**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

**FORM 10-QSB**

 

(Mark One)

| x | Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
|---|-----------------------------------------------------------------------------------------|

For the quarterly period ended January 31, 2007

 

| [ | ] | Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
|---|---|------------------------------------------------------------------------------------------|

|   | For the transition period from ____________ to ____________ |
|--------|-------------------------------------------------------------|

 

Commission File No. 000-51059

 

**TenthGate Incorporated**

(Exact Name of Small Business Issuer as Specified in Its Charter)

 

| **Delaware**

(State or Other Jurisdiction of Incorporation or Organization)

                       |   | **20-2976749**

(IRS Employer 

Identification No.) |
|-----------------------------------------------------------------------------------------------------------|--------|-----------------------------------------------------|
|                                                                                                      |   |                                                |
| **1900 Campus Commons Drive, Suite 100**

**Reston, VA  20191**

(Address of Principal Executive Offices) |
|                                                                                                      |
| **(703) 766-6556**

(Issuer’s Telephone Number, Including Area Code)                                 |
|                                                                                                      |
|  

(Former Name, Former Address and Former Fiscal Year,

If Changed Since Last Report)               |

 

Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the issuer was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x  No [   ]

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act. Yes [   ]  No x

 

As of March 19, 2007, there were 52,450,200 shares of the registrant’s common stock, $.001 par value per share.

 

| Transitional Small Business Disclosure Format:  Yes [ | ]  No x |
|-------------------------------------------------------|---------|

 

 

1

**TENTHGATE INCORPORATED AND SUBSIDIARY**

**(A DEVELOPMENT STAGE COMPANY)**

 

**INDEX TO FORM 10-QSB**

 

| **PART I. FINANCIAL INFORMATION**                                                                                                                       | **Page** |
|---------------------------------------------------------------------------------------------------------------------------------------------------------|----------|
|                                                                                                                                                    |     |
| Item 1. Consolidated Financial Statements (unaudited)                                                                                                   |     |
|                                                                                                                                                    |     |
| Consolidated Balance Sheet as of January 31, 2007                                                                                                       | 3        |
|                                                                                                                                                    |     |
| Consolidated Statements of Operations for the three and six months ended January 31, 2007 and 2006 and the period from inception until January 31, 2007 | 4        |
|                                                                                                                                                    |     |
| Consolidated Statements of Cash Flows for the three and six months ended January 31, 2007 and 2006 and the period from inception until January 31, 2007 | 5        |
|                                                                                                                                                    |     |
| Condensed Notes to Consolidated Financial Statements                                                                                                    | 6        |
|                                                                                                                                                    |     |
| Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (including cautionary statement)                     | 14       |
|                                                                                                                                                    |     |
| Item 3.  Controls and Procedures                                                                                                                        | 20       |
|                                                                                                                                                    |     |
| **PART II.**           **OTHER INFORMATION**                                                     |     |
|                                                                                                                                                    |     |
| Item 1. Legal Proceedings                                                                                                                               | 20       |
|                                                                                                                                                    |     |
| Item 2. Changes in Securities                                                                                                                           | 20       |
|                                                                                                                                                    |     |
| Item 3. Defaults Upon Senior Securities                                                                                                                 | 21       |
|                                                                                                                                                    |     |
| Item 4. Submission of Matters to a Vote of Securities Holders                                                                                           | 21       |
|                                                                                                                                                    |     |
| Item 5. Other Information                                                                                                                               | 21       |
|                                                                                                                                                    |     |
| Item 6. Exhibits                                                                                                                                        | 25       |
|                                                                                                                                                    |     |
| Signature                                                                                                                                               | 25       |
|                                                                                                                                                    |     |

 

 

2

**Item 1. Financial Statements.**

 

| **TENTHGATE INCORPORATED AND SUBSIDIARY**                                                                |
|----------------------------------------------------------------------------------------------------------|
| **(A DEVELOPMENT STAGE COMPANY)**                                                                        |
|                                                                                                     |
| **CONSOLIDATED BALANCE SHEET AS OF JANUARY 31, 2007**                                                    |
| **(Unaudited)**                                                                                          |
|                                                                                                     |   |   |
|                                                                                                     |   |   |
| **ASSETS**                                                                                               |   |   |
|                                                                                                     |   |   |
| CURRENT ASSETS:                                                                                          |   |   |
| Cash                                                                                                     | $ | 2,771 |
| Inventories                                                                                              |   | 1,000 |
| Prepaid expenses and other current assets                                                                |   | 7,364 |
| Total current assets                                                                                     |   | 11,135 |
|  

INTANGIBLE ASSETS-LICENSING AGREEMENTS  (net of accumulated amortization of $111,164)            |   |   |
|                                                                                                     |   |
|                                                                                                     | 871,111 |
|                                                                                                     |   |   |
| **TOTAL**                                                                                                | $ | 882,246 |
|                                                                                                     |   |   |
| **LIABILITIES AND STOCKHOLDERS’ EQUITY**                                                            |   |   |
|                                                                                                     |   |   |
| CURRENT LIABILITIES:                                                                                     |   |   |
| Accrued and other liabilities                                                                            | $ | 53,642 |
| Current portion of royalties payable                                                                     |   | 33,333 |
| Convertible notes payable                                                                                |   | 100,000 |
| Due to related parties (including notes payable of $60,000)                                              |   | 245,968 |
| Total current liabilities                                                                                |   | 432,943 |
|                                                                                                     |   |   |
| ROYALTIES PAYABLE (net of current portion and 

unamortized discount of $784,571)                        |   |   |
|                                                                                                     | 527,096 |
| Total liabilities                                                                                        |   | 960,039 |
|                                                                                                     |   |   |
| STOCKHOLDERS’ DEFICIT:                                                                              |   |   |
| Common stock, $0.001 par value, 150,000,000 shares

authorized; 33,739,200 shares issued and outstanding |   |   |
|                                                                                                     | 33,739 |
| Additional paid-in capital                                                                               |   | 2,653,374 |
| Deferred stock based compensation                                                                        |   | (202,500) |
| Deficit accumulated during the development stage                                                         |   | (2,562,406) |
| Total stockholders’ deficit                                                                         |   | (77,793) |
|                                                                                                     |   |   |
| **TOTAL**                                                                                                | $ | 882,246 |
|                                                                                                     |   |   |

 

|   | The accompanying notes are an integral part of these financial statements. |
|--------|----------------------------------------------------------------------------|

 

3

**TENTHGATE INCORPORATED AND SUBSIDIARY**

**(A DEVELOPMENT STAGE COMPANY)**

 

**CONSOLIDATED STATEMENT OF OPERATIONS FOR THE**

**(Unaudited)**

|                                                                    |   |             |   |             |
|-------------------------------------------------------------------------|--------|------------------|--------|------------------|
|                                                                    |   |             |   |             |   |   |   |   |   |   |
|                                                                    |   | Three            |   | Six              |   | Three |   | Six |   |   |
|                                                                    |   | Months Ended     |   | Months Ended     |   | Months Ended |   | Months Ended |   | Inception

Through |
|                                                                    |   | January 31, 2007 |   | January 31, 2007 |   | January 31, 2006 |   | January 31, 2006 |   | January 31, 2007 |
|                                                                    |   |             |   |             |   |   |   |   |   |   |
| REVENUES                                                                | $      | -                | $      | -                | $ | - | $ | 4,037 | $ | 32,702 |
|                                                                    |   |             |   |             |   |   |   |   |   |   |
| COSTS OF REVENUES                                                       |   | -                |   | -                |   | - |   | 2,730 |   | 17,480 |
|                                                                    |   |             |   |             |   |   |   |   |   |   |
| GROSS PROFIT                                                            |   | -                |   | -                |   | - |   | 1,307 |   | 15,222 |
|                                                                    |   |             |   |             |   |   |   |   |   |   |
| OTHER OPERATING EXPENSES:                                               |   |             |   |             |   |   |   |   |   |   |
| Officer compensation and benefits                                       |   | 75,000           |   | 154,740          |   | 89,625 |   | 164,625 |   | 622,813 |
| Stock based consulting                                                  |   | 275,000          |   | 317,667          |   | 92,500 |   | 120,833 |   | 1,351,251 |
| Professional fees                                                       |   | 26,978           |   | 48,402           |   | 39,933 |   | 61,471 |   | 264,235 |
| Amortization                                                            |   | 16,739           |   | 36,140           |   | 7,980 |   | 15,966 |   | 111,164 |
| Other                                                                   |   | 19,432           |   | 42,046           |   | 1,462 |   | 4,191 |   | 90,848 |
| Total other operating expenses                                          |   | 413,149          |   | 598,995          |   | 231,500 |   | 367,086 |   | 2,440,311 |
|                                                                    |   |             |   |             |   |   |   |   |   |   |
| LOSS FROM OPERATIONS                                                    |   | (413,149)        |   | (598,995)        |   | (231,500) |   | (365,779) |   | (2,425,089) |
|                                                                    |   |             |   |             |   |   |   |   |   |   |
| INTEREST EXPENSE                                                        |   | 35,746           |   | 58,891           |   | 5,036 |   | 9,808 |   | 137,317 |
|                                                                    |   |             |   |             |   |   |   |   |   |   |
| **NET LOSS**                                                            | $      | (448,895)        | $      | (657,886)        | $ | (236,536) | $ | (375,587) | $ | (2,562,406) |
|                                                                    |   |             |   |             |   |   |   |   |   |   |
| **NET LOSS PER SHARE:**                                                 |   |             |   |             |   |   |   |   |   |   |
| Basic and diluted                                                       | $      | (0.01)           | $      | (0.02)           | $ | (0.02) | $ | (0.03) |   |   |
|                                                                    |   |             |   |             |   |   |   |   |   |   |
| Weighted average number of shares 

Outstanding -     Basic and diluted |   | 33,553,330       |   | 31,865,100       |   | 12,540,700 |   | 12,495,300 |   |   |
|                                                                    |   |             |   |             |   |   |   |   |   |   |
|                                                                         |        |                  |        |                  |  |  |  |  |  |  |  |  |  |

 

| The accompanying notes are an integral part of these financial statements. |
|----------------------------------------------------------------------------|

 

 

 

 

 

 

 

4

**TENTHGATE INCORPORATED AND SUBSIDIARY**

**(A DEVELOPMENT STAGE COMPANY)**

 

**CONSOLIDATED STATEMENT OF CASH FLOWS**

**(Unaudited)**

 

|   |   |   |   |   |   |   |  
 

 

Six

Months Ended

January 31, 2007

 

Six

Months Ended

January 31, 2006

 

Inception through 

January 31, 2007

 
**CASH FLOWS FROM OPERATING ACTIVITIES:**

 

 

 

 

Net loss

$

(657,886)

$

(375,587)

$

(2,562,406)

 
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:

 

 

 

 

 

 

 
Amortization of intangible asset

 

36,140

 

15,966

 

111,164

 
Non-cash interest expense

 

54,300

 

9,360

 

119,788

 
Stock based consulting

 

317,667

 

120,833

 

1,351,251

 
Changes in assets and liabilities, net:

 

 

 

 

 

 

 
Prepaid expenses

 

(603)

 

(3,959)

 

(7,363)

 
Royalties payable

 

(15,000)

 

-

 

(15,000)

 
Accrued and other liabilities

 

8,041

 

100,648

 

53,642

 
Due to related parties

 

152,135

 

125,000

 

635,195

 
**NET CASH USED IN OPERATING ACTIVITIES**

 

(105,206)

 

(7,739)

 

(313,729)

 
 

 

 

 

 

 

 

 
**CASH USED IN FINANCING ACTIVITIES-**cash paid for licensing agreement with Science and Technology Corporation

 

-

 

-

 

(45,000)

 
 

 

 

 

 

 

 

 
**CASH PROVIDED BY FINANCING ACTIVITIES:**

 

 

 

 

 
Proceeds from the issuance of notes payable

 

100,000

 

-

 

100,000

 
Proceeds from related party notes payable and advances

 

7,500

 

-

 

90,500

 
Proceeds from sales of common stock

 

-

 

13,000

 

171,000

 
**CASH PROVIDED BY FINANCING ACTIVITIES**

 

107,500

 

13,000

 

361,500

 
 

 

 

 

 

 

 

 
**NET CHANGE IN CASH**

 

2,294

 

5,261

 

2,771

 
 

 

 

 

 

 

 

 
**CASH, BEGINNING OF PERIOD**

 

477

 

9,537

 

-

 
 

 

 

 

 

 

 

 
**CASH, END OF PERIOD**

$

2,771

$

14,798

$

2,771

 
 

 

 

 

 

 

 

 
**SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:**

 

 

 

 

 
Interest paid

$

-

$

-

$

-

 
Income taxes paid

$

-

$

-

$

-

 
 

 

 

 

 

 

 

 
 

 

 

 

 

 

 

 
Stock subscription advances issued for common stock subscribed

$

-

$

-

$

10,000

 
Officer’s salaries forgiven

$

470,000

$

-

$

470,000

 
 

Assets acquired through assumption of liabilities and

conveyance of equity securities

$

-

$

-

$

937,276

 
Common stock issued for related party notes payable

$

-

$

-

$

324,300

 
 

Accrued interest payable forgiven and included in additional

paid-in capital

$

-

$

-

$

9,729

 
 

 

 

 

 

 

 

 
 

 

 

 

 

 

 

 
 

The accompanying notes are an integral part of these financial statements.

 

5

**TENTHGATE INCORPORATED AND SUBSIDIARY**

**(A DEVELOPMENT STAGE COMPANY)**

 

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

 

 

**NOTE 1** - **NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**

 

TenthGate Incorporated. (“Tenthgate” the “Company”) was initially incorporated under the laws of the state of Nevada as Power 3 Medical, Inc. in March 2003. The Company is a medical holding company that is strategically positioned to acquire, create and implement specialty healthcare, bio-tech products and service solutions designed to enhance effectiveness, viability and well being. To date, the Company has been primarily engaged in the business of manufacturing and distributing a medical device known as SutureMate®, which is currently selling commercially at small levels and provides a unique niche in the needle stick prevention area. The title to all related technologies for the SutureMate product was acquired through a divestiture between Power 3 Medical Products, Inc., a New York corporation and TenthGate via a Distribution Agreement and Technology Transfer Agreement dated May 11,2004. The consideration for the license was 2,000 shares of TenthGate common stock.

 

During the fiscal year ended July 31, 2005, the Company purchased all of the issued and outstanding shares of Edmonds5, Inc. (a Delaware publicly traded development stage company with minimal financial position and/or operations “Edmonds”) for $39,500 (consisting of cash of $38,500 and liabilities assumed of $1,000). Because this entity had no assets identifiable or otherwise, TenthGate treated the purchase price as an expense on the books and records of Edmonds. 

 

On August 18, 2005, TenthGate was merged into Edmonds. Each share of common stock outstanding of TenthGate at such time (24,399,200 shares) was converted into and exchanged for one share of Edmonds common stock. On September 1, 2005, the name of the company was changed to TenthGate Incorporated (a Delaware company).

 

On October 31, 2006, the Board of Directors declared a 2 for 1 stock split on each share of Common Stock outstanding on November 14, 2006, effective on November 17, 2006.  All references to the number of shares, and related par values, in the accompanying consolidated financial statements and notes thereto have been adjusted to reflect the stock split as though it occurred at the date of the Company’s incorporation.

 

Management is actively seeking acquisitions of additional life changing technologies to add to its portfolio, and has acquired the following intangible assets since its inception:

 

 

**•**

The worldwide exclusive right to a product known as the Ice Baton® was acquired through the purchase of all the issued and outstanding shares of Ice Therapies, Inc. (a Florida corporation) which was a private development stage company with minimal financial position and operations. The Ice Baton provides an innovative, natural ice treatment of hemorrhoids, which avoids the possible complications associated with chemical topical ointment treatments. Ice Baton has been approved by the Food and Drug Administration, has received approval in Europe, and is selling commercially at minimum levels in England. 

 

6

 

**•**

A world-wide exclusive license to use, develop and commercialize certain patents and technologies related to melanoma detection by electron paramagnetic resonance that were developed by Dr. Graham Timmins, PhD at the University of New Mexico and held by Science & Technology Corporation @ University of New Mexico (STC). 

 

The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries (collectively “we”, “us”, “our”). All significant intercompany accounts and balances have been eliminated in consolidation.

 

Basis of Presentation

 

The accompanying financial statements are presented in accordance with U.S. generally accepted accounting principles for interim financial information and the instructions to Form 10-QSB and item 310 under subpart A of Regulation S-B. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America.  In our opinion, all adjustments (consisting of normal and recurring adjustments) necessary for a fair presentation have been included. Operating results for the three and six months ended January 31, 2007 are not necessarily indicative of the results that may be expected for the year ended July 31, 2007. The accompanying consolidated financial statements and the notes thereto should be read in conjunction with our audited consolidated financial statements included in our Form 10-KSB filing on October 30, 2006.   

 

Use of Estimates

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. The reported amounts of revenues and expenses during the reporting period may be affected by the estimates and assumptions we are required to make. Estimates that are critical to the accompanying financial statements include assessing the impact of contingencies as well as the valuation and recoverability of our intangible assets (see Note 6), for which the valuation is largely attributable to the value of our stock that is not currently being traded.  The markets for our products are characterized by intense price competition and evolving standards both of which could impactthe future recoverability of our assets. Estimates and assumptions are reviewed periodically and the effects of revisions are reflected in the financial statements in the period they are determined to be necessary.  It is at least reasonably possible that our estimates could change in the near term with respect to these matters. 

 

Financial Instruments  

 

We believe the book value of our accrued and other liabilities approximates their fair values due to their short-term nature. We also believe the book values of our royalties payable approximates their fair values as the interest rates used to discount such liabilities approximates what we believe is a market rate for liabilities having similar risk exposure. It was not practicable to estimate the fair value of the notes payable and/or due to related parties because of uncertainty as to when they will be paid and/or settled and because of the lack of similar type financial instruments in the marketplace. 

 

Loss Per Common Share

 

We compute net loss per share in accordance with Statement of Financial Accounting Standards Board Statement No. 128 “Earnings per Share” (“SFAS No. 128”) and SEC Staff Accounting Bulletin No. 98 

 

7

 

(“SAB 98”). Under the provisions of SFAS No. 128 and SAB 98, basic net loss per share is computed by dividing the net loss available to common stockholders for the period by the weighted average number of common shares outstanding during the periods.  Diluted net loss per share is computed by dividing the net loss for the period by the number of common and common equivalent shares outstanding during the period. With the exception of the warrants discussed at Note 5 we did not have any common stock equivalents outstanding during any of the periods included in the accompanying consolidated statements of operations. Because of this, and because we have generated net losses for each of the periods in the accompanying consolidated financial statements; basic and diluted net loss per share are identical for each of these periods. 

 

Intangible Assets   

 

Our intangible assets arise from the purchase of Ice Therapies, Inc. and the Licensing Agreement with Science and Technology Corporation at the University of New Mexico (see Note 6)  The intangibles were recorded at cost and are being amortized over a period of fifteen years (the estimated useful lives of the licensing agreements) on a straight-line basis. Total amortization expense for the five years ended January  31, 2012 is expected to approximate $327,400.

 

Long-Lived Assets  

 

Statement of Financial Accounting Standards (SFAS) 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” requires that long-lived assets, including certain identifiable intangibles, be reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of the assets in question may not be recoverable. We believe all of our long lived assets are recoverable. 

 

Unamortized Discounts

 

Unamortized discounts resulting from royalties payable under our licensing agreements (see Note 6) are being amortized to interest expense over the estimated useful lives of the licensing agreement (15 years) using the interest method. 

 

Reclassifications

 

Certain amounts in the 2006 statement of cash flows have been reclassified to conform to the presentation in the 2007 statement of cash flows. 

 

**NOTE 2 – GOING CONCERN**

 

Our consolidated financial statements are prepared using accounting principles generally accepted in the United States of America applicable to a going concern, which contemplate the realization of assets and liquidation of liabilities in the normal course of business.  We have incurred losses since our inception, and have experienced and continue to experience negative cash flows from operations. In addition, we have working capital and stockholders’ deficits of approximately $422,000 and $78,000, respectively, as of January 31, 2007 and will continue to have ongoing requirements for substantial additional capital investment to accomplish our business plan over the next several years.  Because we do not expect our operating revenues to be sufficient to cover costs of operations in the immediate future, we will require equity and/or debt financing to implement our business plan. Our plans include thecompletion of an equity round of capital for a minimum of $1,000,000 in the next year. Cash commitments and expenditures will be kept to a minimum until such time as an appropriate amount of capital can be 

 

8

secured. However there is no assurance that we will secure any amount of equity capital and/or generate enough revenues to meet our cash requirements.  These factors, among others, indicate that we may be unable to continue as a going concern. 

 

Our consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should we be unable to continue as a going concern. 

 

**NOTE 3 - STOCK BASED COMPENSATION**

 

The following shares of our common stock were issued to independent contractors for services rendered during the six months ended January 31, 2007 and/or to be rendered over the period of one year from the agreement commencement dates below  These securities were issued without registration in reliance upon the exemption from registration provided by Section 4(2) of the Securities Act of 1933 Securities Act because of the limited number of persons involved in each transaction, the separate negotiation of each transaction with the purchaser of the securities, the absence of any public solicitation or advertising, and the restriction on such securities from resale.

**Independent Contractor**

 

**Number of Shares**

 

**Agreement Commencement Date**

 

 

**Total Value of Stock Granted in six months ended January 31, 2007**

 

**Stock Based Compensation in six months ended January 31, 2007**

 

Theodore Misiewicz 

 

 

(1)

 

 

60,000

 

 

9/29/2006

 

 

6,000

 

 

6,000

Rolling Bones, LLC 

 

(2)

 

100,000

 

8/31/2006

 

10,000

 

5,000

Thomas J. Dula 

 

(3)

 

500,000

 

8/31/2006

 

50,000

 

25,000

Hampton Bay Trading Corp 

 

 

(4)

 

100,000

 

 

8/31/2006

 

 

10,000

 

 

5,000

Lehrer Financial and Economic Advisory Services

 

 

(5)

 

 

200,000

 

 

 

8/31/2006

 

 

 

20,000

 

 

 

10,000

 

Sequence Investment Partners

 

 

(6)

 

 

2,000,000

 

 

 

9/22/2006

 

 

 

200,000

 

 

 

200,000

 

Sequence Holdings, LLC

 

(7)

 

2,000,000

 

 

11/9/2006

 

 

200,000

 

 

50,000

 

CZJS Resources, LLC

 

(8)

 

100,000

 

 

11/12/2006

 

 

10,000

 

 

2,500

 

Total

 

 

5,060,000

 

 

 

$

 

506,000

 

$

 

303,500

 

 

9

In addition to the above stock based compensation, we also recognized $14,167 of stock based compensation that had been reflected as deferred compensation at July 31, 2006; accordingly, total stock based compensation approximated $318,000 during the six months ended January 31, 2007. Stock based compensation was based on a price of $.10 per share, which price is equal to the price that various vendors agreed to place on their charges to us in connection with the conversion of certain amounts owed to them (see Note 7):

 

The following comments apply with respect to the above mentioned issuances of our restricted common stock during the six months ended January 31, 2007: 

 

 

(1)

Shares were issued as consideration for a financial consulting agreement entered in support of our compliance and SEC reporting requirements.

 

 

(2)

Shares were issued as consideration for assisting us primarily with computer information systems development strategy, and technical reviews related to existing company properties and targeted acquisitions, 

 

 

(3)

Shares were issued as consideration for assisting us primarily with prospective accounting, and strategic planning related to target technology acquisitions.

 

 

(4)

Shares were issued as consideration for assisting us primarily with strategic planning

related to target technology acquisitions or merger activities. 

 

 

(5)

Shares were issued as consideration for assisting us with strategic business development, market feasibility analyses and intellectual property valuations.

 

(6)

Shares were issued as consideration for attempting to raise up to $1,000,000 in equity capital for us as discussed in Note 5 and were recorded as deferred stock issuance costs at October 31, 2006. Because we made the determination that the intended capital fundraising efforts would not be successful, we terminated our efforts under this private placement memorandum and expensed these costs. .

 

(7)

Shares were issued in consideration of a 12 month business development advisory agreement. The primary duties to be performed include assisting in developing and implementing product marketing, sales and distribution, operations management, staffing and corporate structuring.

 

(8)

Shares were issued as consideration of a management consulting agreement entered in support of our operations and logistics activities.  Duties primarily include consulting services for the planning and execution of business capture opportunities, the pursuit and award of financial grants, and support of operations and logistics activities with planning, development and implementation of processes, methods and practices ensuring profitable performance on business endeavors, projects and programs. 

 

**NOTE 4 – OTHER RELATED PARTY TRANSACTIONS**

 

At January 31, 2007 and July 31, 2006, due to related parties consisted of the following: 

 

Description

Terms

 

January 31, 2007

 

July 31, 2006

 

 

 

 

 

 

Accrued compensation to our officers

None 

$

150,000

$

473,333

 

 

10

 

Promissory note from our President on September 19,  2005

 

Unsecured with interest at  8%, extended until May 31, 2007

 

10,000

 

 

10,000

 

 

 

 

 

 

 
Promissory note from our President on January 17, 2006

Unsecured with interest at 8%, extended until May 31, 2007

 

 

50,000

 

 

50,000

Stockholder advances 

None

 

30,500

 

 

23,000

 

 

 

 

 

 

Interest payable

None

 

5,468

 

-

 

 

 

 

 

 

Total 

 

$

245,968

$

556,333

During the quarter ended October 31, 2006, our officers forgave $470,000 of the accrued compensation existing at July 31, 2006. As a result, the liability for such amount was eliminated, and the balance reflected as an increase in additional paid in capital. The remaining accrued officer compensation at July 31, 2006 of $3,333 due to L. Joy Putnam, our former CFO, was paid during the quarter ended October 31, 2006.

 

**NOTE 5 – OTHER SIGNIFICANT CURRENT QUARTER EVENTS**

 

Private Placement  

 

Prior to its cancellation as discussed below, we were offering for sale to persons who qualify as accredited investors, through Sequence Investment Partners, LLC of Charleston, South Carolina, the placement agent (“Sequence”), a maximum of 10,000,000 Units. Each Unit consisted of one share of our common stock and one common stock purchase warrant.  The offering price was $0.10 per Unit. In connection with this private placement memorandum, we issued 2,000,000 shares of our common stock to Sequence, and the related cost of such shares (i.e. $200,000) was reflected as deferred stock issuance costs in the consolidated balance sheet dated October 31, 2006. The offering was extended until February 28, 2007 and did not generate the minimum investment of at least $250,000, therefore we abandoned our efforts under this private placement memorandum and expensed the $200,000 as stock based consulting duringthe quarter ended January 31, 2007.  The arrangement with Sequence Investment Partners, LLC was terminated via mutual consent on February 28, 2007. All consideration provided as part of this agreement was considered fully earned. 

 

**NOTE 6– INTANGIBLES AND ROYALTIES PAYABLE**

 

Purchase of Ice Therapies, Inc.  

 

On August 10, 2004, primarily for the purpose of acquiring a worldwide license to distribute Ice Baton®, we purchased all of the common stock of Ice Therapies, Inc. for total consideration of $480,150 (consisting of 144,033 restricted common shares of stock of PWRM.OB having a value of approximately $324,300 and the assumption of liabilities having a fair value of approximately $179,900 under a Licensing Agreement with the manufacturer of Ice Baton®). The purchase price was allocated to the following assets:

 

Inventories

$

1,000

 

 

11

 

Licensing Agreement (including the net royalty liability above of 

 

 

$179,000)

 

503,226

Total

$

504,226

 

Pursuant to terms of the Licensing Agreement, on a quarterly basis for a period of fifteen years beginning with the quarter ended September 30, 2006, we are required to pay a royalty of the greater of $10,000, or 4% of sales of products that incorporate the licensed technology. We discounted this royalty stream using a discount rate of 15% and such discount is being amortized over the 15 year term, and no residual value has been assumed to exist.  Because the cost of any royalties in excess of $10,000 per quarter was not and is not determinable, we have only included the fair value of the $10,000 royalty stream in the determination of the cost of the licensing agreement. In accordance with SFAS 141, any additional amounts paid under this arrangement will be reflected as a purchase price adjustment in the year in which the costs are incurred. We paid the first installment of $10,000 during the quarter endedOctober 31, 2006. 

 

Science & Technology Corporation

 

During the year ended July 31, 2006, we signed a license agreement with Science & Technology Corporation @ University of New Mexico (the “Licensor”) for the grant of license for patents related to melanoma detection by electron paramagnetic resonance. On April 13, 2006, consideration was paid to the Licensor in the amount of 1,000,000 restricted shares of our common stock valued at $..075 per share. The value of these shares ($75,000), as well as $45,000 of cash we paid to the Licensor, and $80,000 of value attributable to 1,600,000 shares issued to UTEK Corporation as consideration for them facilitating the closing of the transaction as has been included in Intangible Assets.  In addition, as mentioned below, the fair value of the future stream of royalties payable is included in the balance of the intangible. No residual value has been assumed to exist. 

 

Pursuant to terms of the licensing agreement, on a quarterly basis, we are required to pay 30% of all income directly attributable to the licensed patents, net of all sales and other taxes. On an annual basis beginning with the calendar year ended December 31, 2006, we are required to pay a royalty of the greater of the minimum annual royalty payment for a particular year or 3% of gross receipts from licensed products during that year. Minimum annual royalty payments are:

 

 

**•**

$5,000 for the annual period ending December 31, 2006 (paid during the current quarter)

 

**•**

$10,000 for the annual period ending December 31, 2007

 

**•**

$25,000 for the annual period ending December 31, 2008

 

**•**

$35,000 for the annual period ending December 31, 2009

 

**•**

$55,000 for the annual period ending December 31, 2010 and each year thereafter

 

We are also required to pay three milestone payments as follows:

 

 

1)

$50,000 upon the earlier to occur of: i) the first commercial sale of a licensed product, or ii) December 31, 2008

 

2)

$50,000 upon the earlier to occur of: i) the first commercial sale of a licensed product incorporating molecular imaging, or ii) December 31, 2010

 

3)

$35,000 upon the earlier to occur of: i) the first commercial sale of a licensed product incorporating molecular assay, or ii) December 31, 2011

 

12

Because potential gross receipts and the cost of any royalties in excess of the minimum annual royalty are not determinable, we have only included the fair value (using a discount rate of 15% which we believe is a rate commensurate with the risk of this investment) of the minimum annual royalties and milestone payments in the determination of the cost of the licensing agreement, and this was done over a period of 15 years.  Accordingly, we recorded an intangible asset and royalty payable of $279,050 as of the date the asset was acquired. 

 

**NOTE 7– OTHER SIGNIFICANT SUBSEQUENT EVENTS**

 

On February 8, 2007 we were approached by Carley Enterprises, Inc. of Bloomington, IL with a Letter of Intent to merge with a  company they represented. We entered this LOI which included a confidentiality agreement in which to conduct due diligence and negotiations. It was subsequently decided that the merger represented an acceptable course of action and our officers were empowered by the Board to proceed with various activities leading to closing and making effective this pending transaction. Majority shareholder consent to the transaction was obtained. The definitive merger agreements were closed on March 12, 2006 with an effective date set for March 22, 2007. We anticipate treating this business combination as a re-capitalization of TenthGate for accounting purposes, and expect that we will have 74,950,200 shares outstanding immediately after the transaction is consummated. 

 

The Board of Directors held a special meeting on March 6, 2007 at which time the following items where unanimously approved:  1. Issuance of 1,000,000 shares each to all 6 Company Board Members as consideration for their board service during the period April 1, 2007 to March 31, 2008. 2. Issuance of 6,000,000 shares each to both Company Officers for there services for their services during the period April 1, 2007 to March 31, 2008. 

 

On March 9, 2007 certain trade payables totaling $48,600 were converted to shares of our common stock upon the agreement of each vendor. A total of  486,000 shares were issued representing a conversion rate of $0.10/share.

 

On March 9, 2007, we issued an additional 225,000 shares of restricted common stock to 3 shareholders for consideration of the $37,500 in cash investment already received by the Company as part of a private placement offering in 2006, which was priced at $0.50 per share. These shares participated in the 2:1 forward split that we declared in November 2006 and accordingly had previously been issued 150,000 shares as consideration for their investment. Subsequently, we offered shares under a private placement memorandum for $.10 per share (see Note 5) and also converted the obligations discussed above at $0.10 per share, and therefore will recognize the previous investments made at this same pricing. These shares were issued pursuant to an exemption from registration at Section 4(2) of the Securities Act of 1933 and are restricted in accordance with Rule 144 of the Securities Act of 1933.

 

**End of financial statements.**

 

13

**Item 2.**

**Management’s Discussion and Analysis or Plan of Operation**

 

This Quarterly Report on Form 10-QSB includes “forward-looking” statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the Securities Act), and Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act), which can be identified by the use of forward-looking terminology such as, “may,” “believe,”  “expect,”  “intend,” “anticipate,” “estimate” or  “continue” or the negative thereof or other variations thereon or comparable terminology. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to have been correct. Important factors with respect to any such forward-looking statements include, but are not limited to, the Company’s limited history of operations,the availability of additional capital necessary to execute the Company’s plan of operations, the volatility of the over-the-counter bulletin board market, changes in the state and federal regulation of medical products, the availability of necessary personnel, and general economic conditions within the United States.

 

**Background**

 

TenthGate Incorporated. (“Tenthgate” the “Company”) was initially incorporated under the laws of the state of Nevada as Power 3 Medical, Inc. in March 2003. The Company is a medical holding company that is strategically positioned to acquire, create and implement specialty healthcare, bio-tech products and service solutions designed to enhance effectiveness, viability and well being. To date, the Company has been primarily engaged in the business of manufacturing and distributing a medical device known as SutureMate®, which is currently selling commercially at small levels and provides a unique niche in the needle stick prevention area. The title to all related technologies for the SutureMate product was acquired through a divestiture between Power 3 Medical Products, Inc., a New York corporation and TenthGate via a Distribution Agreement and Technology Transfer Agreement dated May 11,2004. The consideration for the license was 2,000 shares of TenthGate common stock.

 

During the fiscal year ended July 31, 2005, the Company purchased all of the issued and outstanding shares of Edmonds5, Inc. (a Delaware publicly traded development stage company with minimal financial position and/or operations “Edmonds”) for $39,500 (consisting of cash of $38,500 and liabilities assumed of $1,000). Because this entity had no assets identifiable or otherwise, Tenthgate treated the purchase price as an expense on the books and records of Edmonds. 

 

On August 18, 2005, TenthGate was merged into Edmonds. Each share of common stock outstanding of TenthGate at such time (24,399,200 shares) was converted into and exchanged for one share of Edmonds common stock. On September 1, 2005, the name of the company was changed to TenthGate Incorporated (a Delaware company).

 

On October 31, 2006, the Board of Directors declared a dividend of one share of Common Stock, $.001 par value per share, on each share of Common Stock outstanding on November 14, 2006, payable on November 17, 2006 to the shareholders of record as of November 14, 2006. All references to the number of shares, and related par values, in the accompanying consolidated financial statements, notes thereto and management discussion and analysis herein have been adjusted to reflect the change as though it occurred at the date of the Company’s incorporation.

 

14

We are operating in an environment rich in opportunity. Sparked by unparalleled advancements in technology over the last two decades, the healthcare industry has enjoyed an explosion of development and innovation. Increases in computing power and modeling, diagnostics, miniaturization capabilities, genetics and biomedicine, as well as a public policy emphasis on both quality and cost-effective care, have resulted in an unprecedented number of life-changing technologies being pursued and developed. These are innovations that can literally reshape the boundaries of healthcare.

 

This innovation has outpaced the system’s ability to properly fund, manage and commercialize all the exciting and promising opportunities that are available. High potential opportunities are searching for the guidance and resources to promote and realize their potential. This is the niche that we fill – an aggressive, disciplined and focused medical holding company primed to identify life-changing technologies within the healthcare market segment. These emerging technologies will benefit from our leadership and resources while enhancing the overall healthcare and wellness landscape.

 

We apply various valuation methodologies to help determine the potential return on investment for targeted acquisitions as well as feasibility for product/service development. We have engaged Dr. Kenneth E. Lehrer of Houston, Texas for an initial 12-month period starting August 25, 2005, to provide Financial Consulting Services in support of the Company’s mission as a medical technology holding company. Consideration paid to Dr. Lehrer for this service was 200,000 restricted shares per year of our common stock and a one-time administrative fee of $2,500. This agreement was renewed in August 2006 and Dr. Lehrer was also paid $10,500 for impairment opinions on our acquired technologies related to the audit of our year-end financial statements of July 31, 2006. Dr. Lehrer is an Economist who holds four degrees from New York University which include; Bachelor of Science (Finance), Masterof Business Administration (Banking), Master of Arts (Economics and a Doctorate in Urban Economics). His firm, Lehrer Financial and Economic Advisory Services, formed in 1982, will focus on our strategic business development, market feasibility analysis and intellectual property valuations which will support the Company’s management. Dr. Lehrer is a member of numerous professional organizations including the National Association of Business Economists, American Academy of Economic and Financial Experts and American Law and Economists Association.  He served as an Adjunct Professor of Finance at the University of Houston, Graduate School of Business Administration for approximately 20 years.  

 

**TenthGate Target Acquisitions**

 

We intend to complete two (2) acquisitions within the next 12 months and a minimum of ten (10) over the next 5 years. We may seek to acquire exclusive options for technologies that are synergistic to those we are already acquired. 

 

Over a five year period, we intend to acquire and foster approximately ten (10) meaningful, life changing, innovative technologies. It is anticipated that most technologies targeted for acquisition would be initially valued in the range of $100,000 to $1 million dollars depending on whether the patent is acquired outright or exclusive license obtained. We will look to leverage our company stock, if necessary, for these acquisitions in order to protect our cash resources. The strength of our stock’s valuation will determine whether or not our stock would be an appropriate currency for acquisition and at what levels. Shareholder dilutive effect will be balanced with upside potential return. Certain technologies may require “fenced capital raises” specific to the company or IP acquired, especially larger projects that are determined to be capital intense.

 

15

Once control of the innovation has been achieved, we will implement a standard business evaluation to determine specific levels of resources appropriate for the development of each technology acquired. This could range from applying a high percentage of our existing cash and intellectual capital resources for a very promising technology, (e.g. one offering a high return on investment (ROI) to our shareholders), to canceling development of a technology completely if further evaluation reveals the product does not appear to offer a reasonable ROI. At the point when proof of concept and commercial potential and scope is determined with reasonable certainty, we may seek additional Intellectual Propriety protections if deemed necessary. 

 

**Acquired technologies will follow one of the three following pathways:**

 

1. They become part of our portfolio technologies to be developed either internally, out-licensed, or leveraged into a partnership, joint venture, etc.

 

2.  If an acquired innovation warrants further development in order to reinforce its proof of  

 

concept, market potential, etc., but is subsequently deemed outside of the scope of our

 

mission, such innovations would be targeted for sale to an appropriate buyer under

 

mutually acceptable terms.

 

3.

Technologies may be acquired and shelved if deemed strategically appropriate to our mission. Reasons for such delays in development may range from awaiting development of synergistic technologies needed to fully develop our acquired IP to limitations of cash and intellectual capital resources available to be applied to the innovation at that time.

 

We presently own or have the rights to the following three technologies. 

 

**SutureMate®**

 

The first property is a medical device known as SutureMate®, which is currently selling commercially through DeRoyal Medical at small levels and provides a unique niche in the OSHA mandated needle stick prevention area.  

 

This IP is held in Atlantic Development Group, Inc., our wholly owned subsidiary.

 

In March 2000, the Centers for Disease Control and Prevention estimated that depending on the type of device utilized and the procedure involved 62.0% to 88.0% of sharps injuries can potentially be prevented by the use of safer medical devices. Training and education in the use of safer medical devices and safer work practices are significant elements in the prevention of precutaneous exposure incidents

 

The SutureMate® Suture Assist Device has the following key features: 

• Allows suture needle to be “parked” between stitches for re-grasping with needle holder

• Minimizes danger to non-dominant hand

• Eliminates danger of glove perforation from tying with needle attached

• Internal groove acts as a protected knife blade to smoothly sever needle from thread

• No need to introduce additional sharps to field

• Latex safe

 

16

 

**Ice Baton®**

 

The second innovation for TenthGate Incorporated is Ice Baton®, for which we have acquired the worldwide exclusive rights to manufacture and sell from Behive, Ltd of Basingstoke, England (“Behive”). This license is housed in Ice Therapies, Inc., a subsidiary of Atlantic Innovations Group, Inc., which in turn is a subsidiary of TenthGate Incorporated. Ice Baton provides an innovative, natural ice treatment for hemorrhoids that avoids the possible complications and patient limitations associated with existing chemical topical ointment treatments. Ice Baton has been FDA approved and has received a CE mark for sale in Europe. 

 

The minimum annual royalties’ payments are $40,000 US, one forth of this amount payable each quarter. The first payment of $10,000 was paid in October 2006. If greater sales levels are achieved, royalties of 4% calculated on the invoice sales values of Licensed Ice Baton after deduction of trade discounts and returns are due Behive, Ltd. Currently, no product distribution agreements have been entered or product sales made to date through Ice Therapies, Inc. 

 

**Detecting Melanoma by Electron Paramagnetic Resonance**

 

Melanoscan is a molecular based detection and imaging of melanoma. It is based on the intrinsic and specific magnetic resonance properties of melanin. When melanin is formed, stable free radicals are ‘locked in’ within the polymers structure. The technology uses Electron Paramagnetic Resonance (EPR) to image primary melanomas, to detect metastasis and to measure melanoma prevention strategies. The unique EPR signature of melanin allows high selectivity.

 

With more than 60,000 cases of melanoma in the United States yearly, and on the increase, optical imaging is a big development area in melanoma research and treatment. However, it only detects the surface up to a range of 0.1 to 0.2 mm. With all the ‘action’ in melanoma being deeper – from 1.0 mm to 10.0 mm, depth capability is the most important prognostic indicator and treatment decision tool.

 

The technology is optimized for 1.0mm – 10.0mm penetration and have already imaged animal melanomas very effectively. The company’s long-term aim is to develop a portable scanner to image lesions- analogous to NMR mouse. There is already a relationship with major manufacturer of enabling technologies.

 

Melanoma- metastasis responsible for most disease, as it spreads through lymph to nearest node ‘the sentinel node’ and then perhaps further. Melanoscan can perform a ‘virtual biopsy’ of the nodes to detect metastasis in situ or on excised nodes. Theory predicts a limit of about 100 cells sensitivity. The projected imaging market is 600,000 to 1.2 million imaging procedures in the United States. There are about 30,000 sentinel lymph node procedures annually in the US alone. 

 

The technology is a melanoma imaging & metastasis detection system. The value or advantage is that there is really no other way of detecting melanomas as accurately, indicating the potential to revolutionize melanoma detection & treatment. 

 

On April 19, 2006, TenthGate Incorporated (“TenthGate” or “Company”), a medical holding company, signed a world-wide exclusive technology license agreement with SCIENCE & TECHNOLOGY CORPORATION @ UNM (“STC”), a New Mexico nonprofit corporation with principal offices located 

 

17

at 801 University Blvd. SE, Suite 101, Albuquerque, NM  87106.  STC has been designated by the Regents of the University of New Mexico to administer all matters pertaining to protection, utilization and commercialization of the intellectual property developed at the University to include the following:

 

LICENSED PATENTS AND LICENSED TECHNOLOGY

 

**Patent Number**

**Title**

**Date**

1863 043PRV

Molecular Imaging of Melanoma 

10/14/2005

1863 053PRV

Molecular Assay of the UVA Protective Efficacy of Sunscreens

10/15/2004

1863 048PRV

Detecting Metastatic Melanoma in Sentiment Lymph Nodes by EPR

 

10/4/2004

 

**LICENSINGAGREEMENT**

 

Under the terms of this Agreement, STC has been issued 2,000,000 shares of TenthGate’s common stock and $45,000 in cash as initial consideration for the world-wide exclusive license. Future benchmark payments are due to STC on the following schedule:  December 31, 2008 equal to $50,000, December 31, 2010 equal to $50,000, and December 31, 2011 equal to $35,000. In addition to all other amounts payable to STC under this Agreement, TenthGate will pay STC an earned cumulative annual royalty on gross receipts at the rate of three percent (3%) of gross receipts per annual period. Said annual period shall end on December 31st of each year during the term of this Agreement (the “annual period”). TenthGate shall pay STC the following minimum annual royalties:  December 31, 2006 equal to $5,000.00, December 31, 2007 equal to $10,000.00, December 31, 2008 equal to $25,000.00, December 31, 2009 equal to$35,000.00, December 31, 2010 and December 31st for each year thereafter equal to $55,000.00. The royalty amounts due from TenthGate to STC as earned royalties on gross receipts in each annual period shall be creditable against the minimum annual royalties for that annual period. 

Acting through provisions of TenthGate’s existing strategic alliance agreement, UTEK Corporation (“UTEK”) assisted TenthGate to identify and acquire the described intellectual property license from STC. UTEK has therefore been issued 1,600,000 shares of the Company’s common stock in exchange for a cash investment by UTEK of $40,000. 

 

**Comparison of the Three Months Ended January 31, 2007 with the Three Months Ended January 31, 2006.**

 

We had  no revenues or costs of revenues during the three months ended January 31, 2007 or 2006. Revenues in the amount of $32,702 and costs of revenue in the amount of $17,480 since inception resulted from the sale of SutureMate® Suture Assist Devices. 

 

Operating expenses of $413,149 for the three months ended January 31, 2007 consisted of officer compensation and benefits in the amount of $75,000 (which has not been paid) stock based compensation in the amount of $275,000, professional fees in the amount of $26,978, and amortization and other expenses in the amount of $36,171. Most of the fees and other expenses during the three months ended January 31, 2007 related to professional fees, including services required for compliance reporting, and establishment of administrative offices and related support services. Operating expenses of $231,500 for the three months ended January 31, 2006 consisted of officer compensation and benefits in the amount of $89,625 (of which $75,000 was accrued and subsequently forgiven  during the quarter ended October 31, 2007), stock based compensation in the amount of $92,500, professional fees in the amount of $39,933, andamortization and other expenses in the amount of $9,442. Most of the professional fees and other expenses during the three months ended January 31, 2006 related to professional fees, including services 

 

18

required for compliance reporting, and establishment of administrative offices and related support services. 

 

**Comparison of the Six Months Ended January 31, 2007 with the Six Months Ended January 31, 2006.**

 

We had no revenues or costs of revenue during the six months ended January 31, 2007 as compared to revenues of $4,037 and costs of revenues of $2,730 during this same period ending January 31, 2006. Revenues in the amount of $32,702 and costs of revenue in the amount of $17,480 since inception resulted from the sale of SutureMate® Suture Assist Devices. 

 

Operating expenses of $598,995 for the six months ended January 31, 2007 consisted of officer compensation inthe amount of $154,740 ($150,000 of which has not been paid), stock based compensation in the amount of $317,667, professional fees in the amount of $48,402, and amortization and other expenses in the amount of $78,186. Most of the professional fees and other expenses during the six months ended January 31, 2007 related to professional fees and travel expenses. Operating expenses of $367,086 for the six months ended January 31, 2006 consisted of officer compensation and benefits in the amount of $164,625 (of which $150,000 was accrued and subsequently forgiven during the quarter ended October 31, 2007), stock based compensation in the amount of $120,833, professional fees in the amount of $61,471, and amortization and other expenses in the amount of $20,157. Mostof the fees and other expenses during the six months ended January 31, 2006 related to professional fees, including services required for compliance reporting, and establishment of administrative offices and related support services.

 

**Liquidity and Capital Resources**

 

During this reporting period the majority our cash resources have been directed toward professional fees and services required to maintain required compliance and to investigate new technologies. Cash requirements were funded with proceeds from sales of our common stock, and issuance of notes payable. Although the two company employees have accrued salaries, no payments have been as of the date of this filing. It is anticipated that employment agreements will be honored upon receipt of appropriate funding. At this time company operations are being conducted in the personal residences of the two principal officers at no cost to the company. 

 

During the six months ended January 31, 2007, we used cash of approximately $105,000 to fund our operating activities. Because of our lack of revenues, these activities were funded through the sales of $100,000 of convertible notes payable and $7,500 of stockholder advances.  

 

We presently have less than $5,000 in cash and we currently require cash in the amount of approximately $15,000 per month to fund continuing operations, excluding employment agreements and professional fees. This requirement is projected to increase to approximately $75,000 per month if and when our operations are ramped up, key employees are hired and our physical plant is established. As such, we do not currently have the cash on hand to meet our anticipated operating commitments for the next twelve months, and/or to pay our liabilities timely, including certain promissory notes payable to an officer which have been extended several times. Continued operations will be contingent on sufficient capital resources being raised by the company. It is essential that additional capital be raised immediately. The company cannot rely on revenues associated with existing products as they have not been fully developedand required additional research and development investment to commercialize.

 

We attempted to raise $1,000,000 under a private placement memorandum under which we were offering 

 

19

a maximum of 10,000,000 Units for $0.10 per Unit (each unit consists of one share of common stock and one common stock warrant that allows the holder to purchase one share of our common stock for $0.20 within two year of the date the Units are purchased). No proceeds were received under this arrangement and the offering was closed effective February 28, 2007. Accordingly, we will seek other avenues for financing in the near future. 

 

**Item 3.**

**Controls and Procedures.**

 

**A)**

**Evaluation of Disclosure Controls and Procedures**

 

We maintain disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) that are designed to ensure that information required to be disclosed in our periodic reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management and our board of directors, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognize that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired objectives, and management necessarily is required to apply its judgment in evaluating thecost-benefit relationship of possible controls and procedures. 

 

We carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of January 31, 2007. This evaluation was carried out under the supervision and with the participation of our management, including our chief executive officer (who is also our principal financial and accounting officer). Based upon the evaluation, our chief executive officer concluded that our disclosure controls and procedures were of limited effectiveness at the reasonable assurance level at such date.  

 

 

**B)**

**Changes in Internal Controls Over Financial Reporting**

 

In connection with the evaluation of the Company’s internal controls during the quarter ended January 31, 2007, the Company’s Chief Executive Officer determined that as of such date, there were no changes to the Company’s internal controls over financial reporting that have materially affected, or were reasonably likely to materially affect, the Company’s internal controls over financial reporting. 

 

PART II - OTHER INFORMATION

 

**Item 1.**

**Legal Proceedings**

-

None

 

**Item 2.**

**Unregistered Sale of Equity Securities and Use of Proceeds**

 

The following securities were issued to independent contractors for services rendered and/or to be rendered during the most recent fiscal quarter. These securities were issued without registration in reliance upon the exemption from registration provided by Section 4(2) of the Securities Act of 1933 Securities Act because of the limited number of persons involved in each transaction, the separate negotiation of each transaction with the purchaser of the securities, the absence of any public solicitation or advertising, and the restriction on such securities from resale.

 

 

20

 

**Independent Contractor**

 

**Number of Shares**

 

**Date**

 

 

 

 

 

 

 

Theodore Misiewicz 

 

 

60,000

 

9/29/2006

 

Rolling Bones, LLC 

 

 

100,000

 

8/31/2006

 

Thomas J. Dula 

 

 

500,000

 

8/31/2006

 

Sequence Investment Partners, LLC 

 

 

2,000,000

 

 

9/22/2006

 

 

Lehrer Financial and Economic Advisory Services 

 

 

 

200,000

 

 

8/31/2006

 

Hampton Bay Trading Corporation 

 

 

100,000

 

 

8/31/2006

 

 

Sequence Holdings, LLC

 

2,000,000

 

11/9/2006

 

CZJS Resources, LLC

 

100,000

 

11/12/2006

 

 

**Total**

 

 

**5,060,000**

 

 

 

 

**Item 3.**

**Defaults Upon Senior Securities**- None

 

**Item 4.**

**Submission of Matters to a Vote of Securities Holders**- None

 

**Item 5.**

**Other Information and Subsequent Events:**

 

On February 8, 2007 we were approached by Carley Enterprises, Inc. of Bloomington, IL with a Letter of Intent to merge with a  company they represented. We entered this LOI which included a confidentiality agreement in which to conduct due diligence and negotiations. It was subsequently decided that the merger represented an acceptable course of action and our officers were empowered by the Board to proceed with various activities leading to closing and making effective this pending transaction. Majority shareholder consent to the transaction was obtained. The definitive merger agreements were closed on March 12, 2006 with an effective date set for March 22, 2007. We anticipate treating this business combination as a re-capitalization of TenthGate for accounting purposes.

 

The Board of Directors held a special meeting on March 6, 2007 at which time the following items where unanimously approved:  1. Issuance of 1,000,000 shares each to all 6 Company Board Members as consideration for their board service during the period April 1, 2007 to March 31, 2008. 2. Issuance of 6,000,000 shares each to both Company Officers for there services during the period April 1, 2007 to March 31, 2008. 

 

On March 9, 2007 certain trade payables totaling $48,600 were converted to shares of our common stock upon the agreement of each vendor. A total of  486,000 shares were issued representing a conversion rate of $0.10/share.

 

21

On March 9, 2007, we issued an additional 225,000 shares of restricted common stock to 3 shareholders for consideration of the $37,500 in cash investment already received by the Company as part of a private placement offering in 2006, which was priced at $0.50 per share. These shares participated in the 2:1 forward split that we declared in November 2006 and accordingly had previously been issued 150,000 shares as consideration for their investment. Subsequently, we offered shares under a private placement memorandum for $.10 per share (see Note 5) and also converted the obligations discussed above at $0.10 per share, and therefore will recognize the previous investments made at this same pricing. These shares were issued pursuant to an exemption from registration at Section 4(2) of the Securities Act of 1933 and are restricted in accordance with Rule 144 of the Securities Act of 1933.

 

**TECHNOLOGY TARGETS**

 

We are actively negotiating two technology licensing agreements seeking world-wide exclusive rights for synergistic melanoma related technologies also development by Dr. Graham Timmins at the University of New Mexico as follows:

 

**Option 1:**

 

1.1.                 Graham S. Timmins, Ph.D. (the “Inventor”), during the course of his employment at the University of New Mexico, has developed an invention known as “In Vivo Determination Of Melanocyte Protection Ability Of Sunscreens Using Reactive Melanin Radical Formation As A Relevant Endpoint” which is disclosed in UNM Docket No. MC-344 (“Invention(s)”).

 

**Option 2:**

 

1.2.                 Graham S. Timmins, Ph.D. and Leslie Lund (the “Inventors”), during the course of their employment at the University of New Mexico, have developed an invention known as “Post Exposure Prophylaxis Of Melanoma Causation By Tyrosinase Inhibition” which is disclosed in UNM Docket No. MC-352 (“Invention(s)”).

 

The definitive timing and terms associated with each of the licensing agreements are currently be negotiated and it remains uncertain if either will close.

 

**STRATEGIC CONSULTING AGREEMENTS ENTERED IN THE QUARTER ENDED JANUARY 31, 2007**

 

On November 9, 2006, the Company issued 2,000,000 shares of restricted common stock to Sequence Holdings, LLC on behalf of Sequence Advisors, LLC a firm based in Charleston, South Carolina in consideration of a 12 month business development advisory agreement entered in support of the company’s mission as a medical technology holding company. The primary duties to be preformed include assisting in developing and implementing product marketing, sales and distribution, operations management, staffing and corporate structuring for Company. Such shares were issued pursuant to an exemption from registration at Section 4(2) of the Securities Act of 1933 and are restricted in accordance with Rule 144 of the Securities Act of 1933.

 

On November 12, 2006, the Company issued 100,000 shares of restricted common stock to CZJS Resources, LLC of Ashburn,Virginia in consideration of a management consulting agreement entered in support of the company’s operations and logistics activities. These duties will include    consulting services for the planning and execution of business capture opportunities, the pursuit and award of 

 

22

financial grants, and support of operations and logistics activities with planning, development and implementation of processes, methods and practices ensuring profitable performance on business endeavors, projects and programs. Such shares were issued pursuant to an exemption from registration at Section 4(2) of the Securities Act of 1933 and are restricted in accordance with Rule 144 of the Securities Act of 1933.

 

**ELECTION OF NEW BOARD MEMBERS**

 

On November 15, 2006, we nominated four additional members to join our board of directors. All four director nominees were unanimously elected and ratified to serve an initial 1 year term by the existing board members. Our board of directors now consists of six members. The newly elected members of the board of directors include:

 

**David A. Dedman - 46**, Director:  He currently serves as Associate General Counsel of Lockheed Martin Corporation. His principal areas of practice experience include corporate and securities law, corporate governance, strategic business transactions (including mergers, acquisitions, divestitures and joint ventures) and corporate finance. He is a director or officer of several Lockheed Martin subsidiaries. Mr. Dedman also recently served as a director of Space Imaging, LLC, a commercial satellite imagery company. Prior to joining Lockheed Martin in 2000, Mr. Dedman served in a similar capacity at COMSAT Corporation, an international satellite telecommunications company. Prior to that, Mr. Dedman was in private practice with the law firm of Hogan & Hartson, LLP in Washington, D.C. Mr. Dedman holds a juris doctor degree from IndianaUniversity School of Law (1985) and a bachelor’s degree from Vanderbilt University (1982).

 

**Matthew Taylor – 44** Director:  He is a senior executive with 20 years of progressive global business leadership experience. He is currently the Director of Operations, Fluid Systems and Controls Center of Excellence for the Woodward Governor Company. Woodward, a public company, is the world’s largest independent designer, manufacturer, and service provider of energy control solutions for aircraft engines, industrial engines and turbines, power generation, and process automation equipment. Prior to joining Woodward, Mr. Taylor was Vice President and General Manager of Warner Electric. Warner Electric is a global manufacturer of engineered power transmission products that serve the turf and garden, material handling, and industrial markets. Mr. Taylor also served with Eaton Corporation and Delphi Delco Electronics in a variety of progressive operations, engineering,sales, strategic planning, and business management leadership positions. Mr. Taylor has served on the board of directors for the Manatee Chamber of Commerce, Manatee United Way, and the Gulf Coast Wonder and Imagination Zone. He is a graduate of Michigan State University with a B.S. Civil Engineering (1985) and Purdue University with a M.S. Management (1995).

 

**Neil Strodel – 58** Director:  He is a senior executive with 30 years of progressive business and higher education leadership experience. He is currently the Associate Vice President-Chief Human Resources Officer of Syracuse University located in Syracuse, New York, which has approximately 10,000 employees and 18,000 students. Strodel’s experience is in the areas of leadership, compensation, recognition and rewards, and executive level recruitment. Under Strodel’s leadership, Syracuse University has been recognized regionally and nationally as an Employer of Choice, winning such awards as the Central New York Society for Human Resources Management’s (SHRM) Employer of Choice Award (2005), SHRM HR Excellence Award (2002 and 2003), Donlon Award for Best Practices in Family Workplace Policies (2005), and the Donlon Spirit of Excellence Award (2003). Strodel isconsidered a thought leader in the areas of institutional culture, leadership and work/life balance. Prior to his experience at Syracuse University, Mr. Strodel served as Vice President of Human Resources at Syracuse 

 

23

China Corporation, a multi-plant commercial chinaware manufacturer with locations both domestic and international. Strodel served as a corporate officer. Mr. Strodel’s other professional experiences include performing independent consulting assignments in several different industries in the areas of organizational development, leadership, strategic planning and executive coaching. In addition, Mr. Strodel has served on the board of the College and University Professional Association-Human Resources (CUPA-HR) Eastern Region board, co-authored articles in the CUPA-HR Journal, and was featured in the cover story of Human Resources Executive magazine in the February, 2002 article on health care. Strodel is a graduate of Cornell University (BS, ILR, 1975) and Syracuse University (MBA, 1985).

**John T. Wisneski MD – 51**, Director, He is an Internal Medicine physician who has an active practice in Pittsburgh, Pennsylvania. He received his undergraduate degree from The Johns Hopkins University in Baltimore, Maryland. He received his Medical Degree from Washington University in St. Louis, Missouri. Internship and residency were completed at the University of Pittsburgh Presbyterian University Hospital in Pittsburgh, Pennsylvania. Dr. Wisneski is board-certified in Internal Medicine by the American Board of Internal Medicine. Currently he is Director of Medical Services at UPMC St. Margaret Hospital in Pittsburgh, Pennsylvania as well as Chairman of the Department of Medicine. Dr. Wisneski is also Chairman of Quality Care Management at UPMC St. Margaret. He resides in Allison Park, Pennsylvania with his family.

 

**PRINCIPAL SHAREHOLDERS**

 

The following table sets forth the number and percentage of shares of our common stock owned based upon total common shares issued of 52,450,200 as of March 19, 2007 by all persons (i) known to us who own more than 5% of the outstanding number of such shares, (ii) by all of our directors, and (iii) by all officers and directors of us as a group. Unless otherwise indicated, each of the stockholders has sole voting and investment power with respect to the shares beneficially owned. The table reflects the common stock dividend consisting of one common share of our stock for each common share held by our holders as of November 14, 2006 and issued November 16, 2006. 

 

**Title of Class**

**Name and Address**

**of Beneficial Owner**

**Amount of Beneficial Ownership**

**Percent of Class**

 

 

 

 

Common

Tim Novak (1) 

17,000,000

32.4 %

Common

R. Paul Gray (2)

16,750,000

31.9 %

Common

UTEK Corporation (3)

2,560,000

4.8 %

Common 

Sequence Investment Partners, LLC & Affiliates 

4,000,000

7.6 %

Common

Matthew Taylor  (4) 

1,300,000

2.4 %

Common

Core Concepts, LLC (5)

3,917,200

7.4 %

Common

Common

Common

 

Officers and DirectorsAs a Group (6)

Neil Strodel (6)

John Wisneski (6)

David Dedman (6)

 

Tim Novak, R. Paul Gray, Matthew Taylor, Neil Strodel, John Wisneski, David Dedman

1,000,000

1,000,000

1,000,000

 

38,050,000

1.9 %

1.9 %

1.9 %

 

79.8 %

 

 

24

 

(1) 

Founder’s shares purchased at par value for $5,000 in cash consideration, 1,000,000 shares for board service and 6,000,000 shares for Officer service.

(2)

Founder’s shares purchased at par value for $5,000 in cash consideration, 1,000,000 shares for initial board service and 6,000,000 shares for Officer service.

(3) 

Based on the following: (i) 480,000 shares of our common stock issued for technology search services; (ii) 800,000 shares of common stock issued pursuant our existing agreement and $40,000 cash consideration.

(4) 

Newly Elected Director November 15, 2006. His shares issued pursuant $30,000 investment into the November 2005 PPM and subsequently adjusted March 9, 2007 to align with $0.10/share debt conversion offering. 1,000,000 shares issued for initial  board service.

(5)

 

(6)

Core Concepts, LLC is owned equally by our officers, Tim Novak and R. Paul Gray. These shares were issued based on cash and stock consideration totaling approximately $447,000.

1,000,000 issued March 9, 2007 for board service

 

**NOTE EXTENSIONS:**

 

Two Promissory Note Extension Agreements were entered with our President as follows: 

 

**Note 1:**  We originally entered into a Promissory Note for $10,000 earning 8% simple interest on September 19, 2005 which first matured on April 19, 2006, and was then extended until July 18, 2006; and then extended to November 18, 2006 and then extended until January 31, 2007 and now until May 31, 2007 under the existing terms without penalty.

 

**Note 2:**  We entered into a Promissory Note on January 17, 2006 for $50,000 earning 8% simple interest, which first matured July 17, 2006, and then was extended until November 18, 2006 and then extended until January 31, 2007 and now until May 31, 2007 under the existing terms without penalty.

 

**Item 6.  Exhibits**

**Exhibit**

 

**Description**

 

 

 

**31.1***

 

Certification required by Rule 13a-14(a) by the Chief Executive Officer.

 

 

 

**31.2***

 

Certification required by Rule 13a-14(a) by the Chief Financial Officer.

 

 

 

**32.1**

 

Certification required by Rule 13a-14(b).

*  Filed herewith

**SIGNATURE**

 

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

Date:

March 21, 2007

Tenthgate Incorporated

 

(Registrant)

 

 

By:

/s/ Tim Novak

 

(Signature)

Name: Tim Novak, President and 

 

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Chief Executive Officer, and Principal Financial and Accounting Officer               

 

 

26

 

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