UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 2005
or
|_| TRANSITION REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file No. 0-12641
DALRADA FINANCIAL CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 38-3713274
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER ID NO.)
INCORPORATION OR ORGANIZATION)
9449 BALBOA AVENUE, SUITE 211
SAN DIEGO, CA 92123
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
Registrant's telephone number, including area code: (858) 277-5300
N/A
(FORMER NAME AND ADDRESS, IF CHANGED SINCE LAST REPORT)
Check whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes [X] No [ ]
The number of shares outstanding of the registrant's common stock as of February
15, 2006 was 815,802,291.
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
PART I - FINANCIAL INFORMATION
ITEM 1. Consolidated Financial Statements
Consolidated Balance Sheet as of December 31, 2005 (unaudited) 3
Consolidated Statements of Operations and Other Comprehensive
Loss for the three and six months ended December 31, 2005
and 2004 (unaudited) 4
Consolidated Statement of Stockholders' deficit for the six
months ended December 31, 2005 (unaudited) 5
Consolidated Statements of Cash Flows for the six months ended 6
December 31, 2005 and 2004 (unaudited)
Notes to Consolidated Financial Statements (unaudited) 8
ITEM 2. Management's Discussion and Analysis or Plan of Operations 15
ITEM 3. Controls and Procedures 24
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings 25
ITEM 2. Unregistered Sale of Equity Securities and Use of Proceeds 26
ITEM 3. Defaults Upon Senior Securities 26
ITEM 4. Submission of Matters To A Vote of Security Holders 26
ITEM 5. Other Information 26
ITEM 6. Exhibits 26
SIGNATURES 27
CERTIFICATIONS 28
2
PART I. - FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
DALRADA FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
DECEMBER 31,
2005
------------
(unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 801
Accounts receivable, net of allowance of $61 2,230
Prepaid worker's compensation premiums 861
Other current assets 2,439
------------
TOTAL CURRENT ASSETS 6,331
------------
CUSTOMER LIST, net of accumulated amortization of $18 54
PROPERTY AND EQUIPMENT, net of accumulated depreciation of $2,116 261
WORKER'S COMPENSATION DEPOSIT 2,129
OTHER LONG-TERM ASSETS 15
------------
TOTAL ASSETS $ 8,790
============
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Cash overdraft $ 572
Lines of credit 789
Notes payable, current portion (including related party note of $1,565) 3,603
Convertible debentures, net of discount of $112 1,382
Accounts payable 2,054
PEO payroll taxes and other payroll deductions 10,067
Other accrued expenses 11,073
Net liabilities of discontinued operations 78
------------
TOTAL CURRENT LIABILITIES 29,618
------------
NOTES PAYABLE, net of current portion (including related party note of $383) 614
------------
TOTAL LIABILITIES 30,232
------------
MINORITY INTEREST -
COMMITMENTS AND CONTINGENCIES -
STOCKHOLDERS' DEFICIT
Series A convertible, redeemable preferred stock, $1,000 par value,
7,500 shares authorized 420.5 shares issued and outstanding 420
Common stock; $0.005 par value; 1,000,000,000 shares
authorized; 791,606,769 shares issued and outstanding 3,958
Common stock warrants 475
Additional paid-in capital 82,441
Accumulated other comprehensive loss -
Accumulated deficit (108,736)
------------
TOTAL STOCKHOLDERS' DEFICIT (21,442)
------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 8,790
============
The accompanying notes are an integral part of these consolidated financial statements
3
DALRADA FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND OTHER COMPREHENSIVE LOSS
THREE AND SIX MONTHS ENDED DECEMBER 31, 2005 AND 2004
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
---------------------------- ----------------------------
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
2005 2004 2005 2004
------------ ------------ ------------ ------------
(unaudited) (unaudited) (unaudited) (unaudited)
REVENUES
Temporary staffing services $ 17,002 $ 3,749 $ 28,545 $ 7,654
PEO Services 387 478 682 850
Sales of products 443 688 631 813
Software sales, licenses and royalties 2 13 5 39
------------ ------------ ------------ ------------
TOTAL REVENUES 17,834 4,928 29,863 9,356
------------ ------------ ------------ ------------
COST OF REVENUES
Cost of temporary staffing 14,477 3,400 25,303 6,948
Cost of PEO services 299 348 653 628
Cost of products sold 7 442 18 465
Cost of software sales, licenses and royalties - - - 3
------------ ------------ ------------ ------------
TOTAL COST OF REVENUES 14,783 4,190 25,974 8,044
------------ ------------ ------------ ------------
GROSS PROFIT 3,051 738 3,889 1,312
------------ ------------ ------------ ------------
OPERATING EXPENSES
Selling, general and administrative 2,537 996 4,208 2,005
------------ ------------ ------------ ------------
TOTAL OPERATING EXPENSES 2,537 996 4,208 2,005
------------ ------------ ------------ ------------
INCOME (LOSS) FROM OPERATIONS 514 (258) (319) (693)
OTHER INCOME (EXPENSES):
Interest expense (140) (345) (564) (828)
Note payable settlement (316) - (316) -
Gain on extinguishment of debt 4,262 260 5,603 260
Penalties and interest (294) - (567) -
Gain resulting from reconciliation of payroll tax
liabilities to taxing authorities - 536 - 536
Other, net (187) - (158) -
------------ ------------ ------------ ------------
TOTAL OTHER INCOME (EXPENSE) 3,325 451 3,998 (32)
------------ ------------ ------------ ------------
INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES
AND DISCONTINUED OPERATIONS 3,839 193 3,679 (725)
PROVISION FOR INCOME TAXES - - - -
INCOME (LOSS) BEFORE MINORITY INTEREST
------------ ------------ ------------ ------------
AND DISCONTINUED OPERATIONS 3,839 193 3,679 (725)
MINORITY INTEREST IN SUBSIDIARY (INCOME) LOSS - - - -
NET INCOME (LOSS) FROM CONTINUING OPERATIONS 3,839 193 3,679 (725)
DISCONTINUED OPERATIONS:
Loss from operations of discontinued operations (420) - (520)
------------ ------------ ------------ ------------
(420) - (520) -
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
NET INCOME (LOSS) $ 3,419 $ 193 $ 3,159 $ (725)
============ ============ ============ ============
OTHER COMPREHENSIVE INCOME (LOSS)
Foreign currency translation 3 - - -
------------ ------------ ------------ ------------
COMPREHENSIVE INCOME (LOSS) $ 3,422 $ 193 $ 3,159 $ (725)
============ ============ ============ ============
PREFERRED STOCK DIVIDENDS (5) (5) (10) (10)
NET INCOME (LOSS) ATTRIBUTED TO COMMON ------------ ------------ ------------ ------------
STOCKHOLDERS $ 3,414 $ 188 $ 3,149 $ (735)
============ ============ ============ ============
NET INCOME (LOSS) PER SHARE - BASIC
Continuing operations $ 0.00 $ 0.00 $ 0.00 $ (0.00)
Discontinued operations (0.00) - (0.00) -
------------ ------------ ------------ ------------
$ 0.00 $ 0.00 $ 0.00 $ (0.00)
============ ============ ============ ============
WEIGHTED AVERAGE COMMON EQUIVALENT
SHARES OUSTANDING - BASIC 771,827 640,378 761,597 613,178
============ ============ ============ ============
The accompanying notes are an integral part of these consolidated financial statements
4
DALRADA FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
SIX MONTHS ENDED DECEMBER 31, 2005
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
ACCUMULATED
COMMON ADDITIONAL OTHER
SERIES A PREFERRED STOCK COMMON STOCK STOCK PAID-IN COMPREHENSIVE
SHARES AMOUNT SHARES AMOUNT WARRANTS CAPITAL LOSS
----------- ----------- ----------- ----------- ----------- ----------- -----------
BALANCE, JUNE 30, 2005 4,205 $ 420 735,248,867 $ 3,676 $ 475 $ 82,629 $ -
Issuance of common stock for:
Services 5,000,000 25 (10)
Convertible debentures 29,411,767 147 (97)
Conversion of liabilities 21,946,135 110 (81)
Foreign currency translation
adjustment -
Net loss
----------- ----------- ----------- ----------- ----------- ----------- -----------
BALANCE, DECEMBER 31, 2005 4,205 $ 420 791,606,769 $ 3,958 $ 475 $ 82,441 $ -
=========== =========== =========== =========== =========== =========== ===========
ACCUMULATED
DEFICIT TOTAL
------------ ------------
BALANCE, JUNE 30, 2005 $ (111,895) $ (24,695)
Issuance of common stock for:
Services 15
Convertible debentures 50
Conversion of liabilities 29
Foreign currency translation
adjustment -
Net loss 3,159 3,159
------------ ------------
BALANCE, DECEMBER 31, 2005 $ (108,736) $ (21,442)
============ ============
The accompanying notes are an integral part of these consolidated financial statements
5
DALRADA FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED DECEMBER 31, 2005 AND 2004
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
SIX MONTHS ENDED
----------------------------
DECEMBER 31, DECEMBER 31,
2005 2004
------------ ------------
(unaudited) (unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) from continuing operations $ 3,679 $ (725)
Adjustment to reconcile net loss to net cash
provided by (used in) operating activities from continuing operations
Depreciation and amortization 57 117
Stock issued for services 15 42
Amortization of debt discounts 58 264
Gain resulting from reconciliation of payroll tax
liabilities to taxing authorities - (536)
Gain on settlement of debt (5,603)
Changes in operating assets and liabilities:
(Increase) decrease in:
Accounts receivable (816) (861)
Inventories - 44
Prepaid worker's compensation premiums 269 -
Other current assets (1,399) (10)
Worker's compensation deposit 496 -
Other assets (4) -
Increase (decrease) in:
Accounts payable and accrued expenses 4,903 (1,205)
PEO liabilities 1,292 1,978
------------ ------------
Net cash provided by (used in) operating activities from continuing operations 2,947 (892)
Net cash used in operating activities of discontinued operations (432) -
------------ ------------
Net cash provided by (used in) operating activities 2,515 (892)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (68) (137)
------------ ------------
Net cash used in investing activities from continuing operations (68) (137)
Net cash used in investing activities of discontinued operations - -
------------ ------------
Net cash used in investing activities (68) (137)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Change in cash overdraft, net 410 -
Line of credit, net 20 206
Proceeds from notes payable 821 724
Repayments of notes payable (2,581) (15)
Repayments of borrowings under bank notes payable (483) -
Repayments of capital lease obligations (4) (14)
------------ ------------
Net cash provided by (used in) financing activities from continuing operations (1,817) 901
Net cash used in financing activities of discontinued operations - -
------------ ------------
Net cash provided by (used in) financing activities (1,817) 901
------------ ------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH - -
------------ ------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 630 (128)
CASH AND CASH EQUIVALENTS, Beginning of period 171 228
------------ ------------
CASH AND CASH EQUIVALENTS, End of period $ 801 $ 100
============ ============
The accompanying notes are an integral part of these consolidated financial statements
6
DALRADA FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
SIX MONTHS ENDED DECEMBER 31, 2005 AND 2004
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
SIX MONTHS ENDED
---------------------------
DECEMBER 31, DECEMBER 31,
2005 2004
------------ ------------
(unaudited) (unaudited)
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $ - $ -
============ ============
Income taxes paid $ - $ -
============ ============
SUPPLEMENTAL NON-CASH INVESTING AND FINANCING ACTIVITIES:
Conversion of convertible debentures into common stock $ 50 $ 175
============ ============
Conversion of accounts payable and accrued liabilities into
common stock $ 29 $ 132
============ ============
The accompanying notes are an integral part of these consolidated financial statements
7
DALRADA FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED DECEMBER 31, 2005 AND 2004
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
NOTE 1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of Dalrada
Financial Corporation and Subsidiaries (the "Company" or "DRDF") have been
prepared pursuant to the rules of the Securities and Exchange Commission (the
"SEC") for quarterly reports on Form 10-QSB and do not include all of the
information and note disclosures required by accounting principles generally
accepted in the United States of America. These consolidated financial
statements and notes herein are unaudited, but in the opinion of management,
include all the adjustments (consisting only of normal recurring adjustments)
necessary for a fair presentation of the Company's financial position, results
of operations, and cash flows for the periods presented. These consolidated
financial statements should be read in conjunction with the Company's audited
consolidated financial statements and notes thereto for the year ended June 30,
2005 included in the Company's annual report on Form 10-KSB filed with the SEC.
Interim operating results are not necessarily indicative of operating results
for any future interim period or for the full year. The consolidated financial
statements include the accounts of the Company and its majority-owned
subsidiaries. All inter-company transactions have been eliminated.
MINORITY INTEREST
-----------------
On April 1, 2005, the Company contributed its wholly-owned subsidiary, Solvis
(a Michigan corporation), to QPI (QPI subsequently changed its name to Solvis
Group, Inc., a Nevada corporation). At that date, Solvis had a stockholders'
equity of $393. As a result of the Company contributing Solvis to an 85% owned
subsidiary, the Company recognized minority interest on its consolidated balance
sheet in the amount of $59. During the year ended June 30, 2005, QPI incurred
a net loss of which 15% is attributed to the minority interest. In the
consolidated statement of operations for the year ended June 30, 2005, the
Company has only recognized the minority interests' share of the net loss to
the extent of the minority interest recorded on the consolidated balance sheet.
During the six months ended December 31,2005, QPI incurred a net loss of which
15% is attributed to minority interest that has been included in the net loss
in the accompanying statement of operations. Recognizing the minority interests'
entire share of the net loss would have resulted in the recording of a minority
interest receivable.
RECLASSIFICATIONS
-----------------
Certain reclassifications have been made to the prior years' financial
statements to conform to the current year presentation. These reclassifications
had no effect on previously reported results of operations or retained earnings.
NOTE 2. GOING CONCERN CONSIDERATIONS
The accompanying unaudited consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. For the six months
ended December 31, 2005, the Company had a loss from operations of $319. As of
December 31, 2005, the Company had a working capital deficiency of $23,287 and
had a stockholders' deficit of $21,442. In addition, the Company is in default
on certain note payable obligations, delinquent on payroll tax obligations and
is being sued by numerous trade creditors for nonpayment of amounts due. The
Company is also delinquent in its payments relating to payroll tax liabilities.
These conditions raise substantial doubt about its ability to continue as a
going concern. Management believes that it can continue to raise debt and equity
financing to support its operations.
The Company must obtain additional funds to provide adequate working capital and
finance operations. However, there can be no assurance that the Company will be
able to complete any additional debt or equity financings on favorable terms or
at all, or that any such financings, if completed, will be adequate to meet the
Company's capital requirements. Any additional equity or convertible debt
financings could result in substantial dilution to the Company's stockholders.
If adequate funds are not available, the Company may be required to delay,
reduce or eliminate some or all of its planned activities. The Company's
inability to fund its capital requirements would have a material adverse effect
on the Company. The financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
8
NOTE 3. STOCK BASED COMPENSATION
SFAS No. 123, "Accounting for Stock-Based Compensation," establishes and
encourages the use of the fair value based method of accounting for stock-based
compensation arrangements under which compensation cost is determined using the
fair value of stock-based compensation determined as of the date of grant and is
recognized over the periods in which the related services are rendered. The
statement also permits companies to elect to continue using the current
intrinsic value accounting method specified in Accounting Principles Board
("APB") Opinion No. 25, "Accounting for Stock Issued to Employees," to account
for stock-based compensation. The Company has elected to use the intrinsic value
based method and has disclosed the pro forma effect of using the fair value
based method to account for its stock-based compensation issued to employees.
For options granted to employees where the exercise price is less than the fair
value of the stock at the date of grant, the Company recognizes an expense in
accordance with APB 25. For non-employee stock based compensation the Company
recognizes an expense in accordance with SFAS No. 123 and values the equity
securities based on the fair value of the security on the date of grant. For
stock-based awards the value is based on the market value for the stock on the
date of grant and if the stock has restrictions as to transferability a discount
is provided for lack of tradability. Stock option awards are valued using the
Black-Scholes option-pricing model.
The pro forma information regarding the effect on operations that is required by
SFAS 123 has not been presented since there is no pro forma expense to be shown
for the six months ended December 31, 2005 and 2004.
NOTE 4. EARNINGS (LOSS) PER COMMON SHARE
The Company reports earnings (loss) per share in accordance with SFAS No. 128,
"Earnings per Share." Basic earnings (loss) per share are computed by dividing
income (loss) available to common stockholders by the weighted average number of
common shares available. Diluted earnings (loss) per share is computed similar
to basic earnings (loss) per share except that the denominator is increased to
include the number of additional common shares that would have been outstanding
if the potential common shares had been issued and if the additional common
shares were dilutive. Diluted earnings (loss) per share have not been presented
since the effect of the assumed conversion of options and warrants to purchase
common shares would have an anti-dilutive effect. The following potential common
shares have been excluded from the computation of diluted net loss per share for
the six months ended December 31, 2005: warrants - 31,061and stock options -
31,500. All options and warrants are anti-dilutive at December 31, 2005 as the
exercise price is greater than the Company stock price at December 31, 2005.
Below is a computation of earnings (loss) per share for the three and six months
ended December 31, 2005 and 2004. Basic and diluted loss per share are the same
for the six months ended December 31,2004:
THREE MONTHS ENDED DECEMBER 31,
----------------------------------------------------------------------------
2005 2004
------------------------------------- -------------------------------------
INCOME/ PER INCOME/ PER
(LOSS) SHARES SHARE (LOSS) SHARES SHARE
BASIC EARNINGS (LOSS) PER SHARE
Net income (loss) from continuing operations $ 3,839 $ 193
Preferred stock dividends (5) (5)
----------- -----------
3,834 188
Discontinued operations (420) -
----------- -----------
Net income (loss) attributed to common stockholders $ 3,414 $ 188
=========== ===========
Weighed shares outstanding 771,827 640,378
Continuing operations $ 0.00 $ 0.00
Discontinued operations $ (0.00) $ -
----------- -----------
$ 0.00 $ 0.00
=========== ===========
9
DILUTED EARNINGS (LOSS) PER SHARE
Net income (loss) from continuing operations $ 3,839 $ 193
Preferred stock dividends (5) (5)
Interest on convertible debentures 30 24
Amortization of discounts on convertible debentures 28 41
----------- -----------
3,892 253
Discontinued operations (420) -
----------- -----------
Net income (loss) attributed to common stockholders $ 3,472 $ 253
=========== ===========
Weighed shares outstanding 771,827 640,378
Conversion of convertible debentures into common stock 609,796 762,987
----------- -----------
1,381,623 1,403,365
=========== ===========
Continuing operations $ 0.00 $ 0.00
Discontinued operations $ (0.00) $ -
----------- -----------
$ 0.00 $ 0.00
=========== ===========
SIX MONTHS ENDED DECEMBER 31,
----------------------------------------------------------------------------
2005 2004
------------------------------------- -------------------------------------
INCOME/ PER INCOME/ PER
(LOSS) SHARES SHARE (LOSS) SHARES SHARE
----------- ----------- ----------- ----------- ----------- -----------
BASIC EARNINGS (LOSS) PER SHARE
Net income (loss) from continuing operations $ 3,679 $ (725)
Preferred stock dividends (10) (10)
----------- -----------
3,669 (735)
Discontinued operations (520) -
----------- -----------
Net income (loss) attributed to common stockholders $ 3,149 $ (735)
=========== ===========
Weighed shares outstanding 761,597 613,178
Continuing operations $ 0.00 $ (0.00)
Discontinued operations $ (0.00) $ -
----------- -----------
$ 0.00 $ (0.00)
=========== ===========
10
DILUTED EARNINGS (LOSS) PER SHARE N/A
Net income (loss) from continuing operations $ 3,679
Preferred stock dividends (10)
Interest on convertible debentures 60
Amortization of discounts on convertible debentures 58
-----------
3,787
Discontinued operations (520)
-----------
Net income (loss) attributed to common stockholders $ 3,267
===========
Weighed shares outstanding 761,597
Conversion of convertible debentures into common stock 609,796
-----------
1,371,393
===========
Continuing operations $ 0.00
Discontinued operations $ (0.00)
-----------
$ 0.00
===========
NOTE 5. BORROWINGS UNDER BANKS NOTES PAYABLE
The Company had outstanding two notes payable to Imperial Bank and Export-Import
Bank in the amounts of $1,490 and $1,730, respectively. In December 2005, the
Company entered into an agreement with these two banks whereby the Company paid
a total of $483 as full satisfaction of all outstanding principal ($3,220) and
accrued interest ($1,383) relating to these two notes payable. The Company
recognized a gain on the settlement of debt related to this transaction of
$4,120.
NOTE 6. FACTORING LINES OF CREDIT
The Company's temporary staffing division entered into a factoring agreement
that expires in January 2007 and in renewable for successive periods of 12
months assuming certain conditions are met. The agreement provides for the
Company to borrow against factored accounts receivables at a discount of
approximately 2% for each 30 day period the balances remain unpaid. Customer
payments are made directly to the factoring company and there is full recourse
for uncollected accounts.
NOTE 7. CONVERTIBLE NOTES PAYABLE
Listed below is a roll-forward schedule of the convertible debentures:
(In Thousands)
Balance at June 30, 2005 $ 1,110
Conversion of interest and penalties 264
Issuance of convertible debentures during the six months
ended December 31, 2005 -
Increase in debt discount and beneficial conversion feature -
Converted into common stock (50)
Amortization of value of warrants and preferential
conversion feature 58
---------
Balance at December 31, 2005 $ 1,382
=========
11
NOTE 8. NOTES PAYABLE
On August 9, 2005, the Company issued two secured promissory notes to two
investors totaling $221. The notes are due on October 9, 2005 and accrue
interest at a rate of 12% per annum. These two notes have not been repaid and
are currently in default. In addition, on December 22, 2005, the Company issued
a promissory note to an investor for $600. The note is due on January 6, 2006
and accrues interest at a rate of 15% per annum through February 1, 2006 and 24%
per annum thereafter until the note is paid in full. This note was repaid from
the proceeds of the February 13, 2006 funding (See Note 18).
The following summarizes notes payable at December 31, 2005:
Payable to investor, 8% $ 150
Payable in connection with QPI acquisition 141
Payable to two investors, 40% 190
Payable to investor, 8% 37
Payable to investor, 15% 600
Payable to two investors, 12% 221
Payable to related party 448
Payable to bank related to financing of worker's
compensation deposit 128
Payable to finance company related to financing of
worker's compensation premium and deposit 796
Payable to equipment finance companies 6
Payable to a former director, 16% 1,500
----------
4,217
Less current portion (3,603)
----------
Long-term portion $ 614
==========
NOTE 9. STOCKHOLDERS' DEFICIENCY
Stock Issuances
---------------
During the six months ended December 31, 2005, DRDF issued the following:
o 21,946,135 shares of its common stock for penalties and accrued
interest of $29;
o 29,411,767 shares of is common stock upon the $50 conversion of a
convertible debenture; and
o 5,000,000 shares of its common stock for consulting services valued at
$15.
NOTE 10. SEGMENT INFORMATION
The Company managed and internally reported the Company's business has four
reportable segments, principally, (1) products and accessories, (2) software,
(3) temporary staffing, and (4) PEO services.
Segment information for the six months ended December 31, 2005 is as follows:
(IN THOUSANDS)
TEMPORARY PEO
PRODUCTS SOFTWARE STAFFING SERVICES TOTAL
-------- -------- -------- -------- -----
Six months ended December 31, 2005
----------------------------------
Revenues $ 631 $ 5 $ 28,545 $ 682 $ 29,863
Operating income (loss) (1,881) (34) 1,543 53 (319)
Six months ended December 31, 2004
----------------------------------
Revenues $ 813 $ 39 $ 7,654 $ 820 $ 9,356
Operating income (loss) (437) (45) (116) (95) (693)
12
NOTE 11. RELATED PARTY TRANSACTIONS
Warning Management Services, Inc.
---------------------------------
The Company's CEO and Chairman, Mr. Brian Bonar, is also the CEO and Chairman of
Warning Management Services, Inc. In addition, the Company's CFO, Mr. Randall A.
Jones, is also the CFO of Warning Management Services, Inc. Warning a public
company, located in Southern California. Warning's operations consist of a
modeling agency and providing temporary staffing services to government agencies
and private companies.
GUARANTEE OF INDEBTEDNESS OF WARNING
------------------------------------
As of September 8, 2004, Warning Management Services, Inc. ("Warning") purchased
all of the issued and outstanding shares of Employment Systems, Inc. ("ESI") for
$1,500. The purchase was $750 cash paid at the closing and a $750 note payable.
In connection with this transaction, the Company agreed to be a guarantor of the
$750 note payable. As inducement to enter into this guarantee, the Company was
given a non-cancelable 2-year payroll processing contract with ESI. Management
has evaluated this contingent liability and has determined that no loss is
anticipated as a result of this guarantee.
WARNING HAS A MONTH-TO-MONTH LEASE WITH THE COMPANY
---------------------------------------------------
Warning leases offices for its ESI subsidiary, on a month-to-month basis from
the Company that started in October 2004. Monthly rental expense will be
approximately $3 per month.
PEO SERVICES AGREEMENT WITH WARNING PROVIDES FOR A FEE AT PREVAILING MARKET RATE
--------------------------------------------------------------------------------
In April 2004, the Company entered into an Agreement to provide PEO services for
Warning. The Company receives from Warning a monthly administrative fee. During
the six months ended December 31, 2005, the Company has invoiced Warning $274
for management services and $0 for reimbursement of costs. As of December 31,
2005, the Company has a net amount payable to Warning in the amount of $790.
Kaire Holdings, Inc.
The Company's Source One subsidiary processes the payroll for Effective Health,
Inc. which is a wholly-owned subsidiary of Kaire Holdings, Inc. The Company's
CFO, Mr. Randall A. Jones, is also the CFO of Kaire Holding, Inc.
NOTE 12. OTHER ACCRUED EXPENSES
Other accrued expenses at December 31, 2005 consisted of the following as of:
Accrued interest and penalties $ 2,730
Accrued judgments 1,756
Other taxes 127
Accrued salaries and related liabilities 4,675
Loss reserves 229
Accrued settlements 316
Other 1,240
-----------
$ 11,073
===========
13
NOTE 13. LITIGATION
The Company and its SourceOne Group ("SOG") subsidiary have been sued by the
Arena Football 2 Operating Company, LLC ("Arena") in Wayne County Circuit Court,
Michigan. The claims made by Arena against the Company and SOG are that SOG
failed to perform under an agreement to procure and furnish workers'
compensation insurance and that Arena incurred alleged damages in an amount no
less than $709 as a result. Management has vigorously contested the claims made
by Arena. In addition, the Company has filed claims against Arena and Arena's
agent, Thilman and Filippini, based on, among other things, the representations
made to SOG that let it to enter into the agreement with Arena. The case remains
in the discovery phase.
The Company and SOG have been sued by Liberty Mutual Insurance Company
("Liberty") in the United States District Court for the Northern District of
Illinois. The nature of the specific claims made by Liberty against the Company
and SOG are that the Company and SOG were and are obligated to make additional
premium payments to Liberty for workers' compensation insurance, which is
related to the Arena litigation described above. The initial claim by Liberty
was estimated by Liberty to be $829 and is now claimed to exceed $1,000.
Management has vigorously contested the claims made by Liberty. The case remains
in the discovery phase.
On February 10, 2005, Berryman & Henigar Enterprises ("Plaintiff"), filed a
complaint in the Superior Court of California, County of San Diego, Case No.
GIC842610, against Warning Model Management, Inc. for breach of a promissory
note issued pursuant to terms and conditions of a certain stock purchase and
sale agreement dated September 9, 2004. The Company and its subsidiary,
Employment Systems, Inc. ("ESI"), each allegedly guaranteed payments on the
underlying promissory note. Plaintiff seeks principal damages of $750 in that
regard. Warning Model Management, Inc. has taken the position that Plaintiff
failed to disclose certain material information in the underlying transaction
which thereby negates the promissory note. Warning Model Management, Inc.
reached a settlement, effective as of September 30, 2005 with the Plaintiff,
which requires defendants, collectively, to pay Plaintiff the aggregate sum of
$380. Defendants have made the initial two payments due under the settlement and
the final payment in the sum of $80 will be due in April 2006.
On March 17, 2005, Greenland Corporation ("Plaintiff"), filed an amended
complaint in the Superior Court of California, County of San Diego, Case No.
GIC842605, against the Company and multiple other individuals and entities
resulting from a transaction as evidenced by the "Agreement to Acquire Shares"
dated August 9, 2002, whereby the Company obtained a controlling equity interest
in Plaintiff. Plaintiff contends that the Company engaged in various forms of
wrongdoing including breach of fiduciary duty, conversion, conspiracy and aiding
and abetting. The Company has filed a cross-complaint alleging various causes of
action against Plaintiff and its officers, directors and/or managing agents
including Thomas J. Beener, Gene Cross, George Godwin, and Edward Sano. The
subject cross-complaint seeks pecuniary and punitive damages resulting from
various fraudulent transactions as well as legal malpractice against Mr. Beener.
Trial, which was initially set for April 14, 2006, has now been continued to
September 8, 2006. The Company has and will continue with its vigorous
defense/prosecution of the allegations/claims.
On August 29, 2005, United Bank & Trust filed suit against the Company and other
parties. The allegations of the lawsuit are that the Company guaranteed certain
debt owed by InfoServices, Inc. and is liable in the amount of $678. The case is
in its early stages and discovery has not yet commenced. However, the Company
intends to vigorously defend itself against the claims asserted.
Throughout fiscal 2004 and 2005, and through the date of this filing, trade
creditors have made claims and/or filed actions alleging the failure of the
Company to pay its obligations to them in a total amount exceeding $3,000. These
actions are in various stages of litigation, with many resulting in judgments
being entered against the Company. Several of those who have obtained judgments
have filed judgment liens on the Company's assets. These claims range in value
from less than $1 to just over $1,000, with the great majority being less than
$20.
On September 7, 2005, the arbitrator from the American Arbitration Association
awarded to Accord Human Resources a judgment against Greenland Corporation and
the Company as the guarantor, an amount equaling $168. Legal counsel has
estimated that the claim could amount to as much as $214. The Company has
reserved $200 for the claim.
The Company was in a dispute with former creditors regarding the amount of debt
converted into common stock. These creditors were seeking damages totaling $316.
The Company proposed a settlement in the amount of $316, based on the advice of
the Company's legal counsel. Consequently, $316 was charged to operations in the
accompanying financial statements for the three and six months ended December
31, 2005. The plaintiffs have accepted the settlement offer.
14
NOTE 14. GAIN ON SETTLEMENT OF DEBT
During the six months ended December 31, 2005 and 2004, the Company recognized a
gain on settlement of debt of $5,603 and $260, respectively. For the six months
ended December 31, 2005, the recognized a gain of $4,120 related to the
settlement of two notes payable to banks. (See Note 5) The remaining gain for
the six months ended December 31, 2005 and the gain for the six months ended
December 31, 2004 resulted primarily from the write off of stale accounts
payable and judgments. The Company, based upon an opinion provided by
independent legal counsel, has been released as the obligator of these
liabilities. Accordingly, management has elected to adjust its accounts payable
and to classify such adjustments as settlement of debt.
NOTE 15. GAIN RESULTING FROM RECONCILIATION OF PAYROLL TAX LIABILITIES TO TAXING
AUTHORITIES
During the six months ended December 31, 2004, the Company recorded an
adjustment to earnings of $536, resulting from a reconciliation with the
Internal Revenue Service and certain State taxing authorities of the amounts due
for delinquent payment of payroll tax liabilities. The Company continually
updates its estimate of the amount due related to delinquent payroll taxes and
penalties as it receives correspondence or settlement agreements with the
Internal Revenue Service and State taxing authorities.
NOTE 16. DISCONTINUED OPERATIONS
In November 2005, the Company determined to discontinue operations of Master
Staffing, its executive recruiting division. The decision was based on the
Master Staffing lack of ability to generate sufficient revenue and the Company's
lack of expertise in the executive recruiting business. The Company is
completely exiting the executive recruiting business. The Company plans to wind
down the operations of Master Staffing and close its only office over the next
few months.
For the six months ended December 31, 2005 and 2004, Master Staffing's revenues
were $11 and $0, respectively, and its loss from operations were $520 and $0,
respectively. The results of operations of Master Staffing have been reported
separately as discontinued operations.
Master Staffing's net liabilities at December 31, 2005 were $78, which consisted
of furniture and equipment of $19 and accrued liabilities of $97.
NOTE 17. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In December 2004, the FASB issued SFAS No. 123 (Revised), entitled SHARE-BASED
PAYMENT. This revised Statement eliminates the alternative to use APB Opinion
No. 25's intrinsic value method of accounting that was provided in SFAS No. 123
as originally issued. Under Opinion 25, issuing stock options to employees
generally resulted in recognition of no compensation cost. This Statement
requires entities to recognize the cost of employee services received in
exchange for awards of equity instruments based on the grant-date fair value of
those awards. For public companies that file as a small business issuer, this
Statement is effective as of the beginning of the first interim or annual
reporting period that begins after December 15, 2005. The adoption of SFAS 123
(Revised) will impact the consolidated financial statements as the Company if
the Company grants any equity instruments to employees in the future.
In May 2005, the FASB issued SFAS No. 154, entitled ACCOUNTING CHANGES AND ERROR
CORRECTIONS--A REPLACEMENT OF APB OPINION NO. 20 AND FASB STATEMENT NO. 3. This
Statement replaces APB Opinion No. 20, Accounting Changes, and FASB Statement
No. 3, Reporting Accounting Changes in Interim Financial Statements, and changes
the requirements for the accounting for and reporting of a change in accounting
principle. This Statement applies to all voluntary changes in accounting
principle. It also applies to changes required by an accounting pronouncement in
the unusual instance that the pronouncement does not include specific transition
provisions. Opinion 20 previously required that most voluntary changes in
accounting principle be recognized by including in net income of the period of
the change the cumulative effect of changing to the new accounting principle.
15
This Statement requires retrospective application to prior periods' financial
statements of changes in accounting principle, unless it is impracticable to
determine either the period-specific effects or the cumulative effect of the
change. This Statement defines RETROSPECTIVE APPLICATION as the application of a
different accounting principle to prior accounting periods as if that principle
had always been used or as the adjustment of previously issued financial
statements to reflect a change in the reporting entity. This Statement also
redefines RESTATEMENT as the revising of previously issued financial statements
to reflect the correction of an error. The adoption of SFAS 154 did not impact
the consolidated financial statements.
In June 2005, the EITF reached consensus on Issue No. 05-6, Determining the
Amortization Period for Leasehold Improvements ("EITF 05-6") EITF 05-6 provides
guidance on determining the amortization period for leasehold improvements
acquired in a business combination or acquired subsequent to lease inception.
The guidance in EITF 05-6 will be applied prospectively and is effective for
periods beginning after June 29, 2005. EITF 05-6 is not expected to have a
material effect on its consolidated financial position or results of operations.
NOTE 18. SUBSEQUENT EVENT
On February 13, 2006, the Company issued convertible notes in exchange for gross
proceeds of $5,000, with $4,385 of net proceeds going to the Company. $1,758 of
the net proceeds was used directly to pay debt settlements.
The convertible notes mature in two years, at a 15% per annum interest rate and
call for monthly interest payments with the principal due on maturity. If the
Company defaults on the interest payments, the investors will have the right to
convert the notes into common shares at a seventy-five percent (75%) discount to
market price. In addition, warrants for 1,352,000 shares of common stock
with an exercise price of $.005 were issued to the investors as part of the
funding. These warrants expire in seven years and have a cashless exercise
provision.
Concurrent with the funding, certain of the Company's investors holding
convertible notes exchanged such notes plus any related accrued interest and
penalties, for new notes with the same terms as referenced above. These notes
are valued at $2,545.
16
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE DATA)
The following discussion and analysis should be read in conjunction with the
consolidated financial statements and notes thereto included in the Company
Annual Report on Form 10-KSB for the year ended June 30, 2005. The statements
contained in this Report on Form 10-QSB that are not purely historical are
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended, including statements regarding our expectations, hopes, intentions
or strategies regarding the future. Forward-looking statements include
statements regarding: future product or product development; future research and
development spending and our product development strategies, and are generally
identifiable by the use of the words "may", "should", "expect", "anticipate",
"estimates", "believe", "intend", or "project" or the negative thereof or other
variations thereon or comparable terminology. Forward-looking statements involve
known and unknown risks, uncertainties and other factors that may cause our
actual results, performance or achievements (or industry results, performance or
achievements) expressed or implied by these forward-looking statements to be
materially different from those predicted. The factors that could affect our
actual results include, but are not limited to, the following: general economic
and business conditions, both nationally and in the regions in which we operate;
competition; changes in business strategy or development plans; our inability to
retain key employees; our inability to obtain sufficient financing to continue
to expand operations; and changes in demand for products by our customers.
OVERVIEW
We provide a variety of financial services to small and medium-size businesses.
These services allow our customers to outsource many human resources tasks,
including payroll processing, workers' compensation insurance, health insurance,
employee benefits, 401k investment services, personal financial management, and
income tax consultation. In November 2001, we began to provide these services to
relieve some of the negative impact they have on the business operations of our
existing and potential customers. To this end, through strategic acquisitions,
we became a professional employer organization ("PEO").
We provide financial services principally through our wholly-owned SourceOne
Group, Inc. ("SOG") subsidiary. These units provide a broad range of financial
services, including: benefits and payroll administration, health and workers'
compensation insurance programs, personnel records management, and employer
liability management. Through our Jackson Staffing subsidiary (and MedicalHR and
CallCenterHR operating units), we provide temporary staffing services to small
and medium-sized businesses - primarily to call centers and medical facilities.
In January 2003, we completed the acquisition of controlling interest
(approximately 85%) in the shares of Greenland Corporation whose shares are
traded on the NASD Electronic Bulletin Board under the symbol GRLC.
Subsequently, in March 2004, we entered into an agreement with Greenland to
return most of our shares in Greenland in return for Greenland's forgiveness of
certain DRDF indebtedness and business opportunities. We no longer have an
affiliation with Greenland Corporation.
In January 2003, we completed the acquisition of a controlling interest (85%) in
the shares of Quik Pix, Inc. ("QPI"). QPI shares are traded on the National
Quotation Bureau Pink Sheets under the symbol QPIX. QPI is a visual marketing
support firm located in Anaheim, California. Its principal service is to provide
photographic and digital images mounted for customer displays in tradeshow and
other displays .Its principal product, PhotoMotion is a patented color medium of
multi-image transparencies. The process uses existing originals to create the
illusion of movement, and allows for six to five distinct images to be displayed
with an existing lightbox.
In September 2003, we hired two key persons and acquired the operations of the
temporary staffing service then owned by Jackson Staffing, LLC. In order to
formalize this arrangement, we entered into an acquisition agreement with
Jackson Staffing effective September 1, 2003 and accordingly, the financial
statements of Jackson Staffing from September 1, 2003 are included in our
financial statements.
In April 2004, we transferred our ColorBlind software technology to QPI.
ColorBlind software provides color management to improve the accuracy of color
reproduction - especially as it relates to matching color between different
devices in a network, such as monitors and printers. ColorBlind software
products are marketed internationally through direct distribution, resellers,
and on the internet through our color.com website.
17
Our business continues to experience operational and liquidity challenges.
Accordingly, year-to-year financial comparisons may be of limited usefulness now
and for the next several periods due to anticipated changes in our business as
these changes relate to potential acquisitions of new businesses and changes in
products and services.
On June 28, 2004, we completed an acquisition of certain assets of M&M Nursing
(M&M"). The purchase price was 5,000,000 shares of our common stock valued at
$31 plus the assumption of $204 of liabilities. M&M is a temporary staffing
agency primarily for nurses.
On April 4, 2005, we completed an acquisition of certain assets of Heritage
Staffing Group, Inc. ("Heritage"). The purchase price was $80 consisting of $20
in cash, a $45 note payable to the owner of Heritage and 5,000,000 warrants to
purchase shares of DRDF common stock valued at $14. Heritage is in the temporary
staffing business and we acquired certain assets of Heritage to complement our
other temporary staffing business.
On May 5, 2005 we established a self-insured worker's compensation program. In
connection with this self-insured program, we were required to establish a
worker's compensation deposit in the amount of $2,625. Our maximum exposure
under this self-insured worker's compensation program is $4,200 and we are
liable up to $250 per occurrence. We purchase coverage from a worker's
compensation insurer to cover additional losses above the policy limits. We
believe that we can expand our staffing business as a result of us establishing
this self-insured worker's compensation program
Our current strategy is: to expand our financial services businesses, including
PEO services and temporary staffing, and to continue to commercialize imaging
technologies, including PhotoMotion Images and ColorBlind color management
software through our QPI subsidiary.
To successfully execute our current strategy, we will need to improve our
working capital position. The report of our independent auditors accompanying
our June 30, 2005 consolidated financial statements includes an explanatory
paragraph indicating there is a substantial doubt about our ability to continue
as a going concern, due primarily to our recent loss from operations, the
decreases in our working capital and net worth. In addition, we are late in our
filing of payroll tax returns for certain of our PEO divisions and are
delinquent on the payment of payroll tax withholdings. We plan to overcome the
circumstances that impact our ability to remain a going concern through a
combination of achieving profitability, raising additional debt and equity
financing, and renegotiating existing obligations. In addition, we will continue
to work with the Internal Revenue Service and State taxing Authorities to
reconcile and resolve all open accounts and issues.
In recent years, we have been working to reduce costs through the reduction in
staff and reorganizing our business activities. Additionally, we have sought to
reduce our debt through debt to equity conversions. We continue to pursue the
acquisition of businesses that will grow our business.
There can be no assurance that we will be able to complete any additional debt
or equity financings on favorable terms or at all, or that any such financings,
if completed, will be adequate to meet our capital requirements. Any additional
equity or convertible debt financings could result in substantial dilution to
our shareholders. If adequate funds are not available, we may be required to
delay, reduce or eliminate some or all of our planned activities, including any
potential mergers or acquisitions. Our inability to fund our capital
requirements would have a material adverse effect on the Company.
SIGNIFICANT ACCOUNTING POLICIES AND ESTIMATES
Management's Discussion and Analysis or Plan of Operations discuss our
consolidated financial statements, which have been prepared in accordance with
accounting principles generally accepted in the United States of America. The
preparation of these consolidated financial statements requires us to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the consolidated financial statements and the
reported amounts of revenues and expenses during the reporting period. On an
on-going basis, we evaluate our estimates and judgments, including those related
to allowance for doubtful accounts, value of intangible assets and valuation of
non-cash compensation. We base our estimates and judgments on historical
experiences and on various other factors that we believe to be reasonable under
the circumstances, the results of which form the basis for making judgments
about the carrying value of assets and liabilities that are not readily apparent
from other sources. Actual results may differ from these estimates under
different assumptions or conditions. The most significant accounting estimates
inherent in the preparation of our consolidated financial statements include
estimates as to the appropriate carrying value of certain assets and liabilities
18
which are not readily apparent from other sources, primarily allowance for
doubtful accounts, estimated fair value of equity instruments used for
compensation, estimated tax liabilities from PEO operations and estimated
liabilities associated with worker's compensation liabilities. These accounting
policies are described at relevant sections in this discussion and analysis and
in the notes to the consolidated financial statements included in our Annual
Report on Form l0-KSB for the year ended June 30, 2005.
REVENUE RECOGNITION
PEO SERVICE FEES AND WORKSITE EMPLOYEE PAYROLL COSTS
----------------------------------------------------
We recognize our revenues associated with our PEO business pursuant to EITF
99-19 "Reporting Revenue Gross as a Principal versus Net as an Agent." Our
revenues are reported net of worksite employee payroll cost (net method).
Pursuant to discussions with the Securities and Exchange Commission staff, we
changed our presentation of revenues from the gross method to an approach that
presents our revenues net of worksite employee payroll costs (net method)
primarily because we are not generally responsible for the output and quality of
work performed by the worksite employees.
In determining the pricing of the markup component of the gross billings, we
take into consideration our estimates of the costs directly associated with our
worksite employees, including payroll taxes, benefits and workers' compensation
costs, plus an acceptable gross profit margin. As a result, our operating
results are significantly impacted by our ability to accurately estimate,
control and manage our direct costs relative to the revenues derived from the
markup component of our gross billings.
Consistent with our revenue recognition policy, our direct costs do not include
the payroll cost of our worksite employees. Our direct costs associated with our
revenue generating activities are comprised of all other costs related to our
worksite employees, such as the employer portion of payroll-related taxes,
employee benefit plan premiums and workers' compensation insurance premiums.
SALES OF PRODUCTS
-----------------
Revenue is recognized when earned. Our revenue recognition policies are in
compliance with all applicable accounting regulations, including American
Institute of Certified Public Accountants (AICPA) Statement of Position (SOP)
97-2, Software Revenue Recognition, and SOP 98-9, Modification of SOP 97-2, With
Respect to Certain Transactions. Revenue from products licensed to original
equipment manufacturers is recorded when OEMs ship licensed products while
revenue from certain license programs is recorded when the software has been
delivered and the customer is invoiced. Revenue from packaged product sales to
and through distributors and resellers is recorded when related products are
shipped. Maintenance and subscription revenue is recognized ratably over the
contract period. When the revenue recognition criteria required for distributor
and reseller arrangements are not met, revenue is recognized as payments are
received. Provisions are recorded for returns and bad debts. Our software
arrangements do not contain multiple elements, and we do not offer post contract
support.
TEMPORARY STAFFING
------------------
We record gross revenue for temporary staffing. We have concluded that gross
reporting is appropriate because we (i) have the risk of identifying and hiring
qualified employees, (ii) have the discretion to select the employees and
establish their price and duties and (iii) bear the risk for services that are
not fully paid for by customers. Temporary staffing revenues are recognized when
the services are rendered by our temporary employees. Temporary employees placed
by us are our legal employees while they are working on assignments. We pay all
related costs of employment, including workers' compensation insurance, state
and federal unemployment taxes, social security and certain fringe benefits. We
assume the risk of acceptability of our employees to our customers.
RESULTS OF OPERATIONS (IN $000)
THREE MONTHS ENDED DECEMBER 31, 2005 COMPARED TO THREE MONTHS ENDED DECEMBER 31,
--------------------------------------------------------------------------------
2004
----
REVENUES
Total revenues were $17,834 and $4,928 for the three months ended December 31,
2005 and 2004, respectively; an increase of $12,906 (262%). The principal reason
for the increase is due to the expansion of our temporary staffing division with
the acquisition of Heritage Staffing in April 2005 and the formation of our
self-insured worker's compensation plan in May 2005.
19
TEMPORARY STAFFING
In September 2003, we entered into an agreement to purchase a temporary staffing
business through the organization of CallCenterHR and MedicalHR and the
acquisition of Jackson Staffing. In June 2004, we entered into an agreement to
purchase certain assets of M&M Nursing, a temporary staffing agency for nurses.
During fiscal 2005, Jackson Staffing and M&M Nursing were renamed Solvis Group,
Inc. Temporary Staffing revenues were $17,002 and $3,749 for the three months
ended December 31, 2005 and 2004, respectively; an increase of $13,253 (354%).
The principal reason for the increase is due to the expansion of our temporary
staffing division due to our focus to grow this segment of our business.
PEO SERVICES
PEO revenues were $387 and $478 for the three months ended December 31, 2005 and
2004, respectively; a decrease of $91 (19%) due primarily to the decrease in our
PEO customer base due to an increased focus by us to expand our temporary
staffing business.
PRODUCTS
Sales of products were generated principally from our QPI subsidiary. Products
revenues were $443 and $688 for the three months ended December 31, 2005 and
2004, respectively; an decrease of $245 (36%). The decrease is principally due
to decreased sales of photographic and digital images though our QPI subsidiary.
SOFTWARE
Software revenues were $2 and $13 for the three months ended December 31, 2005
and 2004, respectively; a decrease of $11 (85%). Revenues from licenses and
royalties for the periods were insignificant.
Royalties and licensing fees vary from quarter to quarter and are dependent on
the sales of products sold by OEM customers using our technologies. These
revenues continue to decline as we have elected to transfer our ColorBlind
software to QPI, which has accelerated product development and begun to
implement a more aggressive product sales program.
COST OF PRODUCTS SOLD
Costs of temporary staffing for the three months ended December 31, 2005 and
2004 was $14,477 (85% of temporary staffing revenue) and $3,400 (91% of
temporary staffing revenue), respectively. The significant increase is due to
the significant increase in temporary staffing revenue.
Cost of PEO services for the three months ended December 31, 2005 and 2004 was
$299 (77% of PEO revenues) and $348 (73% of PEO revenues), respectively. The
decrease in gross profit is not significant.
Cost of products sold for the three months ended December 31, 2005 and 2004 were
$7 (2% of product sales) and $442 (64% of product sales), respectively. Cost of
sales for products in not significant in terms of dollars.
Cost of software, licenses and royalties for the three months ended December 31,
2005 and 2004 were $0 (0% of software, license and royalties revenue) and $0 (0%
of software, license and royalties revenue), respectively.
OPERATING EXPENSES
Operating expenses for the three months ended December 31, 2005 and 2004 were
$2,537 and $996, respectively; an increase of $1,541 (155%). The increase is
principally due to an overall increase in our temporary staffing business as
reflected in the 354% increase in revenues for this segment of our business.
20
OTHER INCOME AND EXPENSE
Interest expense and financing costs for the three months ended December 31,
2005 and 2004 was $140 and $345 respectively; a decrease of $205 (59%). The
decrease is principally due to a decreased write off of debt financing costs due
to the fewer conversions of convertible debt to equity during the three months
ended December 31, 2005.
SETTLEMENT WITH INVESTORS
Settlement with investors relates to disputes over the note balances, accrued
interest and penalties on old debt. We reached a settlement with these investors
by issuing new notes for an aggregate of $316.
GAIN ON EXTINGUISHMENT OF DEBT
Gain on the extinguishment of debt was $4,262 and $260 for the three months
ended December 31, 2005 and 2004, respectively; an increase of $4,002 (1,539%).
The significant increase is due to the gain recognized of $4,120 in December
2005 related to the settlement of two notes payable to banks. The remaining
gains related to accounts payable, which had become stale and uncollectible
under the Statute of Limitations in the State of California and upon obtaining a
legal opinion with respect to the State of California Statute of Limitations.
PENALTIES AND INTEREST
Penalties and interest related to our past due payroll tax liabilities for the
three months ended December 31, 2005 and 2004 was $294 and $0 respectively.
SIX MONTHS ENDED DECEMBER 31, 2005 COMPARED TO SIX MONTHS ENDED DECEMBER 31,
----------------------------------------------------------------------------
2004
----
REVENUES
Total revenues were $29,863 and $9,356 for the six months ended December 31,
2005 and 2004, respectively; an increase of $20,507 (219%). The principal reason
for the increase is due to the expansion of our temporary staffing division with
the acquisition of Heritage Staffing in April 2005 and the formation of our
self-insured worker's compensation plan in May 2005.
TEMPORARY STAFFING
Temporary Staffing revenues were $28,545 and $7,654 for the six months ended
December 31, 2005 and 2004, respectively; an increase of $20,891 (273%). The
principal reason for the increase is due to the expansion of our temporary
staffing division due to our focus to grow this segment of our business.
PEO SERVICES
PEO revenues were $682 and $850 for the six months ended December 31, 2005 and
2004, respectively; a decrease of $168 (20%) due primarily to the decrease in
our PEO customer base due to an increased focus by us to expand our temporary
staffing business.
PRODUCTS
Sales of products were generated principally from our QPI subsidiary. Products
revenues were $631 and $813 for the six months ended December 31, 2005 and 2004,
respectively; an decrease of $182 (22%). The decrease is principally due to
decreased sales of photographic and digital images though our QPI subsidiary.
21
SOFTWARE
Software revenues were $5 and $39 for the six months ended December 31, 2005 and
2004, respectively; a decrease of $34 (87%). Revenues from licenses and
royalties for the periods were insignificant.
COST OF PRODUCTS SOLD
Costs of temporary staffing for the six months ended December 31, 2005 and 2004
was $25,303 (89% of temporary staffing revenue) and $6,948 (91% of temporary
staffing revenue), respectively. The significant increase is due to the
significant increase in temporary staffing revenue.
Cost of PEO services for the six months ended December 31, 2005 and 2004 was
$653 (96% of PEO revenues) and $628 (74% of PEO revenues), respectively. The
decrease in gross profit is due primarily to us incurring additional employee
benefit related costs.
Cost of products sold for the six months ended December 31, 2005 and 2004 were
$18 (3% of product sales) and $465 (57% of product sales), respectively. Cost of
sales for products in not significant in terms of dollars.
Cost of software, licenses and royalties for the six months ended December 31,
2005 and 2004 were $0 (0% of software, license and royalties revenue) and $3 (8%
of software, license and royalties revenue), respectively. Cost of sales for
software in not significant in terms of dollars.
OPERATING EXPENSES
Operating expenses for the six months ended December 31, 2005 and 2004 were
$4,208 and $2,005, respectively; an increase of $2,203 (110%). The increase is
principally due to an overall increase in our temporary staffing business as
reflected in the 273% increase in revenues for this segment of our business.
OTHER INCOME AND EXPENSE
Interest expense and financing costs for the six months ended December 31, 2005
and 2004 was $564 and $828 respectively; a decrease of $264 (32%). The decrease
is principally due to a decreased write off of debt financing costs due to the
fewer conversions of convertible debt to equity during the six months ended
December 31, 2005.
SETTLEMENT WITH INVESTORS
Settlement with investors relates to disputes over the note balances, accrued
interest and penalties on old debt. We reached a settlement with these investors
by issuing new notes for an aggregate of $316.
GAIN ON EXTINGUISHMENT OF DEBT
Gain on the extinguishment of debt was $5,603 and $260 for the six months ended
December 31, 2005 and 2004, respectively; an increase of $5,343 (2,055%). The
significant increase is due to the gain recognized of $4,120 in December 2005
related to the settlement of two notes payable to banks. The remaining gains
related to accounts payable, which had become stale and uncollectible under the
Statute of Limitations in the State of California and upon obtaining a legal
opinion with respect to the State of California Statute of Limitations.
PENALTIES AND INTEREST
Penalties and interest related to our past due payroll tax liabilities for the
six months ended December 31, 2005 and 2004 was $567 and $0 respectively.
GAIN FROM RECONCILIATION OF PAYROLL TAX LIABILITES TO TAXING AUTHORITIES
During the six months ended December 31, 2004, we recorded as other income an
adjustment of accrued PEO payroll taxes payable of $536 resulting from
reconciliations of certain liabilities with the Internal Revenue Service and
certain State taxing authorities of amounts due for delinquent payment of
payroll tax liabilities. We continually updates our estimate of the amount due
related to delinquent payroll taxes and penalties as we receive correspondence
or settlement agreements with the Internal Revenue Service and State taxing
authorities.
22
DISCONTINUED OPERATIONS
In November 2005, we determined to discontinue operations of Master Staffing,
our executive recruiting division. The decision was based on the Master Staffing
lack of ability to generate sufficient revenue and our lack of expertise in the
executive recruiting business. We are completely exiting the executive
recruiting business. We plan to wind down the operations of Master Staffing and
close its only office over the next few months.
For the six months ended December 31, 2005 and 2004, Master Staffing's revenues
were $11 and $0, respectively, and its loss from operations were $520 and $0,
respectively. The results of operations of Master Staffing have been reported
separately as discontinued operations.
Master Staffing's net liabilities at December 31, 2005 were $78 which consisted
of furniture and equipment of $19 and accrued liabilities of $97.
SUBSEQUENT EVENT
On February 13, 2006, we issued convertible notes in exchange for gross proceeds
of $5,000, with $4,385 of net proceeds going to us. $1,758 of the net proceeds
was used directly to pay debt settlements.
The convertible notes mature in two years, at a 15% per annum interest rate and
call for monthly interest payments with the principal due on maturity. If we
default on the interest payments, the investors will have the right to convert
the notes into common shares at a seventy-five percent (75%) discount to market
price. In addition, warrants for 1,352,000,000 shares of common stock with an
exercise price of $.005 were issued to the investors as part of the funding.
These warrants expire in seven years and have a cashless exercise provision.
Concurrent with the funding, certain of our investors holding convertible notes
exchanged such notes plus any related accrued interest and penalties, for new
notes with the same terms as referenced above. These notes are valued at $2,545.
LIQUIDITY AND CAPITAL RESOURCES
Historically, we have financed our operations primarily through cash generated
from operations, debt financing, and the sale of equity securities.
Additionally, in order to facilitate our growth and future liquidity, we have
made some strategic acquisitions.
As of December 31, 2005, we had negative working capital of $23,287 as compared
to negative working capital of $26,780 at June 30, 2005, an increase in working
capital of $3,493 since June 30, 2005. The primary reason for the increase in
working capital was the settlement of two notes payable to banks that resulted
in increase in working capital of $4,120.
The Company is late on filing payroll tax returns and owes approximately $8.0
million in past due payroll taxes.
Net cash provided by operating activities was $2,515 for the six months ended
December 31, 2005 as compared to net cash used in activities of $892 for the
prior-year period; an increase of $3,407. The principal reason for the increase
was the increase in account payable and accrued expenses and an increase in PEO
liabilities.
Cash used in financing activities was $1,817 for the six months ended December
31, 2005 as compared to cash provided by financing activities of $901 for the
six months ended December 31, 2004, a decrease of $2,718 from the prior-year
period. The primary reason for the decrease was the pay down on $3,064 of notes
payable during the six months ended December 31, 2005.
We have no material commitments for capital expenditures. Our 5% convertible
preferred stock (which ranks prior to our common stock), carries cumulative
dividends, when and as declared, at an annual rate of $50 per share. The
aggregate amount of such dividends in arrears at December 31, 2005, was
approximately $463.
23
Our capital requirements depend on numerous factors, including market acceptance
of our products and services, the resources we devote to marketing and selling
our products and services, and other factors. The report of our independent
auditors accompanying our June 30, 2005 financial statements includes an
explanatory paragraph indicating there is a substantial doubt about our ability
to continue as a going concern, due primarily to the decreases in our working
capital and net worth.
CONTINGENT LIABILITY
--------------------
The Company accrues and discloses contingent liabilities in its consolidated
financial statements in accordance with Statement of Financial Accounting
Standards ("SFAS") No. 5, Accounting for Contingencies. SFAS No. 5 requires
accrual of contingent liabilities that are considered probable to occur and that
can be reasonably estimated. For contingent liabilities that are considered
reasonably possible to occur, financial statement disclosure is required,
including the range of possible loss if it can be reasonably determined. The
Company has disclosed in its audited financial statements several issues that it
believes are reasonably possible to occur, although it cannot determine the
range of possible loss in all cases. As these issues develop, the Company will
continue to evaluate the probability of future loss and the potential range of
such losses. If such evaluation were to determine that a loss was probable and
the loss could be reasonably estimated, the Company would be required to accrue
its estimated loss, which would reduce net income in the period that such
determination was made.
OFF-BALANCE ARRANGEMENTS
------------------------
There are no off balance sheet arrangements that have or are reasonably likely
to have a current or future effect on our financial condition, changes in
financial condition, revenues or expenses, results of operations, liquidity,
capital expenditures or capital resources that are material to investors, except
for the following.. As of September 8, 2004, Warning Management Services, Inc.
("Warning") purchased all of the issued and outstanding shares of Employment
Systems, Inc. ("ESI") for $1,500. The purchase was $750 cash paid at the closing
and a $750 note payable. In connection with this transaction, the Company agreed
to be a guarantor of the $750 note payable. Our CEO, Brian Bonar, is also the
CEO of Warning. As inducement to enter into this guarantee, we were given a
non-cancelable 2-year payroll processing contract with ESI. Currently the $750
note payable is in dispute. Warning is claiming that certain representations
made by ESI were not correct and is proposing that the purchase price be
reduced. Warning reached a settlement, effective as of September 30, 2005 with
the Plaintiff, which requires defendants, collectively, to pay Plaintiff the
aggregate sum of $380. Defendants have made the initial two payments due under
the settlement and the final payment in the sum of $80 will be due in April
2006. Management has evaluated this contingent liability and has determined that
no loss is anticipated as a result of this guarantee.
ITEM 3. CONTROLS AND PROCEDURES
Our Chief Executive Officer and Chief Financial Officer have evaluated the
effectiveness of our disclosure controls and procedures (as such term is defined
in Rules 13a-15 and 15d-15 under the Securities Exchange Act of 1934, as amended
(the "Exchange Act")) as of the period ended December 31, 2005, covered by this
quarterly report (the "Evaluation Date"), and based on such evaluation, such
officers have concluded, as of the Evaluation Date, that our disclosure controls
and procedures were not effective in ensuring that all information required to
be disclosed in reports that we file or submit under the Exchange Act is
recorded, processed, summarized and reported within the time periods specified
in the Securities and Exchange Commission rules and forms.
The material weaknesses in internal control over financial reporting resulting
from the Chief Executive Officer and Chief Financial Officer's evaluation are
described below. In addition there are inherent limitations to the effectiveness
of any system of disclosure controls and procedures. Even effective disclosure
controls and procedures can only provide reasonable assurance of achieving their
control objectives.
Except as described below, during our first quarter of fiscal 2006, there were
no changes made in our internal control over financial reporting that has
materially affected, or is reasonably likely to materially affect, our internal
control over financial reporting.
24
Attached as Exhibits 31.1 and 31.2 to this annual report are certifications of
the Chief Executive Officer and Chief Financial Officer required in accordance
with Rule 13a-14(a) of the Exchange Act. This portion of the Company's quarterly
report includes the information concerning the controls evaluation referred to
in the certifications and should be read in conjunction with the certifications
for a more complete understanding of the topics presented.
In conjunction with their audit of our fiscal year 2005 consolidated financial
statements, PMB & Co., LLP (PMB), our independent registered public accounting
firm, identified and orally reported to management and the Audit Committee the
material weaknesses under standards established by the Public Company Accounting
Oversight Board (PCAOB). A material weakness is a significant deficiency, or
combination of significant deficiencies, that results in more than a remote
likelihood that a material misstatement of the annual or interim financial
statements will not be prevented or detected. A significant deficiency is a
control deficiency, or combination of control deficiencies, that adversely
affects our ability to initiate, authorize, record, process, or report external
financial data reliably in accordance with generally accepted accounting
principles such that there is a more than a remote likelihood that a
misstatement of our annual or interim financial statements that is more than
inconsequential will not be prevented or detected.
The material weaknesses were identified as:
(1) Planning and implementation of our Accounting System; (2) Financial
Statement closing process; (3) Ineffective Information Technology control
environment, including the design of our information security and data
protection controls; (4) Untimely detection and assessment of impairment of
intangible assets (i.e., patents where indicators of impairment are present; (5)
Inadequate review of the valuation of certain payroll tax liabilities that
resulted in post-closing journal entries to properly reflect our payroll tax
liabilities; (6) Proper recording of conversion of debt into shares of common
stock, including the ability of certain managers to record journal entries
without adequate review or supporting documentation and an inability by
management to adequately review the issuance of common stock; and, (7) Lack of
the necessary depth of personnel with sufficient technical accounting experience
with U.S. GAAP to perform an adequate and effective secondary review of
technical accounting matters. We will continue to evaluate the material
weaknesses and will take all necessary action to correct the internal control
deficiencies identified. We will also further develop and enhance our internal
control policies, procedures, systems and staff to allow us to mitigate the risk
that material accounting errors might go undetected and be included in our
consolidated financial statements.
We contemplate undertaking a thorough review of our internal controls as part of
our preparation for compliance with the requirements under Section 404 of the
Sarbanes-Oxley Act of 2002 and we are using this review to further assist in
identifying and correcting control deficiencies. At this time, we have not
completed our review of the existing controls and their effectiveness. Unless
and until the material weaknesses described above, or any identified during this
review, are completely remedied, evaluated and tested, there can be no
assurances that we will be able to assert that our internal control over
financial reporting is effective, pursuant to the rules adopted by the SEC under
Section 404, when those rules take effect.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
(IN THOUSANDS, EXCEPT SHARE DATA)
The Company and its SourceOne Group ("SOG") subsidiary have been sued by the
Arena Football 2 Operating Company, LLC ("Arena") in Wayne County Circuit Court,
Michigan. The claims made by Arena against the Company and SOG are that SOG
failed to perform under an agreement to procure and furnish workers'
compensation insurance and that Arena incurred alleged damages in an amount no
less than $709 as a result. Management has vigorously contested the claims made
by Arena. In addition, the Company has filed claims against Arena and Arena's
agent, Thilman and Filippini, based on, among other things, the representations
made to SOG that let it to enter into the agreement with Arena. The case remains
in the discovery phase.
The Company and SOG have been sued by Liberty Mutual Insurance Company
("Liberty") in the United States District Court for the Northern District of
Illinois. The nature of the specific claims made by Liberty against the Company
and SOG are that the Company and SOG were and are obligated to make additional
premium payments to Liberty for workers' compensation insurance, which is
related to the Arena litigation described above. The initial claim by Liberty
was estimated by Liberty to be $829 and is now claimed to exceed $1,000.
Management has vigorously contested the claims made by Liberty. The case remains
in the discovery phase.
25
On February 10, 2005, Berryman & Henigar Enterprises ("Plaintiff"), filed a
complaint in the Superior Court of California, County of San Diego, Case No.
GIC842610, against Warning Model Management, Inc. for breach of a promissory
note issued pursuant to terms and conditions of a certain stock purchase and
sale agreement dated September 9, 2004. The Company and its subsidiary,
Employment Systems, Inc. ("ESI"), each allegedly guaranteed payments on the
underlying promissory note. Plaintiff seeks principal damages of $750 in that
regard. Warning Model Management, Inc. has taken the position that Plaintiff
failed to disclose certain material information in the underlying transaction
which thereby negates the promissory note. Warning Model Management, Inc.
reached a settlement, effective as of September 30, 2005 with the Plaintiff,
which requires defendants, collectively, to pay Plaintiff the aggregate sum of
$380. Defendants have made the initial two payments due under the settlement and
the final payment in the sum of $80 will be due in April 2006.
On March 17, 2005, Greenland Corporation ("Plaintiff"), filed an amended
complaint in the Superior Court of California, County of San Diego, Case No.
GIC842605, against the Company and multiple other individuals and entities
resulting from a transaction as evidenced by the "Agreement to Acquire Shares"
dated August 9, 2002, whereby the Company obtained a controlling equity interest
in Plaintiff. Plaintiff contends that the Company engaged in various forms of
wrongdoing including breach of fiduciary duty, conversion, conspiracy and aiding
and abetting. The Company has filed a cross-complaint alleging various causes of
action against Plaintiff and its officers, directors and/or managing agents
including Thomas J. Beener, Gene Cross, George Godwin, and Edward Sano. The
subject cross-complaint seeks pecuniary and punitive damages resulting from
various fraudulent transactions as well as legal malpractice against Mr. Beener.
Trial, which was initially set for April 14, 2006, has now been continued to
September 8, 2006. The Company has and will continue with its vigorous
defense/prosecution of the allegations/claims.
On August 29, 2005, United Bank & Trust filed suit against the Company and other
parties. The allegations of the lawsuit are that the Company guaranteed certain
debt owed by InfoServices, Inc. and is liable in the amount of $678. The case is
in its early stages and discovery has not yet commenced. However, the Company
intends to vigorously defend itself against the claims asserted.
Throughout fiscal 2004 and 2005, and through the date of this filing, trade
creditors have made claims and/or filed actions alleging the failure of the
Company to pay its obligations to them in a total amount exceeding $3,000. These
actions are in various stages of litigation, with many resulting in judgments
being entered against the Company. Several of those who have obtained judgments
have filed judgment liens on the Company's assets. These claims range in value
from less than $1 to just over $1,000, with the great majority being less than
$20.
On September 7, 2005, the arbitrator from the American Arbitration Association
awarded to Accord Human Resources a judgment against Greenland Corporation and
the Company as the guarantor, an amount equaling $168. Legal counsel has
estimated that the claim could amount to as much as $214. The Company has
reserved $200 for the claim.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Common Stock
During the three months ended December 31, 2005, DRDF issued the following:
o 33,698,362 shares were issued to Balmore Funds S.A. at $0.0017 per
share for conversion of a convertible debenture and accrued interest
valued at $57,287.21. These shares were issued pursuant to the exempt
provided by Section 4(2) of the Securities Act of 1933, as amended. We
made a determination that Bristol Investment Fund, Ltd was a
sophisticated investor with enough knowledge and experience in
business to evaluate the risks and merits of the investment.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
26
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS
31.1 Rule 13a-14(a) Certification of CEO
31.2 Rule 13a-14(a) Certification of CFO
32.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002 of CEO
32.2 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002 of CFO
SIGNATURES
--------------------------------------------------------------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: February 20, 2006
DALRADA FINANCIAL CORPORATION
(Registrant)
By: /S/ Brian Bonar
-------------------------------------
Brian Bonar
Chairman and Chief Executive Officer
By: /S/ Randall Jones
-------------------------------------
Randall Jones
Chief Financial Officer
27