**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

** **

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** **

**FORM 10-QSB**

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

 

**For thequarterly period ended September 30, 2006**

**OR**
| **o** | ** ** | **TRANSITION REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE SECURITIES  EXCHANGE ACT OF 1934** |
|-------|------------|------------------------------------------------------------------------------------------------|

 

**For thetransition period from              to              **

**Commissionfile number: 000-28515**

**FP TECHNOLOGY, INC.**

(Exact name ofsmall business issuer as specified in its charter)

| **Delaware**                                                     |   | **20-3446646**                        |
|------------------------------------------------------------------|--------|---------------------------------------|
| (State or other  jurisdiction of  incorporation or organization) |   | (IRS Employer  Identification Number) |

** **

** **

**181 Wells Avenue, Newton, MA 02459**(Address of principalexecutive offices)

**(617)928-6001**(Issuer’s telephone number)

(Former name,former address and former fiscal year, if changed since last report)

Check whether the issuer (1) has filed all reportsrequired to be filed  by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter periodthat the registrant was required to file such reports), and (2) has beensubject to such filing requirements for the past 90 days: Yes x No o

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

Check whether the registrant filed all documents andreports required to be filed by Section 12, 13 or 15(d) after distribution ofsecurities under a plan confirmed by a court: Yes x No o

The number of shares outstanding of the issuer’s commonstock, par value $.001 per share, as of November 14, 2006 is 6,100,441 shares.

Transitional SmallBusiness Disclosure Format (Check one): Yes o No x

 

 

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**FPTECHNOLOGY, INC.**

**INDEX**
|                                                                                                                   | ** ** | ** ** |
|-------------------------------------------------------------------------------------------------------------------|------------|------------|
| PART I. FINANCIAL  INFORMATION                                                                                    |       |       |
| ITEM 1. FINANCIAL  STATEMENTS                                                                                     |       |       |
| Consolidated  Balance Sheet - at September 30, 2006 (unaudited)                                                   |       |       |
| Consolidated  Statement of Operations - for the Three Months Ended September 30, 2005 and  2006 (unaudited)       |       |       |
| Consolidated  Statement of Stockholders’ Equity - for the Three Months Ended September 30,  2006 (unaudited) |       |       |
| Consolidated  Statement of Cash Flows - for the Three Months Ended September 30, 2005 and  2006 (unaudited)       |       |       |
| Notes to Unaudited Financial Statements                                                                           |       |       |
| ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN  OF OPERATION                                           |       |       |
| ITEM 3. CONTROLS AND PROCEDURES                                                                                   |       |       |
| PART  II. OTHER INFORMATION                                                                                       |       |       |
| ITEM  1. LEGAL PROCEEDINGS                                                                                        |       |       |
| ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND  USE OF PROCEEDS                                              |       |       |
| ITEM 3. DEFAULTS UPON SENIOR SECURITIES                                                                           |       |       |
| ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY  HOLDERS                                                      |       |       |
| ITEM  5. OTHER INFORMATION                                                                                        |       |       |
| ITEM 6.  EXHIBITS                                                                                                 |       |       |

2

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**FP TECHNOLOGY, INC.****CONSOLIDATED BALANCE SHEET****September 30, 2006****(Unaudited)**
| **ASSETS**                                                              | ** ** | ** ** | ** **     |
|-------------------------------------------------------------------------|------------|------------|----------------|
|                                                                    |       |       |           |
| Current assets                                                          |       |       |           |
| Cash and cash  equivalents                                              |       | $          | 1,685,475      |   |
| Restricted cash                                                         |       | 50,000,000 |           |
| Accounts  receivable, net of allowance for doubtful accounts of $10,000 |       | 605,523    |           |
| Debt issuance  costs                                                    |       | 674,071    |           |
| Other current  assets                                                   |       | 668,102    |           |
|                                                                    |       |       |           |
| Total current  assets                                                   |       | $          | 53,633,171     |   |
|                                                                    |       |       |           |
| Property and equipment,  net                                            |       | 166,438    |           |
| Goodwill                                                                |       | 4,772,413  |           |
| Deposits                                                                |       | 13,449     |           |
|                                                                    |       |       |           |
| **Total  assets**                                                       | ** ** | **$**      | **58,585,471** | ** ** |
|                                                                    |       |       |           |
| **LIABILITIES  AND STOCKHOLDERS’ EQUITY**                          | ** ** | ** ** | ** **     |
|                                                                    |       |       |           |
| Current liabilities                                                     |       |       |           |
| Current portion  of long-term debt                                      |       | $          | 52,250,000     |   |
| Accounts payable                                                        |       | 260,390    |           |
| Accrued  liabilities                                                    |       | 1,851,143  |           |
| Deferred revenue                                                        |       | 1,729,501  |           |
|                                                                    |       |       |           |
| Total current  liabilities                                              |       | $          | 56,091,034     |   |
|                                                                    |       |       |           |
| Commitments and  contingencies                                          | ** ** | ** ** | ** **     |
|                                                                    |       |       |           |
| Stockholders’ equity                                               |       |       |           |
| Preferred stock,  $0.001 par value                                      |       |       |           |
| Authorized -  5,000,000 shares                                          |       |       |           |
| Issued and  outstanding - none                                          |       | —     |           |
| Common stock,  $0.001 par value                                         |       |       |           |
| Authorized -  100,000,000 shares                                        |       |       |           |
| Issued and  outstanding - 6,100,441 shares                              |       | 6,100      |           |
| Additional paid  in capital                                             |       | 8,226,928  |           |
| Retained  earnings (deficit)                                            |       | (5,315,299 | )              |
| Deferred  compensation                                                  |       | (423,292   | )              |
|                                                                    |       |       |           |
| Total stockholders’  equity                                        |       | 2,494,437  |           |
|                                                                    |       |       |           |
| **Total liabilities and  stockholders’ equity**                    | ** ** | **$**      | **58,585,471** | ** ** |

 

The accompanying notes are an intergral part of these financialstatements.

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**FP TECHNOLOGY, INC.****CONSOLIDATED STATEMENT OF OPERATIONS****For the Three Months EndedSeptember 30, 2005 and 2006****(Unaudited)**

** **
| ** **                                                    | ** ** | **2005**   | ** ** | **2006**   | ** ** |
|---------------------------------------------------------------|------------|------------|------------|------------|------------|
| Revenues                                                      |       |       |       |       |       |
| ON Demand  revenues                                           |       | $          | 41,555     |       | $          | 315,811 |   |
| Enterprise  revenues                                          |       | 1,106,174  |       | 712,201    |       |
| Total revenues                                                |       | 1,147,729  |       | 1,028,012  |       |
|                                                          |       |       |       |       |       |
| Cost of goods sold                                            |       |       |       |       |       |
| ON Demand costs                                               |       | 76,848     |       | 133,058    |       |
| Enterprises  costs                                            |       | 389,073    |       | 382,340    |       |
| Total cost of  goods sold                                     |       | 465,921    |       | 515,398    |       |
|                                                          |       |       |       |       |       |
| Gross profit                                                  |       | 681,808    |       | 512,614    |       |
|                                                          |       |       |       |       |       |
| Operating expenses                                            |       |       |       |       |       |
| Sales, general  and administrative                            |       | 416,575    |       | 1,259,062  |       |
| Research and  development                                     |       | 495,274    |       | 523,216    |       |
| Restructuring  and other special charges                      |       | 4,617      |       | —     |       |
| Settlement of  claim                                          |       | (1,712,500 | )          | —     |       |
|                                                          |       |       |       |       |       |
| Total operating  expenses                                     |       | (796,034   | )          | 1,782,278  |       |
|                                                          |       |       |       |       |       |
| Income (loss) from  operations                                |       | 1,477,842  |       | (1,269,664 | )          |
|                                                          |       |       |       |       |       |
| Other income (expense),  net                                  |       |       |       |       |       |
| Interest (expense)                                            |       | (71,250    | )          | (1,834,118 | )          |
| Other income                                                  |       | (19,111    | )          | 599,675    |       |
| Total other income  (expense), net                            |       | (90,361    | )          | (1,234,443 | )          |
|                                                          |       |       |       |       |       |
| Net income (loss) from  continuing operations                 |       | 1,387,481  |       | (2,504,107 | )          |
|                                                          |       |       |       |       |       |
| Loss from  discontinued operations                            |       | (616,704   | )          | —     |       |
|                                                          |       |       |       |       |       |
| Net Income (loss)                                             |       | $          | 770,777    |       | $          | (2,504,107 | ) |
|                                                          |       |       |       |       |       |
| Net income (loss) per  share - basic and diluted              |       |       |       |       |       |
| Income (loss)  from continuing operations                     |       | $          | 0.64       |       | $          | (0.66 | ) |
|                                                          |       |       |       |       |       |
| Loss from  discontinued operations                            |       | $          | (0.28      | )          | $          | — |   |
|                                                          |       |       |       |       |       |
| Basic and diluted  income (loss) per share                    |       | $          | 0.36       |       | $          | (0.66 | ) |
|                                                          |       |       |       |       |       |
| Basic and  diluted weighted average common shares outstanding |       | 2,177,414  |       | 3,785,916  |       |

 

The accompanying notes are an intergral part of these financialstatements.

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**FP TECHNOLOGY, INC.****COLSOLIDATED STATEMENT OFSTOCKHOLDERS’ EQUITY (DEFICIT)****For the Three Months EndedSeptember 30, 2006****(unaudited)**

** **
| ** **                                              | ** ** | **FP Technology, Inc.** | ** ** | ** **         | ** ** | ** **               | ** ** | ** **    | ** ** | ** **       | ** ** |
|---------------------------------------------------------|------------|-----------------------------------|------------|--------------------|------------|--------------------------|------------|---------------|------------|------------------|------------|
| ** **                                              | ** ** | **Common Stock**             | ** ** | ** **         | ** ** | **Retained**             | ** ** | ** **    | ** ** | ** **       | ** ** |
| ** **                                              | ** ** | ** **                        | ** ** | **$0.001**         | ** ** | **Additional Paid** | ** ** | **Earnings**  | ** ** | **Deferred**     | ** ** | **Stockholders’** | ** ** |
| ** **                                              | ** ** | **Shares**                        | ** ** | **Par Value** | ** ** | **In Capital**      | ** ** | **(Deficit)** | ** ** | **Compensation** | ** ** | **Equity (Deficit)** | ** ** |
|                                                    |       |                              |       |               |       |                     |       |          |       |             |       |   |   |
| Balance, June 30, 2006                                  |       | 5,100,441                         |       | $                  | 5,100      |                     | $          | 2,182,237     |       | $                | (2,811,192 | ) | $ | (487,291 | ) | $ | (1,111,146 | ) |
|                                                    |       |                              |       |               |       |                     |       |          |       |             |       |   |   |
| Sale of common  stock                                   |       | 1,000,000                         |       | 1,000              |       | 6,999,000                |       |          |       |             |       | 7,000,000 |   |
|                                                    |       |                              |       |               |       |                     |       |          |       |             |       |   |   |
| Expenses recorded  in connection with stock sale        |       |                              |       |               |       | (954,309                 | )          |          |       |             |       | (954,309 | ) |
|                                                    |       |                              |       |               |       |                     |       |          |       |             |       |   |   |
| Net loss for the  three months ended September 30, 2006 |       | —                            |       | —             |       | —                   |       | (2,504,107    | )          | 63,999           |       | (2,440,108 | ) |
|                                                    |       |                              |       |               |       |                     |       |          |       |             |       |   |   |
| Balance, September 30, 2006                             |       | 6,100,441                         |       | $                  | 6,100      |                     | $          | 8,226,928     |       | $                | (5,315,299 | ) | $ | (423,292 | ) | $ | 2,494,437 |   |

 

The accompanying notes are an intergral part of these financialstatements.

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**FP TECHNOLOGY, INC.****COLSOLIDATED STATEMENT OF CASHFLOWS****For the Three Months EndedSeptember 30, 2005 and 2006****(Unaudited)**

** **
| ** **                                                                                                                                                    | ** ** | **2005**   | ** **  | **2006**   | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------|-------------|------------|------------|
| **Cash flows from operating  activities**                                                                                                                     |       |       |        |       |       |
| Net income                                                                                                                                                    |       | $          | 770,777     |       | $          | (2,504,107 | ) |
| Adjustments to  reconcile net income to net cash used in operating activities                                                                                 |       |       |        |       |       |
|                                                                                                                                                          |       |       |        |       |       |
| Settlement of  claim                                                                                                                                          |       | (1,712,500 | )           | —     |       |
| Depreciation and  amortization                                                                                                                                |       | 60,723     |        | 1,242,597  |       |
| Loss from  discontinued operations                                                                                                                            |       | 616,704    |        | —     |       |
| Changes in  assets and liabilities                                                                                                                            |       |       |        |       |       |
| Accounts  receivables                                                                                                                                         |       | (61,756    | )           | (490,317   | )          |
| Unbilled  services                                                                                                                                            |       | 2,748      |        | —     |       |
| Debt issuance  costs                                                                                                                                          |       | (55,150    | )           | —     |       |
| Prepaid expenses  and other assets                                                                                                                            |       | 9,134      |        | (66,146    | )          |
| Accounts payable                                                                                                                                              |       | 47,928     |        | (263,781   | )          |
| Accrued  liabilities                                                                                                                                          |       | (20,236    | )           | (231,316   | )          |
| Deferred revenue                                                                                                                                              |       | 257,142    |        | 119,844    |       |
|                                                                                                                                                          |       |       |        |       |       |
| Net cash  provided by (used in) operating activities                                                                                                          |       | (84,487    | )           | (2,193,226 | )          |
|                                                                                                                                                          |       |       |        |       |       |
| **Cash flows from investing  activities**                                                                                                                     |       |       |        |       |       |
| Restricted cash                                                                                                                                               |       | —     |        | (2,500,000 | )          |
| Purchase of  property and equipment                                                                                                                           |       | (4,457     | )           | (14,968    | )          |
| Other assets                                                                                                                                                  |       | 20,802     |        | 41,767     |       |
|                                                                                                                                                          |       |       |        |       |       |
| Net cash  provided by (used in) investing activities                                                                                                          |       | 16,345     |        | (2,473,201 | )          |
|                                                                                                                                                          |       |       |        |       |       |
| **Cash flows from financing  activities**                                                                                                                     |       |       |        |       |       |
| Proceeds from  sale of stock net of expenses                                                                                                                  |       | —     |        | 6,045,691  |       |
| Payments on  notes payable                                                                                                                                    |       | (1,250,000 | )           | (500,000   | )          |
| Debt issuance  costs                                                                                                                                          |       | —     |        | (24,973    | )          |
| Proceeds from  notes payable                                                                                                                                  |       | 2,000,000  |        | —     |       |
|                                                                                                                                                          |       |       |        |       |       |
| Net cash  provided by financing activities                                                                                                                    |       | 750,000    |        | 5,520,718  |       |
|                                                                                                                                                          |       |       |        |       |       |
| Net increase in  cash and cash equivalents                                                                                                                    |       | 681,858    |        | 854,291    |       |
|                                                                                                                                                          |       |       |        |       |       |
| **Cash and cash equivalents, on  June 30, 2005 and 2006**                                                                                                     |       | 24,379     |        | 831,184    |       |
|                                                                                                                                                          |       |       |        |       |       |
|                                                                                                                                                          |       |       |        |       |       |
| **Cash and cash equivalents, end  of period**                                                                                                                 | ** ** | **$**      | **706,237** | ** ** | **$**      | **1,685,475** | ** ** |
|                                                                                                                                                          |       |       |        |       |       |
| **Supplemental cash flow  information:**                                                                                                                      |       |       |        |       |       |
|                                                                                                                                                          |       |       |        |       |       |
| **Interest  paid**                                                                                                                                            | ** ** | **$**      | **50,000**  | ** ** | **$**      | **48,667** | ** ** |
|                                                                                                                                                          |       |       |        |       |       |
| **Non Cash Financing and  Investing Activities:**                                                                                                             |       |       |        |       |       |
| During the quarter ended September 30, 2005 the  Company issued convertible notes and warrants and valued the conversion right  and the warrants at $510,000. |       |       |        |       |       |

 

The accompanying notes are an integral part of these financialstatements.

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Notes to Unaudited FinancialStatements

1.    Basis of Presentation:

The accompanyingunaudited financial statements have been pre­pared by the Company.  In the opinion of management, theaccompanying unaudited financial statements contain all adjustments (consistingof only normal recurring accruals) necessary for a fair presentation of thefinancial position as of September 30, 2006, and the results of operations andcash flows for the periods ended September 30, 2005 and 2006.

In June 2006, FPTechnology Holdings, Inc. (“FPT”) changed its name to FP Technology, Inc.

On June 29, 2006, AFGEnterprises USA, Inc. (“AFG”) as the 100% owner of all of the outstanding stockof FP Technology, Inc., merged with and into FP Technology, Inc. with FPTechnology, Inc. as the surviving corporation.

On March 29, 2006, AFGentered into an Agreement and Plan of Merger by and among FP Merger Sub, Inc.,a Delaware corporation and wholly-owned subsidiary of FPT, pursuant to whichAFG agreed to acquire all of the issued and outstanding capital stock of FPT(the “FP Acquisition”).  AFG completedthe acquisition of FPT on the same date, and FPT became a wholly-ownedsubsidiary of AFG.  In connection withthe FP Acquisition, AFG changed its fiscal year end from December 31 to June30.

As a result of themerger, each share of common stock of FPT outstanding immediately prior to theeffective time of the merger (the “Effective Time”) was converted into theright to receive shares of common stock of AFG at an exchange ratio of 0.4032248for each share of FPT common stock.  AFGissued an aggregate of 3,991,939 shares of its common stock, par value $0.001per share (the “Purchase Price”) in exchange for all issued and outstandingshares of FPT common stock.  The issuanceof such shares of common stock was exempt from registration requirements pursuantto Section 4(2) of the Securities Act of 1933, as amended (the “Securities Act”),and Rule 506 promulgated thereunder.  Thetransaction has been recorded as a recapitalization of FPT whereby the capitalstructure and outstanding shares of common stock have been adjusted as if therewas a stock split and a subsequent issuance of common stock to AFG valued atthe net book value of AFG at March 29, 2006.

Continuanceof Operations:

The accompanyingconsolidated financial statements have been prepared by the Company on a goingconcern basis in accordance with accounting principles generally accepted inthe United States of America. As such, the statements anticipate the realizationof assets and the liquidation of liabilities in the normal course ofbusiness.  Notwithstanding this fact, theCompany has been incurring losses and negative cash flow.  For the period ended September 30, 2006, the 

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Companyincurred a net loss of approximately $2.5 million and negative cash flows fromoperations of $2.2 million. In the event the Company is not successful ingenerating profits and positive cash flow from operations in future periods, itwill be dependent upon additional financing to support its continuingoperations.  While the Company has beensuccessful in completing numerous rounds of financing, including the recent$7,000,000 PIPE Financing, no assurances can be given that additional financingwill be available, in which case, the Company’s ability to achieve its businessobjectives will be adversely affected. The accompanying consolidated financial statements do not include anyadjustments that might result from such adverse outcomes.

2.    Income taxes:

No provision for income taxes is required at September30, 2006, because, in management’s estimation the Company will not recognizeany taxable income through the fiscal year ended June 30, 2007.

3.    Recent Financings:

On August 31, 2006, the Company completed a privateplacement of public equity units (the “Units”) of FP Technology, Inc. (the “PIPEFinancing”).  The Units were offeredthrough Rodman & Renshaw, LLC, as placement agent, on a best efforts basisat $7.00 per Unit.  Each Unit consistedof one share of common stock, $0.001 par value per share, of the Company (“CommonStock”) and a warrant (“Warrant”) to acquire one share of Common Stock at $7.00per share.

The Units were offered pursuant to Rule 506 ofRegulation D under the Securities Act of 1933. To purchase Units, the investor had to be an accredited investor andmeet the other suitability requirements set forth under the caption “InvestorSuitability Requirements and Subscription Procedures” within the offeringdocuments.  The Company closed itsprivate placement offering on August 31, 2006, raising $7,000,000 (1,000,000Units) in gross equity proceeds.  The netproceeds of the offering are to be used for working capital purposes and debtretirement.

On August 18, 2006 the Company deposited $2,500,000 tothe CAP escrow fund maintained for the CAP Financing, bringing the fund balanceto $50,000,000 in accordance with the terms and conditions of the CAP Financingas described below.  Additionally, on thesame date, the Company repaid Trident Growth Fund, L.P. $500,000 of principal.

4.    NotesPayable:

On September 13, 2005,Trident Growth Fund, L.P. (“Trident”) loaned FPT $2,000,000 with interestaccruing at 12% per annum.  Interest ispayable monthly and the principal was due on September 13, 2006 or uponconsummation of a change in control 

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transaction.  The Note was originally convertible intoshares of common stock based upon a fixed ratio.  On or about November 25, 2005, FPT closed anadditional $500,000 note with Trident Growth Fund on the same terms andconditions as the note issued in September 2005.  The funds received pursuant to the SeptemberNote and the November Note have been used for working capital required as theCompany transitions from its legacy enterprise software business to its OnDemandrevenue model.

On September 13, 2005, Firepond, FP Technology Holdings, Inc. andGeneral Motors entered into a letter agreement whereby General Motors accepted$1,250,000 in cash from FP Technology Holdings, received a $250,000 unsecurednote from FP Technology Holdings, cancelled the note due from Firepond andreleased its security interest in Firepond assets.

On March 29, 2006, AFG entered into a Securities Purchase Agreement(the “Purchase Agreement”) with certain investors (the “Buyers”) to which theBuyers agreed to purchase (i) AFG’s Senior Secured Nonconvertible Notesdue 2011 (the “Nonconvertible Notes”) in an aggregate principal amount of$50,000,000 (“CAP Financing”), which Nonconvertible Notes may be exchanged forSenior Secured Convertible Notes due 2011 (the “Convertible Notes”, andtogether with the Nonconvertible Notes, the “Notes”) or redeemed under certaincircumstances, and which Convertible Notes are convertible into shares of AFG’scommon stock (the “Conversion Shares”); and (ii) warrants (the “Warrants”) toacquire in the aggregate up to 6,875,000 shares of AFG’s common stock(including warrants granted to the placement agent to acquire 625,000 shares ofcommon stock) exercisable from the earlier of six months after issuance or theThreshold Acquisition Date (as such term is defined in the Indenture) untilMarch 29, 2011 at an exercise price equal to the lower of $8.00 or 125% of theper share price of AFG’s common stock to be sold in the PIPE Financing.  The purchase and sale of the Notes andWarrants was consummated on March 29, 2006.

On September 13, 2006, the Company modified the Trident loan to providefor a repayment of the remaining unpaid principle balance of $2,000,000 ratablyover a 24 month period plus interest at 12% per annum.

5.    Litigation:

In August, 2001, Firepond, Inc. (“Firepond”) was named as a defendantin a securities class action filed in United States District Court for theSouthern District of New York related to its initial public offering (“IPO”) inFebruary, 2000.  The lawsuit also namedcertain of the underwriters of the IPO, including FleetBoston, Dain Rauscher,and SG Cowan, as well as officers and directors of Firepond, Klaus P. Besierand Paul K. McDermott, as defendants. Approximately 300 other issuers and their underwriters have had similarsuits filed against them, all of which are included in a single coordinatedproceeding in the Southern District of New York (the “IPO Litigations”).  The complaints allege that the prospectus andthe registration statement for the IPO failed to disclose that the underwritersallegedly solicited and received “excessive” commissions from investors andthat some investors in the IPO allegedly agreed with the underwriters to buyadditional shares in the aftermarket in order to inflate the price of Firepond’sstock.  An amended complaint was filedApril 

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19, 2002.  Firepond, Inc. and theofficers and directors identified above were named in the suits pursuant toSection 11 of the Securities Act of 1933, Section 10(b) of the Exchange Act of1934, and other related provisions.  Thecomplaints seek unspecified damages, attorney and expert fees, and otherunspecified litigation costs.

On July 1, 2002, the underwriter defendants in the consolidated actionsmoved to dismiss all of the IPO Litigations, including the action involvingFirepond.

In June 2003, a proposed settlement of this litigation was structuredbetween the plaintiffs, the issuer defendants in the consolidated actions, theissuer officers and directors named as defendants, and the issuers’ insurancecompanies.  On or about July 30,2003, a committee of Firepond’s Board of Directors conditionally approved theproposed partial settlement.  Thesettlement would provide, among other things, a release of Firepond and of theindividual defendants for the conduct alleged to be wrongful in the amendedcomplaint.  Firepond would agree toundertake other responsibilities under the partial settlement, includingagreeing to assign away, not assert, or release certain potential claims theCompany may have against its underwriters. Any direct financial impact of the proposed settlement is expected to beborne by Firepond’s insurance carriers.

In June 2004, an agreement of settlement was submitted to the court forpreliminary approval.  The court grantedthe preliminary approval motion on February 15, 2005, subject to certainmodifications.

On August 31, 2005, the court issued a preliminary order furtherapproving the modifications to the settlement and certifying the settlement classes.The court also appointed the Notice Administrator for the settlement andordered that notice of the settlement be distributed to all settlement classmembers beginning on November 15, 2005. The settlement fairness hearing was held on April 24, 2006, and thecourt reserved decision.  If the courtdetermines that the settlement is fair to the class members, the settlementwill be approved.  There can be noassurance that this proposed settlement will be approved and implemented in itscurrent form, or at all.

The Company is also subject to various otherclaims and legal actions arising in the ordinary course of business. In theopinion of management, after consultation with legal counsel, the ultimatedisposition of these matters is not expected to have a material effect on theCompany’s business, financial condition, or results of operations.

6.    Subsequent events:

On October 27, 2006, the Company renegotiatedand amended its note with General Motors Corporation to provide for a paymentof $50,000 and an amortization of the remaining principle balance of $200,000over a term of 24 months at a rate of 6% beginning in November, 2006.

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**ITEM2.**                    MANAGEMENT’SDISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF  OPERATIONS

Except for historical information, matters discussedin this report are forward-looking statements based on management’s estimates,assumptions and projections.  In somecases, you can identify forward-looking statements by terminology such as “may”,“will”, “should”, “expects”, “plans”, “anticipates”, “believes”, “estimates”, “predicts”,“potential” or “continue” or the negative of these terms or other comparableterminology. These statements are only predictions and involve known andunknown risks, uncertainties and other factors, including the risks in thesection entitled “Risk Factors”, that may cause our Company’s or our industry’sactual results, levels of activity, performance or achievements to bematerially different from any future results, levels of activity, performanceor achievements expressed or implied by these forward-looking statements.Although we believe that the expectations reflected in the forward-lookingstatements are reasonable, we cannot guarantee future results, levels ofactivity, performance or achievements. Except as required by applicable law,including the securities laws of the United States, we do not intend to updateany of the forward-looking statements to conform these statements to actualresults.

As used in this report, the terms “we”, “us”, “our”, “theCompany” or “FPT” mean FP Technology, Inc., after giving effect to thereorganization (as described in more detail under “Overview—Corporate History”below).

**Overview**

We are a leading provider of CPQ, or “Configure,Price, Quote”, on-demand, multi-tenant software that automates and simplifiesproduct pricing and configuration for companies and helps these enterprisesimprove order accuracy and reduce their total cost of sales.  Ourpredecessor, Firepond, Inc. (“Firepond”), was founded in 1983.  Our suiteof products help companies configure, price and quote complex products duringthe sales process, such as machinery, high technology products or insuranceservices.  Our sales solutions help companies optimize their salesprocesses, whether their need is to solve complex product or pricingconfiguration, create product catalogs or provide an interactive sellingsystem, and dramatically improves response time.  Our current customersinclude Fortune 1000 companies such as Symantec, G.E. Tip Trailer, Freightliner,Cummins Power Generation, Deere & Company, Horizon Blue Cross Blue Shield,Siemens Building Technologies, Steelcase International and Case New Holland.

Our corporate headquarters are located at 181 WellsAvenue, Newton, Massachusetts 02459.  Our common stock, par value $0.001per share (“Common Stock”), trades on the Over-the-Counter Bulletin Board underthe symbol “FPTI.OB.”

We market our productsunder the Firepond brand name:

·                  FirepondOnDemand is an application that enables a company’s sales force and supportingorganizations to configure complex products, and accurately price thoseproducts.  Firepond OnDemand is offered to customers independently or asan integrated service within the Salesforce.com product called FirepondOnDemand for Salesforce.comTM.

·                  TheInteractive Configurator Suite is a set of data maintenance tools, sharedlibraries and application program interfaces (APIs) that supply configurationcapabilities to an application.  Firepond OnDemand is built on theInteractive Configurator Suite (ICS) technology platform.

We have offered our OnDemand application service sinceAugust 2005.  We execute our sales and marketing strategy through directand indirect channels, and currently have sales relationships with several 

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system integrators and resellers.  The recent increase in interestin CPQ applications, combined with the acceptance of the on-demand businessmodel, have opened new opportunities for us in the form of partnerships withSalesforce.com and other enterprise applications providers which we areactively pursuing.

Technological feasibility of our software productsoccurs late in the development cycle and close to general release of theproducts. The development costs incurred between the time technologicalfeasibility is established and general release of the product are notmaterial.  As such, we expense thesecosts as incurred to research and development expense.  To enhance our product offering and marketposition, we believe it is essential for us to continue to make significantinvestment in research and development.

**Corporate History**

From the inception of our predecessor company,Firepond, Inc. (“Firepond”), in 1983 through 1997, we generated revenueprimarily through providing custom development services.  These services consisted of the developmentof highly customized applications utilizing core software technology, andrelated software maintenance and data maintenance services. In early fiscal1997, Firepond undertook a plan to change its strategic focus from a customdevelopment services company to a software product company providing morestandardized solutions.  Firepond’s firstpackaged software product was introduced in May 1997.  Firepond released the Firepond ApplicationSuite in October 1999, and renamed and repackaged the Firepond ApplicationSuite as the SalesPerformer Suite in December 2000.

In February 2000, Firepond completed its initialpublic offering.  Soon thereafter, as aresult of a global slowdown in information technology spending, including inthe Customer Relationship Management market, Firepond undertook a comprehensiverestructuring of its operations. Firepond incurred substantial losses from 2000 through 2003, duringwhich period Firepond invested heavily in research and development.

On December 2, 2003, Jaguar Technology Holdings, LLCacquired Firepond in exchange for cash equal to $3.16 per share, and Firepondbecame a private company.  On September13, 2005, FP Technology Holdings, Inc. (“FPT Holdings”) acquired all of theoperating assets, certain liabilities, and all of the employees of Firepond aspart of a restructuring and new financing transaction.  Before and after this transaction, bothFirepond and FPT Holdings were 100% owned by the same entity.  On January 17, 2006, Firepond was liquidated,and a liquidating trust was created to liquidate the remaining assets ofFirepond, enforce and pursue the causes of action of Firepond, provide for areserve against the payment of any contingent liabilities, and distribute thenet proceeds to its stockholder.

On March 29, 2006, AFG Enterprises USA, Inc. (“AFG”),a public shell company, acquired FPT Holdings pursuant to an Agreement and Planof Merger.  In connection with thistransaction, AFG changed its fiscal year from December 31 to June 30 to conformto FPT Holdings’ fiscal year end.  AFGissued an aggregate of 3,991,939 shares of its common stock to the stockholdersof FPT Holdings in this transaction.

On June 29, 2006, AFG, the 100% owner of FPT Holdings,merged with and into FPT Holdings, with FPT Holdings as the survivingcorporation.  On the same date, FPTHoldings changed its name to “FP Technology, Inc.”

For the period ended September 30, 2005, the financialstatements presented herein are the combined financial statements of Firepond,Inc and FPT Holdings.  For the periodended September 30, 2006, the financial statements presented herein are the consolidatedfinancial statements of the Firepond liquidating trust and FP Technology, Inc.

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**RecentFinancings**

***PIPE Financing***

In August 2006, we completed a private placement (the “PIPEFinancing”) of an aggregate of 1,000,000 Units at $7.00 per Unit, with eachUnit consisting of one share of our Common Stock and a warrant to purchase oneadditional share of Common Stock at $7.00 per share, exercisable for five yearsafter issuance (the “PIPE Warrants”). We conducted the PIPE Financing throughtwo closings which occurred on August 11 and August 31, 2006. The aggregategross proceeds from the PIPE Financing totaled $7,000,000, not including feesand expenses of the offering.  Theproceeds from the offering have been used to repay certain indebtedness of theCompany (as described below) and will be used to provide working capital to theCompany.  Rodman & Renshaw, LLC andNational Securities Corporation acted as placement agent for the financing.

On October 12, 2006, the Company filed a registrationstatement on Form SB-2 to register for resale on Form SB-2 the shares of CommonStock issued in the PIPE Financing as well as the shares of Common Stockissuable upon exercise of the PIPE Warrants. The registration statement becameeffective on October 20, 2006.

***CAP Financing — Private Placement of Notes and Warrants***

On March 29, 2006, we (through our predecessor AFG)entered into a Securities Purchase Agreement (the “Purchase Agreement”) withcertain institutional investors (the “Buyers”), pursuant to which the Buyerspurchased (i) our Senior Secured Nonconvertible Notes due 2011 (the “NonconvertibleNotes”) in an aggregate principal amount of $50,000,000 (the “CAP Financing”),which Nonconvertible Notes may be exchanged for Senior Secured ConvertibleNotes due 2011 (the “Convertible Notes”, and together with the NonconvertibleNotes, the “Notes”) or redeemed under certain circumstances, and whichConvertible Notes are convertible into shares of our Common Stock (the “ConversionShares”); and (ii) warrants (the “CAP Warrants”) to acquire in the aggregate upto 6,875,000 shares of our Common Stock (including warrants granted to theplacement agent to acquire 625,000 shares of Common Stock) (the “CAP WarrantShares”), exercisable from the earlier of six months after issuance or theThreshold Acquisition Date (as such term is defined in the Indenture, describedbelow) until March 29, 2011 at an exercise price equal to the lower of $8.00 or125% of the per share price of our common stock to be sold in the PIPEFinancing. The purchase and sale of the Notes and CAP Warrants was consummatedon March 29, 2006. The Notes are subject to certain requirements which must befulfilled or the Notes will be callable within one year of issuance.

Pursuant to the terms of an Indenture dated as ofMarch 29, 2006 (the “Indenture”) executed by us, as Issuer, and The Bank of NewYork, as Trustee (in such capacity, the “Trustee”), we issued theNonconvertible Notes to the Buyers. Under the terms of the Indenture and the Escrow Agreement dated as ofMarch 29, 2006 (the “Escrow Agreement”) between us and the Trustee, ninety-fivepercent of the proceeds of the Nonconvertible Notes were paid into aninterest-bearing account (the “Escrow Account”) maintained by the Escrow Agentfor the benefit of the holders of the Nonconvertible Notes (the “NonconvertibleHolders”).

On August 18, 2006, we deposited $2,500,000 receivedin the PIPE Financing into the Escrow Account making the aggregate funds in theEscrow Account equal to $50,000,000.

***Trident Financing***

On September 13, 2005, Trident Growth Fund, L.P. (“Trident”)loaned FPT Holdings $2,000,000, with interest accruing at 12% per annum.  Interest is payable monthly and principal dueon the earlier of

 

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September 30, 2006 or on consummation of a change in controltransaction.  The Note was originallyconvertible into shares of Common Stock based upon a fixed ratio.  On or about November 25, 2005, FPT Holdingsclosed an additional $500,000 note with Trident on the same terms andconditions as the note issued in September 2005.  The funds received pursuant to these Noteswere used for working capital.

On August 18, 2006, we repaid $500,000 of principal onthe Trident debt from proceeds received in the PIPE Financing.

The Trident loan was amended as of September 13, 2006,extending the maturity date to August 31, 2008 and providing for ratablemonthly payments of principal plus accrued interest beginning September 30,2006.   As of the date of this report,$1,833,333 remains outstanding on the Trident debt.

**Financial Condition**

TheCompany had $58,585,471 in total assets and $56,091,034 in total liabilities atSeptember 30, 2006, as compared to $6,593,249 and $4,138,615 at September 30,2005, respectively.  Accounts payable atSeptember 30, 2006 were $260,390 as compared to $207,671 at September 30,2005.  Accrued expenses were $1,851,143at September 30, 2006 compared to $703,291 at September 30, 2005.  Notes payable increased from $1,511,250 atSeptember 30, 2005 to $52,250,000 at September 30, 2006.  The Company had a working capital deficit of$2,457,863 at September 30, 2006 as compared to a working capital deficit of$2,599,513 at September 30, 2005.

**Results of Operations**

Forthe three months ended September 30, 2006, the Company had revenues of$1,028,012, cost of goods sold of $515,398, operating expenses includinggeneral and administrative expenses and research and development expenses of$1,782,278, interest expense of $1,834,118 and other income of $599,676.

We incurred stock-based compensation charges duringthe quarter ended September 30, 2006 of $63,999.  We anticipate that some stock basedcompensation charges will be incurred throughout fiscal 2007 through restrictedstock grants and stock options to board members, executive management,employees and consultants.

***Quarter Ended September 30, 2006 Compared to Quarter Ended September30, 2005***

For the quarter endedSeptember 30, 2006, the Company sustained a net loss of $2,504,107, as comparedto net income of $770,777 for the quarter ended September 30, 2005.  Revenues for the quarter ended September 30,2006 were $1,028,012 as compared to revenues of $1,147,729 for the September30, 2005 quarter or a decrease of 10.4%. Cost of goods sold were $515,398 in the quarter ended September 30, 2006as compared to $465,921 in the prior year quarter or an increase of 10.6%.  Operating expenses were $1,782,278 in theSeptember 30, 2006 quarter as compared to a credit of $796,034 for the quarterended September 30, 2005. Such increase was primarily the result of a legalsettlement received in the quarter ended September 30, 2005 totaling $1,712,500combined with an increase in general and administrative expenses and othercosts and expenses associated with the shift in business focus to OnDemandsoftware. Sales, general and administrative expenses increased by $842,487 or202.2% primarily for salaries and other personnel-related costs for executive,financial, human resource, information services, and other administrativefunctions, as well as the amortization of legal and accounting costs associatedwith the closing of the merger of AFG and FPT Holdings and the related CAPFinancing.  Additionally, the Company hasadded a senior marketing executive along with a marketing support staff topursue sales and marketing efforts associated with our OnDemand businessstrategy.  Other income and expensesincreased $1,144,082 from $90,361 to $1,234,443 from the September 30, 2005quarter to the September 30, 2006 quarter, an increase of 1,266% due to theincrease in interest expense associated with the CAP Financing closed in March2006 and the Trident debt financings closed in September and November2005.  Included in interest expense is$1,138,987 resulting from amortization of debt issuance costs associated withthe Trident and CAP loans.

**Liquidityand Capital Resources**

At September 30, 2006, the Company had cash and cashequivalents of $1,685,475 and a working capital deficit of $2,457,863 as comparedwith cash and cash equivalents of $706,237 and a working capital deficit of$2,599,513 at September 30, 2005. Restricted cash totaled $50,000,000 as of September 30, 2006.

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The Company is currently incurring losses fromoperations and is therefore funding its operations with cash reserves andproceeds from the recently completed $7,000,000 Pipe Financing (See “RecentFinancings” above).   Net proceeds fromthis financing have been utilized: (1) to increase the CAP Financing EscrowAccount by $2,500,000 to an aggregate amount of $50,000,000; (2) to repay$500,000 of the Trident debt; and (3) for general working capital purposes.

Challengesassociated with our strategic transition from an enterprise based softwaredelivery model to one based on an OnDemand subscription model have proven moredifficult than originally anticipated. While the number of OnDemand subscribers has met our initial expectations,the rate and pattern of subscription payments has resulted in less cash beinggenerated than originally forecast.  As aresult, we now believe that based upon current cash balances and forecasts ofprobable cash flows from future operations, the Company will require additionalworking capital in order to continue as a going concern for the next twelvemonths.  In order to address this issue,we are endeavoring to reduce costs, increase OnDemand revenues and secureadditional sources of debt and equity financing.  However, there can be no assurance that suchreductions in costs will be achievable, that increases in revenues will berealized or that additional sources of equity and debt financing will beavailable in a timeframe sufficient to enable the Company to continue itsoperations in the normal course.

**CRITICAL ACCOUNTING POLICIES AND ESTIMATES**

Our consolidated financial statements are prepared in accordance withaccounting principles generally accepted in the United States. The preparationof these consolidated financial statements requires us to make estimates andassumptions that affect the reported amounts of assets, liabilities, revenues,costs and expenses, and related disclosures. On an ongoing basis, we evaluateour estimates and assumptions. Our actual results may differ from these estimatesunder different assumptions or conditions.

In December 2001, the SEC requested that all registrants list their most“critical accounting policies” in the Management’s Discussion &Analysis.  The SEC indicated that a“critical accounting policy” is one which is both important to the portrayal ofthe Company’s financial condition and results and requires our most difficult,subjective or complex judgments, often as a result of the need to makeestimates about the effect of matters that are inherently uncertain. We believethat the following accounting policies fit this definition:

**Revenue Recognition**

***Enterprise Software Revenue Recognition***

Enterprise software revenue or license revenue is generated from licensingthe rights to the use of the Company’s packaged software products.  The Company recognizes enterprise softwarerevenue based on the 

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provisionsof the American Institute of Certified Pubic Accountants (AICPA) Statement ofPosition, No. 97-2, “Software Revenue Recognition” (“SOP 97-2”), as amended, andStatement of Position No. 81-1, “Accounting for Performance ofConstruction-Type and Certain Production-Type Contracts” (“SOP 81-1”).

The Company generates enterprisesoftware revenue from licenses and services. License revenue is generated from licensing the rights to the use of theCompany’s packaged software products. Service revenue is generated from sales of maintenance, consulting andtraining services performed for customers that license the Company’s packagedsoftware products.

 

The Company has concluded thatgenerally, where the Company is responsible for implementation services for theSalesPerformer product suite and their components, the implementation servicesare essential to the customer’s use of the products.  In such arrangements, the Company recognizesrevenue following the percentage-of-completion method over the implementationperiod.  Percentage of completion iscomputed on the basis of the number of implementation hours incurred to datecompared to estimated total implementation hours.  This method is used because management hasdetermined that past experience has evidenced expended hours to be the bestmeasure of progress with respect to these types of arrangements.  In those instances where the estimate oftotal contract revenue and total contract cost indicate that a loss will berealized with respect to a particular arrangement, a provision for the entireloss on the contract is recorded in the period of determination.

 

In situations where the Company is not responsible forimplementation services for the SalesPerformer product suite, the Companyrecognizes revenue on delivery of the packaged software provided (i) there ispersuasive evidence of an arrangement, (ii) collection is probable and (iii)the fee is fixed or determinable.  Insituations where the Company is not responsible for implementation services forthe SalesPerformer product suite, but is obligated to provide unspecifiedadditional software products in the future, the Company recognizes revenue as asubscription over the term of the commitment period.

For product sales that are recognized on delivery, the Company will executecontracts that govern the terms and conditions of each software license, aswell as maintenance arrangements and other services arrangements.  If an arrangement includes an acceptanceprovision, acceptance occurs upon the earlier of receipt of a written customeracceptance or expiration of the acceptance period.

Revenue under multiple element arrangements (which may include severaldifferent software products and services sold together) is allocated to eachelement based on the residual method in accordance with Statement of Position,No. 98-9, “Software Revenue Recognition with Respect to Certain Arrangements”(“SOP 98-9”).  The Company uses the residualmethod when vendor-specific objective evidence of fair value does not exist forone of the delivered elements in the arrangement.  Under the residual method, the fair value ofthe undelivered elements is deferred and subsequently recognized.  The Company has established sufficientvendor-specific objective evidence for professional services, training andmaintenance and support services based on the price charged when these elementsare sold separately.  Accordingly,packaged software license revenue is recognized under the residual method inarrangements in which software is licensed with professional services,training, and maintenance and support services.

Revenue from maintenance services is recognized ratably over the term ofthe contract, typically one year. Consulting revenue is primarily related to implementation servicesperformed on a time-and-materials basis under separate servicearrangements.  Revenue from consultingand training services is recognized as services are performed.

***OnDemand Hosted License Revenue***

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Firepond OnDemand is an application that enables acompany’s sales force and supporting organizations to configure complexproducts, and accurately price those products. For Firepond OnDemand contracts, the Company does not actually deliver asoftware product to a customer for installation on the customer’s in-housesystems but rather makes the software available to the customer through aCompany hosting arrangement. In this case the Company installs and runs thesoftware application either on its own or a third-party’s server givingcustomers access to the application via the Internet or a dedicated line.  Accordingly, the Company evaluates itsrevenue recognition in consideration of SOP 97-2 or whether such activity fallsoutside of such guidance.

An Emerging Issues Task Force was tasked withassessing the applicability of SOP 97-2 to such hosting arrangements andconsidering how a vendor’s hosting obligation would impact revenue recognition.This discussion resulted in the issuance of Emerging Issues Task Force 00-03, “*Application of AICPA Statement of Position 97-2 toArrangements That Include the Right to Use Software Stored on Another Entity’sHardware” (“EITF 00-03”)*. Under EITF 00-03, the Task Force reached aconsensus that a hosting arrangement is within the scope of SOP 97-2 if:

·                                          the customer has the contractual right to take possession ofthe software at any time during the hosting period without significant penalty;and

·                                          it is feasible for the customer to either run the software onits own hardware or contract with another party unrelated to the vendor to hostthe software without significant penalty.

This allows the Company theability to recognize that portion of the fee attributable to the license ondelivery, while that portion of the fee related to the hosting element would berecognized ratably as the service is provided, assuming all other revenuerecognition criteria have been met.   Ifa hosting arrangement fails to meet the requirements of EITF 00-03 then the arrangementis not considered to have a software element and therefore is outside of thescope of SOP 97-2. The hosting arrangement, which would follow a servicesaccounting model, would then likely be accounted for in accordance with theguidance contained in the Securities and Exchange Commission’s Staff AccountingBulletin No. 101, “*Revenue Recognition inFinancial Statements*” (“SAB 101”). SAB 101 contains the same four basic criteria for revenue recognition asSOP 97-2:

·              Persuasiveevidence of an arrangement exists;

·              Deliveryhas occurred or services have been rendered;

·              Thevendor’s price to the buyer is fixed or determinable; and

·              Collectibilityis reasonably assured.

Once these conditions havebeen met, revenue can be recognized.  SAB101 was amended by Securities and Exchange Commission’s Staff AccountingBulletin No. 104 (“*Revenue Recognition,corrected copy*” (“*SAB 104*”),which codified current and existing revenue recognition issues.    In consideration of the above criteria, ingeneral terms, revenue from product-related hosted solution is recognizedratably over the term of the contract after payment has been received.  Hosted solution includes unspecifiedupgrades, end user support up to two primary contacts and hosted serversupport.

The Company has recordeddeferred revenue on amounts billed or collected by the Company beforesatisfying the above revenue recognition criteria.  TheCompany recognizes revenue based on the provisions of the American Institute ofCertified Pubic Accountants (AICPA) Statement of Position, No. 97-2, “SoftwareRevenue Recognition” (“SOP 97-2”), as amended, and Statement of Position No.81-1, “Accounting for Performance of Construction-Type and CertainProduction-Type Contracts” (“SOP 81-1”).

Firepondrecorded deferred revenue on amounts billed or collected by Firepond beforesatisfying the above revenue recognition criteria.  Deferred revenue at September 30, 2005 and2006 consisted of the following:

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|                        | ** ** | **Period Ended  September 30, 2005** | ** ** | **Period Ended  September 30, 2006** | ** ** |
|------------------------|------------|-----------------------------------------------------|------------|-----------------------------------------------------|------------|
| On Demand              |       | $                                                   | 46,280     |                                                | $          | 626,036 |   |
| Enterprise maintenance |       | 1,399,149                                           |       | 1,103,465                                           |       |
| Total                  |       | $                                                   | 1,445,429  |                                                | $          | 1,729,501 |   |

**Cost of Revenue**

Cost of licenses includes royalties, media, productpackaging, documentation, and other production costs.

Costof product-related services and maintenance and cost of custom developmentservices revenue consist primarily of salaries, related costs for development,consulting, training and customer support personnel, including cost of servicesprovided by third-party consultants engaged by the Company.

**Property and Equipment**

Propertyand equipment are stated at cost. Depreciation is computed using thestraight-line method over the estimated useful lives of the assets, as follows:

| Computer equipment and software |   | 2 to 5 years |
|---------------------------------|--------|--------------|
| Furniture and fixtures          |   | 5 years      |
| Leasehold improvements          |   | 5 years      |

 

Thecost of assets retired or disposed of and the accumulated depreciation thereonis removed from the accounts with any gain or loss realized upon sale ordisposal credited or charged to operations, respectively.

**Goodwill**

Priorto the January 1, 2002 implementation of Statement of Financial AccountingStandards No. 142, “Goodwill and Other Intangible Assets” (SFAS 142”), goodwillwas amortized on a straight-line basis over 5-20 years.  Since that date, goodwill has been subject toperiodic impairment tests in accordance with SFAS 142.

TheCompany identifies and records impairment losses on long-lived assets,including goodwill that is not identified with an impaired asset, when eventsand circumstances indicate that an asset might be impaired.  Events and circumstances that may indicatethat an asset is impaired include significant decreases in the market value ofan asset, a change in the operating model or strategy and competitive forces.

Ifevents and circumstances indicate that the carrying amount of an asset may notbe recoverable and the expected undiscounted future cash flow attributable tothe asset is less than the carrying amount of the asset, an impairment lossequal to the excess of the asset’s carrying value over its fair value isrecorded.  Fair value is determined basedon the present value of estimated expected future cash flows using a discountrate commensurate with the risk involved, quoted market prices or appraisedvalues, depending on the nature of the assets.

**Computer SoftwareDevelopment Costs and Research and Development Expenses**

TheCompany incurs software development costs associated with its licensed productsas well as new products.  Since June1997, the Company determined that technological feasibility occurs upon thesuccessful development of a working model, which happens late in thedevelopment cycle and close to general release of the products.  Because the development costs incurredbetween the time technological feasibility is established and general releaseof the product are not material, the Company expenses these costs as incurred.

**ITEM3.  CONTROLS AND PROCEDURES**

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(a)          Evaluation of Disclosure Controls and Procedures.

Weconducted an evaluation under the supervision and with the participation of ourmanagement, including our Chief Executive Officer and Chief Financial Officer,of the effectiveness of the design and operation of our disclosure controls andprocedures (as defined in Rules 13a-15(e) under the Securities Exchange Act of1934 (“Exchange Act”)) as of September 30, 2006.  Based upon that evaluation, our ChiefExecutive Officer and Chief Financial Officer have determined that ourdisclosure controls and procedures have been designed and are being operated ina manner that provides reasonable assurance that the information required to bedisclosed in our Exchange Act reports is recorded, processed, summarized andreported within the time periods specified in the Securities and ExchangeCommission’s rules and forms, and that such information is accumulated andcommunicated to our management, including our Chief Executive Officer and ChiefFinancial Officer, as appropriate, to allow timely decisions regarding requireddisclosure.  In designing and evaluatingthe disclosure controls and procedures, our management recognizes that anycontrols and procedures, no matter how well designed and operated, can provideonly reasonable assurance of achieving the desired control objectives, and ourmanagement necessarily is required to apply its judgment in evaluating thecost-benefit relationship of possible controls and procedures.

(b)         Management’s responsibility for financialstatements

Ourmanagement is responsible for the integrity and objectivity of all informationpresented in this report. The consolidated financial statements were preparedin conformity with accounting principles generally accepted in the UnitedStates of America and include amounts based on management’s best estimates andjudgments. Management believes the consolidated financial statements fairlyreflect the form and substance of transactions and that the financialstatements fairly represent the Company’s financial position and results ofoperations for the periods and as of the dates stated therein.

(c) Changes in internal control over financialreporting

Therehave been no changes in our internal control over financial reporting duringthe quarter ended September 30, 2006 that have materially affected, or arereasonably likely to materially affect, our internal control over financialreporting.

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**PART II - OTHER INFORMATION**

**ITEM1.  LEGAL PROCEEDINGS**

***IPO Litigation***

Wedisclosed in our Annual Report on Form 10-KSB for the year ended June 30, 2006certain litigation against our predecessor, Firepond, Inc., relating to itsinitial public offering, which litigation was commenced in August 2001.  There have been no material developments inthis matter.

Wemay from time to time also be subject to various other claims and legal actionsarising in the ordinary course of business.  In the opinion of management,after consultation with legal counsel, the ultimate disposition of these mattersis not expected to have a material effect on our business, financial condition,or results of operations.

**ITEM2.  UNREGISTERED SALES OF EQUITYSECURITIES AND USE OF PROCEEDS**

In August 2006, we completed the PIPE Financing,involving the sale of an aggregate of 1,000,000 Units at $7.00 per Unit, witheach Unit consisting of one share of our Common Stock and a warrant to purchaseone additional share of Common Stock at $7.00 per share, exercisable for fiveyears after issuance (the “PIPE Warrants”). The aggregate gross proceeds fromthe PIPE Financing totaled $7,000,000, not including fees and expenses of theoffering.  The proceeds from the offeringhave been used to repay certain indebtedness of the Company and will be used toprovide working capital to the Company. Rodman & Renshaw, LLC and National Securities Corporation acted asplacement agent for the financing.

The sale ofsecurities in the PIPE Financing was not registered under the Securities Act of1933, as amended (the “Act”), or any state securities laws. Such securitieswere sold in a private transaction exempt from registration pursuant to Section4(2) of the Act and Regulation D promulgated thereunder.

**ITEM3.  DEFAULTS UPON SENIOR SECURITIES**

None.

**ITEM4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS**

None.

**ITEM5.  OTHER INFORMATION**

None.

**ITEM6.  EXHIBITS**
| 10.1 (1) |   | First Amendment, dated September 13, 2006, by and  between FP Technology, Inc. and Trident Growth Fund, L.P.             |
|----------|--------|--------------------------------------------------------------------------------------------------------------------------|
| 10.2 (2) |   | Form of Securities Purchase Agreement entered into  by the Registrant in connection with August 2006 PIPE Financing      |
| 10.3 (2) |   | Form of Warrant issued by the Registrant in  connection with August 2006 PIPE Financing                                  |
| 10.4 (2) |   | Form of Registration Rights Agreement entered into  by the Registrant in connection with August 2006 PIPE Financing      |
| 31.1     |   | Certification of Principal  Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a)                               |
| 31.2     |   | Certification of Principal  Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a)                               |
| 32.1     |   | Certification 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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(1)           Previously filed asan exhibit to Annual Report on Form 10-KSB filed on September 28, 2006, andincorporated herein by reference.

(2)           Previously filed asan exhibit to Form 8-K filed on September 7, 2006, and incorporated herein byreference. 

 

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Signatures

Pursuantto the requirements of the Securities Exchange Act of 1934, the Registrant hasduly caused this report to be signed on its behalf by the undersigned thereuntoduly authorized.
| Date: November 14, 2006 |   | FP Technology, Inc.  (Registrant) |
|-------------------------|--------|-----------------------------------|
|                    |   |                              |
|                    |   | By:                               | /s/ William Santo |   |
|                    |   | William Santo, CEO                |
|                    |   |                              |
|                    |   | By:                               | /s/ Stephen Peary |   |
|                    |   | Stephen Peary, CFO                |

 

 

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