]XW7_5.33_\`-J_IR+IK
MKJ?LW^:Y^B/Q9EXWOJ%]!X3QO?0X7FR.OHQU]W^PJ2WQN6^[\?E(_7'X2_<^
MQ?Z(V]ZLI_5V*=\W3B`@("`@(*MN/?5>C?&#PM<YK<\@!;C(7:,A:[_^MR8!
M[:\>G'QO&=_=!0=."V+*[(QY_=EAF9W"SQJVC7-I4N`\6I`XN#7`CC*?'=[P
MX(+>@("`@("`@("`@("`@("`@("`@("`@("`@("`@("`@("`@("`@(.$\$$\
M3H9XVRQ/X/C>`YI'O@\$%2F[N*M&22WM.]/MVV\EW40'K<>YSNGGI2$Q#7W8
M^4^^@X-W5N[".,>Z,,;5-AXYO#!TT09H3S2U"766::<>7G""R8;<&#S=86<3
M>@O0Z`ET#VO+>8:@.`XM/O%![T!`05;O5]FNY_5EKYIR#)^X+NTV+N/8#<EF
M\1#>O>F6(NOD,@/(PCE'BN:.&J-Z;E5,81,QXVD?Z'=U'_KE?SI?^=,&WQ[G
MK5<LJSWF]T/=MBN[W<61Q^"@KW:E">6O.UTFK'M82UPU>1P*8,3>KG@FJ>67
MBW1_&;.]74/T@N4[;^JM>+]S>WZ,I*WM;;VXN_+-5\Y0BOP08.E)"R8$AKC/
M*"1H1X%U:*FNJGBF86C_`$<[L/\`URGYI^-,&_Q[GK5<LG^CG=A_ZY3\T_&F
M!\>YZU7+++?O&;`V;M[8<%W"XF"C;??BB=-$"'&-T4I+>)/`EH1K5<JJX)F9
M\;:-B_T1M[U93^KL1HG$!`0$'78LUZT$EBS*R"O$TOEFD<&,:T=)<YV@`""B
MR;@W!O61U7:4K\7MT$ML[H>S]K/XO&/'PR-&HXC]N[Q?)!Z4%IVYMC#;=HFG
MC(2P/<9+$\CC)//*XDNDFE>2^1Y)Z7%!*H"`@("`@("`@("`@("`@("`@("`
M@("`@("`@("`@("`@("`@("`@("`@KF9V!MS)W6Y%L4F.RS==,ICI#5LD'I#
MWQ\)`?<>"@CGS]XVW6M,K(]V8N/A(^%K:N3:WRN37T><@>!O(2@E<'OG;F8F
M-6&P:N2:=),7=8ZM;:==.,,O*XCWVZA!/H*MWJ^S7<_JRU\TY!3?NP>R]O\`
M/VORM0:V@J'?![+-U>K+/S904+='\9L[U=0_2"Y3MOZJUXOW)[?HRL^)]O6?
M]04?K$JZM`T5`08U]ZOV;5O6<'S,R#2=B_T1M[U93^KL03B`@((3<^[\1MV"
M,VR^>[9=U='&56F:W9DT)Y8HF^,>CB[Y(\)00%;:>=W389D=['J<>QXDI[2A
M>'UV<I!8Z[(WA9?JWFY/\-OOH+S'&R-C8XVAD;`&L8T:``<```@^H"`@("`@
M("`@("`@("`@("`@("",R.X:5"QZ/,V0OY0[5H!&A_"0N=[2^Y+&DN_"KIJF
MK#'@P\JY8T5=RGI1@\O;#&?NY?-'QJAOKIO4KYO*FV7<S@[88S]W+YH^--]=
M-ZE?-Y39=S.#MAC/W<OFCXTWUTWJ5\WE-EW,X.V&,_=R^:/C3?73>I7S>4V7
M<S@[88S]W+YH^--]=-ZE?-Y39=S.`[QQNG".7X!\:QOKIO4KYO*;+N9P=L<9
M^[E\T?&L[ZZ;U*^;RFR[F<';'&Z_X<NGX!\:QOKIO4KYO*;+N9P^=L<;K_AR
MZ>[H/C3?73>I7S>4V7<SA][88S]W+YH^-9WUTWJ5\WE-EW,X.V&,_=R^:/C3
M?73>I7S>4V7<SA\&\<=IQBE!]S1OQK&^NF]2OF\K.R[F</O;'&_NY??X#XTW
MUTWJ5\WE8V7<SA\.\<?H-(I2?"-&_&L3]ZZ;U*^;RL[+N9P#>..UXQ2@:=.C
M>GX5F/O73>I7S>4V7<S@[8X_F(ZJ7E\!T;^35-]=-CZ%?-Y39=S.`[QQH'".
M4G\`']J3]ZZ;U*^;RL1V7<SA][88S]W+YH^-9WUTWJ5\WE-EW,X.V.-U_P`.
M73W=!\:QOKIO4KYO*;+N9P=L,9^[E\T?&L[ZZ;U*^;RFR[F<';#&?NY?-'QI
MOKIO4KYO*;+N9P=L,9^[E\T?&F^NF]2OF\ILNYG!VPQG[N7S1\:;ZZ;U*^;R
MFR[F<';#&?NY?-'QIOKIO4KYO*;+N9PB=PV=GY^NV'*XH7PW41OD8T21Z\=8
MY`>=AU'2TA8G[UT_<HKYO*S'9=?=F$#%<W-@2TX"]+E*(^7C,W)SN:`W0=3<
M8'2-Z.B1K@I:?N^SC&-NN.3RL3V97'=A"[W[YL!D-E[@PF0K2XK,S4IZXK3%
MLC'2OC(:(YHRYC]=?=!]Y>U;[1FY53T**JJ*O^48<'AB<)A4JL81.,\,?YQ\
M20^[![+V_P`_:_*U>F@:V@J'?![+-U>K+/S904+='\9L[U;0_2"Y3MN?_5:\
M7[D]OT96?$^WK/\`J"C]8E75H&BH"#&_O5#7NWJCW<G!\U,@D>[WO=VO8VYB
M<9&XMM4Z=>N]DI:S5\436'EU.G2%XVN[4KL3/_SFJG.)_P!/0V=7&'3_`"]*
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MF.VI^B?G_JIOQ']7O>8V3[7,=M3]$_/_`%4WXC^KWO,;)]KF.VI^B?G_`*J;
M\1_5[WF-D^US';4_1/S_`-5-^(_J][S&R?:YCMJ?HGY_ZJ;\1_5[WF-D^US'
M;4_1/S_U4WXC^KWO,;)]KF.VI^B?G_JIOQ']7O>8V3[7,=M3]$_/_53?B/ZO
M>\QLGVN8[:GZ)^?^JF_$?U>]YC9/M<QVU/T3\_\`53?B/ZO>\QLGVN8[:GZ)
M^?\`JIOQ']7O>8V3[7,=M3]$_/\`U4WXC^KWO,;)]KF=]/=ILVX:_HW+UKPW
MFY]=-?Q*UH?N_P"/>IM?#PZ<X8]+S-+O9O0IFKI<7>6%=H\H0$%*W9_FY_Z;
M/[5\G^[OKI_33^#H>S?XO&AES*^("`@("`@("`@("`@("`@("`@("`@("#ZW
M37CT+>U,15C/$Q++>]S>D\4S,/CYBSDXV7,=Q)(^2=/<7T3L#L^FJGXM<<?%
MBO=E]GQJ*YFO^.GGGS,CM2R212&1Q<=">)U76T1$3&#W>TK%%O17:::8B.A5
MQ0_0'W?=N9>SW>C)X7-V,;?%V=AKO#;%&0,</\2N[0@D'0NC>TJT^2KKN3O/
MSVS\/:M;JP)C?'&X4[]"3TBE//Q$<;]0V6#G.FG."/?01&Y-XT>\K:V*VWMN
M8]=N4-?F2T^-1H0N!M=<6_)<YS>J9K\K7W$$)NS.4;.X:GH,?_UV&;%4KN#N
M8OCKOUUU/N]`7!]J:^FYJ8KCT:,(\.$K5%&$8+EW>RC<.]MR[TCA?!1D9!A\
M<7ZATK*A<^64L(!`+Y-&KN+5RFNF*J>&)5IC!HRD8$&.?>H]G-3UI!\U,C$O
MS/`][&,+'%IT'$'15:HQ?8]';IKTUN*HQCH4\?@AI.U.\J;%[3R@MRF>Y79K
MC6R$N+I7^*UNG3IQU_$N8[3[#IU%^C",*9G\W<X.ZY#MNS&CK_)&%-4?E\/=
M6C`Y+*[]H,L22.Q6%9I%:K0/(M69AH7AT@#70Q>YR'F<#TA<UK]/:[,N3$1\
M6]/#3-4?EICN<'_*KP\$9/+M5U:B/5IYY\BZTJ5.C4BJ4X65ZL+0R*&,!K6@
M#3H"YN]>KNUS77,U53QS*_11%,81Q.]1MA`0$!`0$!`0$!`0$!`0$!`0$'LP
MW^;5/^JW\J]7L+ZVU^N$&J_BJ\#0E]I<L(""E;L_S<_]-G]J^3_=WUT_II_!
MT/9O\7C0RYE?$!`0$!`0$!`0$!`0$!`0$!`0$!`0$!!T7YC!1L3-/*Z.-[@[
MW"&D@JQH[<5W::9XIF$=ZK"F9?F&_:FM7)IYCS22.)<2OM%JB*:8B.)W>CL4
MVK5-%/%$/+-_@R?[I4M/'"OVO])=_15^#]#?=\WSL[`]VXK9G,U,?8%VS)U$
M\K62<KB""&DZG73@K+Y`M.<W?5WO2;1VWA8LQC]6S?;^8A,>(A+=1U@;*&OG
M>W4Z-:W37I*Q,Q$8R*Q691PU:;;>SFF]E,H\NS&9CC;')9DXZLB:P!L<31P`
M;XH'1[JYCM'M2J]/P=/PS/',?Z\J>BC#AE,2XQE.FW8F%ACO[FR0BFSEMP#H
M<?7Y@>>1P_OZ:B%G2X^-T+T='V3;MV)MU1C-7I?YWFE=R9G@2>V,IE=H9ANU
M\O')/3M2`8RS&.8#G=X!Y/'5P_NGWEYVAOW-'=^7N1C35/Y9_P`[F>3>J(JC
M&&E+J$`@QS[U'LYJ>M(/FID8E^98_P##9_NC\BK3QOLO9_T]O]%/X0GMFY=N
M*W#3M/`=$V0=8T@$:'@>GWBJ/:%CXMFJF./!2[<TWQ+'2CTK?YO+S/T@US'M
M#V'5C@"TCW#Q"^-W(GI3CFY>GB?5HR("`@("`@("`@("`@("`@("`@(/9AO\
MVJ?]5OY5ZO87UMK]<(-5_%5X&A+[2Y80$%*W;_FY_P"FS^U?*/N^/_;/Z:70
M]F_Q>-#+F%\0$$#>W9!4N2UG5GN=$[E+@X`'AKKQ5ZUH9KIBK'C4KFLBFJ8P
M=';>M]%?YS5OLVK.&GS\9';>M]%?YS4V;5G!\_&1VWK?17^<U-FU9P?/QD=M
MZWT5_G-39M6<'S\9';>M]%?YS4V;5G!\_&1VWK?17^<U-FU9P?/QD=MZWT5_
MG-39M6<'S\9';>M]%?YS4V;5G!\_&1VWK?17^<U-FU9P?/QD=MZWT5_G-39M
M6<'S\9';>M]%?YS4V;5G!\_&1VVK?1)/.:FS:LX/GXR.V];Z*_SFILVK.#Y^
M,CMO6^BO\YJ;-JS@^?C([;UOHK_.:FS:LX/GXR.V];Z*_P`YJ;-JS@^?C([;
MUOHK_.:FS:LX/GXR.V];Z*_SFILVK.#Y^,CMO6^BO\YJ;-JS@^?C([;UOHK_
M`#FILVK.#Y^,G1>W=6M4K%85WL,\;HP[F:=.8$:JQI='-JY37,X]&<6ES615
M3,8,J=L*R23Z7'Q_V7+N(^XJ/4GEATE'W5;B(CH5<'?AY,GLJQ5QMJR;3'"&
M)SRT-=J0T:Z*?3=NT7+M-$4S^:<.-7UWW-1=L5VXHF.E3,<<+MW1Y$P[.C@K
M[<J9*WZ7,1>GJ^D/\8C1@/+X/PJQVEVI=LW/AVZ,>".'A[KBZ*(F,977)LOO
MA:[>>=K8#',:#'CY'LC?RMZ!%3C.O_QK[RI4]GZS53C?JZ-&7F\K?I4T\26P
M(R5^`5-@XN7$T+#&F?>.5C`E=&2-?1*SQSO<1T%X:P>X5[^DT%K3QA1'#GW4
M-5<RT#:FT\7MK'.J4N>6:=YFO7ISSV+,[OE2S//%SC\`Z`KC5+NBB<]CW,:Y
M\>IC<0"6ZC0Z'P:A8FF)G'(5??#-ZGT23;9`$)>ZPT.9S/)T#6\K^#ATKRNU
M(U6%,V.YQ_Y*2CH]U6J_>IGL9**^XL2YKAP,C`Z)Y]_E?JT_B*\JGMZ]:G"]
M;_U^+?X43Q2K?WC,U4S7=/0R%1KVP2Y6$-ZQO*[Q8Y@>''PKH]+J:;]N*Z<<
M)S0UTX<#`<-B[&3E;7KEHD$?/J\D#0:>X"JFMU=-BGIU8X8X<#ZO&NHTNCMU
MUXX=&B.#]*?I[)R,5J*2P^+J6N!?RN).@]XM"\BYV_9FF8B*L?\`.^\G6?<M
MFNS53;BKI3&'^<+<</F*-X&"JU[178T>.`.'R1T$^XOFVKLU4STJL/S3W'BV
M+]-?!'<>VY:CJ59+,H)CB',X-XG3WE7MT375%,=U+77%,8RA^V>*\B;S6_\`
M,K>S[G>5?GJ.^]..W'0OVA6A;()"TNU<`!HW\!*CNZ2NW3TIP26M537.$)55
M5E!S;NQD,TD3F2\T;BQVC6Z:M.A_O*[3H*YB)X%2K6T1.'"^0[PQ4TK8F-EY
MG/#.AO!Q.G'QO?6:NS[D1C.#$:VB9PX4ZJ*XBLCN.CC[/H\[9"_E#M6@$:'\
M)"LV=)7<IQC!6NZJFB<)>;MGBO(F\UO_`#*79]SO(_GJ.^EZ5N*Y5CLQ`B.4
M:M#N!Z=..BJ7+<T533/<6K=<51C#HRF7JXUD;[`>1*2UO(`>(&OA(6]BQ5<F
M<.XTO7XM\:/[9XKR)O-;_P`RL;/N=Y!\]1WTAB\M6R4<CZX>!&X-=S@#B1KX
M"57O6*K<Q$]U/9O1<XG?>N14ZLEF4$QQ@%P;Q/$Z>'3W5I;MS75%,=UO<KBF
MG&41VSQ7D3>:W_F5O9]SO*OSU'?>K&[BHY"SZ/`V0/Y2_5X`&@T]PGW5%>TE
M5NG&<$MK54USA"3)T&JK+""[9XKR)O-;_P`RO;/N=Y2^>H[[G!NW&33QPL9*
M'RN#&ZM;IJXZ>4L5:"NF)G@X&U.MHF<.%-JDMO;A&EV7J`=/6`_B'$KUNPH_
M]MK]<*^KG"U5X&@K[0Y<0$%&W/\`YU/^!GZ(7R3[L^NK\%/[8='V?_#'C12Y
MQ=$!!Q+&$ZEH)]T@)$RQA!U<?D-^`+.,F$'5Q^0WX`F,F$'5Q^0WX`F,F$'5
MQ^0WX`F,F$'5Q^0WX`F,F$'5Q^0WX`F,F$'5Q^0WX`F,F$'5Q^0WX`F,F$'5
MQ^0WX`F,F$'5Q^0WX`F,F$'5Q^0WX`F,F$*WW@U<Y/MF6#;\3W926:$1.A(8
MY@#PXOYCH`!R\5[/8-RQ3J8JOS'PXIJQQ\'$J:RFJ:,*./%V[%OY/)[9J7<M
MZ.^Y)S![H&Z?(<6D2-('+('`AP'!1]M6+5G4U46NE%$9]_AX/9R;:2:JJ(FK
M#%/]7'Y#?@"\K&5G"#JX_(;\`3&3"#JX_(;\`3&3"#JX_(;\`3&3"#JX_(;\
M`3&3"#JX_(;\`3&3"#JX_(;\`3&3"'59IPV*TM=P#6S,=&7`#4!PTU4MBY-%
MRFK*8EK71C$P_.>Z<3<PV8L4Y7.`:X\IUZ1TZA?8-#?HOVHJC!U78VIHO68B
M8_/1P3_J?&A9Y9#!("\D%IU&I5ZBF,8X$W:U%/REW@CT*OP;WW`[!Q.?[OVW
M+US(L!N6(I*E:]8KUWL:6C1T43F@\WA]U6L7R)KF$[MMBX67KL?A:S+&NOI,
MC.NFUX$?M9>=_#3W4%D0$!`0==BM6LQF*Q$R:(]+)&AS3^(K6NBFJ,)C&")8
MU]YZI6J=V%&M5B;#!'DX!'$P:-:.JF/`+%NW313%-,81!,OS?5GFA:U\,CHW
M\H',PEITT]T*M<MTU<%41,=]]AT=JFO36XJB*HZ%/'P]QHO='5LY'-2SVI7S
MP5HR71RN+VDN\4<"2/"N5^Y^A:T^%-,4S,\<1@\#MNBU3<HMTTTQQU3A$>".
MYX6PQ5JT))AB9&7=)8T-U^!?.:JZIXYQ>731$<4.;V,D86/:'L=P<UPU!_""
MM8F8X89F(GC=/V=C_HL7_;;\2W^+7G/*U^%3E#E'3J1/YXH(XW]',UK0>/O@
M+$W*IX)F68HICBAW+5LC,SCGR8ZU]GMJU[[F.,5F>(/8QW27N`&ITZ5<T=ZF
M+E/Q.E51CQ1/#/>07K6-,]&(Q53NDP^0K;=<_*113ML3.M4;7RGO9(>)=S`.
M&KF\S?>*]S[IU-JO41\*9B:8Z-5/<C#F[T^!4[/M3%'YH[\2ORY=Z3IEJ5)7
M<\L$<C^CF<UKCI^$A;1<JCBF6LT4SQPX_9V/^BQ?]MOQ+/Q:\YY6/A4Y0[F1
MLC8&1M#&-Z&M&@'X@M)F9X9;1$1Q.,M>"8`31MD#>(#VAVGPK--4QQ3@Q53$
M\<.O[.Q_T6+_`+;?B6WQ:\YY6/A4Y0[(H((01#&V,'B0QH;K\"UJJF>.<6U-
M,1Q0Y21QR,+)&A[#TM<`0?Q%8B9CA@F(GC=/V=C_`*+%_P!MOQ+?XM><\K7X
M5.4.452I$[GBACC=IIS-:UIT_"`L57*IXYEF**8XH=RU;//]G8_Z+%_VV_$M
M_BUYSRM/A4Y0^MHT6D.;6B#AQ!#&Z@^]P6WQZ\,,3X5.4.]1-WLPI(RU33A^
MU:O5["^MM?KA7U7\57@:$OM+EQ`04;<_^=3_`(&?HA?)/NSZZOP4_MAT?9_\
M,>/\44N<71`0$!`0$!`0$!`0$!`0$%=Q89B]U9#&:\L&4'VG3;H0.L&D=EC?
M!TALG_$5Z^IQO:6B[_RM?_.KP<=$_C3XE6W^2Y-/<JX8_P!K$O(6A`0$!`0$
M!!3>\38TFX:C+-,-%^`:`'AUC1Q`'OA=9]O=J_+_`):_0GB;Z745:>]%RGAB
M>"J,X\S"<G2LTG35[+#'*P$%K@0?_E?1K-RFO":>)TFMU5%_0W:Z)X.A5^#]
M-_=@]E[?Y^U^5JN/E#6T!`0$!`08Y]ZCV<U/6D'S4R,2_-N-H6KTD5>K&997
M@!K6C4ZGH5*[<IHB9JG"'URUJ[=C26ZZYX.A3X9X(XF_]WNT9MNX=[;6GIED
M@R-'$M:.AI/X]5\X^X>T:;\X4^C#E;UZ;UZJ[/!CW,HCB6A<JP("`@((?=UN
M:KMR\^N=+,K!7K=(/6V'"%FFGAU?P7H=E6HKU-$5>C$]*?!3^:?P0:FJ8HG#
MC\J1HU&4Z5>G'IR5HF0MT&@TC:&\!^)4[UV;E=5<\=4S/*EHIZ-,0[U&V$!`
M0$!`0$!`0$!`0$'LPW^;5/\`JM_*O5["^MM?KA!JOXJO`T)?:7+"`@J^<V_D
MK>2DL0-:8WANA+M#P:`N![>^W=5J=55<MQ3T9P[N4/9TFMMT6XIGC>#LIF/(
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MO;WVGFJV);G8H6/LX%YOM:':N?$QI$\8TX^/$3H/=`5_0?;.KHFJBOH_#N4S
M3/#Q=VF?%/-B@OZVW5A,<<2G*FWLA;JPVZW5RU[#&RPR->"',>`YK@1[H*H;
MH:W*GK)MI6LYY';V4S'D,\\)NAK<J>LSM&UG/(=E,QY#//";H:W*GK&T;6<\
MAV4S'D,\\)NAK<J>L;1M9SR'93,>0SSPFZ&MRIZQM&UG/(=E,QY#//";H:W*
MGK&T;6<\CG'M++.)YNK9[Y=KK\`*VH^SM9/'T(\?F:SVE:C-S&SLEKQDBT_"
M[XE+3]F:K'AFC#PSY&NU+>4N78^_Y<7PN^)6-SKWL\L^1C:=&4J+WM]U\-G:
MF5S4W5,N8ZK).)6:ZO$32[E=P&O`<"O?[*[,U>FKC&:9MY8_AP(+G:$=&J*,
M:9JC">_'?>[[L'LO;_/VORM74/):V@("`@("#&_O5'3NWJGW,I!\U,@^=VO=
M2W&;>QN5A9'8NWJT5CK22"QLT;7\K0?P]*Y/M?0ZW4584Q3T,NE^+W*>THKP
M^),ST:8B.#@B.\N#MK9DGY#//"YF[]J:VJ<<*>MYDL=HVLYY''LIF/(9YX4>
MZ&MRIZS.T;6<\AV4S'D,\\)NAK<J>L;1M9SR'93,>0SSPFZ&MRIZQM&UG/(=
ME,QY#//";H:W*GK&T;6<\AV4S'D,\\)NAK<J>L;1M9SR*UNG;>5L9K;V$Y&D
MV[3KDS`YVG4T6=82XMX:=:^,<3TZ*_H?MC5V8N53%/3FB::>'NU<$^[B@O:Z
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M"`@("`@("`@("`@("`@("`@^.:US2UP#FN&CFGB"#X"@IW=XX8R3+;0=P.!L
M:T07$ZT+>LU;3F\$>KHO^!!<D!`0$!`0$!!5N]7V:[G]66OFG(*;]V#V7M_G
M[7Y6H-;0$!`0$!!C7WJ_9M6]9P?,S(-)V+_1&WO5E/ZNQ!.("`@("`@J%&(W
M^]#)VW$&/"XZO2A`!($MQ[IYN).@<&1Q=`Z"$%O0$!`0$!`0$!`0$!`0$!`0
M$!`0$!`0$!`0$!`0$!`0$!`0$!`05+=%&U1W1A=STJ[['(3BLK%"TN>:MMS>
MKET!XB"=K2>'!KG%!;4!`0$!`0$!!5N]7V:[G]66OFG(*;]V#V7M_G[7Y6H-
M;0$!`0$!!C7WJ_9M6]9P?,S(-)V+_1&WO5E/ZNQ!.("`@("`@J'=IR6\;DL^
M.8NSN1LVHWNUU->-_45M.;CR]5$US>C371!;T!`0$!`0$!`0$!`0$!`0$!`0
M$!`0$!`0$!`0$!`0$!`0$!!E7=MO'`4K^]J65S=:&Z-SY`5ZEJRP3=7RQ\C8
MXWNY^74'0-'X$&<7>^3>V<VWO*O5R\75QX!V9QV1KUA5E8!9,+V0M;-)(&NC
M^2^7E>#QTZ$%AK=[>]X]YT\+#9I7J5.SBL=*T"O'Z>V]"U\MJ*1]@/#F\YZM
MD;'M/*03KT!UN[U-_#:[,S;S=*N_+Y2WC\15@H"29K*$DX>2^:>*#F>(FZF1
MS0!T:DH)?NOW?E-T[[P&8OR-;/D=EMLV:\+G"#KOM$L<]L9)`/B_V(,PWU:D
MCSG>#D19JPWL=F":=Y^9GJY*!D;(7EM*@'"*;I/*'=))'@0:59[V]SLW+,8K
M=2.I4S=#"1[6GBTR5J"XR(NN!_.'-<.N+V@,Y>5IU*"*F[U^\QF(K9&2[3;6
MS>;MX>E+%5CUIQT9)P9'NGGBADDFZIK6ASFM''I*#6^[3<65W%LC%YC+1PQW
M[+']<:SV20OY)',;+&6.D;I(UH=H''371!9T!!5N]7V:[G]66OFG(*;]V#V7
MM_G[7Y6H-;0$!`0$!!C7WJ_9M6]9P?,S(-)V+_1&WO5E/ZNQ!.("`@S;O%S=
M3$]YG=Y-?R#,?CW.RXL23S"&$GT1O('EQ:P^,?%U\*"L=ZO?;<PN8K]ELO2N
M5*\-6S9KQQ,GCE98M]02^T9F`-Y0>40M>X'Y7!!#7>\;>^!S.ZJS,Q%9EN;J
MCQ5<RQQN=0KNIMF$C&3311\K]!$P/<UO-S.UU.B"6V_WC[^REO;5&*SC,36D
MQ5W*Y:9D#;,<L./NB#F@ZB5S6=='Q(!=RG737@@J.4[V=S;CV=NZG;R#)ZT=
M#%Y.A=@B%*1HL9%D;F,$<TS^KY0-.LY7^4.*"]?>&>'9+8]:1T!JV+UL6(+M
MZ7&U9`VJ7`368B'-T<-6^Z>'A0579&^<YBL8W;U#*5<;%>W):I?;4\[LGC*$
M#*;;,<%.S,]O7<Y\4=8X:.+AH@G</WI]X>=MX"O1FI1"2CD[^1E97=*+L>*N
MBN'4P7CD%IGR2==->&O!!)]R_>?N[=N7,>6-6:E<QK,FP0]1')4E?+R>C\D<
M\TCXRWH?(UKN9IU"#84!`0$!`0$!`0$!`0$!`0$!`0$!`0$!`0$!`0$!`01;
M]J;6DO?:#\/1??Y^M]+=6A,W6`Z\_6%O-S:^'5!]@VOMJN)A!B:4(L->R<1U
MXF]8V4@R-?HWQ@_3Q@>E!]AVQMN"Q5LPXFG%8I,ZJE,RO$U\,?'Q(G!NK&\3
MP:@Y3[>P$]1E.?&5):D<G7QUWP1NC;*27&0,+>4.U).O2@[JN)Q51[9*M."N
M]C#$QT43&%L9=SE@+0-&EYYM/=XH/++M7:\UXWY</2DO%PD-M]:)TW..AW6%
MO-K[^J#O?A,+)DV962A6?E(V\D=]T3#.UO1RB4CG`X^Z@XSX#!6*#L=8QM6;
M'O<9'TWPQNA+W.YBXQEO+J7'773I0>R"""O"R"O&V&")H9%%&T-8UH&@:UHT
M``0<T!!5N]7V:[G]66OFG(*;]V#V7M_G[7Y6H-;0$!`0$!!C7WJ_9M6]9P?,
MS(-)V+_1&WO5E/ZNQ!.("`@\63PF%RK6,RE"M?;$28VV88Y@TGIY0\.TUT0>
M8[0VF6Q-.%H%L#'1P-]%AT8QYU<U@Y?%#B=2`@[+.V=MVG6G6<53G=>:QMUT
ME>)YF;'\@2DM/.&^#FZ$'H@Q.+@=$Z"G!$Z"+T>`LC8TLA)!ZMF@\5G#Y(X(
M/+!M3:\$;XH,/1BCE'+*QE:%K7`N#]'`-X^.`[\/%!Z,GA</E8V1Y.A7OQQG
MFC99B9,UI/`D!X=H@ZG[;VZ_&?93\74=B]=?0#!$:^NNNO5<O)T^\@]$.,QL
M,D,D-2&*2O%U%=[(V-,<7#]FP@>*S@/%'!!UX_"8;&R3RX^A7IR6G<]E]>)D
M3I7>4\L`YCQZ2@]J`@("`@("`@("`@("`@("`@("`@("`@("`@("`@("`@("
M`@("`@("`@JW>K[-=S^K+7S3D%-^[![+V_S]K\K4&MH"`@("`@QK[U?LVK>L
MX/F9D&D[%_HC;WJRG]78@G$!`0$!`0$!`0$!`0$!`0$!`0$!`0$!`0$!`0$!
M`0$!`0$!`0$!`0$!`0$!`0$!`0$!`0$!!5N]7V:[G]66OFG(*;]V#V7M_G[7
MY6H-;0$!`0$!!C7WJ_9M6]9P?,S(-)V+_1&WO5E/ZNQ!.("`@("`@("`@("`
M@("`@("`@("`@("`@("`@("`@("`@("`@("`@("`@("`@("`@("`@("",W1@
MV9[;N2PKYC79D:TM9T[0'%@E:6\P!X'35!$=VNPH-C;:&"ANOOL$\MCKY&"-
MVLI'B\K21PT06I`0$!`0$%0[T.[N#?NW8\+/>?CV1V66NOC8V0DL8]G+HX@<
M>L06+"8QN*PM#%MD,K:%:&LV4C0N$,89S$#HUY=4'M0$!`0$!`0$!`0$!`0$
M!`0$!`0$!`0$!`0$!`0$!`0$!`0$!`0$!`0$!`0$!`0$!`0$!`0$!`0$!`0$
@!`0$!`0$!`0$!`0$!`0$!`0$!`0$!`0$!`0$!`0?_]D_
`
end
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>GRAPHIC
<SEQUENCE>5
<FILENAME>g67395image_03.jpg
<DESCRIPTION>GRAPHIC
<TEXT>
begin 644 g67395image_03.jpg
M_]C_X``02D9)1@`!`@``9`!D``#_[``11'5C:WD``0`$````/```_^X`#D%D
M;V)E`&3``````?_;`(0`!@0$!`4$!@4%!@D&!08)"P@&!@@+#`H*"PH*#!`,
M#`P,#`P0#`X/$`\.#!,3%!03$QP;&QL<'Q\?'Q\?'Q\?'P$'!P<-#`T8$!`8
M&A41%1H?'Q\?'Q\?'Q\?'Q\?'Q\?'Q\?'Q\?'Q\?'Q\?'Q\?'Q\?'Q\?'Q\?
M'Q\?'Q\?'Q\?_\``$0@!&`&0`P$1``(1`0,1`?_$`+P``0`"`P$!`0``````
M```````%!@$#!`('"`$!``(#`0````````````````$"`P0%!A```00!`@,$
M!`@-`P,!"0```0`"`P0%$08A,1)!42(387$4!X&1,D)2TB,5H;'!T6)R@C.3
M5)15%I*B)%-S@R;A0V/#-$1D)0@1`0`"`0$$!0<)"`("`P$````!`@,1(3$2
M!$%187$%@:$B,E*2$Y&QT4)B<E,4%?#!HK+"(S,&@M+A).*3-&3_V@`,`P$`
M`A$#$0`_`/U2@("`@("`@("`@("`@("`@("`@("`@("`@("`@("`@("`@("`
M@("`@("`@("`@("`@("`@("`@("`@("`@("`@\RR,BC?(\Z,8TN<=">`&IX#
MB@I^'][FR,E@Y,Z;OL&)8^.-ERYT1QR&;7H#'!SP7'I.K#XF_.`0==?WE;*F
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M'<B.GCKV#B4$9'[S]IR5,Y<;+*:V`N-QUN01EWF6GN:QL4#6]3I"Z1[6#AQ)
M[D&B7WL[5KLLBXVU3MT0]UVA/#TV(@QK'^)@)#@YDK7-+"1\2"0S.^\/B<V,
M-/%/+;\AEJ0Q-9T,B>Z1H<2]["?W+B>D'0(-8]Y.SC5$S+['R^R07S380Z<5
M[/1Y;^AI.O[UFNAX:CO"#HQ&_-KYG<-[`8NZVY?QL0EN^3XXX]97PEA>.'6U
M\9!:@GT!`0$!`0$!`0$!`0$!`0$!`0$!`0$!`0$!`0$!`0$!`0$!`0>9&!\;
MF$EH<"WJ:='#4::@CD4'SRM[DL-`99VY:]]YOL0V8\FUE*.9CH(I8!U-CKMA
ME<Z*S(U[Y6.>=>?`(.G*>YS;61FFGEM7&32R6Y@]DC`62W6UPY[?!\PTHW-U
M].NJ#SAO<OM7$PSQUY[3C9#?:'O?&2YXKV:[I.$8\3Q>D>?TM/A".'N`VV//
M)R^4>7U&4:O7+$\5XXS7>WRFF+IU#Z;'<1ISX()W#>[#%XC*U\E4R%WSH^LW
M&.,!;:<ZQ/9:9?LM6]$ER73RBS77CKH@]CW6;1$NX;)K!V0W(Z<W,DYD1M1L
MLPM@?%!+T=38^EFH:=>)*#@I^YS!5\[<S4F1R%JU<MUKKA/+&]K#3L/L0QL^
MSU$;7RN&FO)!NL>Z3`R;8Q&WX;ERO%AH9JM:XQT3IW5[49BL1/ZXW1_:1NTZ
M@P$<VD(.R+W9[<BVW=V]$ZPRC;M^WQO;)I+7G8]DD3H7Z:CRGQ-+>K7EQU01
M=CW,X*Z;$^3R5^]D[C)67<E(^%LLK961Q@=,<3(F"-D(#`Q@YDG4E!8<GL?;
MN3R]G+7:S)[\]1E&*>1D;W5V,,IZX'.:71O/M#M2#V!!6*'N)VA2LMGBL77=
M%2&I"Q\C"&&)D$3IF^#]Y(RJQKOF\]`$$QM+W:8?;&9M92E:M3.L0&I%7G=&
M8H(/:9;0CCZ6,>=)+#^+W..G:@MR`@("`@("`@("`@("`@("`@("`@("`@("
M`@("`@("`@("`@("`@("`@("`@("`@("`@("`@("`@("`@("`@("`@("`@("
M`@("`@("`@("`@("`@("`@("#6ZS6;\J5C=.!U<`@UG(X\'0V8M?UV_G0:W9
MC%M<6FU'J.XZ_B08^^L5_-,^-![9E<:\$MLQ\.]P'XT'MM^B[Y-B(^I[?SH/
M8LUG?)E8?4X(-B`@("`@("`@("`@("`@("`@("`@("`@("`@("`@("`@("`@
M("`@(--BY5K#6>5L>O+J/'XD$1:W579JVM$92.3W>%OYT$;/N7*2'P.;$WN:
MT'\+M4'!-<MS'669[]>]QT^+D@TZ!`0$!`0-$#0=R#TV21GR'N;KST)'XD'2
MS*Y)A\-F3X7=7X]4'0S<V4CTZY&.U(TZV@:Z]G#1-!TMW9='RH8W>KJ'Y2@Z
M8=VQ'035W-[RP@_CT0=<6Y,5(0"]T9/TVD#XQJ@[H[E20:LGC=ZG`H-R`@("
M`@("`@("`@("`@("`@("`@("`@("`@("`@(.:[DJ=-NL\FCCR8.+C\`05^]N
M>S*2RJWR8_IGB_\`,$$-)))(\OD<7O/-SB2?C*#R@("`@("`@CAFZ[\V<17C
M?/-#'YEZ5FGEUPX:QMD)YND[&CCIQ*V_R=HP?&M,5B9TK'3;KT[(Z_(KQ;=$
MBM180$!!'YW#5\OCW593T2L<)JE@?*AGCXQR-_5=S[QP6WR7-VP9.*-L3LM'
MM5G?"MJZPY]N9>Y<AEIY1C(,W1(9>@8=6N!&K)X__ARCB.XZA9?$.5ICF+XI
MFV&^VLSYZSVU_P#**6UW[TPN>N(&@0=5;*9"MPAG<&_1/B;\1U0=T>Z,DT:.
M$;_26D'\!02%7=55X`LQNB?VEOB;^?\``@[FYS$N:#[2T:]AU!^(H.R.2.1H
M?&X/:>3FG4?@0>D!`0$!`0$!`0$!`0$!`0$!`0$!`0$!!KGL0UXS+,\,8.;B
M@KF2W-++K'2UC9VRD>(^H=B"$>][WE[W%SW<W..I/PE!Q29:A%E(<7)+TWK,
M3YH(RT@/9&=':.TZ=1STUUT6Q7E<DXIRQ'H5F(GLU[/WHXHUT=:UTB`@("`@
M((7/96\)!B,+T/S4[.LO?^[JPD])GE_^6WYQ]"Z7)<M33XV;6,-9\M[>S']4
M]$*6M.Z-[LPV'J8FF*U?J>]QZ[-F3C+/*?E2RN^<XK6YOF[Y[\5MG5$;JQU1
MV)K71W+66$!`0$$%N3$6GOBS.(8/ONAQ8P'I]J@!U?5D/<[FW7DY=3P_FJQ$
MX<T_V;_P6Z+QW=/7"EZ],;TCALM3R^-AR%0GRI006.X.8]IZ7QO'8YCN!6GS
M?*WP9)QWWQYXZ)CLE:MM8U=BUTB#(!)`',\$$)7WCM^3`_?T]D4L8)9(3-9T
MCT?%,Z$C3CS>PZ>A!K&_-H>=8B?E8(C6GBK/=(\-8Z2>,2QACCP<',=SY(-O
M^:;1]L]B.8JBT+'L1A,@ZA9UT\H]SM3IZ^"#1;]XN.Q-/%WHQ9(R\DL=2.+R
MXW%T`<]_F&62-@&D9YNXH)RA[X<-8@H2NNUH77ZOMT%:Q]C,Z#I+^MS23TZ-
M:X^D`D:A!.X+WI;%S=J"G1R]>2Y889((0\'K:TEKBQW)VA!^#CR06L$'B.2`
M@("`@("`@("`@("`@("`@("`@B\GGZU,F-@\ZP/F#@!ZR@JUN[9MR%\[RXZZ
MAOS1Z@@T(""-W!A1E:(CCD$%ZN\3X^WIJ89V<6NX<=#R<.T+<Y'F_@7UF.*E
MHTM7VJST?1U2K:NL,X++/R5-SK$7LV0KO,%^IJ"8YF\]-/F.'B8>T)SO*QAO
MZ,\6.T:UMUQ],;I[2MM4BM-80$!`016>S,]%L-7'PMN9BV[IJ5'.Z0`/E32G
MF(H_G'MY#BM[DN4KDUMDG@Q4]:WS5C[4]'RJVMINWMF%PD&,AD<7>T7[)\R_
M>>/M)I._T,;R8WDT*O.<Y;-,?5QUV5KT5CZ>N>F2M=$BM-80$!`0$!!7,C&_
M;^3ESL;S]SVNAN6J-:2(GZZ"XP-UY<I1IQ'B[%V.7M'-8HP3']VNO!;KC\.?
MZ?D8Y]&=>A8FN:YH<TAS7#5K@=00>1!"Y$Q,;)9&5`RTZ$$=AU04B3W64Y,7
M+B79S)_=DDS[#*@=7#(W2RNED#2(0XAQD<-'D_&@\V?=-@98HA+?MM@K")K`
M[V<M#&5HZDC7=<3A]M%"SJ[B/#IJ4')N#;^QIWT8I,M9+Z-F6W%2QY%ATDLM
MIMOQQ1QR_)E8`T\#IPU02EW8F*SN$P\#Y+E%F,DEGJB2.NZ8&</:X31SQS1\
MGG3PZA!H=[H]MF&&L+-P5(H8XGUS(QPED@BDAAG>XLZNN-D[M`TAO+P\$$I6
MV-BJ^=K9>.:7JJ11QQ5"V'RO,B@%9LNO1Y@=Y0TT:X-]""V4LE<IN!AD/3VQ
MNXM/P?F06;&Y^K<=Y;QY,W8UQX'U%!*("`@("`@("`@("`@("`@(,/>UC2]Y
M#6M&I<>``05C+[B?-UP5#TP\C+R<[OT[@@@T!`0$!!7\_3GH76[EQT+YK,3!
M#DJ<?.Q5UUZM.V2'Y3.\:M76Y'+7+3\MDF(K,ZTM/U;?];;I[=)4M&DZPFZM
MJM;JQ6JL@FK3L$D,K>3FN&H*YF7%;'::6C2U9TF%HG5M5$B`@C,YF?N^%L5:
M(6\M9U%#'AP#I'#FYWT8V<WN[!Z5N\GRGQ9UM/#BKZUNKZ;3T0K:VG>Q@\+]
MWMFLV7"QE[I\S(6QKXG?-CCUXMBCY,;\/-.=YSXNE:^CBILK7]\_:G?,E:Z=
MZ46DL("`@("`@(!`(((!:1H0>((/,%!7,;YVW\C'AIB#@[)(P]@\##(3K[$\
M]NO$Q'N\*[',:<UCG-'^:O\`DCVH_$C^J/*QQZ,Z=#L_S#:_M4]09*%UJO)Y
M,T#"7O$@&I:&M!+B.W3DN.R-<FX<A,_R\7A;=D\O/L@4H!Z=9?M2/U8T'N.K
MNJQ$1;O5J#G?-I1.E<T?]RP>G7_QH-4>S<0YXER3I\Q..(?D)3,P']&$=,+?
M@8@FX8HH(Q'!&V*-HT:R,!K0/0!H$'I`0$!`06#!9UP+*EH^#@V*7M'<'?G0
M61`0$!`0$!`0$!`0$!`0:Y[$->)TLS@R-O,E!4<OF9;S^AFL=9OR6=KO2Y!&
MH"`@("`@SR05QLLFW\P()GC[ARDKC6D<=/9KDAZC"3_TYCJ6?1=P[0NO-8YK
M#Q1']_'&W[=(^M]ZO3UQMZ&/U9[)6)<AD$$=G,[4Q-=CI`9K=AWE4*+#]K8F
M/*-@_&[D%N<GR5\]IB-E*[;6Z*QUS]'2K:VCFP>!?7M2YC)EDV>MM#9Y6:F.
M&,?)@@UY,;VGFX\5FYSG8M6,.+6,%-T=-I]JW;\T;$5KTSO32YJX@("`@TV;
MM:JZ!L[^@V96P0<">J1P)#>'+Y)YK+CPVOKPQZL:SW(F=&Y8DB`@(.;)XRED
MZ,M&['YE>73J`)#@6G5KFN'%KFD:@A9^7YB^&\7I.EH_;;V(M6)C25;V3BL;
MAKUZ@:;*6:<`Z::,N#+M>-Q#+3&DEH=J_20#YWK"VN>Y>FD9L7^*_1[%NFD_
MTSTQW*TGHE;5SEQ`0$!`09`)Y<4$;DMQX#&.Z<AD:]9Y&HC?(.O0]O0-7?@6
MWR_A^?-MQTM:.[9\NY6;Q&^6D;E@FB$E"C=OM<=`8H'1MT[^J?R6D>I9?TZU
M9TR7QT[[:^:O$CCZDPUSFD.:='#B"N>NNV'N&WCXI''60>"3]9OY^:#M0$!`
M0$!`0$!`0$!!YEECAC=+*X,C8-7./(!!3,ME9;\QXEM=I^RC_*?24'`@("`@
M("`@(.?(8^GD:,U&[&):MAI9+&>T'N/80>(*RX,]\-XO2=+5W(F-8TE&[=NW
MA/-@\EU/R-%@?%8YBS5)+8YA^F-.F0:?*X]JW>>P4F(SXO\`'>=L>Q;IKW=-
M>SN5K/1*0R^2@Q=-UFPU[CJ&0P,&LLLKN#(XV]KG'\ZU>6Y:V:_#79US.Z(Z
M9GLA:TZ(_#X:PZU]\YIL;\T]I9$UGBCJ0NX^1$3S/TW\W'T+:YOFZ\/P<.L8
M>GKO;VI_IKT1VJUKTSO32YJX@("`@(*[OF00X['V27-%?*4GOD;KJUIEZ''A
MV:.T77\&CBR7K[6+)'?Z.K'DW1WK&1H2%R(9&$!`0$$7G\*_(PQ359?9LM2)
MEQUK4Z->1HYCQ\Z.0>%P/K6]R/-QBM-;QQ8K[+U[.N.V-\*VKKWH"[[W=DXM
MD<><MNQF3)<R?%NCEFL1/9\KJ;"U_@/-K^3AR5>9Y*V/)PUGXD3&M9KMUKU]
MG;'1)%M83VV]T[?W-C_O#!767JH<8WN9U-<QXX],C'AKV'T$+3F-%DI(YL;"
M^1P8P<2]Q#6@>DE36)F=(VR(F7=NWV/?%#:]MG8"704F/M/X:]D(<!R[2M^O
MA?,3$3->"L]-YBL?Q:*<</7WKEIHPZIAYNHC4>V2Q5P/6&F5_P#M5?RV*L^G
MEK_QB;?]8\Z>*>ISFIO*WIY^0JXN/7BRE$;$N@[/-GT:-?\`MK-\7D\?JTOD
MG[<\,>[7;_$C2T].CH&W*LD?1=M7+_8[SK#VM/?JR'RF=G<L7ZA:)UI6E.ZL
M?/;BE/!UM^/P6$QPTH4(*WZ4<;0[NXNTZC\:Q9^=S9O\E[6[Y_=N(K$;G>23
MSXK56806?:3B:UANO`2#0>MJ"=0$!`0$!`0$!`0$!!4]PY0V9S6C)$,)(=^D
M\<-?4$$.@("`@("`@(,Z'373AWIJ.2[E\31`-V[!6UY>=*QA.OH<1W+/AY7+
ME]2EK=T3*)M$;WYV]X^XI-P^\"^(\@^;%XN.&/%1UY)(H^F:(/EE\):7%TFK
M=?0O6_Z[X12]LE>8KZ5>'T)[M\QT]G4U\V3=HF/<K9N-W^^@YTUVG]WS6&BQ
M*^84Y!(QH?%YCG='FAQ8=.?JU6K_`+)RN/E+13#Z-,D:VKW;O)V;EL-IMME]
M[7E6<0$!`0$!!7O>"'?XA?E;H?9S#8+3PU$,['D?#TKK^!3'YND>UQ5]ZLPQ
MY?56(NZO%RZN.GK7(TT9&$!`0$!!^9?>77GP7O!SEG+QO@ARM@6<??<UQBEA
M\MK1&V30Z.C+2"WL7L_]7\3Y;EZ6KDF*WF==9Z8ZM6OGI,SL3_N3VUD\ME\I
MG(;-S&[?FKQU>NN37-V=KRXN:XCJZ(VG3J':>!YK1\8\4PWYJ<F*M+QPZ>E7
M9KKOTV=VU;'2>'27V>';&#C;TOJBR>9?;<ZRXGCQUF+^\KD7\1SS.RW#]W2O
M\NC)P0DH8HH8Q'#&V*,<F1M#6_$W0+3O:;3K:=9[5GI5!`0$!`06G:;`*4S]
M?E2::>IH_.@FT!`0$!`0$!`0$!!PYNXZICY)&'21VC&'N+NWXD%)0$!!D`GD
M@TV;E.H-;5B*N.>LKVLY?K$+)CQ7OZE9MW1JB9T1DV\-LQ'I&0CG>/\`W=8.
MLNYZ<H0_M6Y3PGF;?4FL?:]'^;17XE>MR.WC/,[IQF`R=P\-'OB%6/CK\^<M
MX<.Y;$>$UKMRYL5.Z>.?DJCXG5$ML-K?%C77'4,>W3@9K$EAVI'T8F,'/TK'
M?%R-/KY,G=6*_/,_,G6W4Q/A=TV2?-W$:S#KX*52*,Z'3@'R.E=\*FG.<K3=
M@XI^W>9\T16#AMUM;-AX9\@ER%B[E)!J=;EJ1S.)U_=L+&?@5Y\;S1&F.N/'
M'V:1\\ZRCX<=.U)T]O8&E_\`28ZM"=`.IL3.H@=[B"X\^]:67G\^3U[VGRRM
M%8CH1NZO=[L_=38OOK'MEF@:606HG.@G8T_-$D9:2WCKTNU'H6M7):LZQ,Q*
MVCIVQLW;&UZTE?!4&4V3'JGD!=)+(1RZY9"Y[M->`)X*+6F9UG;(F5`("`@(
M"`@A]YPMFVCF8W-+M:<Q#1KKJUA<W33TA=#PB_#S>*?MU^=3)ZLN_%R&3%TI
M"[K+Z\3B_774F,$G5:O,UTRWC=I:WSK1N=*PI$!`0$&'L8]O2]H>WZ+@"/B*
M#UW=PY!!A`0$!`0$!`X]G/L07RA6;6IQ0`:=#1U?K'B?PH.A`0$!`0$!`0$!
M`05O=LCO-K1_-#7.^'4!!7T!!#V:>ZYK<WE9.M4I%WV#653+,&:?.=(_HZOV
M=%T,>7E:TC7'>]^G6^E=>Z(UT\JDQ;K:;.TW7&=%[-9*=A&CV,F97:>&G*!C
M%EQ^*?#G6F+%6?NS;^:9)IKOF6:VQMHUW^:,7#--_P!:SU6']GSIB_N5<GC7
M-WC3XDQ'57T8_AT(QUZDW#%%"SHA8V)@Y-C:&#OY-T7-O:;3K:=9[5WO4J!A
M`0$!`0$!`0$!`0$!!IO1.FHV86$!TL,C&D\M7,(&OQK+AM%;UF>BT3YT3N<6
MV'%^VL2XC0FG!J/_`!M6QXE&G,Y(^W;YT4W0DUI+"`@("`@("`@("`@("#U%
M^]9^L/QH/H2`@("`@("`@("`@(*UNUKO/K.T\):X:^D$((!`0$!`0$!`0$!`
M0$!`0$!`0$!`09:`XAIY'@?A43.@AMG.:[;-!K7]8B8^$'74@12.C#2?T0W1
M=+Q:-.9OLWS$_+$2ICW)A<Y<0$!`0$!`0$!`0$!`0=6+K^T9"O$1J"\%P]#?
M$?Q()F_OW;E'-S869]I]^O&V:RV"G;GCB9(USV&2:*)\3.IL;M`YR"1GS^(@
MK,LRV`V-[ZT>FA+VNN/;'`',`ZV];G@>((-,>[-NR7,K4;>C\["1,GRI.H9!
M'('N:Y\A'1RA?KH>&G%!R[:WYM;<CYH\5;<Z:%L<CH;$,U60Q3@F&5C+#(G/
MCDZ3TO:"TH,7/>#L^IDG8N7),?D&ES7586OF>"VNZV01&UW'R&%X[_6@FOO"
MB!(38B`A;US:O:.AO$:OU/A'`\T&YKFN:'-(+2-01Q!!090$!`0$$1N>N),=
MYGSH7!WP'PG\:"I("`@("`@("`@("`@("`@("`@("#+>8]:B1`;*?KB+$6FC
MJ^0O0N/82++W:C_4NKXQ']ZL^UCQS_!'T*8]WE3RY:X@("`@("`@("`@("`@
ME=M-URK3IKHQQ]78@\97W;4<CE]Q966QI;S=%E"L_I=_QNF"6!S]`\-DZO.U
MT(')!7\5[CXZ.:O9+[V,CK;JCP_RGB8>S6*\[FO?YQ8YO_%Z8O`"P'F>T/>T
MO<I5P6&W)B[^1CLTL_CXL;*ZO7%1[(8&31^=([KD$D[VS]3WZ#5PUT0::WNS
MS66EQ^Y7;IJW\K2]C9B;T5+2H:E0R$]<3)]9'RF4N+Q(&@@=+0$'(S_^?6QW
M?/CR\3&&FVO(]M,"9\PQ3\6Z0O$H\)ZQ+TZ<^&O:@WY#W"0669)T64;%/D9K
M=B=WLY#938R$-Z*.QT2M=)''Y!C(ZAJ'$CI0?0]IX!FWMM8W",E\YN/@9!YN
MC@'=(XEK7.D<UO<.HZ#@@ED!`0$!!XFB9-"^)XU9(TM=ZCP04.S`ZO8D@?Q=
M&XM)[].U!J0$!`0$!`0$!`0$!`0$!`0$!`0$%=V</+FW!6#^ID&7L%@.FH$K
M62GE^DXZ+K^+;8PVTVSAKYIF/FACQ]/>L2Y#(("`@("`@("`@("`@()/;CPW
M+1CZ37M'Q:_D07%!QY?+X[$49+U^80UXQW%SG.[&,8W5SWNY!K1J4%>BQ63W
M48;F?B=1PK7>9!MUX!?+H?LY+S@3K](0#@/G%W(!;&,8QC6,:&L:`&M`T``Y
M``(,H"`@("`@("`@@-T8_J8V[&"7,T;*!]'L=\""M("`@("`@("`@("`@YCD
M\6"0;M<$<"#-'J"/VEF_+9?8M[LHU@^]<5_/5_XT?UD_+9?8M[LFL'WKBOYZ
MO_&C^LGY;+[%O=DU@^]<5_/5_P"-']9/RV7V+>[)K!]ZXK^>K_QH_K)^6R^Q
M;W9-8/O7%?SU?^-']9/RV7V+>[)K!]ZXK^>K_P`:/ZR?ELOL6]V36$%O/?\`
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M16L=?3;Y(T^577;HD5J+"#JQDGEY&L_L$C0=?2=/RH)C*;UQT/74Q/\`^XS7
M6^&/'57!SFR,=T.-AXU$,;'?+<_X-3P09Q.UG_>#,YGI69#.M9TPN:TBM4:1
MXF58W%Q;U?.D/C=Z!P06%`0$!`0$!`0$!`08>QKV.8\:L<"'`]H*"CY.A)2M
MOB</`23$[O;V?$@Y$!`0$!`0$!`0$&4$2_:6U7O<]^'I.>XESG&O$223J2?"
MMZ/%.:B-(RY/>E7@KU,?XAM/^RT?Z>+ZJG]5YO\`%R>]/TG!7J/\0VG_`&6C
M_3Q?53]5YO\`%R>]/TG!7J/\0VG_`&6C_3Q?53]5YO\`%R>]/TG!7J/\0VG_
M`&6C_3Q?53]5YO\`%R>]/TG!7J/\0VG_`&6C_3Q?53]5YO\`%R>]/TG!7J/\
M0VG_`&6C_3Q?53]5YO\`%R>]/TG!7J5W??NNQ6>P!J8:"GB<K#-'9J6VP-#>
MN/7[.3H`=T/#B#HIKXKS,6K:;VMPSK$6F9C7N1P1U/E5+W2[]RF9DP.293QE
M>.)DM^VV8V.NO(XLT@8T`]3NEP\6FB]#S_\`LF;-RNRE:Q?6LSKKT;=(TV;^
MUBKAB+/NT6SMI1-:V/"TFM8T-9_QXR0`-.9;W+SD>)\U$:?%OI]Z6;@KU,_X
MAM/^RT?Z>+ZJG]5YO\7)[T_2<%>H_P`0VG_9:/\`3Q?53]5YO\7)[T_2<%>H
M_P`0VG_9:/\`3Q?53]5YO\7)[T_2<%>H_P`0VG_9:/\`3Q?53]5YO\7)[T_2
M<%>H_P`0VG_9:/\`3Q?53]5YO\7)[T_2<%>H_P`0VG_9:/\`3Q?53]5YO\7)
M[T_2<%>IU4,+AL<][\?0KU'R`-D=!$R,N`.H!+0-5AS\YFRQ$9+VO$=<S*8K
M$;G8M9(@R@A-N3-O29'+@#R[=@PU7\#U5ZOV32-.QTGF.'K72\0I\**8>FM=
M9^]?TI^2.&/(I3;K*:7-7$'ICBQ[7C@6D$$>@ZH)W9FP]M[7]NL85LW7EWML
M7)9I7S&23Q$/U=R/C/)!94!`0$!`0$!`0$!`0$'!F,8V_6Z1PGCU,3NS7M!]
M:"ED$$@\".!'I"#"`@("##7,=KTN#NDEKM"#H1S!T[5,Q,;QE0"`@("`@("`
M@("`@((<AD>\FNZ"'6<:YH>.3C!8!(/ZHE_"NC$S/)[_`%<O\U?_`(J?6\B8
M7.7$!`0$!`0$!`01^X+KZ>%MS1NZ9RSRJQ/_`%IB(XO][PMOD<,9,U:SZNNL
M_=C;/FA6TZ0W8K&PXS&5,=#^ZJ1-A:>_I'$_">*Q\US$YLMLEM]IF4UC2-'4
ML"1`07+;]H3XV,$ZOA^S>/5R_`@DD!`0$!`0$!`0$!`0$!!7=RXO_P"]A;Z)
MV@?[_P`Z"NH"`@((/(8N_4ONR^&T\QS7.R.,/A9<+6^!S7<>B8<@[3Q<G+IX
M.9QWQ_!S;OJ7Z:=??7LZ-\*3$Q.L._#9FCEZ3;=-Q(UZ)HG@MDBD`\4<C3H6
MN:M7F^4O@OP7\D]$QUQ/5*:VB8=JUEA`0$!`0$!`0$!`00U][V;LPW3ITRU[
ML;P1QT'E2`CX6+HX(B>4R]EL<_S1^]2?6A,KG+B`@("`@("`@((/,127MPXB
MB!_QJA?DK?<3']G78?7(\N_973Y2T8N7R7^M;3'7R[;3\D:>52VV8A.+F+B#
M1)?H1V659+,++4HUCKND8V1P_183U'XD&_4=?EZCS".H,^=TZZ:Z<]$$WM2X
MUMV>IU`N<T/<T'Q-(Y:CLZ@@L\DL<;0Z1[6-)#07$`=3CTM''M).@0:W7:;9
M!$Z>-LCG^4UA>T.,G3U]`&ORNGQ:=W%`-VF*[;!GC]G>6ADW6WH)>0UNCM=#
MU..@0;(Y8Y6!\;P]CODN:00?A"#T@("`@("`@("`@PYK7-+7#5KAH1Z"@IF8
MQAHV2U@<:[N,;R.''YNOH01Z`@(""%RV%G;<=F\/I'F&,Z982>F&XQO**;N(
M^9)S;ZETN5YRLT^!FVXM=D]-)]JO[Z]/>I:O3&]TX/-P9:GYK8WUK49Z+=";
MA-!)]%[>X\VN[1Q6#G>3M@OIK%JSZMH]6T=G[XZ)36VJ16HL("`@("`@("`@
M(*[N-S8]Q[6F=J`;=B$O`.FLM9P:TZ?2<%U_#XUY?F(^Q6?DO&UCOOA8ER&0
M0$!`0$!`0$&4$#MF1UZSE,R23%;G]GI#3A[-4UC:\=X>\O=JNIXC6,5<>'II
M7BM]Z^V8\D:0I3;K*=7+7$%#SFQLU=RV59![$[&YRW2N6,C,7^VU#2\L>7`P
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M[@RT^0BDPC:A@EK"Q8=TGI.C(J_2R)H\SQESB>W@#Q0?44!`0$!`0$!`0$!!
MS9&H+=*6#AU.'@)['#B"@HSV.8]S'CI>TD.:>PCF@\H"`@((?,8%UBW'EL:]
ME3.UV.CALO;U1R1NYQ3M!'4WN/-O,+H<ISL4I.+)$VP6G68Z8GVJ]4^:5+5Z
M8WMV&S<60:^O,T5LK6`%_'N.KXG'M;].-W-KQP(6/F^3G%I:/2Q6]6W1/T6Z
MX36VO>DEIK"`@("`@("`@(*[O/K8W"66$=5?+U/"1J")2Z(]O8'ZKK^$:3.6
ML_6PW\VEOW,>3H[UC/-<AD80$!`0$!`0$$=N/(_=V$N6@?M&L\N$=\LI$<8_
MUO"W.0Y?XV>M.C76>Z-L^:%;SI#HQF.AQN.K8^`?95(FPLUYGH&FIT[2>*P\
MQGMFR6R6WVG7Y4Q&D:.E84B#1>OT<?6=:O6(ZM9ORIIG!C?5J>WT((R3<%RT
MQAP>.DNB4:MMV-:E9H['=4@\QX_48?6@Z*%+,B1D^3R(FD;KK6JQ"&OXAIQZ
MC)*_3LU</4@M.V[SH+9A)'ES\"#SZAR(06T$$:CD@("`@("`@("`@("`@(""
MJ;HK"*\V8<IVZG]9O`_@T00R`@("`@A]P8!^0#+E"84<Y5:12OANN@/%T4H^
M?$_M'PA=#D>>C%K3)''AMZU?ZHZK0I:NN[>]X7.&[)+1N0FIF*H'M54ZEKAR
M\Z%WSXG=A[.1XJO-\G\.(O2>/%;U;?TVCHM'GWPFMM=G2E5HK"`@("`@("`@
MKOO`;_Z9DF`/56LU)VO;KJSHL,U?P[FDKK^!S_[,1[5;QWZTG8QY=RQNTZCI
MRUX+CPR,*00$!`0$!`00F9A?>SN(H:@UJSGY*VPC77R=&5P?_*_J_972Y2\8
ML&7)]:VF.O\`RVV_AC3RJ6VS$)SB5S5T/;W3B8;9I5S)D;X.CJE%GG.9_P!Q
MPTCC_;<$&N:+=>0D+!+%A:7TX^FS<=\+AY$?Q/0;Z^VL/%:;=EB-R\P:-MVW
M.GD'I;UZM9^PT()4DGF@P@R"6D%I((X@C@04%KPN<998V"PX"R.&IX!_<1Z5
M"-4PI2("`@("`@("`@("`@((;=4(=09+VQR#XG<$%40$!`0$!!'9K"0Y..-X
MD=6R%;J-&_$=)(7NTUT^DQV@#VG@0MSE.<MAF8TXL=O6K.ZW_F.B>A6U=7/A
M<]/9O38C)UQ3S-=H>8FNZHK$1X>=7)T+FZ\P>+>U9>;Y&*4C+BGCPVV=M9]F
MW;U3NE%;=$[TT6N;\H$>M<Y=A`0$!`0$!!#[RC=)M3*M;IJVNZ3CR^S(>1\/
M2NCX1:(YK'K[6GR[%,GJRF`=0#W@%<Y<0$!`0$!`04;W@>]2IM._6Q,%!^3R
M]F'VGR1((8HH>OHZY9"'GQ$'I#6GDMWD/#\O-Y.#'&W?.NZ(5M>*QK*L;7]Y
M=[.[CR=$4V8W<.9KB+!322^=48VK&7.87!K).OQ/D'@T/)='Q?D<W*XL>*\1
MPQ-IXHG7BM.G=,:1I"F.T6F9A>\+MK+24(1NC(RY"VUGE2UHI#'4('AU+8Q&
MZ4N'$^9V]BX+*GZ5*E1KMK4J\=6NWY,,+&QL'[+0`@W("`@("#+7.:=6G0]Z
M"V8',>UQ^SS'_D1C7J^FT=OK[T$N@("`@("`@("`@("`@X<Y"9<58:.;6]8_
M9.OY$%)0$!`0$!`0?%/?_:MS9W`XIME]:JVM-=(A=Y<LDGF"+3S!XPT-YAI7
MH_\`6^3KS&6U+VF*<.VL3IQ;=T]S#FMI&JJ;#W3E]M[PQ$$5^S-B<G8]GR&.
MFDDL,Z"QQ-A@<7O:Z/0$D=G-;_\`L/@6'!%)P[+6MP\.N_MVJXLLSO?I&K;J
MVX!/5F98@=P;+$X/:2/2W5>0R8K8[<-XFMNJ=C/$ZMJHD0$!`0$'%FX6SX7(
M0O;U-DJS-+1J"=8W=RV>3O-<U)CHO7YT6W2]8:<6,/0G#_,$M:%_F<^KJC:=
M?A4<W3AS7KIII:WSE9V.M:Z1`0$!`0:+V0I4*YL7)FP0ZAH<[F7'DUH&I<X]
M@`U67#@OEMPTCBG]ODCME$S$;WR3?^Q=V[MS(W1A:C(6Q56THZ%^3R)K,;)7
M/$K1TGR?EG1KSJ1W+N\ESM?#<FM;1EM:-+Q'JQW6VZS'3I&C%:O''4X]E>YC
M<-C+U,ONHMQ<5#66G3I6.NR9W-T#WS,'2P1]S==3Z.<^)?[%?F;5F*5B*:[)
M]+76--NXIATZ7U:#&;AJ@B+,>V,^8R]`USAH.1DA,1/K+2N9?F.7OOQ<$_8M
M/S6XOG7B)CI:ILINJH\^?A67JXYRX^P#)_!G$9^)RO3EN5R1Z.6:6ZKUV>]7
M7YC6T=#W7W?AG@^T^?CW-^6+T$L`'9Q>X>7_`+E%_"LT>KPY/N6BWFW^8B\)
M2I>HW&]52Q%9`YF%[7Z>OI)6CEPWQ^O6:]\:+1,2W+&D0$!!ZCD?&]LC'%KV
MG5KAS!""Z8C)LOUNOE,SA*WT]X]!0=R`@("`@("`@("`@(,/8'L<P\G`@_"@
M^?21NCD=&[@YA+3ZP=$'E`0$!`01V=SE7$4_-E^TLS'RZ--O&2Q,?DQL`X\3
MS/8.*W.2Y*W,7TC96-MK=%:],S^VU6UM%<O^ZS`9^LZ7=3'9#,3ELC[L;W1.
MK.`X157-/@C;RT.O5S*R\WST6FM<4<&/'ZOM?>F?:GS(K7K;]H^ZW9^U;9OX
MZO+/DRTL&1N2NGG:PC0M83HU@/;TA:>;/?+.M[3:>V=5HB(W)>QMNDZZ[(T9
M),;D'_O)Z^@9+PT^VA=K')ZR-?2MK'XA?@^'>(R8^JV^/NVWU^;L1--NL-#,
MSE\<\QYVH'5AJ6Y:D'/AZ1VS0^*2'AS(ZF^E9;<IARQK@MZ7L7V3_P`;;K>:
M>Q'%,;TQ4N5+E=EFG.RQ7DXLFB<'M/PA<_+BOCM-;Q-;1T3L6B=6U8TB`@(,
M2,:^-T;ODO:6NT[B-"IK.DZC51IP4J5>E7!$%:-L40<=3TL'2-3V\`LF;+;)
M>;V]:TZSY41&D-RQ)$!`09005G<,]Q_LNW8FWIB2R3(./_"@(X'K>/WKA]!G
MPD+IX^0KCCBYB>"/9^O;NCZL?:MY(E2;:[FZAMZ"&\,I>E=?R_1T>U2>%D8[
M1!""6Q`^CQ'M*QY^?M:GPJ1P8M?5C?/WK;[?-V)BNW6=Z66@L("`@SJ=-.P\
MP@B<AM7;M^7SK-"(V`"!8CUAE&O/[2(L=^%;V#Q/F,4<-;SP]4[8^2=85FD2
M\0[?L5`_V#+W(^HZB.RYMN,$]PE'7_O5K\]7)I\3'2?N^A/\.SS(X=-TM3Y-
M[5"3Y-'+1<-!&Y].7LUX/\Z,]OS@LD5Y+)TY,4]NEX\W#/FD]*.U[@W-HUWW
MCC+V-<SY1DB,T?I(DK^8W0=I.BK?P[\/)CR=UN&?DMH<?7"7@GAL0LGA=UQ2
M#J8\:C4?"N?>DTM-;;)A>)>U4=F*OOI7&2`_9N(;*WO:?S(+P@("`@("`@("
M`@("`@I&:A,64L-/SG=8]3N*#B0$!`0<V2R5'&4I;UZ40UH1J]W,DG@&M:.+
MG./``<RLW+\O?->*4C6T_M\G7*)F(C649A:%ZS;^_<NWHMR-+<?2(X4X'=G_
M`'I!IYCOV0MWG,]*4^!A]2/6M[=O^L?5CRJUB9VRG%S%Q`0900<VUJL4]BYA
MY7XF_8/5+)!H8)'@<#+7=]F[GQ(T/I72IXE:U:TS1&6E=VOK1'V;;X\\=BG!
MU;'@[@O8R/\`]0U/*8W77)4VOFJD#YTC>,D/#GU`CTJWY&F:?_7MK/L6TB_D
M^K;R;>PXIC>FJ]BO9A9/6E9/!(-8Y8W!['#O#AJ%SLF.U+36T3%HZ)7B6Q4!
M`0$!`0$'#D<U0H2Q02E\ENQK[/3A:9)GZ=O2WY+?TG:-]*VN7Y/)EB;1I%*[
M[3.D1Y>OLC6>Q6;1"/&+R^88[[](J4G?)Q-60GJ;_P#DS@`O_49HWOU6W/,X
M>7G^QZ5_;M'\E>COMK/<C29WIN"""O"R""-L,$0#8XHP&M:T<@UHX!<R][7M
M-K3K:>F5XA[500$!`0$!`0$&02.2`3KQ*#"!P[>2"_42XTX"[74QMUUY\AS0
M;D!`0$!`0$!`0$!`05S=E7C#:';]F_\`&W\J"O("`@\RRQQ1/FE>(XHVE\DC
MCHUK6C4DGN`5JUFTQ$;9D5['P6L[DHLU:<PX2'QX6GIJ7OY"Y)KVD:^6WL!U
MYKK9[UY;'.&NOQIV9+=4?AQ_5/3,:;F./2G7H6-<=D$!`0$!`(!!!X@\"#R(
M*""M;5BC!EP5E^%M!QD#8`#5D>>?G5CX':]I;H5T\?B<SLSUC-7=M]>(^S??
M\NL*33JV/9SEW'-:,[6$,6NCLE5UDJCN,@/VL6O>X%OI4?DJ9?\`!;6?8MLO
MY/JV\FWL.+3>EX)X+$+)Z\C9H)`'1RQN#F.![0X:@KGWI:EIK:-+1T2O$O:J
M"`@U6K56G6DM6YF5ZT0UEFD<&L:/22KXL5LEHK2)M:=T1O1,Z(=N0R^:AUQ3
M#CZ$A(&3L-UE?'].O`>6OS7R?Z2NC.##R\_W9^)>/J5W1/5>WSQ7WH5UF=R1
MQV'H8_K=7838E`%BW(>N>;I[9)#Q/JY=P6IS'-Y,ND6GT8W5C96O='[2M%8A
MV+62("`@("`@("`@("`@()3#866Y(V60=-5IXD\W^AOYT%P``&@Y("`@("`@
M("`@("`@(./+4C<HR0M_>?*C_6;Q'Q\D%((()!&A'`@]A080$%;).YK^@Z7;
M:HR$//RFWYVC3I[O)A?ZP]WH"['_`./'_P#T7C_ZZ_\`:T>[';+'ZT]GSK(`
M```-`.``X``+CL@@("`@("`@("#@KX/&5;QNU(?9I7@B5D)+(I.KYSXAX"X:
M<'::K:R<[EO3@O/%'1KMF.ZV_3LW*Q6(G5WK56$!!#5-N]=GVW,S_>5T'6-I
M!;5A`^2(JY+FAP^F[5WJ71R\_I7@PQ\.G\=OO6V3Y(TA2*],II<Y=A`0$!`0
M$!`0$!`0$'N*&:9P;$QTCB=`&C5!*5=LY"7C*6P-]/B=\0_.@F:.WJ-;1[QY
M\H^<\>'X&\D$H``-!P`0$!`0$!`0$!`0$!`0$!!5-Q8MT$YM1@F&8DO_`$7'
M\A00R"%S4.2R=L8>.-\&*?'UY._KTN>QVH]F@TX]3M/&[L;RXE=+E+X\-/C3
M,6RQ/H5ZI]NW=]6.F=^Q2VL[.A+5Z\%:".O7C;#7A:&11,'2UK6C0``+0R9+
M7M-K3K:=\KQ#8J`@("`@("`@("`@("`@("`@("`@("`@("#HKT+MC3R8'O!Y
M.TT;\9X()2IM6R_C:D$3?HM\3OS():KM[&0'4QF5W89/%^#@$$BUK6CI:`T#
ML'`(,H"`@("`@("`@("`@("`@("##V,D8YCVAS'#1S3Q!!05K);9E8XR4?'&
M><1/B'J)YH(26*6)Y9*PQO'-KAH4'A`0$!`0$!`0=53&7K>A@B)83IYAX-^,
MH)FOM-N@-B<D]K8QH/C/YD'6-L8L``B0GO+OS(/1VUBB/D.'J>4&M^UL<3JU
MTC?0'`C\(*#E?M'GY=K]4.9^,@H..7;.48-6AD@`^:[C^$!!'6*MFN[IGC=&
M>SJ'`^H\D&I`0$!`0$&6M<]W2P%SNX#4_@0=L.$RDVG37<T'M?HW\?%!*U=I
MCG:FU_1CX?A/YD$G6PF,KN#F0ASQR<\EWX^"#N``&@Y("`@("`@("`@("`@(
M"`@("`@("`@("#7/6KV&],T;9&]@<`4$?/MO%R_)8Z(][''\1U"#ADVES\JS
MZ@]OY04',[:V1!X/C</61^1!X=MC*#D(S^U_[$'EVV\L!KT,=Z`\:_AT089M
MS+.UUB:W]9S?R:H-\.U;SC]K(R,=NFKC^1!+U-O8Z``O9Y\@X];^6OH;R028
M````T`Y`("`@("`@(/,L4<K"R1H>P\VN&H01=K;..E!,0,#^PM.K?])01DNU
M+K2?+EC>WLUU:?Q%!X_Q?)]\?^H_F0>F;5R!TZI(VCMXD_D0=4&TF#0SV"3K
MQ#``-/6=4'?'M[$L'[GK/>]SC^5!W15X(6],4;8QW-`'XD'M`0$!`0$!`0$!
M`0$!`0$!`0$!`0$!`0$!`0$!`0$!`0$!`0$!`0$!`0$!`0$!`0$!`0$!`0$!
- -`0$!`0$!`0$!`0?_V3\_
`
end
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>GRAPHIC
<SEQUENCE>6
<FILENAME>g67395image_04.jpg
<DESCRIPTION>GRAPHIC
<TEXT>
begin 644 g67395image_04.jpg
M_]C_X``02D9)1@`!`@``9`!D``#_[``11'5C:WD``0`$````/```_^X`#D%D
M;V)E`&3``````?_;`(0`!@0$!`4$!@4%!@D&!08)"P@&!@@+#`H*"PH*#!`,
M#`P,#`P0#`X/$`\.#!,3%!03$QP;&QL<'Q\?'Q\?'Q\?'P$'!P<-#`T8$!`8
M&A41%1H?'Q\?'Q\?'Q\?'Q\?'Q\?'Q\?'Q\?'Q\?'Q\?'Q\?'Q\?'Q\?'Q\?
M'Q\?'Q\?'Q\?_\``$0@`]0&0`P$1``(1`0,1`?_$`+$```$%`0$!````````
M``````(``0,$!08'"`$!`0`#`0$!``````````````$"`P0%!@<0``(!`P($
M!`,%!`@%`P$)`0$"`P`1!!(%(3$3!D%1(@=A,A1QD:$C%8%"4E-B<C-#8R0E
M%K'1X9*BP8(7-/#QPM)S5"8V5@@1`0`"`@$#`04&!0,%`0`````!`A$#(3$2
M!%%!82(3!?!QD:$R%(&QT>%2P4)R\3,T%0:"_]H`#`,!``(1`Q$`/P#ZH)M0
M-JH!,EO"ID4,?N/8LG.EP,;<<6?/@N)L..>-YD*\]48.H6\>%93$Q&<<)%HF
M<+O7'E6.5196Y8F)C2967*F-C0C5-/,ZI&B^;,U@!]M(S/$),X2)E1R(LD9#
MQN`R.I!!!%P01S!IE4.3NN%BM"N3-'`V1((<<2.J&24@D1I<C4Q`/`4A4IR@
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MW+?>*=YVE^O1_P`EOO%.\[3'?HQ_<M]XIWG:7Z_'_);[Q4^8=ICW!$/[EOO%
M/F':7^X8OY#?>*?,.TW^XHOY#?\`<*?,7L+_`'%%_(;_`+A3YAV&_P!QQ?R&
M_P"X4^8=A?[CB_D-_P!PI\P[#?[EB_\`V[?]PI\P[%C!WJ'+GZ/3,;$$J20;
MV\*M;Y2:X:-9L2H%0*@5`QY4`U)$<CJ@+L;*@+,?@.)J#Y`[9W/(Q>Y-S[SB
MM%GQ;=O&]Q3O;47GF;%Q[^!"MX5[-XB8[/9FL/-I.+=WWRU\#W1]T,S<<':\
M7?<F4;Q.^'MF5+%#'(0T\*"4KTQQ4=2W#E6J=%(YF.G5LC=;.,]>B7NSO;NO
MN+=>X.W!O$N5M$\\V`^(T48B1!FQ08P20("SMQ9O537IBM8M[>O^I?9-IF(:
MN7[H]\X_<O<_T>Y%-BVC#W)=OQ`D/34813%QV5BI8MUFN;GX5A&FF*Q/ZIQ^
M;+YMLSZ<_DIXWN5W;+L\&=NN<-QDQ\G<\K#EGBQPZ#;]O4`IZ`$9<B4V8<>%
M7Y-8G'3I^<_T6-DS'/O5<GW+]TL39'B'<$KYYFGE&2T>.2(L/`CF=%&BVEIY
MK'AX5E\BDS^G[93YMHCK]L/3_<3N;N79NS.UHL;<'Q=\W7)PX,S/41EM(A,V
M2;,I3C;RKCU4K:UN,Q$2W[+6BL>LN,Q._P#OMMT[1BF[F3_4(,:>3!CZ#3R1
MNLLV1+E#I^BT041\1?G:NB=-,6F(Z?;AJC9;CESNV=U=T]M]H;5^F;K/CMN>
M)N6^9@M$29<K)7'QR;J3;5Z_B?A6RVNMK3F.F(_".6NM[16.>L3+H-Q[N]VL
MG=]^S=KWV/"[;VK(R<!\K-^F2"*3'2)02Y0LSR,SLH`/&M-=6N(B)C,S'XMD
M[+S,XZ0G[&W?>NY>\>QY-USWW)L--YW+'RI`BNV/K.-CLZHJ\2H/A4VTBE+>
MS]/]65+S:T?Q:/=?>O=P]T1LNT[N<7;ERX<-\0K#TK1X;963([NI9;$I?CRK
M'7JK\KNF.<?VA;[+=^(Z.-Q/<OW&;$RI/]S-D[;%F8.'N&^Q1P-#C/,CM.T;
M=+A$7"JK%:Z/D4XS7%L3.&J-UN>>,]?1[QV4G<"=J[<.XLN/.WHQELO+A9'C
MD+,2A1HPJL-%N(%>=N[>^>V,0[*9QRV:ULBHR">=`U`+<ZQE34"H$>50#1"/
M*@&@5`%`J`3SHI4`GG0-0,U`-20CRJ`:$&HR*@"@5`)YT$N+,8<F*4&VA@2?
MAX_A5B>4EV7`\1RKH:2H%0*@5`QY4`U)&;W#%+-L6Y0PS1X\LN--''D3'3'&
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MGL^)=LPL$=U;,Q@PYX<B4S*I?(S,H3Y#@`GT]-0JW\:QKOQ.>V?^D<+.J)C&
M88O<W;,^-N^+@X^9#N&1/-,F2^-'&V&,;/S%D>V4TB!&2!`&!4_#G66N\XG/
MVX]$FD=,O3_<[8,;NO+VM]N[@VG&AVR+-"+/.AO-DP]&-AI)]*CG7+IM-(G,
M3SAOVXMC$PXK;/:.;#W)'/=NR'"1'&I77KZCMYPH[^K25343;]M;;;LQQ6WV
MG+577SS:/M`LCVMS\C]*2;NK8.AAX.#MV3&LEBT.%D=8B,ZN<EA>]7Y_7X;<
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MCQXS8+<1J%O8<KVKAM;NF9GVNJL8C"S44J,@GG0-0"W.L94U`J!'E4`T0CRH
M!H%0!0*@$\Z*5`)YT#4#-0#4D(\J@&A!J,BH`H%0">=`J#JMGR>O@1W-WC]#
M_LY?A6^DYAJM'*[63$J!4"H&/*@&I(J;GMV%N6#D;?G0KDX66C0Y&._RO&XL
MRFWG2MIB<PDQEYUM7MI[$;K)/%M^P8,SXXO*I25+#J/%?UD7'4B9>'B*W_N]
MOJU_)KZ-$>R?M'>W^U\&]]-O7S\OFYT_=[/4^37T(^R?M&.?:^"/^_\`_-3]
MWL]3Y-?0O_A/VC!(_P!L8-P;$>OF>0^>G[O9ZGR:^@3[*^T5B?\`;&#I'`MZ
M[>7/73]WL]64:*>AC[+>T@)7_;&#<<QZ^'V^NI^[V?Y'R*>BM/[3>S4&9B8<
MO;.&,C.ZGTRA92&Z2ZWNP:RV'G2?+V_Y'R*>BS_\*^TO'_\`B^%P^;Y^'CQ]
M=3]WM_R/D4]##V6]I#:W;&"=7RVU\;>7KI^[V_Y'R*>@#[,^TO,=L8-B-0/K
MY#F?GY4_=[?\I/D4]#?_``S[2?\`^8P/#^/QY?O^-/W>W_*3Y%/16E]K_9K&
MS9,9^W<*/)Q<?Z^4E9=,<*M;J,^K2.*\!SX4_=;9_P!TGR*>CL,'=<#-DR(\
M67J'%9$F-B%!DC650K'@WH=3P\ZYVU:N./$<.?$<+T$.1DP8^/-D3.%AQXVF
MF;GI1`69K#X*:`HY8Y(DE4_ER*'0GAP8:AS^%&1$BYXC@;'B.!\J"GA[QMN:
M;8LXF4J[]10>G:.0Q/Z_EN'%K7H'W+<L+;X#D9<FB(/''Z07;5*X1!I6Y]3,
M*QE2?/Q4W%-N9C]9)$^0L=C;IHP1F+<AZF``\:"Q<>8YV/$<_*@AQ\O'R8C+
M"Q*!F0Z@4.I&*G@UC:X-CXU`9=%4L6`4#46)%K>?V414&[;:VU?JRY"MMW1;
M)&0+D&%06+@<SP%!-#-'+!'.EQ'*JNFH:39P"MP>1X\J`[BY%Q<<Q0#0*@$\
MZ*5`)YT#4#-0#4D(\J@&A!J,BH`H%0">=`J#7[<G"Y$L)_O%#+]J_P#0ULUR
MPO#H*VM94"H%0,>5`-217SAE'$G&(57**.,=I+Z!(5(4M8$V!J#S;;/:W><0
MKCY&;#E;>F.8M!FG21G,2@=1@MV19C,R\01U">=)5/B>V^\0&!?U!#'&;AC+
M,98P,@3J.I_>.4183(WJT>=$08?M9NC80QMSS89U?)7)F57G*GI02=.,7T^G
MZJ9I&\Q]U!<@]N\_JXTN28&,>!'!DHN3DVES(Y-9GD<*K/K_`(N#+<CC3(LX
MW9&?%M>S;;D3P9F/A-DMN:2F0#(,L9CA9M(_,:-39B=-SZN=%AD1>W'<C;9F
MPYN?CS9N9+AR/-U,@@IB:I"I)`/KG-_ZO#PHJ_F>W<V3B;5B?4JL>!@Q81?5
M(2C"9)IIHAXN_255+$6ID28O9>[XVQ+CQY*'=II8I-QR'FG>.;HJ]O`&S2,&
M9=/'D2:Q%"+VZW=-EFP7G@ER53%7"RC/D!D6)%&3&I"WCZS&4EQ<G7Q`M3(6
MX>W6X3S[B\,T<`R`4VXQ9&1$,19%#-TXPI6XF4MQN&#$<*""+VXWCZG\W*A^
M@EF>3(Q(I9U`5HM*JC:=72$MW$5QIU&S5<BWB]B;O%L6\X<^3!-G[Q!C8T^2
M[S.&2/\`^HULPU?F:WTV\QY5!2C]L<Z3<H)<S)A;#,O7SDCDG#OJR>NT2"RJ
M(PD4,:_`&BK$/M]N<."^*F3"45XNA&9)@A6/,?+U2FVHE?1&J\1I6U,HP]F[
M-W?,CW7!G#P9$N*N(^>\LP#$R@9>I66^J4(6C*$KI<\`;U<CI<;L><;-LVWY
M30NV"<M\PK),4,F7&ZDQW`+`=0VU6MX5,LL,Z/VVRWV[%Q\V:.?(65\O<7>?
M(D&1DI`8\8\0MD$C:W%AY<:N06'[?;CC;EM[,V++M&+@1X61@=295DD17)F9
M0MI/S)6:Q(O>_,4R(<3L+?<2;$R)IH,QL9\`]$RS^L8O4:0N[+XRR*X_J@>%
M8S(T.X.S=UW3?9-RCS(XE/13'NT@:*.".1E*JHMK;)D#GC\JBI$JAP_;YFWC
M$S=SE2?"Q(!&FWK)*5:9(D1978Z2S,PD=B?->=JN4B%2+V]W)FP9,N+`:?%,
M!GGAFR4>81R&26-O3\KW^/#A;C4R81;E[:[MFX[)+FQ2RO&D3:I)T0#J2SR!
M0HX#JR(J>2+3))9?MWO<\Y)R<88**<>#&5YP$Q+P+TE4+93TXI`?,O\`&K$X
M&YW'L&[;Y!A`2QXFB.5<B'7)I1Y=*K*FD#6\2!M&KD34%KM?MJ+9HLR5R)-R
MW'(DR,W(#.P8%V,2#7X(AMRYWI,C8J!4`GG12H!/.@:@9J`:DA'E4`T(-1D5
M`%`J`3SH%028TY@R(YA^XP)^SQJQ.$F'9`A@&!N"+@_`UT-)Z!4"H&/*@&I(
M!JQ&>^^;4F<V`V0HRE*(T?'@TB,Z@GD/3&QXU19$D5AZUXKJ'J'RCF?L^-05
M!O6T-E_1IEQ2974$30HVME=HS*`VF^G\L:N/A5%L2Q&UI%.JQ7U#B#RMQXU!
M6GW'#AR<?'>4&;*D,,*+ZB75&D(-N5E0GC590C&Z[>^X9&WK,OU6(D<F0AX!
M!,6$8+'AJ.@\.=15*;NS8(<I<5\K\]W6-$"L;N\WTZ@</&4%?V7Y4E&C!F8L
M\*S12JT3@LK7`N!S-C4(E+K33JU#1:^JXM;SO4%+-W/;\-!)E9$<,98)K9A8
M,03ZO(64W)JB+;=[VK<Y)TP,A<CZ<H)'3Y3U$$BZ3^]Z&!X>=!;,L1N!(I(Y
MC4/"H,T=Q;.V]KLBSZ]R8`B%02+&/J_,/3\G'[JHGVS=MOW/"7-PIA+C.[QI
M)\MVC<HPL?Z2FWG03F:(#C(M@0#=AP)X`<Z".7-PH4#S9$4:%Q$'=U`ZC&P2
MY/S'RHR$TL08@R*".8U#A]O'XT%$;[M1&<W7LNVRB#,)!],A"G2.'J^<<J"T
MTT(XF1!R_>'CP'CXUC*HVS,5<DXK2J)Q'UBAX6C+:0U^7S4$ADB`!+J`PNI+
M"Q'F*@;JQ$"TBG5\IU#CQMPX^=!E8W=G;F3BOE0Y\301LJRM?BA<D(6',!M)
M()\./*B+?ZIMYR(L=9E9YX'RHF4W0PQLJL^L>FUY%H+'`\1Q'G0/0!0*@$\Z
M*5`)YT#4#-0#4D(\J@&A!J,BH`H%0">=`J!4'5;-.)MOB_BC'3;_`-O`?A6^
MLYAJM'*[63$J!4#'E0#4D9V_0;GD;-G8^USKC;E+"Z8>0W*.5A96/`\OLJ#S
MR3VJWK(GR?J,O'7'G!ANA<R+`W1C*@E>+"")AJ/-FN:"_)V'O"[@)H'A.%!G
M*^/A]5DC?;PBJN.ZA#I$10'3<AN/*]!#![:YT6;+,K8T6.7R76&`LA<3Y$1Z
M9:UU7Z:'1^TT7)3^WG<)RER4SH&E#==7<-:.429&2BQJ!;II-+$%_HJ?.U,H
M+8>Q^Z<#-;-R,S&;*3'F^E=-3:,IL:/'A=M2^H*%<L?$L?.BX5\3VRSI,1,7
M=Y8,F)LX9V8@9VZXAQ1'#&[V!-YKNY^[G3*AQ?;[NB#Z:-LO%>#$Q`D*$O\`
M_5B*8ASZ?EZ^4Y^P"I,C,R_;_>]FPL5H0F?(KE5A0N$UDQA%=@I*Q=#&"DV-
MW;B+5,JZS)[?W++[%DV/"C.))((E3ZQP7,;LLL_5,8*AKLR\!:B,+.]N-\GV
MW`B7)Q_K$@F3<)7)(DEG.EV4Z>126;F.%P/"KE6KV[V7G[5OF1N$DT4B/%D]
M`*-)$V3+?3I``$<<,42KQOSJ9)9$'MWOT6UM&9X/JS+C.P1V76BH1DH9-!TZ
MG=R++Q!L:#2[=[-W;:LV67KPK'T,J/'=;O(LDW2CA8EA>R0P+?CSO249F#[8
M;AB8\<*9X6-F_,0$CI:3"HF0@#5,T4+`L1P+W%7,"1/;G-C2%!+%(,B')?=3
MK9->7-(9(W%E)9%5FB'$%021QH`;MC<X<?9-A_M\Q#FYDF<\=X(S].T&/UY`
MMI9(Q+Z>1?3QIED3>V4\<!2')3KN\T;SN6+]!HDA@8G]YXE1GMRUF_A3)"2/
MV]W!<^+).4D@^K2?*9R2\H2=\G4;`#5JZ:J/``\>-!C9?9>[;:N-@]*7.CR>
MA#+)CE=8ABC=9SK=-'5,N4[("+:5X$&I,D-KN#L?=]PEW1\;(AB&5/BMC`EA
M:'"@81(W`_-.UV_HUCD2;OV%/FQ[/C19`B@VS"7!9P2&*F6%Y646(N4@LI\S
M3)+,3L'NF"/$?'R,./(QH8T`)<H'#3SN5NMQ_F)4(/D*"IO_`&=O6#M:IC11
M3DY218Z8R.TAC;$CPXWE.DBT=Y'9CP'"D"^W8/<0W5LD9L+8<TA>;%5C&JB1
MGD=8_0PTQOTR%/S:?"KDP[C"Q(</#@Q(01#CQK%&"23I06%R>-8B:@"@5`)Y
MT4J`3SH&H&:@&I(1Y5`-"#49%0!0*@$\Z!4"H-?MW(TY$D!Y2#4/M7_I6S7+
M"\.@K:UE0*@8\J`:D@&K$46W;;QG-@=4G+4HK1A6-C(C.FH@6%UC8\:HL^7V
M7_8/&H*@W;;CF'"6</E+(L+Q("Q21XS*H<J"%N@U<:"V.(N.(/(T`DCB;BWG
M?APYU64*.%N^V[@9/HYQ,L05F<!@NE[Z65B`&#:38B@M^8\N?PK&0KV\;>?'
MSY5!2R=ZVW&C:2>4HJY*87R/<Y$A`5%%O5<N.(X519;G:XX\N/E4$.-E09*,
M\))5)'B8E2OKC.E@-0%^/CRH"66-WDC1@TD5NJ@/%=0U"X\+CC0+_E?]GG0#
M(Z1QM)(P1%!9F8V``%R?V#C0!%+'+#'-$X>&4!HI`;JP87!4^-Q5!B_(>=K?
M$>'VT9!Y\1R\_"@J96Z[?B3Q09,PBDFTB+4#I8N_350UM.HMPMSHH<7=,'+Q
M<3+QY"^/GB^*^EAJ!!:Y!'IX*>=8R+/_`-C4"MS^'/X?;5%;#W'#SDF?%<NF
M/,^-*Q4J!+$;.HU`7L>%QPJ"+<]ZVS:DC?/R!CK+K$9(8ZNFAD?Y0>2*3028
M^X8F2C/#)=4`9F8%!9AJ'S`>'&B%B9>-F8L.7BR+-C3H)(95^5D;DP^!H)J`
M*!4`GG12H!/.@:@9J`:DA'E4`T(-1D5`-!RF^=YR;;OHPDB$N-"J_5$`E]3B
M]@>0T_C6C9NFMO<Y[[\6P;MSN[*W3=FPYX51)$:2#1>Z:`+AB>=[^5-6V;2M
M-V;8=36]O*@EQ,@XV3'/X(?4/@>!JQ.)28R[$$,`PX@BX/P-=#2>@5`QY4`U
M)%#?,?<,G:,W'VZ9<;/FADCQ<A[Z8Y&4A6-N/"H//9?:K=IILII,S&C3*!B+
MQMD=18#T8]-[C4X@B<!F_>8FD2+LGM_NOUYGCG@.)'FK)CXAEG1&P`BJN,ZJ
M"!TRH-N(;QYTR`@]M<F+*EE1L6*)Y,A^G"9HRZ331%8V8'@HQX>GX\S3)D9]
MO]W_`%"#+.5C2F.43E6,Z@$33Y`B0`\(Q)+&H^"GSM4D7,3L_=D[&S.VI\N)
M<G(A:)=PCZEW+\VF'I).D!&93=N)X&JR9^[]E=U;BCQ-F8B8K=7HX3&4Q0@M
M"L2*$5-2)%'(`#R+<**G@[#SFV]\/+R8BF1NL>X9.EI6<8T;]4XPD)#..I<*
M6Y(=/A4F4PJP^W>XQ[3C8JS8Z9"Y$1R79YI(WQ(9G?IZ"%OU$DTD'EX'@*F1
MG-[8=TF/(_U#$$LDN1D0OJR&T/+"RQ*NKY%225VN./(^%J#HMM[0GP=^P<Q6
MA&WXD$X?'U2R.V1D.'UJ6L$Z=K*1S4D6Y4RLL_%[%W1,_:\W-RL=QM[1M(L9
MF"\,B;)E<+R9M3QJM_`&@S\+M?>-^R,CN!Y(\1<K+EE7#?KQO/CK,B+'D?*5
M4Q8RV6W[QH@U]M-T2;&R6SHLG)A>!)6=IDOC1Q.)%0^NQ::35I(MI5111=\=
MK;A)!MD.`8_HXEBVSZ=S/(7BR'597:P;0\874DM^5P>=$19GMSOLLT\F/FXL
M/5F^HB0=?IP$++ICAC!"A0YB)/#5IJBY-V'FS9D,S#&7'CQ%C&+%-D1`90!1
MY=:\6+H1Z^=U'`TRN$6=V%NTVS[3MXR8)'P5D.;,3+"9I79`)/1?U&+6'/BQ
MO464FX=B[C/W`NXP2X@Q88?R(9!*2,H+,4ET\5`67(+"WD*N10C]N-Z7$&.^
M=CAM$\1E0S7`EBCQD<#@-2PQL?ZYK&<9,-.3L>;(VB':\J:+Z;]3?/R44R^J
M`$F*$&X)/!->KXU,F%3"[#W:'<-MFR)L7*PL7&^GS<-VR-,\OK)RGXG6VJ0V
M1N0\>%,BGM_MOO6)AQXSSX<@7*CE8WR-+8Z2/-T'0FS`M*RZN=K'F+4R.A[P
M[;W#?]OPX8,F/"R(7=YI-+2+:7'DA94Y'G)S/A2!B;MV#O\`E;C+/!FXXQTQ
MVBPTE,UP[X_2+.J^G^T=WN/Z/\(ID`GMWEQX[B0XTC190DQT5YU0X:NKKC]-
M;!3IB6/Q%N/,FF<]1W&)'TL2"+IK#HC1>C&242R@:%)XD+R%0'0*@$\Z*5`)
MYT#4#-0#4D(\J@&A!J,BH./[F[OS-OW5</$2)TB`:?7JN=8/IX<K<^%<^S=V
MSB'/LVS$XC#AFNS%V)9F.IF)))/F2:Y&B2B>2.594.ET.J-U+!AQOS\*9PQB
M.<_@W=I[JW&+>SE9<VN')<+/'<B-58V5E!O;16VNZ8MEMIMF)S9W.)O>V9F=
M/A8TXEFQP&8K\K`\"4;]ZQYUUUV5M.(=,7B9Q"ZW*LV;J-BR3/MR:N+1$QD_
MU>7X5NI.8:K1RT*S8E0,>5`-20#5B(S)';YUXW`]0XD<P*"OF9V'A84^;E3+
M%BXT;2SRD\%1!J8FWPH)(IXI8(YT;\J55=&/IN'`*\_.]`>I22`P)',7'#[:
M#-SNX-EPLW&P<C,B3-S&1<;&#!I'ZEPK:1QT^D^KE590NLZ`V+*"!<@D#@?&
MHIBZ#FRCQXD<JDHCR,O$QH9)\F>."")#+++(ZJJH!<N23R^-`:RQ,@=74J0"
M&N+6(N/O'&H*T6;AS*SQ3*RH[QL;V]<1LXXVOI-40XN\;9E;8NZP9"M@-$<@
M3\0.D`3K(^8"PORH)I<S&3%?*DE401QF9WORC"ZBQ'/E4"2:%T5U=2K6L;@?
M,+@<?$@\J`,7.P\N(2XF1'/$S.@>-@P+1L5<`CGI86-45(-\VB?48LE75<IL
M$L+Z3DJ+M&#R-O$\J"T^7B)-#"\R+-D%E@C+#4Y5=3!1XV7C1DCR<_!QDCDR
M,B**.5UBB9W4!Y&X*B\>+'R%`&!N.%GX4&=B2B3%R1J@D/IU`WM8&QXVH(9=
MXPEW5-K4F3+*J\H2Q6%7#:#*;^G7H(45C(M&2(7)=0!S]0X5%+J1\/6O$V'$
M<3Y4%?'W/;LHL,;)CFTJC,4-UM(2$]7+B5-61.&4D@,"1S`(N/V5$.>5`-`J
M`*!4`GG12H!/.@:@9J`:DA'E4`T(!))'$C22NL<:\6=R%4#XD\*L0LSAQV9[
MH;*F^XFUX6G(BEG2++W!FT01HQL2K?O?;RKOK]/OV3:>..GM<-_/K%HK7GGK
M[$?</:6X;AO+96WSXTV+D.`7$M^G8<2P&KA?AP/[*\3;JG/O9S$VG,8PY[<-
MI7"BR"<F*>2!@EXV.CB;>(O<\?NKGF.<-NW1-*1:?:RI)HD"EI%76;+<BS'R
M%'/'/3[8,J\&]9*L=2D-?GY?"JPK'OZMKM*7.7?H/H(Q.X(6>+58=-N>L@'2
M/C66J9BW#;69B8F'J$J!38,&^PWKOBT2ZZVRT^VLG1D28Y/"0:E'](<_PK;K
MGE+PZ.MK65`QY4`U)%3<TRI,#(CQ55LAT98U=BBDL+&[K<KP\14'G"^V_=0Z
M<+YT$V)"ATZV9)&=<>9(^IH6Q;J2(7=;:M(/A14<_MMW-H&-#E0G;WD)R87D
M9F:).C%'S3U.V/"5/D6/GP(Z;N;M[>-^AP?S1A6B=<F!')Z,LC1_FQL!ZWCC
M5U2XX%KT@5L;L?)QNWYL>.8?JV=E+E;K,';3/&,EIFQM=KJA1BG+S\Z#G<OV
MQ[GEUWRL663I)"LKL0VCI,C*#H)55;(F*C^K1E#2SO;K)W*61-QE$F,^<&<B
M5O7MZLKK%H`%F_*1.)/"Y!XT#=P=A;SN&]Y>X8L\44'06#`Q];`*(X#"@;TF
MP_/E8\^2_&ID4/\`XY[IFA2',RL:6,1C&<,[->$Y2,_->7TL,:*OV^=ZF56\
M?VXSYL+$3=)5EF^H;*W5>NS)DM%"Z0#@JZ4=Y-3@#@.%$9LOMYWH%Q(8L['^
MFPL8)!'U&`$[Q/U6L5/]]*S:OZOE0:4786Z+LFY;<)8T7.R,=8EU$F'#BD4R
M1K(!J*L%NB'Y22+T&5N?9.^2;ON4)=FEWUC^?$6,>/`V1U)2S,`O".&)0O$D
MDU5:6%V-NL1QYIUAGD."T>3#-,\B+G((^E.I"KJNR&YX$7\:F45,3VYWN+%2
M"2>/_+2XSXQCF9$Z:H!D0LBH#9G,C$W]>KC:@MIV1OB[7MF/]1#]5AXFX&>3
M40K9^>K*'L%`T+U&/+R%7(K1^WN^@*OU,<:CZEBR.==YC#"JAM/IU8D!5F')
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MY!DE+M>X')5C'WU)'5GE4`T"H`H%0#8D_P#K4F29P<*+6O?XUAW2P[I,4\JO
M<L6`01SK*)91)FJJ&I(P=S[UV#;NYL#MS*R`NX[A&TD<=F)6Q41@V!_M"QMY
M6XU,"CW1[B[%L3/CJWUVXH=+8D)'H/\`BOR7[.==OC^#?9STKZN3=YE*<=9>
M2=Q=W;[O\K?79!^DUZXL)+")/`<!Q;[6KW-'BTU?ICGU>1O\F^SKT]&+86MX
M5T-"S@[CN.WRK+@94N+(I!4Q,5'`WXK\I%QR(K#9JK>,6B)95O->CT?LWO\`
MV>=7PMYBBQ,F:W4RB`,>>W\P'@C<>5K5\_YGTF:?%KYKZ>W^[U-?GS>(B\NE
MC[!Q9\W"S,>95P$'4D32L@FU-K4@\5L0UN7*O'C3B>79:.Z<]%E/;[88+232
MS2LF1UXP2H!2]Q"5`LR^=6=58Y(K$-94QH9YI\6)<=L@()V0!=0C&E+VX>E>
M%)GT)M,XA&F1"T_11@SA2S!2#8`CG;[:RU=6[7KM$=TQPLXLQ@RXI0;:'!)^
M%['\*Z(EE,.WY\1RKH:2H&/*@&I(!A<V^-8B#&R8<J`3P$M$Q90Q!7BC%6X,
M`>8H&AGAF,@AD60PN8I@I!T.`"5:W(\>5426/_.H!D=(T:21@B(I=V/`!0+D
MGX<*"E@;OM^XRY"8<G6^FZ1E<*0EIHQ-&58\&O&P;A590BWG>L#:84ERRYZA
M*Q11(9)'*(9&TH.)THA8T%G#RH<S$@R\<EH,F-)H2P*DI(-2DJ>(N/.L9$O_
M``\Z@IKNN(^YR;;&)),F`*<DHA*1=12Z"1^2DJO+[/.J+!!N!XGB!YU!!)F8
ML>1CX\DJK/E%AC1$^J0HNI](\=*\314>X;G@;?`)<V=88WN$U'YBJ-(0H\3H
M0FJB6&19H8YDN4E570D6)5AJ'`_`U`5C5&7NO<.U;7((LV5DD:/K!51G]'46
M']T'^\D46H+>WYV/N&#!G8I+8V2HDA9E*%E/(Z6X\:,DI!'.BFH@6YUC*O._
M=O,R\7+[0>'/?%C;>\<-&F,L]VL5#EB1IMU+6/I-_.U(]J3+OW<DD<A6N;,)
ML8.P%N8J18BQPX)L>%9198L(\JR9!H(<N=\?$GR$ADR7AC9UQX0#)(5%PB!B
MHU'PN:#F_;GNC<NYNT\/=MQP9,'*F#:PZA8W]3`-%8DZ5`TG5;B#29P3.'3U
MKFS";%48E0*@1`/.BY1.I`'B/.LXLSBV3*I;E]])E9G#A^YI5A]WNQT=0\;X
MVY("`FH/.BHM[D,5]'@#5C],L)G+C/<[N'MS=L\1[;C'ZS&E=,G/*"+7I)5D
ML.+V8<&:O=^F^/LI&;3\,](>-Y>VEIXZQ[7$5Z;C*@5!)!BY.3)TL:%YY"/D
M07/_`"I,Q'5:UF9Q#M^TNV\[;\G'E7,F@F<V.+CN43UV^:Q&H\*X/*VUFLS,
M1,1ZN[3JM'MEZCG;CC8K*V2YU2$VL+DV^RODIE[&GQ[[<]L='.[GO$V6S1QD
MIBFP"$"YMXM_RK'+VO%\*NOF>;I^V`!F2V_E_P#XA6W3U3ZA^B/O=$>==#RG
M6[)E'(VZ,DW>/\MS\5Y?A6^D\-5HY7ZR8F/*@&I(J;E%DRX&5%BE5RI(I%QV
M>X02,I"%M/&P/.U8CS3(]LM^QXLK(.X1R1)B+`L"'(9BB110L>9)<QI*18?.
MP\JN52;1[>;GGMLVX[E*F+`1]5N>W1F422O,[SL)6U+Q#.B68<%4\>-,I+0D
M["WOJ*T6="(TR$8Q7E`DA&9]26?U?,L:I&B\K`\>-,@L7L/=8-CWK#^HB?/W
M!'PX,AY)FC^C:4D*R'Y&6%M`M?ESID9<GMKW(N?%-#FXPQA.TV1CHTT09))+
M=$6N.G##%"$%N)#`\#1E"_N/:[[HYV[$A,6+M&W/M^%DY0D`;(R7"3LK,2[!
M8$(#?T^=`$G86]B5FBSHV1Y4,J,TP$D2Y9R!<`G3TXTCB1!PL&X\:DJF/:NZ
MXG:N'%)/$=PQF7(W,QK-)%,\<+IP0$R.%=Q)I_>M:F11&U[G@]E[J@QY)MTW
M><8T$[)(DC1P1I#!+E-&6D4.L'%O#4+U$5MI[$[C^@DEGRK296+D01I++*N1
M#'ENC`:E.F.2%$(&D%;_``-!IYO8^XY4FU&2;'9-KQ8H24#Q-)*9UDR[:3^6
MLZH%X'Q(Y&A*ON_8&\Y^VXF"V;CNL0S'DE=7O'+FRBX@4EK+'`7C2Y\:*/8N
MQ]UQ,W:'W')CEP]N@+MCP/*H7-:=IF90WSH0RCB1;3:UC3*(INQ^XY)-UE&9
MCPRSQSG;'1IB8IYIVEZC7;F5Z8N/EMP%(7*NWMQGG-:9),>.*=(?J0SS3.'A
MCETA-15=(F>-N0U:;GC5R@X/;G<X2O2W!((Y`JM#'U=$`00(K1>OU2F/'*ES
M;BQ(%3+(L#V_W7"S(\ALB+))5<C)O+.@;-&2T[$#U7CTE5'(V6W(U1W9(%R>
M7G6,R('D+'AP%:K6RPFSR3WPW3&QMT[5@EGAC,64N;HE:52-.1#&)+1?,.)%
MGX7X^%94]J0]:D%I&'Q-:T#0*@?58&_*K%L,HL2NK*&4W4\C6?=&,LLH,^80
MX&7,PNL4$KD#G98V)_X5CW,9M+A?8J>)_;C#A1Q*<>?(1Y%$@4L[]3T];\RP
M#@>JKLZI+T"L$*@5`J"";+1+JOJ<?<*PFY,@ACEE82R'AX+Y_LJ5B<Y(6@.0
MY#E6P?.??O>^XCW?P=T39Y,:38Q'`L,Z`Y,L8E)ZD3VM%U0Y"\[C^M5[N/:V
MQKXSEVW<'M6=QE_4MJ9L"7+43R[=DH2JO(-3#6I)1KGBMB+UZ?C?59I$5V1G
M'MAY>[PNZ9FKSW>]@W;9,OZ;<(#&Q%XY5]43\+G0_(V\:]K1Y%-M<UG^KS]F
MJU)Q+/`)("@ECP``N3]@K<UM_:>T<S+C6?*8XD1((B9?S&4'C<$C1?PK3?=$
M<1RZ-?CS/,\.OPMOPL%&3$A6%6L7T\V(%@6)YURVM,]796L1&(6X9GBF1XSI
M<7*FUZX/J&SMUX_R>A]-T1LV\](C(F9F.IF+-XEB2?O->`^IB(CB#Q0S3/HA
MC:1[7TH"QM^RI,Q'59F(ZMWM_;\W'F>:>%HHV32I?@;W'ASK/1LK-L1+@\^T
M36(][:/.NMY;8[9G"Y4L)/"105'Q7_H:SUSRPO#I*W-9CRH!J2`:L0)Y4`4#
MT"H`/.JR@+<Z*:L90J@5S01MSH&H&/*@&@5`-4*C)%-+'$C2R,$C3BS'@`*E
MK1$9D0NY8_#P%:K6RUS.0UBCYY]\^W<27NC<\KJRV.-C9&8K9$G`MJ1-$=M"
MP@*0534^HDVM5K29F)SC[>OL;*VQ&'NO;>##@=O;9AP/*\,6-%H?(D,TI#(&
M]<C<6/JYTEA+1J("2:.,'41?P7QJ3:(%77+DOI'I4#B/"WQK7F93JMQH$0(#
M<#E>MD*YCW.S-YP^R-SGVIXHI.DR9,\MRT<$BE':)1Q:2Y`5>?'A<TF9CI&9
M95QGEPO_`/SM-OT>#G[=D31S[;`(YF=Y'?(7*E4`A`0%Z)"\;<%86'C5[IGK
M&/Z+>(CH]CHP*@"2:./YC8GD/&I,Q`HY&82C%V$<0XL2;"WQ-:K6RD9GB&1F
M;[!!(B8X3(;YFX^@#RN/$UJV7[8;Y\:]=<WM&(AM;;N^'G(H1@DY'JQR?4".
M=O,5NU[8M'O:(M$KU;5>!]]RXTO>_<&5+-UIH)4&/$IEULF*N.ZQ@*.DZB0,
M+NPT-?R%;:]%>]I(9$60\#(`Y`\"PO\`^M:D8/>.P;5O.QY>)DG1(%,L,BGU
M1RH-2L!^!\Q6WQMWRMD6C[0U;M<7K,/.MJ[?VW;BLT*%LG3I:9R2>/$V'(?L
MKZ*^R;.*FJM?O:5:VPO&WB>0K7MVUUU[K-NG3;9;MK'(D4\"1ZO`"YYUX'D^
M7;;C,8B/MR^F\+P8T9G.;2W-L[8R,J))YWZ$3$_EV/4('CQX"]>7M\J*SB.7
M3?=$3AT^%M^)A1F/&30#\QO=B?B37!?9-IY<UK3/4>3\@^VNWZ;^N?N<OD](
M5#SKV7(DQ9VQ\F*=><;`G[/'\*L2DNW5E90RFZL+@_`UT-)'E0#4D`U8@3R-
M``H&5D<71@PN1=2"+@V(X>5`YX`D\`.)H*V+N&!F:CAY,62%"EC$X>PD74E[
M?Q+Q'PJLH2D<:BFJ2A6-0,K*ZZD(93R92"#^T4`-SH&H(L?)Q\K'3(QI4GQY
M`3'-&0R,`;75AP/$50505DW/;WSGP(\A'S(U+20K<E0+$ZB.`/J'`F]43T"H
MR9O<3*FQYS-\HB)/WBN?R[Q75:9Z1#*NJVR>RO67*;-W,V..G*YRL?@%LP+1
M^?Q(^%>=H\KC_*KGM6VN>V\3$^]U6-F8F4@?'E60'C8'U#[5YBNZMXMTE8EX
M%[J]S[/C=T[S!EY4[IF9&+BQC':*95Z,2AP.IQ@*F3BT1N?'E:NFE990]E[&
MW#&S.S=FFCR5R-&)%%+().J>I$NA@SGB2"O,CCSK5;JDM*;,)%H_38_,:U3?
MT8Y49<D<2#J<^/\`ZUR[/(K'OEUZ?"O?$SQ5GKOV7AYSHQZ^/8?DFPTD\;J0
M/^-:]?DVCF6GRJQKV36.CH<#<<;-@66%@&/S1$C6I\B/_6N[7LBT9AKB<N=]
MT<F6#LO*6(JLF1/BP*[R]`*7G4@B2S:6NMA?A<\;"MU>JPY;V@FR8MZW##FL
M#-AI.8FD@9XS'DRH1T\8M"JN9#Q!N2.5K&K?V$O5"0!<FP\S6"*L^7:ZQ<_X
M_P#E6NUO1,L?<MX@Q#9R99V_NP>('](^%:YET^/XE]O/2OJY[,W;-RU*2,%B
M/.-18'[?$U)Y>UH\/7KG,=?5C[OD3X^`\L#F.0,H#@`\SQYW%86Z.KY-=OPW
MC,&VKN6.25!+_EITL4FU"Q?EP\OVUSS3',/#\OZ1LU?%3XJ_G#L8.[<N'$DZ
ML'ULZJS0E65-;`>E6/+B?&M]/*F/U/,B_J\%WEN\LSN>57/0FW%I\B;98I&$
M<CS%.NK1@(LP`TCU?,`.==,>768Z6].G\G3%,])A[_V9G;T>T-K3=\3Z+=8X
M%BR(=6JW2.A6-^1=%#$>%ZMK^C1(MTW7$A22.5C)+(K*42Q/J%N)Y"M?=[73
MH\2^WF.(]9<@I%@%XV^/E7T>[R:ZZ]T_]7#H\6^V_;7_`*#50!;G]M>#?RME
MIF<S&7T^OPM5:Q';$X]LPGP\.;,R5Q\<`RN+\38`#Q/PKGV[IQFTS+=%::XX
MB(^YTN9#VUV[@MN.<X3Z5>J7=KR%APLB<S<\@!7G5OLVV[8]KEV^1B.9<-D>
M^&;DY#8VS[)U)93HQ.M)JD9CR)CC%OV:J[J_2HB,WMCU<'[J9G%8R[#:LSNF
M15R-WGBAF*V.%BJ#&I-^+.UV8\N5@/C7!LKKSBN<>]Z.O5.,VZM+&D=Y"'<L
M0OB;VXUU>!COG[FKS8Q6/O3'G7JO--0==L4_6VV+CZH[QM_[>7X5NI/#5:.5
MX\JS8AJ2`:L15W'&FRMNRL6'(?$FGADBBRX[%XF=2HD6_"ZDW%!0Q\7<]NV+
M!V^/(FW+-B2+&EW.;I]4V`5\F0$JI/C8>-4<AF['WMB=EXNW;+%*FY1[AEY#
MZ98D;I-+-+$7);20[,FH`_;21/N?;O=VAXL'(RV2/"1\4]>.[9GJ1TE+G^%4
M/#@?5QH%LO;>^8.QXF++!/')DYS/NL4$T2R?31PF#'#2`CT`1QEM!U?B*,H8
MOZ#[G3)F&4Y4+WBBQ;94.HQ13O*QN&YM'%%%=N/J)\Z#>&S=U&';L"63)>&#
M:P#DK.BVW,/JU3M?6X4`!;`J;F]09D^R^XPQ8A&T[R0_G='ZB("608AB82/J
M!#-D_F@#TVX&@FW/8.[\;`P-EV/'DCVK#Q,2,-'/&C=;K7RF9F(8L(U]/AZB
M>=04L':>[H,W&Q<K,R9-P88;&,Y"D=$F1LR9E4_+&\HB'GI%J*DQNW^^L=<R
M-9<J8X\$YVN6;(C/4GEE=5,@U<DB6(J#P^;QX4$&W]I][8\F7@F?+@VF&(KM
M0AF@'YD"B-&/&Z=41AE6UAJ:]C3*+NS;)O>S[O!E;SNF6-FV_'QSUYID:*7(
MEB$4XE^:3^UM86T_'G04<?MON;-CDW+;GR=H^L;(SS&DJH\D^3F*!K5M5F3#
MBN+\+M;PH)<WMOON;,GE@RIX,5G48F,DZGI0B5Y2&N?4Q6.-/_>?`5<CM-AQ
M<K$V/;\7+D>7*@QXTR))&UNT@7U%F',WJ,D'='_]=W'_`/1;_B*X?J?_`(U_
M^+L\#_OT_P"3R6)WB?7$=#G@Q`'$?&OB-6^VN<UE]7Y7BZ]]>V\9:>#N)ZL5
MM290']JM@-0\B.->SXWFUO,1TN^2\_Z3LT9O'.O/\<>]RVX^VVR-*D<#M!%N
M67"F8ICBE)#$BZ-(C,MM3?;?CR%>OHW7[L9>?79GB7I7;_;&Q=L8CXNU0F*.
M4JT@)N6*C2#PL!P\A2UZZX]?YM^K5?=/^J[)*[\S9?X17'LWVM]SUM'B4ISU
MM]N@&*JI9B%5068GD`!<G]E:74\?[@[MG'=.;G;/DZL270A!`:.3IJ`2`?B/
MF%=\:IK&+1R[-?AZ?*TQW1GKB8=/VWW=B;C.OT^O%W"(!]+:1>W/0U_4/,5J
MFLUG,/FO.^E[?&^*?BIGK'^OH;W&3NWN+&QL?$S3#A0J6R,.*./5+,`P5R[D
M<-+6*WYV-=%?,F(Z9G\/M+BU7K_NG#&]H.SNZ]IW+;]UQ)YL#8=$L>5AY2X[
M-+'<#IIT>`)=+E[>?G79;=F9C''LG+.9KCWO7]PW)((3+D,1'<!447-SR`'C
M6FUC5JMLMVU<YG[]D3D#'U8\:F]P?4WVUC,O8\?Z?6GZOBG\F82222;D\23Q
M)J/0B,<05!5[@V/=L[M^=L.)C+KBZ`N$,AU>H*6(^4"]<OD^7KTQF\XC^3;X
M^RL;(S[WG&+N<L1:/)U2*OIL0`RD<"".%;HYC,/5MK]'3[5OV1`R'JF;%``,
M-P;#PMY6K"U8EXOF_2]>V)Q';?U_JVL7N#&BWC%WF&&2>#!BR(\V!4!R%AFT
M?FQ)?UZ&0:E'&U;=$3&8]7SNSZ;NUSS&>/8Z&?N==QQX\C:IM6!,`\.4G-QY
M@^`K.SO\7P*Q$6M\4_DSB222>)8W)\234>G$.@VSM/JPB7-9H2W$0H`&M_2/
M&N+;Y>)Q5HONQQ"U-VCML:F63)DBA3U.SE%4*.=V(`%81YEO2&'[B8<_W3[M
M;!LDHVW9L63>]TZ8Z<6$H:%!8VURC@;6OI6]9Z/!OLYM\-?>XMGD8Z<RXW;>
MS^Z^[=U_6>[XVPXID#QJKH90I`T1J@U=)>)OXUWV\O7IIVZN9^WXL*>':\YO
MQ#O=E[6V'9E7Z'%59E!7ZEP&F(/.[GSKS]OD7V=9>AKT4I^F&Y'BN]]=T7P(
MM<UOU>%,\VXC\VC;Y<1^GF5I8TC0*HY<+^)^TUZ.O56D8B'GWO-IS(3SK-B:
M@W^U^K_F/Y7I^W5_]U;=;7=NGE6Q@&I(!JQ`GD:#.WS=4VG9LS<GC,OTL1=8
M0;&1^`2,&QXNQ"BJ*<7>7;S2&!LM1E(=$L2AFTLH;78VXJA1M3<A:F!#NG?&
MS8.!!F@39$62TJPE(V`M#"T[R,6`_+T+?4.=^%,!8G>NQ3;7@Y\\_P!.<YEB
M$!#,ZSW5'CL!?T2-H+6M>C*!X_>';V7B;AF8N29X-KC,N:4C>ZJH8FP(&H_E
MMR\J*J+WKB#;MNSY<>1(=SG:/';4A7Z=8FG.5J!(,8A0MP^RI***^Y^RE$U8
M\ZS%TZT.GC%#((BLKGX_4QC3SU&W@:F!?W'OC:,#/R\7(60)AK/KG`N&DQH5
MGE1!XV611?\`B-J8,JD/?^U2Y\>&8)%RNNN'E"U^C+)/T(TU6]6J0-R\%)I@
MRN8O>.R3NR.[X[?52X<(F0KU&@D$+2+_`(9E;0&/,T5/E]S[%BRY4,^4%EPS
MIR%"L=+:2Y4$"Q8(-1`Y#B:8163O'MF:$R+EAXCJL3&]FTDAM(*^JV@W^`O0
M`O?7:C1R2#.ND;K&6Z<G%F-AH]/J_9RH+FR;K^J8LN4L)BA7(G@@)-^HD#F/
MJ\A8,RFU!H49.:]R#DCL+?SBR=+)&&YAE_A:XL?&M>V*S68M&:^UO\:MK;*Q
M2<6SQ+YUVOO_`';#E*]QPAL/2`N9C1\0_P#34'CJ^'*OGO)^B4M&=$_%_C,O
MH8\S?I_\BOP?Y0[G$RL?.PX<N`]3'G59(V^!XBX\#7SNREM=IK/%H>K6T7KF
M.:RDZDB3X2*?2^;`3Y\&\#7I?3O)O\SMF<QVR\SS/`U<7BL1,6_'[WH1%V)\
M3SKOF<\RY:UBL8CAS?<7?VP[)+)C2,^3GI:^+$.(N+C4Y](KIT>'?9S'$>KG
MW^537Q/,^CSK=.YN[^Z#+C1HR[?*POCQ+IC5?\24@$KPN;FO6U^-JU<_[GGS
MMV[IQ'Z?R_C*/-[1RX\.+-VHMN>`^I&DB4EU=#I:ZC]VX-B*\;=]4U_N+:[S
MV6C'7I+ZKZ9:E=,5B<X85B#QN".!'(BNMZ;H]E[VS<"!<;)C&3C(+*;VE`X_
MO&^JL+4B7A^;]#U[;3>L]MI_!W_:_<8':N"F(E[HY29O)I7-]-=$R\75]-S.
M;S_`,CO)(TDC%G8W9CXFL7K5K%8Q'$&HJWM^V3YA9_[+&CN9LAOE4#B?M-:]
MFV*_?Z,;7B/O97=_?':O:N-(FVR+G[ZC($ZR,\4>JQN0ND%M/)1QIIT;=WZO
MAH\[R?+FOP^U@]H=Q]S]V]VQ[KN45L3;H9(DT+TXD$@L+)<\6/F;VKA_^BTZ
M]/@VK'6;5^^>6'T_NV;NZ>D9=9O?:&R[N@$L2X\^K4<F%560\"+,;>H<?&OB
M/#^J;O'GX9S'I/1]+3;-?>\NW+9MYV3(+3PO$FMHX,EE]$EO$<?$<;5]UXGG
MZO(CX)YQF8]L.R+5OPW^R]P^HS9T9=,JPZKCD1K`KMJXO+IVQ#?7M':L[+B7
M'QCC91<Z,G$)A=2Y)9CHLI\SJ'&LK;.V,S['FVI6(GV?<[#;.R\W;Y&DCWJ3
M(8_*<C&QY"O`?+8+Y5YU_*FT8F'):]YXRO/V_N,[WS-]S)$+ZS#`(L9;`<%N
MBZ[>/S<:U1MB.E8:XI/JSMS[=V7"Q9%P]MAW+=)&7\S<BV2!J>[2.TA;@@8G
M2MJRI:9ZSBON91HF>8_-%C['B)N3;KDI%/N918TR%B6-8HT!`6)`3HYFYO>M
MEML]O;'Z6[7HK6<_[O5JQ0O(U@"%YZR.'[*RT^/:\^D>J;?(K3WRMQ8R(HO9
MV!OK(%Z]35XU*>^?5YVW?:_W>B6M[28\J",\Z!J#K=B@Z.VQ<+-)>1OV\OPK
M=KCAJM/*^>59L0U)`-6($\C09N\;/!NV+#C3RR1Q19$.2PC(&LP.'5&_HE@+
MU1ST7MCM,6)B8T>9DI]$[38\PT"02EF*R:M/$Z&,;7X.O`T$N1[:[#-@;?MQ
MER$P-OAEQX\59#H:.>19'1@;^GT:`HY(;4%6/VLV:/*VW(&=FL^V*@C!D%G=
M))9NHXMS,DVHV_A7RHRA>VOL?;]HVS.P-OR)XSG&,F=GNZ=-%06M;G8EO,DT
M"?L38VCP\8=1-OP<+)V_'P5($83,&F63@+A]/I'@`:QD5Y/;O9_3+"[IF#UR
M3L=74E5^K'(ZG@=$@5@O+T@4RJ:7L/9IGSY9R\D^>&+.3PC>1HWE=%Y7D>%"
MWP%N5,AL+L;8L+=(-PB1VDA(ETNQ8/D*7(R'_B?\Y_A<WIE`Q]C;0LN/)(\T
M_09799&X2,F2^5'KM;@LLA-O&PO14$WM]MDVZ'<YLK(ER'R'R)E<J4D$D71T
M,EM/!+#5\U@*(9.P-K5-O4SS.-OER)!KTL)4RK]2.0$6_>/'G00Y7MOM&2^,
MS9>4OTQD<!9+!GERQF,QX<^H@'#]T`>%,C?V?:X-JVK%VV!GDBQ8Q&LDAN[6
MYLWQ)XF@N49.7]SGG3V][B>!"\RX3F-`"Q)!'"PXFL;8QSQ#;IV6I>+5YM$\
M/E/"[AQLC5%F*L'#B3<H?,&_$'[:YMGC37FO+Z/Q?K6O;FNV(I_)8PH<_9LU
M-SV636J\3@LS=*2-AQ'`_M%:=]:;Z33;'_Z]L2EOI]]-OF^/.8_Q]F/<ZO&]
MP\$QXD^?`\$N/E1RY4<09@L2<6<:@IL#9?MKQ]'TRVK=F)S7$X^^>/[F_P`^
M)U_%68M&)F&EO_N/NO<^8-J[9@FCVV1;9.0RF.1RUAIO^ZOQKW/'\.NOXK\R
M\3=Y-MOPTB?M_)F_IFS;;*DN^Y+96;>\^VQ>MKMRZCWY>/.NKOO;]$8KZI&K
M7KQ.R<V_QZH,CN'>-QQ1M6#!T<8<$Q<-7+Z/!25);3Y^?C5^56OQ6G\6NWE[
M+QV5C$>D/0^VLS;^WL*/M_<LR&'<<9K,ER%;J_F+I8CC\UJ_._\`Z#Q-N[R+
M;J5FU+1'Y</HO`\:U=,1U1]S]B8NXQ&;;(XL7.:0RS.VH=77SU&YMY\JYOIG
MUJVF<;)M;7C$>[[G?3?,=>7FF?@Y>!DRXN7&8IXB0RMX^1'F#X&OM=&^FVD7
MI.:RZZS$QF'<]JRMB01;/-?TPC)P9.)#P2>IEN?WHG:Q'D0:ZYYC+P/TWFL^
MLX^WN=)C8N1DRB+'C,DA%](\O.M5K16,RLS$=6JN%M>U2`[JXGD9+G'C%Q&/
MXG:XKGG9?9'P<>]J[IM'P\.;RNY=SWV>+`[9@08*@ZLF591B(I%U*_(9W8\>
M'I'G6^NNNN)M:>?S2L^G/O5]K]J,1-^EWG>\H;I.S!T0IH75I`-UOITW'!5'
MVWK'9Y\S3MK&/>Y_VE9O-K<_;VNMS5AVO:V.%C1QPQ,OY2KI0:F_HUX?U2D[
M=-LS/6.7H>-6O?%>BK@[OCY("L>G,?W.-C]AKX_=XMJ<]8=U]4QTZ)=SVW$W
M+!EPLM-<,HL?,$<F4^!%8^/Y%]-XO2<6AA6TQ.8<_P!L^W65A;O/)CY:2PO`
MP42*592'4@&Q-[^=?:_3OK<;\Q:N+1Z,/,\C-8X]KT+8]G&W0,78/D2VZA'(
M`<E'_.NG?N[Y]SRME^Z6C))'&NIV"CS/PK1$,(B94)MS#1D1`ACPU'R\Q6R*
M>K;&OU4PLDC\`69CQ//[S6[7KFTXB&5[UK'*U%A*+]6S\K`7`'_.O2T^%6O-
MN9_)Y^WR[6_3Q">P'`<`.0KM<A4"H&/*@C/.@EQ,=LG)C@7F[6/P'B?NJQ&4
MF7;*H50JBR@6`^`KH:2/*@&I(!JQ`GD:#'[HWF?9MAR=PQX%RLJ/0F+C.Q02
MS2N(XTN`Q]3-Y51Q>Z>Z<J[;F3K##'%C/`AEAG.LL^2ZV34A!#0P%OVU<&%/
M;N]-\QLMVRLEL_Z*'_,0K-I#3P*D3@_EGT29.7I)X66,&H-B'W&W'(W?;L"'
M;X73+G$$N5U'"V,\D2R1C3R=('=;^`HR@&9WSN6%N.[Z1#FP)D3KA1:M'3CP
MA#"\5P#KEFGFX#PH90=U>X61C[YD[;MH%MFZF1EC65;(:"$-]/8*VE7EGB3S
M;CRM4$&_][[KB9'3SYH]ORL/Z9<K'Q)B\;RM')ES0C6@:_2C1"?Z7[:F")=Q
MVZ9SL&WG(ROKLDP(<C+#!Q)*1ZR&%AP:XH+IYU`U`QY4`T"H!JA49,KN@V[>
MW$\OR6_XBN'ZG_XU_P#B[/`_[]/^3P3N/LO9][1I&3Z?.TZ8\N,6(]5_4HL'
M_;7RGA?5-NB>)[J>D_;A]+Y?T_7NCIBWJ\^S]L[C[9R`,Q6R-L2R+.G]C9N7
MJ(NI'QKZC1Y>CRJ_#/;?T]O]WE4V>3X=OBS?5'X?V:&/N6T]:)LLHT1FCAR$
M+`.(WNQTV^867PK3LI>V(IUZNWSO,T7U9G^/KAO9?<6'`KX';'Y>+*_'+C8O
M-*]_E4\P`>%J]2FK_=><O!V>3%?@TQB)_&?N;/;'MIG[HL&Y;M,8</(O(T5V
M^I?CP+:@0NKX\:Y=_GUI\-.?Y&KPK7^*\]?Q>F[1LVW;5BQXFWP"-472K`7D
M;C?U/;4QKR=FVVRV9YEZ5-=:1B.D.)[Z[6@R-^RI'9HLMEC)-]2?(+`CP_97
M)N\W9X^V:3$3$8>UX.V+:HF.G+%VONW?^WG:#<8WSL6Q3'61]-BAYQN5)T_U
MJYO(^E>/Y<=VJ8I?K/\`'UC^C??3%NG#JCM_:_>&&,\H3DZ-#,C%98V`X(]N
M=OC7A_/\KZ?>=>>.ONGWPT=UM?"^>Q\7],V]]TSOIFPXQHGQG*3HY30>GP(.
MH6N""*^UT^9-ZQ-:_JAY6Z_=:<1.<\*XWKNC$V_]/Q$Q)1$Q6+<"\D$LT9-Q
MU8UCDTMQXZ&M]E;HT1,]UOP:ZZ[9S;$J$?;+9,BR=QY;YC2LK#`@;3C(1_%'
MSD''^\)^RMD[9Q\,=&?R\_JY_D[7$PX,6-,?'72O)$'P%K"O/M>;V]Y:W&9:
MD.V$\9S8>"J>/[37=J\#/-_PAP;?-]E/Q!O^V3YVSR8>)H60E60.2JG2;V)`
M/.MOG>).W3.NF(Z?DU^%Y,:]T7OF8><9./D8F08,A#%,O[C<#^SSKXK;IOKG
MMO&)?7:]E;U[JSF%["WN>$VR"TT=K7/S#X_&O.W>'6WZ>)2VJ)Z<.L[=RL:?
M,DZ,JR6ANP!X@%AS'A73]&UVK>V8QQ_J\WS*S%(SZ_Z-7(W%(SIB`=A^]^[^
M%?1Q1PUUYZLZ65Y'U.Q))X#G^P"MD1[(;>(A8BP'8WE-D\E/J_Z5WZO!F?U\
M?<XMOF1'%5I$5%"J+*/"O1K6*QB.C@M:;3F>IZR0)YT"H%0,>5!&>=!L]L0:
MLB6<CA&H53\6Y_@*V:XY87ET=;6LQY4`U)`-6($\C0!8$"XO;B+T`F&$@@QH
M0>8TCPY>%`XCC%[(OJN&X#C?B;_;0"42X.D77Y38<+"W#]E5E`#''?Y%X'4.
M`^8\S]M13=./46T+J/-M(N?VU)0FBB;BR*QO?BH/'E?C4#A55=*@*HY`"P_"
M@`\Z!J!CRH!H%0#5"HR1RQQR(T<BAXV%F1A<$>1!J6K$QB>891:8G,=7'[W[
M?0RNV1M,G2D;GB2$=+_V-:Z_8>%?/^9]#K;G5Q/I/3^'H]OQ?K,Q';MC,>OM
M_BX;-PLC'=L7/QS$[J0\$H'%2.(MR8?97S>S5?5;%HFMH>_2]-E<UF+5<H_M
M?@[AE18N%,Z02R#JXLQ62)8AQ;06!<%;77C7M>%]5M:^+Q$SZQQ.??C\^'D>
M7]-K%)[)F(].L?P>A]I=@[%VPK-A@RS-P6:54!1;WL@`]-_'SKN\CR[;>O$.
M31XU=?3F?5V&-MF1/I=ORX6XEC\UO@*:?#O?$]*_FQW>56G$<V:^+B0XR:8[
MDGF[?,:]73HKKC$/,V[K7G,N6[K[1S<[-?<<%Q(\B@2X[$*;J+`H>7+P->+]
M4^E7VW^9KYF>L?T>Q].^ITUTC7?C'M_JX/+Q8Y->)EQ7*M:2"3@05/B.?.OF
MXF^NW^-H?15MF,QS$N>S.WMQQLA\G99S"S7*H',94V\#R(OX&O3U?4-=Z=NZ
M.[^&6>8GJ[V#'RY,:&?*:]T3J3$@DL%`;2/'C7M:NVE8I7V1P\2T\R1D5?1`
M"&)(#GYF7P%AR_96S'ME&[LO;F7UQ/E#I(!=!<%B3XVK/Y,[(](<6_S*UXCF
M738^-%`@5!<^+GF:ZM6FNN,0\O;MM><R,\ZVM9J"KN.WX>?C]#+C$D8.I?-6
M\U/@:T[]%-M>V\9ANT;[ZK=U)Q+C-V[,SL4/-@%LS'%VZ1TB91Y`<`_P\:^;
M\SZ):O.OFOI[?[OH?%^KTOB-GP6]?9_9#VH=.;D\=+"+0XO;]\<#]U<'@3\<
MQ/HZ_-YK'WNKAQ)I-)MIC/-CSM\!7OZO$M?GI#Q-OE5KQ',KT&/'"MEN2>;'
MG7IZM-:1P\_;NM>>4E;6H%`J`3SH%0*@8\J",\Z#K=DQ?I]NC!%GD_,<?%N7
MX5OI'#5:>5^LF)CRH!J2`:L15W',7"V_*S6BDF7%A>9H85URN(U+:47]YC;@
M*"KMV\P9>Q8V\/!/B0Y$"9!QLB/1D('`(1XQ>S\;6JCBC[HS8[KF;ABM%MF.
ML@W)8DU-&TF:^-C>IB"6T0N[HHO3`U,KW,VO$FF@R,'*2;'BZT\=D)4-'&\2
M'U?VCM,B:?!C3`;_`';O<G9<.\_21X^Z;EDIC[7BL.HNG(GZ<!D`8<>EZVXT
M9*^%[@9$T.\YSX3M@;?B-F8P5;.X,TD4$9-_FF6'7\`13`I3^X&_XT^?'-AQ
MNFU/#%DSQH2LT\SQQF"$:O[MC+=O):DP+6/WWNDNP[KN`Q$DR<:+$.!%8QH^
M1GKKB@:Y/&-9(R_VFI@RW.W.ZL3>NHJ0R0F*"+):20`*T4Q=5=;$VN8F(!XZ
M;'QI@87;?=>_;GO&UPYD8Q\+=<7)S<(C'%IHXY;(G5ZI:-UA9':Z6;5P/A3`
M@G[\W==UBPQCQQ19CS&&5U)$&/!,\8ED(/J:1,>5U7AR%,*D[6[[W'?-RQ8)
M,(X\$\4KRADTLAQX8W=RVH^DRSB,"W@:80\?NCM#QASA94>O&^KCU!+&,"1F
M+$'TA8XM=_$,MN=!%B^X^0<PQ9>T3K%DS]+;Q%H+!`T41,UVYF:8J+<+`TPI
MV]T-M6.:0[;F".)AH<],+(AR&Q@ZG4>;QM8$<0"?"KA%V'NS)Q=@VK<=RQ7F
MGW35((\=0!'&YU1*02?5TV7]M^51E"O%[D;7D2VQ\/)DA?*Q\*'((54:3*!9
M-5SZ`5`(U<[J.9I@RZT\Z"GN.VX&X1&+,@29;>DL!J6_BK<U_96C?HIMKVWC
M,-VG??5.:3ARL79&3@[K%/B2]?%]0;J65TN+#EP85X/_`*6VO;$TG-??UA[7
M_MZWUS%XQ;W>UTN+M6/`2S_G.>18"P^P5[&GPZTYGXI>3M\JU^(XA=/*NIS!
MHA'E09N[;%MNZ0E,F("3]S(0`2K;R>U[>8KF\KQ->ZO;:/X^UU>-YFS3.:SQ
MZ>S\'#;UV?NFWEGQT;-Q`"3*B@,@_IK?P\Q7R_E_1]NO,U^.GY_@^C\3ZIKV
M\6^"WIZ_<EVG9,_/2!TC*XSJ#]2;:0MN8\37N^+$SKK$?XQ]SD\GR*Z[3GKG
MHZ_;-@P<%0=(FG']\X%^=^`\*[J:(CF>9>/N\NU_=#0/.MSF*@$\Z!J!FH!J
M2(&P<+K_`%/03KZ=)D"@$@D'CY\1XUIG329[IB,ML;[Q7MS/:EK:U0:C(J`*
M!4`GG0*@5`QY4#XL)GRXH@+ZW`(^%^/X58CE)EV]@.`Y#E70TE0,>5`-20#5
MB!H*^1BXV2(_J(Q+TG6:/5?A(ANK?:#5%'_:W;>G3^F8Y4ER5*:@3+JUD@WX
MMU&X_$U`#=K]KRLVK;L61B+/=0Q-G#^HWN?4@/'RJBQ^C[4L6'`N)&(=O=9,
M&,#TPNBE59!X$*Q`HRA47M?M^-B(\&)(V617B4$(W5MKU"_'Y1;R\*"6/8]C
M5XRF'#K@!T"U].LLQ)%^9+L;GCQ-8R!78NWX\--M7#QQB)(DZ8MA;JH04>U[
MDKI%C\*3*P/'V79</&GQL?#AQ\?+&C(B0:1("NC2>/\`#P`'A1%5NVMFU0L,
M>QQPB8_J;\J*-@ZQ1V/H34B\!SMQHI2]N]O.ICEP(&667J,K#YI/5\>/SMP^
M)J"Q%M>VP2Y$\.+''-E`C(D5;%P>8/VTPBA+VAVK,;R[3BOZ.GQ3]SIB+3]G
M34+;RJB7_;7;PE$HV['$JD,'T<05?J`_L<ZOMH(I.T^V9C'U-JQGZ4:0Q`I<
M+'&S.BJ/)6=B/M-!6W+M7$W#/V_(6;IXVV@+CXT5P(V4V.@JP^>,].16!!6C
M)+C]H]JXA7Z;:L:`(ZR+H6P#IIT'GQ*]-=-^5A0:_/\`XT5YMW#W/WPG<.?B
M;7'(N%.4Q=N?Z;6(7BEC2?(+$6;7U"`&X6XBKB&,R+?>_P#N4[;DMM6UR1YF
M+(P<M#,PO%+(-%F0:@T409BO\5EJ=ID^=WCW7AY+9*XLF7AP(0RQ8\C)+((H
M%UJH42JADG9N?[M,&4&=[D=VP"+(Q^WVR$F@Q",0QSQLDN2'9G>0@^D%5CMX
M$\:=I,KN[]_=QX.,)X]B,IGRIH,6()D.>G#I37,R@!"\C>G@1I%ZG:9=-VYE
M;AF8$V3G`JTF5D_3QLN@KCI*4B!%@?E6]SYU)6&F0+5!S?=6Z]Q8>5A)LN(,
MS\K+R,R-WZ2F.*(!!U-$OJUO<+:[6K*(26'C][=RXX7!;9FGR8<=!J:.:(M(
M4B"3.57HK'+)(WI3BNGC2*Q[";3GE)D=[;U@[C+A3X1R<R3)E2#%CAR"K10H
M`.E,J:!U74Z1(>?C:F#*.#OON?),WT^S1/'#C291R73+CC9HHP6@1'17,@E.
MB_+Q%7M,H\;O[N/]5Q,.;:2XS<]L9K09*+CP)H!9I2-))NS@G@1:G;!EU7;>
M1GY>RP96X`C)R&EDT,NADC:1NDA6PXJEJQE8:1YU%-:@:PN/+QH/.,'NGN7(
M,LL4N3DK.TJ38SXAA^A<Y2)`(W,0ZGY+.S:M7*LNV&.5G*[\[IQYL",]MO,,
MS%.63")3:X<B$7_O%"KJOY\*G;!E+D]X;Z4BDQ\9'B?#R\@=+'RE,DD0588E
M,R#0^MB>(X@4BJ]TE@=Y]R9;0PILZK/*T43F5,F-,>5Y"LB3LRC44C&N\?IO
MPO3M@[I46[_[EGZ^-'LKP3]";1/TI[+*+K$R%QI8%BIL1Y^5.T[I=]&'6-5=
MM3A0&;E<@<3^VL&9["@&@5`QY4&KVWBZ\F3)8<(AI0_TFY_A6>N.6%Y='6YK
M*@8\J`:D@&K$">1H,7NS(W3'[=S'VH.=P8)'CF-=;(TCJG4TV;Y`VH\#RJCD
M&W3OYDQW5,O'3(^KD8-%U)$;#R#TX=*I9>M%QN39K6%"%#MS$[NQ=TQHH<3*
MQDG;'3<7:ZW5S)DSRQ2NK+=,C).I&`U(.!N+45<S]W]Q<_)R3@X>1@,PEBQE
M9+1(S9:X\3,2IOHA1YF;Q#"W*BPNXV1WMC8^]3M)-E2X'U&/A131`F9S(H@F
M`54#!4NWIO>]CRH,S9\+O%,W>-Y,F7BHT<V6V(4#S9,\+M#CQ^I;6,4(-EM\
MPM4D8^UX/=46^19\NWY,,N*D&+]4T;V.I1`S(B*W\$AU6LO4O3(Z")>[LKN'
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M17BD7#Q$UL;J`0D\D/IO_%09FPIWYBB+:$2;%CF8A\K06C3*,0R)G!*7*-+.
M>+$`E+>-5>70;GBS3=T[KDY>/,<:+"QL7`$>MA)&\AFRY`%].H:0G\7ESJ*6
MV1S-WGE;E+!D_29,428T<H?_`"N2A>%U4?+TI8463R5OB:#K;F_.HIF9K\S4
MD-J;S-0+4WF:!BS>9H!HA'E0#<T"U-:US:@'4UK7-O*@19CS)H!+-RN;44U`
M)YT#4#-0-J8\R:QD(L;<^=`)9O,T(-J;S-&1:FMS-!'0*@&@5`S<J#J-BQV@
MVY-0LTI,A'];E^%;J1B&JT\M"LV)4#'E0#4D`U8@3R-``H'N:!7-`))O590`
MDWHIKFL90]SYU`US:@C8F]`US010X^/CJXQXDA$CM*XC4+JD?BSFW-F\30%<
MT"J@;F@5S1D$DWH%<T`&]^%8RIN-0*J$:@&B$>5`-S0*@"YH%0`0;_,:N663
MU$"2;T#4#&@'G4D,>50";^9HF#6^)JLH@]10<?,U4P>HH23>@:@5!+B8YR,J
M*'P=O5]@XFK$929P[(``6'`#D*Z&DJ!4#'E0#4D`U8BINDN?%M>9+MT*Y&X1
MP2-AX[G2LDP4F-&;P#-84'-;YOV][?[<2;GN4"X7<4F$D;8N.VM8\_(`C1(V
MXWTR.*HYR+O??]EBFQ\F^4NWYR[;F3S`S2EV5!UO3H.EM191:U!'LO?'<4>V
M9[Q0]=\/%;.R!DAFF?(S09<:.-`;]/5)'&HY<&XT$&Z^X'<<R1['(5@W++EF
MVW*R<>&1!'*FA))8V).C0\MDX\0NKQ%&3HN_-]EP]HPY=IRG>*-H,C*C@)$N
M1M[MT':"6Q_,C+K+;][3Y&@YR#W*WC"AQ,2=Y<O*,'U^9DR8W`0RPS92HNFW
MR1I&HX<6)\JDJU=E[VWF':\G)W`?58^Q8K_JSE-.3+-%"C:E1?EZDKD*+6TB
M]1$&7[B[ZF'++C8Z.\,V6DS-"Y14QH(S=0""P.3.L:G]ZF`T7?$F9N&?NK=:
M'&VG;,R:##",$=SD?31-+?YG+0L0O[H:K@!M?=V_8.-M.W3J&,K-B96=DAC]
M.T<O326=R?5).5D*)_5J8%/.[\WO<\C+V"$MCR.1M[9L4+QOUWG6$R17-TX+
M*P!\`OG5&YNO=^[8W<F3MF$,>3&Q&@QY`]S)$<CIA<B4@WT#6_(6]/$\:@S5
M]P.XV7*F.-'%!C9&-`.M$4+1Y,KH,AKL-*F,Q/;S-J8('/W=WI%C[GD&#'TX
M!QL:"(1.SS963ZK!M5K1QLI?A:]['A05']Q.YE;;V^E1\=\49>X3+"WH1UEG
M6UVX$8\08CS(\Z89+$??/<IQ^M)CPJ8'AQ\Q-#:A+*(CJ"@W']HY\@JWXU<"
MG!W_`+]+N&*+E1+BXIR8N@;1?522.N2(R;L$C,(D`;T@D^%,&72]TSR9.5VY
M#@[A)C_79@8R8[6$F*D#32DFQ])50`?C6(Y2;?\`O#)V'%C=C#)FX^;DX?21
MTG7&A7HXSSN2>,CR*Y_Z5!;VGO;?_J<G!:*+Z?:HW`FR5:)\F(C1BR\2S*LD
MFE=9X-<L;4P-Q.[)5[0PMV<"7-RI(<:9`F@0S3-9A)&"UC$O,`\3]M!S&/[D
M=R#&&;/B!L2W61>@ZR21)!)DR+P)L1'TKL!S8BK,&73]EYN;N?ZKN>5*[B3)
M&+#$5*1JN*@1S&AY!I"W'F1:]0=)4"H`H%0">=%*@$\Z!J!FH!J2$>50#0@U
M&14`4"H!/.@5`J#6[=QRV2\Y^6-=(^UO^E;-<,+RZ&MK65`J!CRH!J2`:L0)
MY&@BE>&.)I)F5(HU+N[V"JJBY8D\@*`,B?%QL63,F*KCHO4DETZAI`X-P!)H
M)0@OJ"BY`XVMP\*"O'-AY)G2%DF,+F+("V.F0`%E:W[UB*K*$&-E;=//D8F-
MI:3;66*>,)81,T8=5%P!\C`^FH+73`/R"]O+P%21#A9&+FXL>9B$2X^2H>.0
M#@ZG@#Q%_OH)C'X:?PJ",Q7OZ!8\^'[:`>FIX%`=1O:P-R/&BG,=N.BQYWMX
M^=$9,&T;%MN<CQ8ZPY68TT<0(+7,K=>9%X'2&9=9'*]4:31J0=2`@\[@&]O^
M50-H/\/Q/"J%T[\-'PM;PHR9^=N^S8$O3S,F+'D=6D(>PNJ+<DFW@HH`_5MF
ME:"+J*[Y4S8D,>AM1E5"[QD:;J0@)-[<*"#-[B[?V^2.#(R%A;6<>*,1N;.F
MA2@TJ;6ZB#RXU)@7X)<?)C9XK/&K/$UU(&I&TNMB!R86K%4AB4DW0$D6-P/E
M\C\*`5QHHU*I$J@MK8`#BQ_>/Q^-!%#D8TT^1!&=4N(ZQSKI(TLZ!PMR+'TL
M.5$3%"`?3;]E`.D^5`J`*!4`GG12H!/.@:@9J`:DA'E4`T(-1D5`%`J`3SH%
M0*@ZG9H!#M\7\4@ZC&UOFY?A6^L8AJM/*]63$J!4#'E0#4D`U8@3R-!R_?DD
MLVUXFS0QB63>LR'$D0EU7Z<'JSW90VF\<97CPXU8&+#[>;IKR,G*GBDR9)\5
ML:*.;)2""&/);(G"J"..F0HHM:P%,B/.[)[QG@EBAR\=/J!F-.6GGXRY&1JB
M?@.4<#.%'[K6-(,I=C[$WC$W+;GS)(5P8#)E9<>+-*A;.>=I-;`@=13'H7B1
M;3;D:,D$G9?=LW<.;FS38BX$VYQYT,4<LX;HQ%B5<``:Y"L08_PBWVA53L#O
M/&C,.+GP&-L?3+U)\@Z\GIRD2$$&Z+-D-9?)5ORM4$T?MYO\.%@8L>7$8\1[
M3CK3KUXC/&X4V^58H8@BKYD\KU,AS[?]QG!QT.9$,KH.N:_7G(DGR)D,TOV+
M$C:!YGX4R"VWL'=FW#`S=YR%GD@3(;.C3)G9,B=B>B2/0`GK+-XBP4<*9%O$
M[/W)MHPL+.DB+C<Y,[<#'+-=X3U#'$6N#(0656/"ZCSID9VV=B]Q0B(9TL.0
MDF--'FHV5D,ARN`AR%6PN`M_3<:;_"@4'8N_Q[<+3(NY2[;-C9,C960Z_4R)
M'&'7@!R61BY%[D4F1J;-VKN>/OV1GYTRO!$X?;$CFE(1.CTQ&\;"QTL68F_J
M)N>0H89V/V1O@;";(R(Y6B:-LZ\TY$TB)/KF(//7)D#T?PJ!5R'V;L+.67:Y
M=XFZ[8XD_453)G99G",L1T^@6+.6-^5@.518@_</9VY;MNNY9:F)8<J.+"GQ
M6=PN3C+*CN_*T4PCUQK(OG1E*LWMWNC;5@8+Y43RP09<<^4SS%^OE2*!D,PL
M\LJ8ZZ`Q(NW&KE,`B[$W\S[;)ERX\_Z>.H-4LS%I7DEG>Y(O;J]$7\EK&9(-
M!V%W!'ML.*,R,3HDBSS]?()EZPC0J"3=5C4.R^;$'A4E8:+]K[Y^B[;@)/&-
M.=+E;K&)9`&CE:1@D<A#,1&SJ=)X&U$9.#V)W/CY&"\\T&3!CZ8\B&3)R2TL
M?7D=M3_!!"`OP(\;U9E5[9NW\W8-TW;>=UGC_39D?IQ0M/(4ZK*@0(0398XH
MU!XFY:I,\(J)V5W(V+C.)XXIX\`A(S--:/-CEUXUSZBR*H"L;^8X@T(A)VUV
M+NV+FXV1O&1'+'CRY&28HIIWURR=-8-9?3<1JC,?-C2<#N:@"@5`)YT4J`3S
MH&H&:@&I(1Y5`-"#49%0!0*@$\Z!4$F-`9\B.$?OL`?L\:L1E)EV0`4!0+`"
MP'P%=#2>@5`J!CRH!J2`:L0)Y&@SM\WC'V;9\O<\@_E8T9<KQ]1Y*O`$\6('
M*@I[;W;M.=)/"K%9\.`SY=E)C0([1.`Q`O9XV\.549T/N?VG+`N0)9DB:(9`
M+Q,I,31M(C@'CI98VL>7"@*;W&[7BQFR99I$2--<RLA#H-)=0R\P64:@/+[1
M1E`F]P.V0[*T[J5+AM26L4R%QK<3^]*]A^WRJ*+$[Z[>S-RCV[$E>?*F`>)$
M6^J(D#K+YH+@GQ`XVM4D9L_N%!!W7+M4Z_3X./(\33=,R&0PQ"3(E+J;0Q0:
MU!9@;\>5"%W.]PNVL&,/ER2Q71Y2K1FXC1$DU,/"ZRJ1]OG3"'R.^-@AV_%S
MY'D7'S&R$Q_0;LV*',OX1-8^-!5S_</9X5A3!BDW'*R2BX^/%9=3/)'&REF^
M4H9AJ^-QS!HHY/</ME$R3U96^EE2"15B8DR23&!`H'/4Z&WV4PB*;OS`FW#;
M]MVE1EYFX2Q!-9TH(&9Q+("+W*")[#Q(I@29/N%VM`N:7R>."[1RH`"S,I<-
MH%^-NDWW?$4$N5W=MR[-O.Y8QZ@V>.3JA_2IG13^2>-PP:RM]M!`O?\`V\NW
MOERS$=*-9)`J\P8NJS)?FH7_`-/,49"D[Z[>5Y%,KZDG./I"$DNA59"`/"-F
M"OY&AE(.\=B.UKN?6MB2ZCC,;?G*B&1GBXV950$D^%N-,"L>_P#MKK=.2=XK
M!2[.A"IKQQDJ&^)0VM_%PJ3`K3]^XN+M\FX9..S8YSY\.%8B-?2QD+S3.#P_
M+"/=1Y6YU,*F3W![:?(R((Y)7.,)7ED$3"/1CZ>LX<\"$#J3]HIA$;=^[8VZ
MQP0E7VPQ!Y<^_*1Y&CCTC^7:*1BY\!PI@R?/[]V['VY\W$QLC-(2,Q1HN@-+
M,$,<)D;TH[+,IL:8![;WQM&;D&!F$;/-)%`1J-PI<)U+A=#R=&0A>/`7OQJ"
MUV[W1M'<./+D;8[R10LJLSJ5XNNH6\^%!K4`4"H!/.BE0">=`U`S4`U)"/*H
M!H0:C(J`*!4`GG0*@U^W(`V1+,?[M0J_:W_05LUPPO+H*VM94"H%0,>5`-20
M#5B!/(T%#==JQ-UPOHLS4<<R1RLJ-I),+B103Y:E%Q5&?A=E['A8^X8^.)@F
MYQ=#*9I"6T$-?2W[I/48D^9H&G[*V&8YEXY$3.Q(L&:.-]*B&%2J:!;TL%.G
MRMX4`2=D[$\V1(ZRLN5+!//"7'3:7'"!6TV_>Z:ZQ>QHRA2?VU[6;A(D\JW5
MBKRD@E7EDN>'BV0Y/[**LQ=H8&)'AR8C/+F;7';;7RVUHLBQF-'?0$/R-I-K
M7%8R@-O[)VN'"DCSBV9E9>//C9T[&P=<J9IYM('RZF:WV`4#S]B=O3R32SI-
M++D:>O(\ERQ619;GA;BT:7MX*!0#/V1L,VW8NW.LWTV'C28<%I/5TY2O4)-N
M+L$MJ\B?.BH<?V_[=Q\Z+.03G(@DZL9:6X!ZTD^FUOEUS-3*"P^P^WL/IF-9
M7,4D<RF2342\2NJ%N`U6ZK'CX\:9$&U>WO;^TYF/G8)G&;B0?3XTLTG4"JL?
M20LI`!*BF10Q/;3!G@'ZUD2Y,PEDG_*<("\Y1I@S:0S*TD095/R#T@VID:LO
M96Q2[?F8$@F:+<)(I,V0R?FRF``1AWMQ`50/,B@@S/;[M[-Q\''RCDRIMZ-%
M"3+I+*QC/YFD`-;H);A1D2=A;''.T\<F4F1(LB2S";UN)2ANS6O=3$I4BQX<
M;TR&S/;_`+<R\2/$E2988URDTQ2:-0S6#3EK"UV9;\+4`YG8';N5-'+(LXDB
MF.2A66UI6:-M7+PZ"J/)>%255D[$Q5R\7'61EV'#Q\A(L4.3(\V9*))FD9E(
MTE1IL/,U,C1/:&QF%(3&_27K!TU?VHR9ER)5EX>H-)&I_9;E3(S9/;'M5\1L
M4KDB%BA8=8W(CB>%0;CD$D-,RB[_`++V2S*IG6-LJ/.Z2RD()HU"@@6Y'2"1
MYU`&'V-V]AK^1'*&$;1AVD)8%HS"9;V_M.FQ7506-D[:VW90R[>94B8LS0L^
MI"6"J#:W[JH`OE0:U`%`J`3SHI4`GG0-0,U`-20CRJ`:$&HR*@"@5`)YT"H.
MJV?&Z&!'<6>3UO\`MY?A6^D8AJM/*[63$J!4"H&/*@&I(!JQ`GD:`!RH'H%0
M`>=5E`3SHIJQE"J!4$9YT#4#'E0#0*@&J%1D$\Z!J`6YUC*FH%0(\J@&B$>5
M`-`J`*!4`GG12H!/.@:@9J`:DA'E4`T(-1D5`%`J`3SH)<6$S9,40%];`$?#
MQ_"K$<I+L@`!8<`.`%=#25`J!4"H&/*@;A20+:/&]8@?R[>-`/Y7]*G`7Y7]
M*G`7Y7]*G`$]&_[U&4!/T]_WOPIP%_E_Z?X5)P%_E_Z?X4X.2_R_]/\`"G!R
M`_2^.O\`"G`;_*?T_P`*<)R1^DM^_P#A3@Y#_D_\3\*<+R7^3_Q/PIP<A_R/
M^)^%.`_^2_Q/PIPO(3]!?^\_"G!R7^0_Q/PIP<A/Z??^]_"I.#DW^G_XOX5.
M%Y+_`$__`!?PIP<D?T[_`!?PIPG)O]._Q?PIP<D?TVW][^%.#D/^F?XWX4X.
M2_TS_&_"G!R'_2_\;_QIP<E_I?\`C?\`C3@Y,?TK_&_\:<+R;_2O\;_QIP<F
M/Z3?^_\`_&G!R;_2?\?_`,:<')C^D>)G_P#&G!R;_1_.?_QJ3A.2/Z/;G/\`
M^-3X3D/^C><__C3X5Y+_`$;SG^Y:OPKR7^C><_W+3X3D/^B>>1]RU/A.2_T3
MSR/N6GPG(3^A^>1]RT^$Y7-I_2?K!T.KUM)T=2UOC:WC65<92V<-VMK65`J!
%4"H/_]D_
`
end
</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
-----END PRIVACY-ENHANCED MESSAGE-----
