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** **

**UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549**

 

**FORM 10-Q**

 

| **(Mark  One)**                                        | ** **                                                                                               |
|--------------------------------------------------------|----------------------------------------------------------------------------------------------------------|
| ** **                                             | ** **                                                                                               |
| **x**                                                  | **QUARTERLY REPORT  PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF  1934**  |
| ** **                                             | ** **                                                                                               |
| **For the quarterly period ended  June 30, 2008** |
|                                                   |                                                                                                     |
| **OR**                                                 |
|                                                   |                                                                                                     |
| **o**                                                  | **TRANSITION REPORT  PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF  1934** |

** **

**For the transition period from                   to                       **

 

**Commission File Number 000-30819**

 

 

**Particle Drilling Technologies, Inc.**

(Exact name of registrant as specified in its charter)

 

| **Nevada**                       | ** ** | **20-1563395**      |
|----------------------------------|------------|---------------------|
| (State or other  jurisdiction of |       | (I.R.S. Employer    |
| incorporation or  organization)  |       | Identification No.) |

 

**5611Baird CourtHouston, Texas 77041**(Address of principal executive offices)(Zip Code)

 

**713-223-3031**(Registrant’s telephone number, including area code)

 

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

 

Indicate by check mark whether the registrant is alarge accelerated filer, an accelerated filer, a non-accelerated filer, or asmaller reporting company. See definitions of “large accelerated filer,” “acceleratedfiler” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.(Check one):

 

| Large  accelerated filer o |   | Accelerated  filer x |   | Non-accelerated filer o  (Do not check if smaller reporting company) |   | Smaller  reporting company o |
|---------------------------------|--------|---------------------------|--------|---------------------------------------------------------------------------|--------|-----------------------------------|

 

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

 

The number of shares of the registrant’s common stock,$.001 par value, outstanding as of August 1, 2008 was 35,763,932.

 

 

 

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**PARTICLE DRILLINGTECHNOLOGIES, INC.****(a development stage enterprise)**

 

**FORM 10-Q FOR THE QUARTER ENDEDJUNE 30, 2008**

 

**INDEX**

 
| **Part I - Financial Information** |                                                                                                                                                                                     |
|-----------------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                    |                                                                                                                                                                                     |   |
| Item 1.                                 | Financial Statements                                                                                                                                                                     |   |
|                                    |                                                                                                                                                                                     |   |
|                                    | Consolidated Balance Sheets at June 30, 2008  (Unaudited) and September 30, 2007                                                                                               | 3 |
|                                    |                                                                                                                                                                                     |   |
|                                    | Consolidated Statements of Operations (Unaudited) —  Three and Nine Months Ended June 30, 2008 and 2007, and from  June 9, 2003 (date of inception) to June 30, 2008 | 4 |
|                                    |                                                                                                                                                                                     |   |
|                                    | Consolidated Statements of Stockholders’ Equity  (Unaudited) for the period from September 30, 2007 to June 30, 2008                                                      | 5 |
|                                    |                                                                                                                                                                                     |   |
|                                    | Consolidated  Statements of Cash Flows (Unaudited) - Nine Months Ended June 30, 2008  and 2007, and from June 9, 2003 (date of inception) to June 30,  2008               | 6 |
|                                    |                                                                                                                                                                                     |   |
|                                    | Notes to Consolidated Financial Statements (Unaudited)                                                                                                                                   | 7 |
|                                    |                                                                                                                                                                                     |   |
| Item 2.                                 | Management’s  Discussion and Analysis of Financial Condition and Results of Operations                                                                                              | 11 |
|                                    |                                                                                                                                                                                     |   |
| Item 3.                                 | Quantitative  and Qualitative Disclosures about Market Risk                                                                                                                              | 16 |
|                                    |                                                                                                                                                                                     |   |
| Item 4.                                 | Controls and  Procedures                                                                                                                                                                 | 16 |
|                                    |                                                                                                                                                                                     |   |
| Part II  - Other Information       | 16                                                                                                                                                                                       |
|                                    |                                                                                                                                                                                     |   |
| Item  6.                                | Exhibits                                                                                                                                                                                 | 17 |
|                                    |                                                                                                                                                                                     |   |
|                                    | Signatures                                                                                                                                                                               | 18 |

 

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**PARTICLE DRILLING TECHNOLOGIES, INC.**

**(a development stage enterprise)**

**CONSOLIDATED BALANCE SHEETS**

 
| ** **                                                                                                                                                                                                                                   | ** ** | **June 30,  2008** | ** ** | **September 30,  2007** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------|------------|------------------------------|------------|
| ** **                                                                                                                                                                                                                                   | ** ** | **(Unaudited)**         | ** ** | ** **                   | ** ** |
| **ASSETS**                                                                                                                                                                                                                                   | ** ** |
|                                                                                                                                                                                                                                         |       |                    |       |                         |       |
| Current assets:                                                                                                                                                                                                                              |       |                    |       |                         |       |
| Cash and cash  equivalents                                                                                                                                                                                                                   |       | $                       | 4,562,386  |                         | $          | 4,461,929 |   |
| Assets held for  sale                                                                                                                                                                                                                        |       | —                  |       | 900,000                      |       |
| Prepaid expenses                                                                                                                                                                                                                             |       | 101,627                 |       | 233,174                      |       |
|                                                                                                                                                                                                                                         |       |                    |       |                         |       |
| Total current  assets                                                                                                                                                                                                                        |       | 4,664,013               |       | 5,595,103                    |       |
|                                                                                                                                                                                                                                         |       |                    |       |                         |       |
| Property,  plant & equipment, net                                                                                                                                                                                                   |       | 1,313,850               |       | 867,168                      |       |
|                                                                                                                                                                                                                                         |       |                    |       |                         |       |
| Intangibles, net                                                                                                                                                                                                                             |       | 1,437,482               |       | 1,312,246                    |       |
|                                                                                                                                                                                                                                         |       |                    |       |                         |       |
| Other assets                                                                                                                                                                                                                                 |       | 41,144                  |       | 52,562                       |       |
|                                                                                                                                                                                                                                         |       |                    |       |                         |       |
| Total assets                                                                                                                                                                                                                                 |       | $                       | 7,456,489  |                         | $          | 7,827,079 |   |
|                                                                                                                                                                                                                                         |       |                    |       |                         |       |
| **LIABILITIES  AND STOCKHOLDERS’ EQUITY**                                                                                                                                                                                               | ** ** |
|                                                                                                                                                                                                                                         |       |                    |       |                         |       |
| Current  liabilities:                                                                                                                                                                                                                        |       |                    |       |                         |       |
| Accounts payable                                                                                                                                                                                                                             |       | $                       | 874,816    |                         | $          | 1,028,999 |   |
| Short-term notes  payable                                                                                                                                                                                                                    |       | —                  |       | 88,258                       |       |
| Current portion  of long-term debt                                                                                                                                                                                                           |       | 13,205                  |       | 13,511                       |       |
| Accrued  liabilities                                                                                                                                                                                                                         |       | 854,251                 |       | 134,988                      |       |
|                                                                                                                                                                                                                                         |       |                    |       |                         |       |
| Total current  liabilities                                                                                                                                                                                                                   |       | 1,742,272               |       | 1,265,756                    |       |
|                                                                                                                                                                                                                                         |       |                    |       |                         |       |
| Long-term debt                                                                                                                                                                                                                               |       | 14,478                  |       | 24,537                       |       |
| Deferred rent                                                                                                                                                                                                                                |       | 127,033                 |       | 45,539                       |       |
|                                                                                                                                                                                                                                         |       |                    |       |                         |       |
| Commitments and  contingencies - Note 7                                                                                                                                                                                                      |       |                    |       |                         |       |
|                                                                                                                                                                                                                                         |       |                    |       |                         |       |
| Stockholders’  equity:                                                                                                                                                                                                                  |       |                    |       |                         |       |
| Common stock,  $.001 par value, 100,000,000 shares authorized, 38,767,018 shares issued and  35,763,932 shares outstanding at June 30, 2008, and 34,632,987 shares  issued and 31,629,901 shares outstanding at September 30, 2007 |       | 38,768                  |       | 34,634                       |       |
| Additional  paid-in capital                                                                                                                                                                                                                  |       | 45,662,012              |       | 38,510,488                   |       |
| Treasury stock  at cost, 3,003,086 shares                                                                                                                                                                                                    |       | (1,511,817              | )          | (1,511,817                   | )          |
| Deficit  accumulated during the development stage                                                                                                                                                                                            |       | (38,616,257             | )          | (30,542,058                  | )          |
|                                                                                                                                                                                                                                         |       |                    |       |                         |       |
| Total  stockholders’ equity                                                                                                                                                                                                             |       | 5,572,706               |       | 6,491,247                    |       |
|                                                                                                                                                                                                                                         |       |                    |       |                         |       |
| Total  liabilities and stockholders’ equity                                                                                                                                                                                             |       | $                       | 7,456,489  |                         | $          | 7,827,079 |   |

 

The accompanying notes are anintegral part of these consolidated financial statements.

 

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**PARTICLE DRILLING TECHNOLOGIES, INC.**

**(adevelopment stage enterprise)**

**CONSOLIDATED STATEMENTSOF OPERATIONS**

**(Unaudited)**

 
| ** **                                                                | ** ** | ** **                           | ** ** | ** **                          | ** ** | ** **        | ** ** | ** ** | ** ** | **Period from  June 9, 2003  (date of  inception) to** | ** ** |
|---------------------------------------------------------------------------|------------|--------------------------------------|------------|-------------------------------------|------------|-------------------|------------|------------|------------|-------------------------------------------------------------|------------|
| ** **                                                                | ** ** | **Three Months Ended June 30,** | ** ** | **Nine Months Ended June 30,** | ** ** | **June 30,** | ** ** |
| ** **                                                                | ** ** | **2008**                             | ** ** | **2007**                            | ** ** | **2008**          | ** ** | **2007**   | ** ** | **2008**                                                    | ** ** |
| Revenues                                                                  |       | $                                    | —     |                                | $          | —            |       | $          | —     |                                                        | $          | — |   | $ | — |   |
|                                                                      |       |                                 |       |                                |       |              |       |       |       |                                                        |       |
| Operating  expenses:                                                      |       |                                 |       |                                |       |              |       |       |       |                                                        |       |
| Research and  development                                                 |       | 1,373,262                            |       | 1,289,785                           |       | 4,700,274         |       | 4,994,944  |       | 20,022,346                                                  |       |
| General and  administrative                                               |       | 1,281,100                            |       | 1,180,854                           |       | 4,195,064         |       | 3,961,005  |       | 20,087,784                                                  |       |
| Impairment of  asset                                                      |       | —                               |       | —                              |       | —            |       | —     |       | 295,260                                                     |       |
| Gain on sale of  assets                                                   |       | (114,748                             | )          | —                              |       | (756,469          | )          | —     |       | (756,469                                                    | )          |
|                                                                      |       |                                 |       |                                |       |              |       |       |       |                                                        |       |
| Total operating  expenses                                                 |       | 2,539,614                            |       | 2,470,639                           |       | 8,138,869         |       | 8,955,949  |       | 39,648,921                                                  |       |
|                                                                      |       |                                 |       |                                |       |              |       |       |       |                                                        |       |
| Loss from  operations                                                     |       | (2,539,614                           | )          | (2,470,639                          | )          | (8,138,869        | )          | (8,955,949 | )          | (39,648,921                                                 | )          |
|                                                                      |       |                                 |       |                                |       |              |       |       |       |                                                        |       |
| Other income  (expenses)                                                  |       |                                 |       |                                |       |              |       |       |       |                                                        |       |
| Interest income                                                           |       | 21,933                               |       | 81,034                              |       | 69,440            |       | 322,766    |       | 924,143                                                     |       |
| Rental income -  related party                                            |       | —                               |       | —                              |       | —            |       | —     |       | 73,727                                                      |       |
| Gain on debt  extinguishment                                              |       | —                               |       | —                              |       | —            |       | —     |       | 35,283                                                      |       |
| Gain on  assignment of lease - related party                              |       | —                               |       | —                              |       | —            |       | —     |       | 55,614                                                      |       |
| Interest expense                                                          |       | (908                                 | )          | (562                                | )          | (4,770            | )          | (5,244     | )          | (56,103                                                     | )          |
|                                                                      |       |                                 |       |                                |       |              |       |       |       |                                                        |       |
| Total other  income                                                       |       | 21,025                               |       | 80,472                              |       | 64,670            |       | 317,522    |       | 1,032,664                                                   |       |
|                                                                      |       |                                 |       |                                |       |              |       |       |       |                                                        |       |
| Net loss                                                                  |       | $                                    | (2,518,589 | )                                   | $          | (2,390,167        | )          | $          | (8,074,199 | )                                                           | $          | (8,638,427 | ) | $ | (38,616,257 | ) |
|                                                                      |       |                                 |       |                                |       |              |       |       |       |                                                        |       |
| Net loss per  common share, basic and diluted                             |       | $                                    | (0.07      | )                                   | $          | (0.08             | )          | $          | (0.25      | )                                                           | $          | (0.29 | ) | $ | (1.44 | ) |
|                                                                      |       |                                 |       |                                |       |              |       |       |       |                                                        |       |
| Weighted average  number of common shares outstanding - basic and diluted |       | 33,859,053                           |       | 30,669,301                          |       | 31,792,851        |       | 29,934,127 |       | 26,801,723                                                  |       |

 

The accompanying notesare an integral part of these consolidated financial statements.

 

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**PARTICLE DRILLING TECHNOLOGIES, INC.**

**(adevelopment stage enterprise)**

**CONSOLIDATED STATEMENTS OFSTOCKHOLDERS’ EQUITY**

**Forthe Period from September 30, 2007 to June 30, 2008**

 
| ** **                                                                                                                 | ** ** | **Common  Stock** | ** ** | **Treasury  Stock** | ** ** | **Additional  Paid-in** | ** ** | **Deficit  Accumulated  During  Development** | ** ** | **Total  Stockholders’  Equity** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------|------------|-------------------|------------|---------------------|------------|-------------------------|------------|-----------------------------------------------|------------|---------------------------------------|------------|
| ** **                                                                                                                 | ** ** | **Shares**        | ** ** | **Amount**          | ** ** | **Shares**              | ** ** | **Amount**                                    | ** ** | **Capital**                           | ** ** | **Stage** | ** ** | **(Deficit)** | ** ** |
| Balance,  September 30, 2007                                                                                          |       | 34,632,987        |       | 34,634              |       | (3,003,086              | )          | (1,511,817                                    | )          | 38,510,488                            |       | (30,542,058 | ) | 6,491,247 |   |
|                                                                                                                       |       |              |       |                |       |                    |       |                                          |       |                                  |       |   |   |   |   |
| Restricted stock  cancelled in October 2007                                                                           |       | (7,500            | )          | (8                  | )          | —                  |       | —                                        |       | 8                                     |       | — |   | — |   |
|                                                                                                                       |       |              |       |                |       |                    |       |                                          |       |                                  |       |   |   |   |   |
| Restricted stock  issued to a Director at $3.28 per share in November 2007                                            |       | 5,000             |       | 5                   |       | —                  |       | —                                        |       | (5                                    | )          | — |   | — |   |
|                                                                                                                       |       |              |       |                |       |                    |       |                                          |       |                                  |       |   |   |   |   |
| Common stock  issued upon cashless exercise of warrants at $2.00 per share in  December 2007                          |       | 688               |       | 1                   |       | —                  |       | —                                        |       | (1                                    | )          | — |   | — |   |
|                                                                                                                       |       |              |       |                |       |                    |       |                                          |       |                                  |       |   |   |   |   |
| Common stock  issued upon exercise of warrants at $0.12 per share in December 2007                                    |       | 10,000            |       | 10                  |       | —                  |       | —                                        |       | 1,190                                 |       | — |   | 1,200 |   |
|                                                                                                                       |       |              |       |                |       |                    |       |                                          |       |                                  |       |   |   |   |   |
| Restricted stock  cancelled in January 2008                                                                           |       | (4,000            | )          | (4                  | )          | —                  |       | —                                        |       | 4                                     |       | — |   | — |   |
|                                                                                                                       |       |              |       |                |       |                    |       |                                          |       |                                  |       |   |   |   |   |
| Common stock  issued for cash at $0.12 per share upon exercise of employee stock options in  February 2008            |       | 100,000           |       | 100                 |       | —                  |       | —                                        |       | 11,900                                |       | — |   | 12,000 |   |
|                                                                                                                       |       |              |       |                |       |                    |       |                                          |       |                                  |       |   |   |   |   |
| Restricted stock  issued to Directors at $1.84 per share in March 2008                                                |       | 35,000            |       | 35                  |       | —                  |       | —                                        |       | (35                                   | )          | — |   | — |   |
|                                                                                                                       |       |              |       |                |       |                    |       |                                          |       |                                  |       |   |   |   |   |
| Common stock  issued in rights offering for cash at $1.50 per share in April 2008,  less offering expense of $166,963 |       | 3,500,043         |       | 3,500               |       | —                  |       | —                                        |       | 5,079,537                             |       | — |   | 5,083,037 |   |
|                                                                                                                       |       |              |       |                |       |                    |       |                                          |       |                                  |       |   |   |   |   |
| Common stock  issued for cash at $0.12 per share upon exercise of employee stock options in  May 2008                 |       | 100,000           |       | 100                 |       | —                  |       | —                                        |       | 11,900                                |       | — |   | 12,000 |   |
|                                                                                                                       |       |              |       |                |       |                    |       |                                          |       |                                  |       |   |   |   |   |
| Common stock  issued for cash at $0.12 per share upon exercise of employee stock options in  June 2008                |       | 12,300            |       | 12                  |       | —                  |       | —                                        |       | 1,462                                 |       | — |   | 1,474 |   |
|                                                                                                                       |       |              |       |                |       |                    |       |                                          |       |                                  |       |   |   |   |   |
| Restricted stock  issued to employees at $2.65 per share in June 2008                                                 |       | 382,500           |       | 383                 |       | —                  |       | —                                        |       | (383                                  | )          | — |   | — |   |
|                                                                                                                       |       |              |       |                |       |                    |       |                                          |       |                                  |       |   |   |   |   |
| Stock-based  employee compensation                                                                                         |       | —            |       | —              |       | —                  |       | —                                        |       | 2,045,947                             |       | — |   | 2,045,947 |   |
|                                                                                                                       |       |              |       |                |       |                    |       |                                          |       |                                  |       |   |   |   |   |
| Net loss                                                                                                                   |       | —            |       | —              |       | —                  |       | —                                        |       | —                                |       | (8,074,199 | ) | (8,074,199 | ) |
|                                                                                                                       |       |              |       |                |       |                    |       |                                          |       |                                  |       |   |   |   |   |
| Balance,  June 30, 2008                                                                                               |       | 38,767,018        |       | $                   | 38,768     |                    | (3,003,086 | )                                             | $          | (1,511,817                            | )          | $ | 45,662,012 |   | $ | (38,616,257 | ) | $ | 5,572,706 |   |
|                                                                                                                            |            |                   |            |                     |            |                         |            |                                               |            |                                       |            |  |  |  |  |  |  |  |  |  |

 

The accompanyingnotes are an integral part of these statements.

 

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**PARTICLE DRILLING TECHNOLOGIES, INC.**

**(adevelopment stage enterprise)**

**CONSOLIDATED STATEMENTS OF CASH FLOWS**

**(Unaudited)**

** **
| ****                                                                         | ** ** | **Nine Months Ended  June 30,** | ** ** | **Period from  June 9, 2003  (date of  inception)  to June 30,** | ** ** |
|------------------------------------------------------------------------------|------------|------------------------------------------------|------------|-------------------------------------------------------------------------------------------|------------|
| ** **                                                                   | ** ** | **2008**                                       | ** ** | **2007**                                                                                  | ** ** | **2008** | ** ** |
| Cash flows from  operating activities:                                       |       |                                           |       |                                                                                      |       |   |   |
| Net loss                                                                     |       | $                                              | (8,074,199 | )                                                                                         | $          | (8,638,427 | ) | $ | (38,616,257 | ) |
| Adjustments to  reconcile net loss to net cash used in operating activities: |       |                                           |       |                                                                                      |       |   |   |
| Gain on debt  extinguishment                                                 |       | —                                         |       | —                                                                                    |       | (35,283 | ) |
| Impairment of  asset                                                         |       | —                                         |       | —                                                                                    |       | 295,260 |   |
| Gain on  assignment of lease - related party                                 |       | —                                         |       | —                                                                                    |       | (55,614 | ) |
| Gain on sale of  assets                                                      |       | (756,469                                       | )          | —                                                                                    |       | (756,469 | ) |
| Depreciation and  amortization expense                                       |       | 433,364                                        |       | 585,684                                                                                   |       | 2,472,180 |   |
| Short-term note  issued for services                                         |       | —                                         |       | —                                                                                    |       | 44,000 |   |
| Common stock  issued for services                                            |       | —                                         |       | —                                                                                    |       | 931,500 |   |
| Warrants issued  for services                                                |       | —                                         |       | —                                                                                    |       | 63,829 |   |
| Stock-based  employee compensation                                           |       | 2,045,947                                      |       | 1,844,131                                                                                 |       | 7,246,569 |   |
| Changes in  operating assets and liabilities:                                |       |                                           |       |                                                                                      |       |   |   |
| Decrease in note  receivable                                                 |       | —                                         |       | 385,839                                                                                   |       | 385,839 |   |
| (Increase) in  accounts receivable - related party                           |       | —                                         |       | —                                                                                    |       | (40,819 | ) |
| Decrease in  prepaid expenses                                                |       | 131,547                                        |       | 102,094                                                                                   |       | 264,348 |   |
| Increase  (Decrease) in accounts payable                                     |       | (154,183                                       | )          | 279                                                                                       |       | 534,878 |   |
| Increase in  accrued liabilities                                             |       | 719,263                                        |       | 250,300                                                                                   |       | 951,048 |   |
| (Increase)  Decrease in other assets                                         |       | 11,418                                         |       | (51,144                                                                                   | )          | (26,494 | ) |
| Increase in  other liabilities                                               |       | 81,494                                         |       | 12,000                                                                                    |       | 127,033 |   |
|                                                                         |       |                                           |       |                                                                                      |       |   |   |
| Net cash used in  operating activities                                       |       | (5,561,818                                     | )          | (5,509,244                                                                                | )          | (26,214,452 | ) |
|                                                                         |       |                                           |       |                                                                                      |       |   |   |
| Cash flows from  investing activities:                                       |       |                                           |       |                                                                                      |       |   |   |
| Payments to  purchase property and equipment                                 |       | (37,332                                        | )          | (1,229,578                                                                                | )          | (3,354,936 | ) |
| Proceeds from  sale of property and equipment                                |       | 851,617                                        |       | —                                                                                    |       | 872,574 |   |
| Payments to  purchase intangibles                                            |       | (163,099                                       | )          | (99,351                                                                                   | )          | (904,357 | ) |
| Payments to  purchase other assets                                           |       | —                                         |       | —                                                                                    |       | (419,504 | ) |
| Payments issued  for note receivable                                         |       | —                                         |       | —                                                                                    |       | (300,783 | ) |
| Payments issued  for note receivable - related party                         |       | —                                         |       | —                                                                                    |       | (56,784 | ) |
|                                                                         |       |                                           |       |                                                                                      |       |   |   |
| Net cash  provided by (used in) investing activities                         |       | 651,186                                        |       | (1,328,929                                                                                | )          | (4,163,790 | ) |
|                                                                         |       |                                           |       |                                                                                      |       |   |   |
| Cash flows from  financing activities:                                       |       |                                           |       |                                                                                      |       |   |   |
| Proceeds from  issuance of common stock                                      |       | 5,109,712                                      |       | 10,717,951                                                                                |       | 36,849,022 |   |
| Repurchase of  common stock                                                  |       | —                                         |       | —                                                                                    |       | (1,511,817 | ) |
| Proceeds from  issuance of convertible notes                                 |       | —                                         |       | —                                                                                    |       | 553,500 |   |
| Repayments of  notes payable                                                 |       | (98,623                                        | )          | (194,937                                                                                  | )          | (950,077 | ) |
| Proceeds from  borrowings under loan agreements - related parties            |       | —                                         |       | —                                                                                    |       | 23,195 |   |
| Repayment of  borrowings under loan agreements - related parties             |       | —                                         |       | —                                                                                    |       | (23,195 | ) |
|                                                                         |       |                                           |       |                                                                                      |       |   |   |
| Net cash  provided by financing activities                                   |       | 5,011,089                                      |       | 10,523,014                                                                                |       | 34,940,628 |   |
|                                                                         |       |                                           |       |                                                                                      |       |   |   |
| Net increase in  cash and cash equivalents                                   |       | 100,457                                        |       | 3,684,841                                                                                 |       | 4,562,386 |   |
|                                                                         |       |                                           |       |                                                                                      |       |   |   |
| Cash and cash  equivalents - beginning of period                             |       | 4,461,929                                      |       | 2,291,586                                                                                 |       | — |   |
|                                                                         |       |                                           |       |                                                                                      |       |   |   |
| Cash and cash  equivalents - end of period                                   |       | $                                              | 4,562,386  |                                                                                      | $          | 5,976,427 |   | $ | 4,562,386 |   |
|                                                                         |       |                                           |       |                                                                                      |       |   |   |
| Supplemental  disclosures of cash flow information:                          |       |                                           |       |                                                                                      |       |   |   |
| Cash paid for  interest                                                      |       | $                                              | 4,771      |                                                                                      | $          | 5,244 |   | $ | 56,103 |   |
|                                                                         |       |                                           |       |                                                                                      |       |   |   |
| Non-cash  investing and financing activities:                                |       |                                           |       |                                                                                      |       |   |   |
| Prepaid  insurance acquired with note payable                                |       | $                                              | —     |                                                                                      | $          | — |   | $ | 478,844 |   |
| Common stock  issued as consideration for account payable                    |       | —                                         |       | —                                                                                    |       | 6,000 |   |
| Common stock  issued as consideration for note payable                       |       | —                                         |       | —                                                                                    |       | 50,000 |   |
| Related party  note receivable exchanged for property and equipment          |       | —                                         |       | —                                                                                    |       | 56,783 |   |
| Note payable  converted into common stock                                    |       | —                                         |       | —                                                                                    |       | 553,500 |   |
| Property and  equipment acquired with assumed liabilities                    |       | —                                         |       | —                                                                                    |       | 479,610 |   |
| Intangibles  acquired with assumed liabilities                               |       | —                                         |       | —                                                                                    |       | 757,792 |   |
| Property and  equipment acquired with note payable                           |       | —                                         |       | —                                                                                    |       | 30,487 |   |
| Short-term  investments reclassified from other assets                       |       | —                                         |       | —                                                                                    |       | 385,839 |   |

 

The accompanyingnotes are an integral part of these statements.

 

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**PARTICLE DRILLINGTECHNOLOGIES, INC.**

**(adevelopment stage enterprise)**

 

**NOTES TOCONSOLIDATED FINANCIAL STATEMENTS**

 

**(Unaudited)**

 

**1.****   BASIS OF PRESENTATION**

 

The accompanying unaudited interim consolidatedfinancial statements, which include the accounts of Particle DrillingTechnologies, Inc. (which is referred to herein as “we,” “us,” “our” orthe “Company”) and its subsidiary, have been prepared in accordance with generallyaccepted accounting principles in the United States of America (“US GAAP”) andpursuant to the rules and regulations of the Securities and ExchangeCommission. Certain information and footnote disclosures normally included infinancial statements prepared in accordance with US GAAP have been condensed oromitted in accordance with such rules and regulations. The informationfurnished in the unaudited interim consolidated financial statements includesnormal recurring adjustments and reflects all adjustments, which in the opinionof management are necessary for a fair presentation of such financialstatements. Although management believes the disclosures and informationpresented are adequate to make the information not misleading, these unaudited interimconsolidated financial statements should be read in conjunction with theCompany’s September 30, 2007 audited consolidated financial statements andnotes thereto in its Annual Report on Form 10-K. Operating results for thethree and nine months ended June 30, 2008 are not necessarily indicativeof the results that may be expected for the year ending September 30,2008.

 

The preparation of financial statements in conformitywith US GAAP requires management to make estimates and assumptions that affect thereported amounts of assets and liabilities, disclosure of contingent assets andliabilities at the date of the financial statements and the reported amounts ofrevenues and expenses during the reporting periods. Actual results could differfrom these estimates.

 

Certain reclassifications have been made to conformprior period amounts to the current period presentation. Thesereclassifications had no effect on net loss, net loss per share, orstockholders’ equity.

 

**2.****   FINANCIALCONDITION AND MANAGEMENT PLANS**

 

The financial statementsof the Company have been prepared on the basis of accounting principlesapplicable to a going concern, which contemplates the realization of assets andthe satisfaction of liabilities in the normal course of business.  As shown in the condensed consolidatedfinancial statements, for the three and nine months ended June 30, 2008,the Company reported net losses of approximately $2.5 million and $8.1 million,respectively, as compared to net losses of approximately $2.4 million and $8.6million for the three and nine months ended June 30, 2007,respectively.  The condensed consolidatedfinancial statements also show an accumulated deficit of approximately $38.6million from inception (June 9, 2003) through the period ended June 30,2008.  The financial statements do notinclude any adjustments relating to the recoverability and classification ofasset carrying amounts or the amount and classification of liabilities thatmight result should the Company be unable to continue as a going concern.

 

The Company is currently a development stage companyand its continued existence is dependent upon the Company’s successfuldevelopment of the PID technology and its ability to successfully commercializethis technology.  The Company has yet togenerate cashflow from operations, and until revenues commence, the Company ishighly dependent upon debt and equity funding. Should continuing funding requirements not be met, the Company’soperations may cease to exist. Management cannot provide any assurance that any such financing will beavailable on acceptable terms or at all. On April 21, 2008, the Company completed a subscription rightsoffering to sell approximately 3.5 million shares of our common stock at $1.50per share yielding gross proceeds which totaled approximately $5.25 million.

 

**3.   SUMMARY OF SIGNIFICANT ACCOUNTINGPOLICIES**

 

*Impairment of Long-LivedAssets.  *We evaluate our long-lived assets forindicators of possible impairment by comparison of the carrying amounts tofuture net undiscounted cash flows expected to be generated by such assets whenevents or changes in circumstances indicate the carrying amount of an asset maynot be recoverable.  Should an impairment exist, the impairment loss wouldbe measured based on the excess carrying value of the asset over the asset’sfair value or discounted estimates of future cash flows.  We also evaluatethe capitalized costs for patents and patent applications filed but not issuedfor possible impairments. The evaluation of capitalized costs for patents andpatent applications is based on a subjective cash flow forecast which issubject to change. We will reassess our cash flow forecast each time there arefundamental changes in the underlying potential use of the patents or patentapplications in terms of performance, customer

 

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acceptanceor other factors that may affect such cash flow forecasts.

 

*New Accounting Pronouncements.* In June 2006, the Financial AccountingStandards Board (“FASB”) issued Interpretation No. 48 (“FIN 48”),Accounting for Uncertainty in Income Taxes. FIN 48 prescribes detailed guidancefor the financial statement recognition, measurement and disclosure ofuncertain tax positions recognized in an enterprise’s financial statements inaccordance with FASB Statement No. 109, Accounting for Income Taxes. Taxpositions must meet a more-likely-than-not recognition threshold at theeffective date to be recognized upon the adoption of FIN 48 and in subsequentperiods. FIN 48 will be effective for fiscal years beginning after December 15,2006 (our fiscal year 2008) and the provisions of FIN 48 will be applied to alltax positions under Statement No. 109 upon initial adoption.  We have adopted FIN 48 and there was noeffect on our financial statements as a result of its implementation.

 

In September 2006,the FASB issued Statement of Financial Accounting Standards, “SFAS” No. 157,*Fair Value Measurements* (“SFAS No. 157”). SFAS No. 157 clarifies the principle that fair value should be based onthe assumptions market participants would use when pricing an asset orliability and establishes a fair value hierarchy that prioritizes the informationused to develop those assumptions.  Under the standard, fair valuemeasurements would be separately disclosed by level within the fair valuehierarchy.  SFAS No. 157 is effective for financial statements issuedfor fiscal years beginning after November 15, 2007, and interim periodswithin those fiscal years, with early adoption permitted.  The Companybelieves that the adoption of SFAS No. 157 will not have a material impacton its financial position, results of operations or cash flows.

 

In February 2007,the FASB issued SFAS No. 159, *The Fair Value Option forFinancial Assets and Financial Liabilities* (“SFAS No. 159”).SFAS No. 159 permits entities to choose to measure many financial assetsand financial liabilities at fair value. Unrealized gains and losses on itemsfor which the fair value option has been elected are reported in earnings. SFASNo. 159 is effective for fiscal years beginning after November 15,2007. We will adopt SFAS No. 159 on October 1, 2008 and have notyet determined the impact, if any, on our consolidated financial statements.

 

In December 2007,the FASB issued SFAS No. 141R, *BusinessCombinations* (SFAS 141R), which replaces SFAS 141, *Business Combinations*. SFAS 141Restablishes principles and requirements for determining how an enterpriserecognizes and measures the fair value of certain assets and liabilitiesacquired in a business combination, including noncontrolling interests,contingent consideration, and certain acquired contingencies. SFAS 141R alsorequires acquisition-related transaction expenses and restructuring costs beexpensed as incurred rather than capitalized as a component of the businesscombination. SFAS 141R will be applicable prospectively to businesscombinations beginning in the Company’s 2010 fiscal year.

 

In December 2007,the FASB issued SFAS No. 160, *NoncontrollingInterests in Consolidated Financial Statements — An Amendment of ARB No. 51*(SFAS 160). SFAS 160 establishes accounting and reporting standards for thenoncontrolling interest in a subsidiary. SFAS 160 also requires that a retainednoncontrolling interest upon the deconsolidation of a subsidiary be initiallymeasured at its fair value. SFAS 160 is effective for the Company’s 2010 fiscalyear. Upon adoption of SFAS 160, the Company will be required to report itsnoncontrolling interests, if any, as a separate component of shareholders’equity. The Company will also be required to present net income allocable tothe noncontrolling interests, if any, and net income attributable to theshareholders of the Company separately in its consolidated statements ofincome. Currently, noncontrolling interests (minority interests) are reportedas a liability in a Company’s statement of financial position and the relatedincome attributable to minority interests is reflected as an expense inarriving at net income. SFAS 160 requires retroactive adoption of thepresentation and disclosure requirements for existing minority interests. Allother requirements of SFAS 160 shall be applied prospectively.

 

In March 2008,the FASB issued SFAS No. 161, “Disclosures about Derivative Instrumentsand Hedging Activities-an amendment of FASB Statement No. 133” (“SFAS No. 161”).SFAS No. 161 requires enhanced disclosure related to derivatives andhedging activities and thereby seeks to improve the transparency of financialreporting. Under SFAS No. 161, entities are required to provide enhanceddisclosures relating to: (a) how and why an entity uses derivativeinstruments; (b) how derivative instruments and related hedge items areaccounted for under SFAS No. 133, “Accounting for Derivative Instrumentsand Hedging Activities” (“SFAS No. 133”), and its related interpretations;and (c) how derivative instruments and related hedged items affect anentity’s financial position, financial performance, and cash flows. SFAS No. 161must be applied prospectively to all derivative instruments and non-derivativeinstruments that are designated and qualify as hedging instruments and relatedhedged items accounted for under SFAS No. 133 for all financial statementsissued for fiscal years and interim periods beginning after November 15,2008, with early application permitted. The Company does not expect theadoption of SFAS No. 161 to significantly impact its financial position,results of operations or cash flows.

 

In May 2008,the FASB issued SFAS No. 162, “The Hierarchy of Generally AcceptedAccounting Principles.” This Statement identifies the sources of accountingprinciples and the framework for selecting the principles used in the preparationof financial statements. This Statement is effective 60 days following the SEC’sapproval of the Public Company

 

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Accounting OversightBoard amendments to AU Section 411, “The Meaning of Present Fairly inConformity with Generally Accepted Accounting Principles.” The Company iscurrently evaluating the potential impact the new pronouncement will have on itsconsolidated financial statements.

 

In April 2008,the FASB issued FASB Staff Position (“FSP”) FAS 142-3, “Determination of theUseful Life of Intangible Assets.” This FSP amends the factors that should beconsidered in developing renewal or extension assumptions used to determine theuseful life of a recognized intangible asset under FASB Statement No. 142,“Goodwill and Other Intangible Assets” (“SFAS 142”). The intent of this FSP isto improve the consistency between the useful life of a recognized intangibleasset under SFAS 142 and the period of expected cash flows used to measurethe fair value of the asset under SFAS 141R, and other GAAP. This FSP iseffective for financial statements issued for fiscal years beginning after December 15,2008, and interim periods within those fiscal years. Early adoption isprohibited. The Company is currently evaluating the potential impact the newpronouncement will have on its consolidated financial statements.

 

**4.****   NET LOSS PER COMMON SHARE**

 

The Company has presented basic and diluted net lossper share pursuant to SFAS No. 128, *EarningsPer Share*. In accordance with SFAS No. 128, basic and dilutednet loss per share has been computed using the weighted-average number ofshares of common stock outstanding during the period. Dilutive net loss pershare would give effect to the dilutive effect of common stock equivalentsconsisting of options and warrants. Potentially dilutive securities have beenexcluded from the net loss per common share calculation as the effects would beantidilutive. Potentially dilutive securities not included in the computationof weighted average diluted shares of common stock because the impact of thesepotentially dilutive securities were antidilutive were 1,244,594 and 2,498,200shares for the three months ended June 30, 2008 and 2007, respectively,and 1,853,293 and 2,485,717 shares for the nine months ended June 30, 2008and 2007, respectively.

 

**5.****   COMMON STOCK**

 

In October 2007, theCompany cancelled 7,500 shares of restricted stock.

 

In November 2007, theCompany issued 5,000 shares of restricted stock to a Director at $3.28 pershare.

 

In December 2007, theCompany issued 688 shares of its common stock upon a cashless exercise ofwarrants at $2.00 per share.

 

In December 2007, theCompany issued 10,000 shares of its common stock upon an exercise of warrantsat $0.12 per share.

 

In January 2008, theCompany cancelled 4,000 shares of restricted stock.

 

In February 2008, theCompany issued 100,000 shares of its common stock upon an exercise of stockoptions at $0.12 per share.

 

In March 2008, theCompany issued 35,000 shares of restricted stock to its Directors at $1.84 pershare.

 

On April 21, 2008, the Company completed asubscription rights offering to sell 3,500,043 shares of common stock at $1.50per share.  Gross proceeds totaledapproximately $5.25 million. In the subscription rights offering, all commonshareholders received one non-transferable right to purchase 0.11025 shares ofthe Company’s common stock for each share that they held of record as of 5:00 p.m.,central time, on March 17, 2008. These subscription rights expired if not exercised by 5:00 pm, centraltime on April 16, 2008.

 

In May 2008, theCompany issued 100,000 shares of its common stock upon an exercise of stockoptions at $0.12 per share.

 

In June 2008, theCompany issued 12,300 shares of its common stock upon an exercise of stockoptions at $0.12 per share.

 

In June 2008, theCompany issued 382,500 shares of restricted stock to its employees at $2.65 pershare.

 

At June 30, 2008, the Company had 35,763,932shares of common stock outstanding and had outstanding options and warrants topurchase up to 5,793,216 additional shares of the Company’s common stock in theaggregate.

 

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**6.****   STOCK-BASED EMPLOYEECOMPENSATION**

 

In April 2004, theBoard of Directors adopted the 2004 Stock Incentive Plan (the “2004 Plan”).  The 2004 Plan provides for the issuance ofincentive stock options, non-statutory stock options and restricted stock todirectors, employees and consultants of PDTI. Provisions under the 2004 Planallow for the issuance of up to 3,500,000 shares of common stock pursuant toawards under this plan.  As of  June 30, 2008, the Company had 1,250awards available for grant under the 2004 Plan. Under the 2004 Plan, theexercise price of each option is equal to the market value of the Company’scommon stock on the date of grant and the maximum term for the options is tenyears.

 

In March 2005, theBoard of Directors adopted the 2005 Stock Incentive Plan (the “2005 Plan”). The 2005 Plan provides for the issuance of non-statutory stock options andrestricted stock grants to directors, employees and consultants of PDTI. Provisions under the 2005 Plan allow for the issuance of options and restrictedstock awards to purchase or issue up to 2,000,000 shares of common stock. As of June 30, 2008, the Company had 1,000 shares of common stock availablefor issuance pursuant to awards under the 2005 Plan.  Under the 2005 Plan, the exercise price ofeach option is equal to the market value of the Company’s common stock on thedate of grant and the maximum term for the options is ten years.

 

In March 2007, theshareholders adopted the 2007 Stock Incentive Plan (the “2007 Plan”).  The 2007 Plan provides for the issuance ofincentive stock options, non-statutory stock options and restricted stock todirectors, employees and consultants of PDTI. Provisions under the 2007 Planallow for the issuance of up to 1,500,000 shares of common stock pursuant toawards under this plan.  As of June 30,2008, the Company had 631,750 awards available for grant under the 2007 Plan.Under the 2007 Plan, the exercise price of each option is equal to the marketvalue of the Company’s common stock on the date of grant and the maximum termfor the options is ten years.

 

Stock-based employee compensation expense recorded forawards issued under the 2004 Plan, the 2005 Plan, and the 2007 Plan for thethree months ended June 30, 2008 and 2007 was $627,150 and $592,987,respectively.  Stock-based employeecompensation expense recorded for awards issued under the 2004 Plan, the 2005Plan, and the 2007 Plan for the nine months ended June 30, 2008 and 2007was $2,045,947 and $1,844,131, respectively. Stock-based employee compensation expense recorded for awards issuedunder the 2004 Plan, the 2005 Plan, and the 2007 Plan since inception (June 9,2003) to June 30, 2008 was $7,246,569.

 

**7.****   COMMITMENTS AND CONTINGENCIES**

 

In April 2007,we entered into a 60-month lease agreement that commenced in September 2007for a new corporate office and operating facility and delivered to the lessor asecurity deposit of $41,144.  The new facility combines the corporateoffice personnel and the operations personnel into one location at 5611 BairdCourt, Houston, Texas 77041.  The total future minimum lease paymentsunder this lease are $1,944,822.

 

**8.  INCOME TAXES**

 

The Company followsStatements of Financial Accounting Standards (“SFAS”) No. 109 Accountingfor Income Taxes. This statement requires an asset and liability approach forfinancial accounting and reporting for income tax purposes.   This statement recognizes the amount oftaxes payable or refundable for the current year and deferred tax liabilitiesand assets for future tax consequences of events that have been recognized inthe consolidated financial statements or tax returns.  Provisions (benefits) for income taxes resultfrom permanent and temporary differences in the recognition of accountingtransactions for tax and financial reporting purposes.  Valuation allowances are established whennecessary to reduce deferred tax assets to the amount expected to be realized.

 

As discussed in Footnote3, we adopted FIN 48 and, as a result, there was no effect on our financialstatements.  FIN 48 prescribes a minimumrecognition threshold and measurement methodology that a tax position taken orexpected to be taken in a tax return is required to meet before beingrecognized in the financial statements. It also provides guidance forde-recognition, classification, interest and penalties, accounting in interimperiods, disclosure, and transition.  The Company recognizes interest andpenalties related to unrecognized tax benefits within the provision for incometaxes on continuing operations in the consolidated statements of income. Thereare no unrecognized tax benefits as of the date of adoption.  There are nounrecognized tax benefits that if recognized would affect the tax rate. Thereis no interest or penalties recognized as of the date of adoption or for thethree months ended June 30, 2008.

 

We filed our income taxreturn for the tax year ended September 30, 2007.  The tax years ended September 30, 2006and September 30, 2005 are open for examination by the U.S. and Statetaxing authorities.

 

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The Company anticipatesrecording no tax benefit for the year, based upon management’s assessment thatthe realization of the anticipated financial loss for the year is not at thispoint reasonably assured; accordingly no benefit has been recorded for thethree months ended June 30, 2008.

 

For the period ended June 30,2008, there were permanent and temporary differences of approximately $13,000and $936,000, respectively, which decreased the loss for the current year.

 

At June 30, 2008,the Company has cumulative net operating loss carryforwards of approximately$31,970,000 which expire in years 2009 through 2027. No effect has been shownin the financial statements for the net operating loss carryforwards as thelikelihood of future tax benefit from such net operating loss carryforwards isnot determinable at this time. Accordingly, the potential tax benefits of thenet operating loss carryforwards, estimated based upon current tax rates at June 30,2008, have been offset by valuation reserves of the same amount.  The valuation allowance increasedapproximately $ 3,058,000 from September 30, 2007 to June 30, 2008.

 

**Item 2:  Management’s Discussion and Analysis ofFinancial Condition and Results of Operations.**

 

The following discussion of our financial conditionand results of operations should be read together with the unauditedconsolidated financial statements and related notes that are included elsewherein this report. This discussion may contain forward-looking statements basedupon current expectations that involve risks and uncertainties that could causeactual results to differ materially from the forward-looking statements.   Please see “Forward-Looking Statements”below.

 

**Overview**

 

On January 14, 2005, we acquiredParticle Drilling Technologies, Inc., a privately-held Delawarecorporation (“PDTI”). As a result of this acquisition, our Company, whichpreviously had no material operations, acquired the business of PDTI and we arenow engaged in the development of the Particle Impact Drilling System, apatented system utilizing a specially designed “fit for purpose” drill bitfitted with jetting nozzles and polycrystalline diamond compact cuttingstructures for use in the oil and gas drilling industry.

 

We are a development-stage company and have a limitedoperating history. Our predecessor company for financial reporting purposes wasformed on June 9, 2003 to acquire the technology related to theParticle Impact Drilling System (the “PID technology”). We are stilldeveloping this technology, and to date, we have not generated any revenuesfrom our operations. As we continue to execute our operations plan, we expectour development and operating expenses to increase.

 

The PID System hasdemonstrated higher rates of penetration than current conventional drillingmethods. The rate of penetration gains generated by the PID System are expectedto result in operators paying less variable drilling costs (e.g., rig time,labor, fuel, bits, rentals), which are purchased as part of the ordinarydrilling cycle. As a result, we believe the PID System can reduce drillingcosts and lower finding costs, thus improving the overall economics to the oiland gas industry in certain geologic intervals.

 

In January 2007, we entered into a one-yearagreement with a multi-national independent exploration and production company(the “Operator”), which has been subsequently extended to October 15,2008.  We expect to provide our PIDservices under the terms of this agreement in connection with the Operator’sdrilling program in East Texas. The original agreement anticipated that PIDservices would be conducted on an initial four wells and provides the basis foradditional wells and cooperation between us and the Operator with respect tofinancing of future PID systems by the Operator and an obligation by us toprovide to the Operator preferred access to additional PID systems in thefuture. The compensation under the agreement, if any, is based on ourperformance pursuant to a gain-sharing formula. As is customary within the oilfield service industry, this contract iscancellable by either party at any time.

 

*Researchand development.  *We have made and expect to continue to makesubstantial investments in research and development activities in order todevelop and market the PID technology. Research and development costs consistprimarily of general and administrative and operating expenses related toresearch and development activities. We expense research and development costsas incurred except for property, plant and equipment related to research anddevelopment activity that have an alternative future use. Property, plant andequipment for research and development activity that have an alternative futureuse are capitalized and the related depreciation is expensed as research anddevelopment costs.

 

After conducting four full scale field trials, webelieve that all components of the PID system are now functioningsatisfactorily with the exception of the frac pump driven injectionsystem.  While some minor modificationswill be made to the PID bit in order to further improve performance, most ofour focus is now directed towards implementation of a new particle injectionsystem.  As we have gained moreexperience with PID drilling and have run the system for longer periods

 

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of time, we havedetermined that the continuously increasing and fluctuating well pressureencountered on recent trials resulted in unexpected levels of maintenance onthe frac pump and caused difficulty in maintaining a continuous flow ofparticles to the drill bit. While the frac pump driven particle injectionsystem has allowed us to demonstrate the potential of the PID technology, it hasbeen unreliable. In April 2007, we began testing an extruder basedinjection system and the associated pressure diffuser. The pressure diffuserwas determined to be unreliable in July 2007 and therefore we begantesting a pressurized extruder system. In early August 2007, we were ableto successfully inject particles, at a controllable rate, into pressures up to5,200 pounds per square inch. This was the first time that goal was achieved.The next step in the development required a pressure barrier that would allowthe pressurized extruder to continuously refill with particles. We selected ahigh pressure gate valve to serve as the pressure barrier and successfullytested the gate valve in September 2007 for 3,000 cycles, representingapproximately three days of operating time. Following this test, all necessarycomponents needed to build the new particle injection system were placed onorder. The new injection system was assembled in late December 2007 andintegrated with our test facility on January 9, 2008.  We tested the subsystems and components thatare integral to the safe operation of the new injection system.  Some refinements and modifications were madeas needed during the initial testing. On January 24, 2008, we completedthe first phase of our in-house test program with good results.  The testing confirmed that the automatedsystem operates as designed as a mechanical means to inject particles intopressurized drilling fluid at the rates needed for commercial use.

 

        We completed the construction of the new injection system inmid-January 2008 and initiated our in-house test program in order to learnhow the system performed under various conditions, including differentinjection rates, pressure environments and flow rates.  Our testingrevealed several weak links in some of the system’s components which requiredmaintenance, horsepower upgrades or some level of modification.  On February 20,2008, we announced that certain modifications made to the system had allowed usto reach a continuous injection rate of 14 gallons per minute, which issufficient for field operations.  On May 8, 2008, we declared the PIDinjection system ready for field use and began exchanging information with the Operatorwith the objective of scheduling the next field trial.

 

        On June 2, 2008, we were informed by the Operator thatthe next field trial was to be completed utilizing the same drilling rig as wasused on the prior commercial trial in May 2007.   Based on previous wells drilled in thisarea, we anticipated that this particular drilling rig would complete itscurrent well in June 2008, allowing us to conduct the next field trial onor around July 15, 2008.  In earlyJuly, we were informed that the particular drilling rig assigned to us hadencountered some unexpected delays which would result in a further delay inconducting the next field trial.  On July 14,2008, we issued a press release indicating that the drilling rig had yet tocomplete its current assignment and that we had been informed by the Operatorthat we were next in line following the completion of the current well.Preparations for that commercial trial were completed recently and thepreviously selected drilling rig began drilling on the well targeted in June;however, on August 4, 2008, we were contacted by the Operator and informedthat they would like to shift the next field trial from the Deep Bossier area,which had previously been scheduled to commence in August 2008, to theHaynesville area in Northwest Louisiana. The Operator is drilling with a larger drill bit in this area, however,and thus a new bit would have to be designed and manufactured to meet thisapplication.  The reasons for this changehave not been fully vetted at this time given the short time frame betweenreceiving this information and the filing of this report.  We are actively working with the Operator torevert back to the original drilling rig in the Bossier area which should benearing the target formation in the near future.  Currently, the discussion with the Operatoris continuing.  Should this discussionnot get resolved soon, we are also currently in active discussions with anotherpotential customer about field trial opportunities in another location.

 

*General andadministrative.  *General and administrativeexpenses consist primarily of salaries and benefits, office expense,professional services, and other corporate overhead costs. We have experiencedand expect to continue to experience increases in general and administrativeexpenses as a result of: (1) reporting and compliance obligationsapplicable to publicly-held companies; (2) our continuing efforts todevelop, test and prepare the PID technology for commercialization; and (3) thehiring of additional personnel.

 

**Results of Operations**

 

***Three Months Ended June 30, 2008Compared to Three Months Ended June 30, 2007***

 

*Research anddevelopment.  *Research and development expenseswere $1,373,262 and $1,289,785 for the three months ended June 30, 2008and 2007, respectively, representing an increase of $83,477. This increase wasprimarily related to higher expenses from increases in salaries and wagesand  stock compensation expense for thethree months ended June 30, 2008 compared to the three months ended June 30,2007.  In addition, bonus expensecontinued to accrue for research and development personnel in the three monthsended June 30, 2008, whereas this bonus expense ceased to accrue in thelater part of the three months ended June 30, 2007.

 

*General andadministrative.  *General and administrativeexpenses were $1,281,100 and $1,180,854 for the three months

 

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ended June 30,2008 and 2007, respectively, representing an increase of $100,246. Whilesalaries and wages remained fairly consistent, stock compensation expenseincreased slightly in the three months ended June 30, 2008 compared to thethree months ended June 30, 2007. In addition, bonus expense continued to accrue for administrativepersonnel  in the three months ended June 30,2008, whereas this bonus expense ceased to accrue in the later part of thethree months ended June 30, 2007.

 

*Gain on Sale of Assets. *The gain on sale of assetsrelates to the diposal of our OPI triplex pump that was sold  for net proceeds of $165,000 during the threemonths ended June 30, 2008.

 

*Other income (expenses).  *Other income was $21,025 and $80,472 for the three monthsended June 30, 2008 and 2007, respectively, representing a decrease inother income of $59,447. The decrease was primarily attributable to thedecrease in interest income associated with a higher cash and cash equivalentsduring the three months ended June 30, 2007 compared to the three monthsended June 30, 2008.

 

***Nine Months Ended June 30, 2008Compared to Nine Months Ended June 30, 2007***

 

*Research and development. *Researchand development expenses were $4,700,274 and $4,994,944 for the nine monthsended June 30, 2008 and 2007, respectively, representing a decrease of$294,670. During the nine months ended June 30, 2008, we spentapproximately $730,000 less in direct costs, most of which related to thesubstantial completion of the new particle injection system compared to thenine months ended June 30, 2007.  Inaddition, depreciation expense relating to research and development propertyand equipment decreased approximately $152,000 during the nine months ended June 30,2008 compared to the nine months ended June 30, 2007 due to the sale ofcertain non-essential assets.  Thesedecreases were offset in part by the increase in research and developmentoverhead.  Salaries and wages and stockcompensation expense increased approximately $97,000 during the nine monthsended June 30, 2008 compared to the nine months ended June 30,2007.  Facility rent, repairs andmaintenance, and supplies increased approximately $488,000 during the ninemonths ended June 30, 2008 compared to the nine months ended June 30,2007.

 

*General and administrative. *Generaland administrative expenses were $4,195,064 and $3,961,005 for the nine monthsended June 30, 2008 and 2007, respectively, representing an increase of$234,059.   This increase was primarily the result of increased costsrelated to salaries and wages and stock-based compensation for personnel otherthan research and development personnel during the nine months ended June 30,2008.

 

*Gain on Sale of Assets. *The gain on sale of assetsrelates to the diposal on our older frac pump, a tractor trailor, a machineshop lathe and an OPI triplex pump that were sold for net proceeds of $851,617during the nine months ended June 30, 2008.

 

*Other Income. *Otherincome was $64,670 and $317,522 for the nine months ended June 30, 2008and 2007, respectively, representing a decrease of $252,852.  The decreasewas primarily attributable to the decrease in interest income associated with ahigher cash and cash equivalents balance during the nine months ended June 30,2007 compared to the nine months ended June 30, 2008.

 

**Liquidity and Capital Resources**

 

Our principal sources ofliquidity are cash and cash equivalents on hand.  We expect that cash requirements through theend of the fiscal year 2008 will be primarily to fund research and developmentactivities, to continuously improve service capabilities, to expand operations,general and administrative costs and capital expenditures.  As of the date of this report on Form 10-Q,we believe we have sufficient cash and cash equivalents to meet our workingcapital and capital expenditure requirements for at least the next12 months; however, our continued existence depends on the successfuldevelopment of the PID technology and our ability to successfully commercializethis technology.  To date we have not yetgenerated cashflow from operations, and until we commence recognizing revenue,we are highly dependent upon debt and equity funding.  If we are not able to meet our fundingrequirements, our operations may cease to exist.  We cannot provide any assurance that any suchfunding will be available on acceptable terms or at all.

 

Since inception on June 9,2003 through June 30, 2008, we have financed our operations throughprivate sales of our equity  and theissuance of convertible notes payable. In April 2008, we also competed a subscription rights offering.  Since inception through the completion of oursubscription rights offering in April 2008, we have raised aggregate netproceeds of $35,397,913 from the private sales of equity, the issuance ofconvertible notes payable and the completion of a subscription rightsoffering.  As of June 30, 2008, wehad $4,562,386 in cash and cash equivalents. In April 2008, we completed a rights offering of approximately 3.5million shares of our common stock for $1.50 per share, yielding gross proceedsof approximately $5.25 million.  Weintend to use the net proceeds from the subscription rights offering tomaintain our current development plan with respect to the PID technology andfor general corporate purposes.

 

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*CashFlows from Operating Activities. *Cash flow used for operations is primarilyaffected by our research and development progress and businessdevelopment.  Net cash flows used inoperating activities during the nine months ended June 30, 2008 were$5,561,818 compared to $5,509,244 for the nine months ended June 30,2007.  The increase from fiscal 2007 tofiscal 2008 was primarily the result of an decrease in the net loss and anincrease in accrued liabilities between the two periods.

 

*CashFlows from Investing Activities. *Cash flow provided by (used in) investing activitiesfor the nine months ended June 30, 2008 was $651,186 compared to$(1,328,929) for the nine months ended June 30, 2007.  The cash flows provided by investingactivities for the nine months ended June 30, 2008 consisted of  $686,617 from the sale of our Condor fracpump, $165,000 from the sale of our OPI triplex pump, as well as from the saleof other various non-essential assets. Also included in cash flows provided by investing activities for thenine months ended June 30, 2008 was $163,099 for costs associated withfiling new and protecting existing patents, and approximately $37,332 for thepurchase of various equipment.  Weanticipate that our capital expenditures for the next year will continue to befully funded from our available cash and cash equivalents.

 

*Cash Flow from Financing Activities. *Net cash provided by financing activities for the nine months ended June 30,2008 was $5,011,089 compared to $10,523,014 for the nine months ended June 30,2007.  On April 21, 2008, wecompleted a subscription rights offering to sell 3,500,043 shares of commonstock at $1.50 per share.  Gross proceedstotaled approximately $5.25 million. In the subscription rights offering, allcommon shareholders received one non-transferable right to purchase 0.11025shares of our common stock for each share that they held of record as of 5:00 p.m.,central time, on March 17, 2008. These subscription rights expired if not exercised by 5:00 pm, centraltime on April 16, 2008.

 

*ContractualObligations*.  In April 2007,we entered into a 60-month lease agreement that commenced in September 2007for a new corporate office and operating facility and delivered to the lessor asecurity deposit of $41,144.  The new facility combines the corporateoffice personnel and the operations personnel into one location at 5611 BairdCourt, Houston, Texas 77041.  The total future minimum lease paymentsunder this lease are $1,944,822.

 
| ** **                                                                          | ** ** | **Payments Due by Period** | ** ** |
|-------------------------------------------------------------------------------------|------------|----------------------------|------------|
| **Contractual Obligations**                                                         | ** ** | **Total**                  | ** ** | **Less than  1 year** | ** ** | **1 - 3 years** | ** ** | **3 - 5 years** | ** ** | **More than  5 years** | ** ** |
| Long-Term Debt  Obligation and Short Term Notes Payable (including current portion) |       | $                          | 27,683     |   | $ | 11,261 |   | $ | 14,908 |   | $ | 1,514 |   | $ | — |   |
| Purchase  Obligations                                                               |       | 530,605                    |       | 530,605 |   | — |   | — |   | — |   |
| Operating Lease  Obligations                                                        |       | 1,944,822                  |       | 418,757 |   | 1,442,272 |   | 83,793 |   | — |   |
|                                                                                |       |                       |       |   |   |   |   |   |   |   |   |
| Total                                                                               |       | $                          | 2,503,110  |   | $ | 960,623 |   | $ | 1,457,180 |   | $ | 85,307 |   | $ | — |   |

 

**Off-BalanceSheet Arrangements**

 

In connection with theacquisition of the PID technology in January 2004, PDTI entered into aRoyalty Agreement with ProDril Services, Incorporated (“PSI”) pursuant to whichwe are obligated to pay PSI a royalty on a quarterly basis equal to 18% of ourearnings before interest, income taxes, depreciation and amortization (“EBITDA”)derived from the use of the PID technology, until an aggregate of $67,500,000has been paid. PDTI also entered into a Royalty Agreement in January 2004with ProDril Services, International, Ltd. (“PSIL”) pursuant to which we areobligated to pay PSIL a royalty on a quarterly basis equal to 2% of our EBITDAderived from the use of the PID technology, until an aggregate of $7,500,000has been paid. In addition, we are obligated to pay CCORE Technology andLicensing, Ltd. (“CTL”), PSI and PSIL a royalty equal to 1.6%, 1.2% and 1.2%,respectively, of our quarterly gross revenue, derived from the use of the PIDtechnology.  As of June 30, 2008, wehad no revenues or EBITDA; therefore no royalties have been paid or accrued.

 

**Critical Accounting Policies**

 

The discussion and analysis of our financial conditionand results of operations is based on our consolidated financial statements,which have been prepared in accordance with accounting principles generallyaccepted in the United States of America. The preparation of these consolidatedfinancial statements requires us to make estimates and judgments that affectthe reported amounts of assets, liabilities and expenses. We base our estimateson historical experience and on various other assumptions that we believe to bereasonable under the circumstances, the results of which form the basis formaking judgments about the carrying values of assets and liabilities that are notreadily apparent from other sources. Actual results may differ from theseestimates under different assumptions or conditions. We believe the followingcritical accounting policies affect our most significant judgments andestimates used in the preparation of our consolidated financial statements.

 

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*Impairment of Long-LivedAssets.  *We evaluate our long-lived assets forindicators of possible impairment by comparison of the carrying amounts tofuture net undiscounted cash flows expected to be generated by such assets whenevents or changes in circumstances indicate the carrying amount of an asset maynot be recoverable.  Should an impairment exist, the impairment loss wouldbe measured based on the excess carrying value of the asset over the asset’sfair value or discounted estimates of future cash flows.  We also evaluatethe capitalized costs for patents and patent applications filed but not issuedfor possible impairments.  The evaluationof capitalized costs for patents and patent applications is based on asubjective cash flow forecast which is subject to change.  We will reassess our cash flow forecast eachtime there are fundamental changes in the underlying potential use of thepatents or patent applications in terms of performance, customer acceptance orother factors that may affect such cash flow forecasts.

 

*Asset held for sale.*  InJanuary 2007, we purchased a quintaplex frac pump for approximately $1.4million. In September 2007, management decided to place this frac pump onthe market for sale as a result of the development of the new extruder-basedinjection system being constructed that is meant to replace the frac pump basedinjection system. We commenced our selling efforts during September 2007at which time the carrying amount of the frac pump was reclassified as an assetheld for sale.   In September 2007,we recognized an impairment on the asset of $295,260, and the net book value ofthe frac pump was reduced to $900,000, reflecting management’s estimate of therealizable value of the frac pump.

 

In April 2008, management decided to reclassifythe quintaplex frac pump to assets held for use to be used in testing of theextruder based injection system.  Basedon the current stated value, management concluded there was no furtherimpairment needed on this asset.

 

*Stock-BasedCompensation.  *We follow SFAS No. 123(R), *Share-Based Payment*. This statementestablishes standards for the accounting for transactions in which an entityexchanges its equity instruments for goods or services. It also addressestransactions in which an entity incurs liabilities in exchange for goods orservices that are based on the fair value of the entity’s equity instruments orthat may be settled by the issuance of those equity instruments. This statementfocuses primarily on accounting for transactions in which an entity obtainsemployee services in share-based payment transactions.

 

*Research andDevelopment.  *The costs of materials and equipmentor facilities that are acquired or constructed for research and developmentactivities and that have alternative future uses are capitalized as tangibleassets when acquired or constructed. The cost of such materials consumed inresearch and development activities and the depreciation of such equipment orfacilities used in those activities are research and development costs.However, the costs of materials, equipment, or facilities acquired orconstructed for research and development activities that have no alternativefuture uses are considered research and development costs and are expensed atthe time the costs are incurred.

 

*IncomeTaxes.  *Wefollow Statements of Financial Accounting Standards (“SFAS”) No. 109Accounting for Income Taxes. This statement requires an asset and liabilityapproach for financial accounting and reporting for income tax purposes.   This statement recognizes the amount oftaxes payable or refundable for the current year and deferred tax liabilitiesand assets for future tax consequences of events that have been recognized inthe consolidated financial statements or tax returns.  Provisions (benefits) for income taxes resultfrom permanent and temporary differences in the recognition of accountingtransactions for tax and financial reporting purposes.  Valuation allowances are established whennecessary to reduce deferred tax assets to the amount expected to be realized.

 

As discussed in Footnote3, we adopted FIN 48 and, as a result, there was no effect on our financialstatements.  FIN 48 prescribes a minimumrecognition threshold and measurement methodology that a tax position taken orexpected to be taken in a tax return is required to meet before being recognizedin the financial statements. It also provides guidance for de-recognition,classification, interest and penalties, accounting in interim periods,disclosure, and transition.  We recognize interest and penalties relatedto unrecognized tax benefits within the provision for income taxes oncontinuing operations in the consolidated statements of income. There are nounrecognized tax benefits as of the date of adoption.  There are nounrecognized tax benefits that if recognized would affect the tax rate. Thereis no interest or penalties recognized as of the date of adoption or for thethree months ended June 30, 2008.

 

We filed our income taxreturn for the tax year ended September 30, 2007.  The tax years ended September 30, 2006and September 30, 2005 are open for examination by the U.S. and Statetaxing authorities.

 

We anticipate recordingno tax benefit for the year, based upon management’s assessment that therealization of the anticipated financial loss for the year is not at this pointreasonably assured; accordingly no benefit has been recorded for the threemonths ended June 30, 2008.

 

For the period ended June 30,2008, there were permanent and temporary differences of approximately $13,000and $936,000, respectively, which decreased the loss for the current year.

 

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At June 30, 2008, wehad cumulative net operating loss carryforwards of approximately $31,970,000which expire in years 2009 through 2027. No effect has been shown in thefinancial statements for the net operating loss carryforwards as the likelihoodof future tax benefit from such net operating loss carryforwards is notdeterminable at this time. Accordingly, the potential tax benefits of the netoperating loss carryforwards, estimated based upon current tax rates at June 30,2008, have been offset by valuation reserves of the same amount.  The valuation allowance increasedapproximately $ 3,058,000 from September 30, 2007 to June 30, 2008.

 

*Net Loss per Share.  *Wehave presented basic and diluted net loss per share pursuant to SFAS No. 128,*Earnings Per Share*. In accordancewith SFAS No. 128, basic and diluted net loss per share has been computedusing the weighted-average number of shares of common stock outstanding duringthe period. Dilutive net loss per share would give effect to the dilutiveeffect of common stock equivalents consisting of options and warrants.Potentially dilutive securities have been excluded from the net loss per commonshare calculation as the effects would be antidilutive. Potentially dilutivesecurities not included in the computation of weighted average diluted sharesof common stock because the impact of these potentially dilutive securitieswere antidilutive were 1,244,594 and 2,498,200 shares for the three monthsended June 30, 2008 and 2007, respectively, and 2,485,717 and 1,853,293shares for the nine months ended June 30, 2008 and 2007, respectively.

 

**Forward-Looking Statements**

 

Statements in this quarterly report on Form 10-Qthat are not historical facts (including any statements concerning plans andobjectives of management for future operations or economic performance, orassumptions or forecasts related thereto) are forward-looking statementssubject to Section 27A of the Securities Act of 1933 and Section 21Eof the Securities Exchange Act of 1934. These statements can be identified bythe use of forward-looking terminology including “forecast,” “may,” “believe,” “expect,”“anticipate,” “estimate,” “continue” or other similar words. These statementsdiscuss future expectations, contain projections of results of operations or offinancial condition or state other “forward-looking” information. We and ourrepresentatives may from time to time make other oral or written statementsthat are also forward-looking statements.

 

These forward-lookingstatements are made based upon our management’s current plans, expectations,estimates, assumptions and beliefs concerning future events impacting us andtherefore involve a number of risks and uncertainties.  We caution that forward-looking statementsare not guarantees and that actual results could differ materially from thoseexpressed or implied in the forward-looking statements as a result of certainfactors, including but not limited to dependence upon energy industry spending,the volatility of oil and gas prices, weather interruptions, the results oftesting of our products, the availability of capital resources and the otherfactors described under “Item 1A. Risk Factors” in our annual report on Form 10-Kfor the year ended September 30, 2007 filed with the SEC on December 13,2007.  We undertake no obligation toupdate any forward-looking statements except as required by law.

 

**Item 3.****                          Quantitativeand Qualitative Disclosures about Market Risk**

 

We believe that we do not have any material exposureto financial market risk and we do not enter into foreign currency or interestrate transactions.

 

**Item 4.****                          Controlsand Procedures**

 

As required by Rule 13a-15(b) of the SecuritiesExchange Act of 1934, an evaluation was performed under the supervision andwith the participation of our Chief Executive Officer and Chief FinancialOfficer of the effectiveness of the design and operation of our “disclosurecontrols and procedures” (as defined under Rule 13a-15(e) and Rule 15d-15(e))as of the end of the period covered by this Quarterly Report on Form 10-Qfiled with the SEC. Based upon that evaluation, our Chief Executive Officer andChief Financial Officer concluded that our disclosure controls and procedureswere effective as of June 30, 2008.

 

There was no change in our internal control overfinancial reporting during our third quarter of fiscal 2008 that has materiallyaffected, or is reasonably likely to materially affect, our internal controlover financial reporting.

 

**Part II—Other Information**

 

None

 

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**Item 6.****                          Exhibits**

 

Exhibits:

 
| **Exhibit  No.** | ** ** | **Description** |
|------------------|------------|-----------------|
| 3.1              |       |            | Certificate of Designation of Series A Junior  Participating Preferred Stock (Incorporated by reference to Exhibit 3.1  to the current report on Form 8-K (File No. 000-30819), filed on  May 23, 2008). |
|             |       |            |   |
| 4.1              |       |            | Rights Agreement, dated as of May 23, 2008,  between Particle Drilling Technologies, Inc. and Computershare Trust  Company, N.A., as Rights Agent, including the form of Certificate of  Designation of Series A Junior Participating Preferred Stock, the forms  of the Rights Certificate, Assignment and Election to Purchase, and the  Summary of Rights attached thereto as Exhibits A, B, and C, respectively  (Incorporated by reference to Exhibit 4.1 to the current report on Form 8-K  (File No. 000-30819), filed on May 23, 2008). |
|             |       |            |   |
| 31.1             |       |            | Certification of the Chief Executive Officer  pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act  of 1934.* |
|             |       |            |   |
| 31.2             |       |            | Certification of the Chief Financial Officer  pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act  of 1934.* |
|             |       |            |   |
| 32.1             |       |            | Certification of the Chief Executive Officer  pursuant to 18 U.S.C. Section 1350, as adopted pursuant to  Section 906 of the Sarbanes-Oxley Act of 2002.** |
|             |       |            |   |
| 32.2             |       |            | Certification of the Chief Financial Officer  pursuant to 18 U.S.C. Section 1350, as adopted pursuant to  Section 906 of the Sarbanes-Oxley Act of 2002.** |

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*                    Filed herewith

**             Furnished herewith

 

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**SIGNATURES**

 

Pursuant to the requirements of the SecuritiesExchange Act of 1934, the registrant has duly caused this report to be signedon its behalf by the undersigned thereunto duly authorized.

 
|                            | PARTICLE DRILLING TECHNOLOGIES, INC.                                                                                              |
|---------------------------------|----------------------------------------------------------------------------------------------------------------------------------------|
|                            | (Registrant)                                                                                                                           |
|                            |                                                                                                                                   |
|                            |                                                                                                                                   |
| Date:  August 8, 2008 | /s/ J. CHRIS BOSWELL                                                                                                                   |
|                            | J. Chris Boswell                                                                                                                       |
|                            | Senior Vice President and Chief Financial Officer  (authorized officer, principal financial officer and principal accounting  officer) |

 

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**EXHIBIT INDEX**

 

 
| **Exhibit  No.** | ** ** | **Description** |
|------------------|------------|-----------------|
| 3.1              |       |            | Certificate of Designation of Series A Junior  Participating Preferred Stock (Incorporated by reference to Exhibit 3.1  to the current report on Form 8-K (File No. 000-30819), filed on  May 23, 2008). |
|             |       |            |   |
| 4.1              |       |            | Rights Agreement, dated as of May 23, 2008,  between Particle Drilling Technologies, Inc. and Computershare Trust  Company, N.A., as Rights Agent, including the form of Certificate of  Designation of Series A Junior Participating Preferred Stock, the forms  of the Rights Certificate, Assignment and Election to Purchase, and the  Summary of Rights attached thereto as Exhibits A, B, and C, respectively  (Incorporated by reference to Exhibit 4.1 to the current report on  Form 8-K (File No. 000-30819), filed on May 23, 2008). |
|             |       |            |   |
| 31.1             |       |            | Certification of the Chief Executive Officer  pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act  of 1934.* |
|             |       |            |   |
| 31.2             |       |            | Certification of the Chief Financial Officer  pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act  of 1934.* |
|             |       |            |   |
| 32.1             |       |            | Certification of the Chief Executive Officer  pursuant to 18 U.S.C. Section 1350, as adopted pursuant to  Section 906 of the Sarbanes-Oxley Act of 2002.** |
|             |       |            |   |
| 32.2             |       |            | Certification of the Chief Financial Officer  pursuant to 18 U.S.C. Section 1350, as adopted pursuant to  Section 906 of the Sarbanes-Oxley Act of 2002.** |

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*                    Filed herewith

**             Furnished herewith

 

 

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