Attached files

file filename
EX-32 - FORTUNE INDUSTRIES, INC.ex32-1.htm
EX-31 - FORTUNE INDUSTRIES, INC.ex31-1.htm
EX-31 - FORTUNE INDUSTRIES, INC.ex31-2.htm
EX-32 - FORTUNE INDUSTRIES, INC.ex32-2.htm

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

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

For the quarterly period ended March 31, 2010

¨       TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

Commission file number: 0-19049

FORTUNE INDUSTRIES, INC.
(Exact name of Registrant as specified in its charter)

INDIANA
20-2803889
(State or other jurisdiction of
(IRS Employer
incorporation or organization)
Identification Number)

6402 Corporate Drive
46278
Indianapolis, IN
(Zip Code)
(Address of principal executive offices)
 

(317) 532-1374
(Registrant’s telephone number, including area code)

Indicate by check mark 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 preceding 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 No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company (as defined in Rule 12b-2 of the Exchange Act).

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

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 May 17, 2010, 12,224,290 shares of the Company’s $0.10 per share par value common stock were outstanding.


 
 

 

FORTUNE INDUSTRIES, INC.
FORM 10-Q
For The Quarterly Period Ended March 31, 2010

INDEX

 
Page
PART I.    Financial Information
 
ITEM 1.  Financial Statements
3
Consolidated Balance Sheets as of March 31, 2010 (unaudited) and June 30, 2009
3
Consolidated Statements of Operations for the three and nine month periods ended March 31, 2010 (unaudited) and May 31, 2009 (unaudited)
5
Consolidated Statement of Changes in Shareholders’ Equity for the nine month period ended March 31, 2010 (unaudited)
6
Consolidated Statements of Cash Flows for the nine month periods ended March 31, 2010 and May 31, 2010 (unaudited)
7
Notes to the Unaudited Interim Consolidated Financial Statements
9
ITEM 2.  Management's Discussion and Analysis of Financial Condition and Results of Operations
16
ITEM 3.  Quantitative and Qualitative Disclosures About Market Risk
22
ITEM 4.  Controls and Procedures
22
PART II.    Other Information
 
ITEM 1.  Legal Proceedings
23
ITEM 1A. Risk Factors
23
ITEM 2.    Unregistered Sales of Equity Securities and Use of Proceeds
23
ITEM 3    Defaults Upon Senior Securities
23
ITEM 4.     Submission of Matters to a Vote of Security Holders
24
ITEM 5.    Other Information
24
ITEM 6.    Exhibits
24
Signatures
24
 
 
2

 

PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements.

FORTUNE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)

   
March 31,
   
June 30,
 
    
2010
   
2009
 
    
(Unaudited)
   
(Audited)
 
             
ASSETS
           
CURRENT ASSETS
           
Cash and equivalents
  $ 1,747     $ 1,686  
Restricted cash (Note 1)
    3,258       3,142  
Accounts receivable, net of allowance for doubtful accounts of $29 and $137
    2,454       2,622  
Deferred tax asset
    1,750       1,750  
Prepaid expenses and other current assets
    1,147       1,496  
Assets of discontinued operations, net
    18       112  
Total Current Assets
    10,374       10,808  
                 
OTHER ASSETS
               
Property, plant & equipment, net of accumulated depreciation of $2,448 and $2,193
    560       764  
Term note receivable related party (Note 2)
    2,509       2,546  
Deferred tax asset
    1,000       750  
Goodwill
    12,339       12,339  
Other intangible assets, net
    2,958       3,263  
Other long-term assets
    77       43  
Total Other Assets
    19,443       19,705  
                 
TOTAL ASSETS
  $ 29,817     $ 30,513  
 
See Accompanying Notes to the Unaudited Interim Consolidated Financial Statements
 
3

 

FORTUNE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
(DOLLARS IN THOUSANDS)

   
March 31,
   
June 30,
 
    
2010
   
2009
 
    
(Unaudited)
   
(Audited)
 
             
LIABILITIES AND SHAREHOLDERS' EQUITY
           
CURRENT LIABILITIES
           
Short-term debt and current maturities of long-term debt (Note 3)
  $ 17     $ 275  
Accounts payable
    902       1,037  
Health and workers' compensation reserves
    2,151       4,125  
Accrued expenses
    6,155       5,376  
Other current liabilities
    818       1,003  
Liabilities of discontinued operations, net
    -       1  
Total Current Liabilities
    10,043       11,817  
                 
LONG-TERM LIABILITIES
               
Health and workers' compensation reserves
    322       -  
Long-term debt, less current maturities (Note 3)
    -       11  
Total Long-Term Liabilities
    322       11  
                 
Total Liabilities
    10,365       11,828  
                 
SHAREHOLDERS' EQUITY (NOTE 5)
               
Common stock, $0.10 par value; 150,000,000 authorized; 12,224,290 and 12,082,173 issued and outstanding at March 31, 2010 and June 30, 2009, respectively
    1,201       1,187  
Series C Preferred stock, $0.10 par value; 1,000,000 authorized; 296,180 issued and outstanding at March 31, 2010 and June 30, 2009, respectively
    29,618       29,618  
Additional paid-in capital and warrants outstanding
    19,336       19,253  
Accumulated deficit
    (30,703 )     (31,373 )
Total Shareholders' Equity
    19,452       18,685  
                 
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
  $ 29,817     $ 30,513  
 
See Accompanying Notes to the Unaudited Interim Consolidated Financial Statements
 
4

 

FORTUNE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)

   
Three Month Period Ended
   
Nine Month Period Ended
 
    
March 31,
   
May 31,
   
March 31,
   
May 31,
 
    
2010
   
2009
   
2010
   
2009
 
REVENUES
                       
Service revenues
  $ 15,319     $ 15,393     $ 45,133     $ 50,057  
Product revenues
    -       -       -       17,929  
TOTAL REVENUES
    15,319       15,393       45,133       67,986  
                                 
COST OF REVENUES
                               
Service cost of revenues
    12,684       12,300       35,911       39,528  
Product cost of revenues
    -       -       -       14,944  
TOTAL COST OF REVENUES
    12,684       12,300       35,911       54,472  
                                 
GROSS PROFIT
    2,635       3,093       9,222       13,514  
                                 
OPERATING EXPENSES
                               
Selling, general and administrative expenses
    2,744       2,568       8,127       11,744  
Depreciation and amortization
    176       207       559       798  
Total Operating Expenses
    2,920       2,775       8,686       12,542  
                                 
OPERATING INCOME (LOSS)
    (285 )     318       536       972  
                                 
OTHER INCOME (EXPENSE)
                               
Interest income
    27       69       83       107  
Interest expense
    (2 )     (32 )     (10 )     (112 )
Gain (loss) on disposal of assets
    -       1       -       (20 )
Exchange rate gain
    -       -       -       1  
Other income
    250       42       250       76  
Total Other Income
    275       80       323       52  
                                 
INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES
    (10 )     398       859       1,024  
                                 
Provision for income taxes
    14       26       (278 )     70  
                                 
NET INCOME (LOSS) FROM CONTINUING OPERATIONS
    (24 )     372       1,137       954  
                                 
DISCONTINUED OPERATIONS
                               
Income (loss) from discontinued operations
    (4 )     8       (23 )     (70 )
                                 
NET INCOME (LOSS)
    (28 )     380       1,114       884  
                                 
Preferred stock dividends
    148       370       444       815  
                                 
NET INCOME (LOSS) AVAILABLE TO COMMON SHAREHOLDERS
  $ (176 )   $ 10     $ 670     $ 69  
                                 
Basic Income (Loss) Per Common Share-Continuing Operations
  $ (0.01 )   $ 0.00     $ 0.06     $ 0.01  
Basic Loss Per Common Share-Discontinued Operations
    -       -       -       -  
BASIC INCOME (LOSS) PER COMMON SHARE
  $ (0.01 )   $ 0.00     $ 0.06     $ 0.01  
                                 
Basic Weighted Average Shares Outstanding
    12,205,534       12,082,173       12,162,281       11,828,878  
                                 
Diluted Income (Loss) Per Common Share-Continuing Operations
  $ (0.01 )   $ 0.00     $ 0.05     $ 0.01  
Diluted Loss Per Common Share-Discontinued Operations
    -       -       -       -  
DILUTED INCOME (LOSS) PER COMMON SHARE
  $ (0.01 )   $ 0.00     $ 0.05     $ 0.01  
                                 
Diluted Weighted Average Shares Outstanding
    14,715,577       14,592,336       14,672,444       13,740,144  
 
See Accompanying Notes to the Unaudited Interim Consolidated Financial Statements
 
5

 

FORTUNE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
(UNAUDITED)

               
Additional
             
                
Paid-in Capital
         
Total
 
    
Common
   
Preferred
   
and Warrants
   
Accumulated
   
Shareholders'
 
    
Stock
   
Stock
   
Outstanding
   
Deficit
   
Equity
 
                                
BALANCE AT JUNE 30, 2009
  $ 1,187     $ 29,618     $ 19,253     $ (31,373 )   $ 18,685  
Issuance of 142,117 shares of common stock for compensation
    14       -       83       -       97  
Net income
    -       -       -       1,114       1,114  
Preferred stock dividends
    -       -       -       (444 )     (444 )
                                         
BALANCE AT MARCH 31, 2010
  $ 1,201     $ 29,618     $ 19,336     $ (30,703 )   $ 19,452  
 
See Accompanying Notes to the Unaudited Interim Consolidated Financial Statements
 
6

 

FORTUNE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)

   
Nine Months Ended
 
   
March 31,
   
May 31,
 
   
2010
   
2009
 
CASH FLOWS FROM OPERATING ACTIVITIES
           
Net Income
  $ 1,114     $ 884  
Adjustments to reconcile net income to net cash provided by operating activities:
               
Depreciation and amortization
    559       965  
Provision for losses on accounts receivable
    (108 )     (142 )
Loss on disposal of assets
    -       20  
Stock based compensation
    97       195  
Extinguishment of debt
    (250 )     -  
Deferred income taxes
    (250 )     -  
Changes in certain operating assets and liabilities:
               
Restricted cash
    (116 )     2,117  
Accounts receivable
    276       (19 )
Inventory, net
    -       96  
Prepaid assets and other current assets
    349       435  
Assets of discontinued operations
    94       375  
Other long-term assets
    3       5  
Accounts payable
    (135 )     404  
Health and workers' compensation reserves
    (1,652 )     (1,554 )
Accrued expenses and other current liabilities
    299       (2,314 )
Liabilities of discontinued operations
    (1 )     (217 )
Net Cash Provided by Operating Activities
    279       1,250  
                 
CASH FLOWS FROM INVESTING ACTIVITIES
               
Capital expenditures
    (50 )     (107 )
Proceeds from sale of assets
    -       7  
Net Cash Used in Investing Activities
    (50 )     (100 )
                 
CASH FLOWS FROM FINANCING ACTIVITIES
               
Payments on long-term debt majority shareholder
    -       (300 )
Borrowings on short term debt
    -       250  
Payments on long-term debt
    (19 )     (48 )
Payments on convertible debentures
    -       (3,405 )
Dividends paid on preferred stock
    (149 )     (198 )
Net Cash Used in Financing Activities
    (168 )     (3,701 )
                 
NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS
    61       (2,551 )
                 
CASH AND EQUIVALENTS
               
Beginning of Period
    1,686       4,740  
                 
End of Period
  $ 1,747     $ 2,189  
 
See Accompanying Notes to the Unaudited Interim Consolidated Financial Statements
 
7

 

FORTUNE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(DOLLARS IN THOUSANDS)
(UNAUDITED)

   
Nine Months Ended
 
    
March 31,
   
May 31,
 
    
2010
   
2009
 
SUPPLEMENTAL DISCLOSURES
           
Interest paid
  $ 10     $ 78  
                 
Income taxes paid
  $ 68     $ 67  
                 
Non-cash investing and financing activities:
               
Retirement of series B preferred stock in exchange for series C
    -       (7,918 )
Issuance of series C preferred stock in exchange for series B
    -       7,918  
Issuance of series C preferred stock for debt extinguishment
    -       21,700  
Term note receivable for disposition of assets
    -       (3,240 )
Reduction in term loan in exchange for disposition of assets
    -       (10,000 )
    $ -     $ 8,460  
 
See Accompanying Notes to the Unaudited Interim Consolidated Financial Statements
 
8

 

FORTUNE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS UNLESS OTHERWISE INDICATED,
EXCEPT PER SHARE DATA)
(UNAUDITED)

NOTE 1 - NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

General

Basis of Presentation: The financial data presented herein is unaudited and should be read in conjunction with the consolidated financial statements and accompanying notes included in the 2009 Annual Report on Form 10-K filed by Fortune Industries, Inc. (which, together with its subsidiaries unless the context requires otherwise, shall be referred to herein as the “Company”).  The consolidated balance sheet at June 30, 2009 has been derived from the audited financial statements at that date, but does not include all of the information or footnotes required by accounting principles generally accepted in the United States for complete financial statements.    The Company’s consolidated balance sheet at March 31, 2010, and the consolidated statements of operations, cash flows and shareholders’ equity for the periods ended March 31, 2010 and May 31, 2009, have been prepared by the Company without audit.  These unaudited financial statements contain, in the opinion of management, all adjustments (consisting of normal accruals and other recurring adjustments) necessary for a fair presentation of the consolidated financial position, results of operations, and cash flows for the periods presented in conformity with accounting principles generally accepted in the United States. The Company has evaluated subsequent events through the time these financial statements in the Form 10-Q report were filed with the Securities and Exchange Commission on May 14, 2010.  The operating results for the nine-month period ended March 31, 2010 are not necessarily indicative of the operating results to be expected for the full fiscal year.

Nature of Business: Fortune Industries, Inc. is an Indiana corporation, originally incorporated in Delaware in 1988.  The Company provides full service human resources outsourcing services through co-employment relationships with their clients.  As a holding company, the Company has historically invested in businesses that are undervalued, underperforming, or in operations that are poised for significant growth.  Management’s strategic focus is to support the revenue and earnings growth of its operations by creating synergies that can be leveraged to enhance the performance of the Company’s entities and by investing capital to fund expansion.  Effective November 30, 2008, the Company sold its subsidiaries in its Wireless Infrastructure, Transportation Infrastructure, Ultraviolet Technologies, and Electronics Integration business segments to a related party.  Refer to Note 2 for further details.  As of this date, management will focus all its financial and human capital resources on its subsidiaries in the Business Solutions segment.  The effect of this sale will impact the comparability of the Company’s financial information in future filings.

Restricted Cash: Restricted cash includes certificates of deposits and letters of credit issued to collateralize its obligations under its health and accident benefit program, its workers’ compensation program, and certain general insurance coverage related to the Company’s Business Solutions segment.  At March 31, 2010, the Company had $3,258 in total restricted cash.  Of this, $2,988 is restricted for various workers’ compensation programs in accordance with terms of insurance carrier agreements, and the remainder is restricted for certain standby letters of credits in accordance with various state regulations.

Goodwill and Other Indefinite-Lived Intangible Assets:  Goodwill and other intangible assets with indeterminate lives are assessed for impairment at least annually and more often as triggering events occur.  In making this assessment, management relies on a number of factors including operating results, business plans, economic projections, anticipated future cash flows, and transactions and market place data.  There are inherent uncertainties related to these factors and management’s judgment in applying them to the analysis of both goodwill and other intangible assets impairment.  Since management judgment is involved in performing goodwill and other intangible assets valuation analyses, there is risk that the carrying value of the goodwill and other intangible assets may be overstated or understated.

The Company has elected to perform the annual impairment test of recorded goodwill and other indefinite-lived intangible assets as of the end of fiscal first quarter.  The results of the last completed annual impairment test indicated that the fair value of the Business Solutions segment, as of September 30, 2009, exceeded the carrying, or book value, including goodwill, and therefore recorded goodwill and other indefinite-lived intangible assets were not subject to impairment.

Self Insurance:  The Company’s PSM subsidiary maintains a loss-sensitive worksite employees’ health and accident benefit program.  Under the insurance policy, PSM’s self-funded liability is limited to $200 per employee, with an aggregate liability limit of approximately $6,100.  The aggregate liability limits are adjusted monthly based on the number of participants.

Workers’ Compensation: The Company’s PSM and CSM subsidiaries maintain partially self-funded workers’ compensation insurance programs.  Under the insurance policies established at each company, PSM and CSM’s deductible liability is limited to $250 per incident, with an aggregate liability limit of approximately $2,000.  Under the insurance policy established at ESG, the deductible liability is limited to $350 per incident, with no aggregate liability limit.

 
9

 

NOTE 2 – DISPOSITION OF ASSETS AND PRO FORMA RESULTS

On December 11, 2008, the Company completed a transaction with an effective date as of November 30, 2008 to sell all of the outstanding shares of common stock of the following wholly-owned subsidiaries: James H Drew Corporation; Nor-Cote International, Inc.; Fortune Wireless, Inc.; and Commercial Solutions, Inc.  The subsidiaries were sold to related party entities owned by the Company’s two majority shareholders, the Chairman of the Board of Directors (“Chairman”) and the former Chief Executive Officer (“CEO”).  The shares were sold in exchange for a $10,000 reduction in the outstanding balance of the Term Loan Note due to the Chairman, and a three year Promissory Note receivable in the amount of $3,240 with a maturity date of November 30, 2011.  The Promissory Note bears interest at the prime rate plus 1% and is interest-only for the first twelve months, with $50,000 and $100,000 monthly principal payments due beginning December 30, 2009 and December 30, 2010, respectively.  The unpaid balance at maturity is due in a lump sum payment.

The Company did not recognize any gain or loss from the sale as the consideration paid by the two largest shareholders as it was equal to the net book value of the sold subsidiaries.

As part of the terms of the sales transaction, the Chairman received 217,000 shares of Series C Preferred Stock as consideration for cancellation of the Term Note Balance of $21,700.  In addition, the Company converted 79,180 shares of Series B Preferred Stock previously issued to and held by the Chairman to 79,180 shares of Series C Preferred Stock.  The Series C Preferred Stock with a par value of $0.10 per share is non-redeemable, non-voting cumulative preferred and bears annual dividends of $5 per share in years one and two subsequent to the transaction date, $6 per share in year three subsequent to the transaction date and $7 per share thereafter.  The dividends will be paid on a pro-rata basis monthly.  Additionally, as part of the terms of the sales transaction, the Company issued the Chairman 2,200,000 warrants with a ten-year term and an exercise price of $ .40 per share.

At the request of the independent Directors, the Company received a fairness opinion from an independent financial advisor concluding that the consideration received by the Company in connection with the transaction is fair to the Company’s shareholders as a group..

The transaction was approved by the Company’s Board of Directors on December 10, 2008.

Effective June 30, 2009, the Company executed a Consent to Setoff in which the Borrower made an accelerated payment of $740 on the Amended and Restated Promissory Note.   The Amended and Restated Promissory Note receivable in the amount of $2,500 matures on June 30, 2012, bears interest at the prime rate plus 1% and is interest-only for the first twelve months with $50,000 and $100,000 monthly principal payments due beginning July 30, 2010 and July 30, 2011, respectively.  The unpaid balance at maturity is due in a lump sum payment.

On September 25, 2009, the Company reached an agreement with the Chairman to amend the dividend rates on the Series C Preferred Stock with an effective date of July 1, 2009. From the effective date forward the Series C Preferred Stock will bear annual dividends of $2 per share in years one and two subsequent to the effective date, $5 per share in year three subsequent to the effective date, $6 per share in year four subsequent to the effective date and $7 per share thereafter. All other terms of the Series C Preferred Shares remained unchanged.

The following is a condensed balance sheet disclosing the amounts assigned to each major asset and liability caption of the sold subsidiaries at the disposition date:

 
10

 

Assets
     
Cash and equivalents
  $ 556  
Accounts receivable, net
    12,927  
Costs and estimated earnings in excess of billings on uncompleted contracts
    3,292  
Inventory, net
    4,073  
Deferred tax asset
    46  
Prepaid expenses and other current assets
    790  
Property, plant & equipment, net
    3,527  
Goodwill
    152  
Other long term assets
    13  
Total Assets
    25,376  
         
Liabilities
       
Accounts payable
    4,248  
Accrued expenses
    1,510  
Billings in excess of costs and estimated earnings on uncompleted contracts
    402  
Line of credit
    5,500  
Other liabilities
    476  
Total Liabilities
    12,136  
         
Net Assets
  $ 13,240  
         
Cash considertation - related party term note
  $ 10,000  
Term note receivable - three year
    3,240  
         
Total consideration
  $ 13,240  

Pro Forma Financial Statements

The accompanying unaudited pro forma consolidated statements of operations for the nine months ended May 31, 2009 is presented as if the sale had been completed as of the beginning of the periods presented.  The unaudited pro forma consolidated statements of operations is presented for illustrative purposes only and is not necessarily indicative of the results of operations for the nine months ended May 31, 2009 that would have actually been reported had the sales transaction occurred at the dates indicated, nor is it indicative of future financial position or results of operations.  The unaudited pro forma condensed consolidated statements of operations are based upon the respective historical financial statements of the Company and the subsidiaries.  The pro forma data give effect to actual operating results as if the previous acquisitions occurred as of the beginning of the period presented.  The pro forma data give effect to actual operating results prior to the dispositions and adjustments for the following:

 
·
To eliminate the impact of consolidating Fisbeck-Fortune Development, LLC (“FFD”), which prior to completion of the sales transaction, was considered a variable interest entity in conjunction with FIN 46R.  With the sale of the subsidiaries described in Note 2 and the cancellation of the lease agreement between Fortune Industries, Inc. and FFD, the primary beneficiary relationship between the entities ceased to exist.
 
·
To eliminate the results of operations of the subsidiaries sold.
 
·
To adjust the dividends to the terms of the Series C Preferred shares that were issued in conjunction with the sales transaction.

 
11

 

   
For the Nine
 
    
Months Ended
 
    
May 31,
 
    
2009
 
       
Revenues
  $ 48,562  
Cost of Revenues
    38,759  
         
Gross Profit
    9,803  
         
Operating Expenses
       
Selling, general and administrative expenses
    8,554  
Depreciation and amortization
    542  
         
Total Operating Expenses
    9,096  
         
Operating Income
    707  
         
Other Income
    11  
         
Income Before Provision for Income Taxes
    718  
         
Provision for income taxes
    66  
         
Net Income
    652  
         
Preferred stock dividends
    1,110  
         
Net Loss available to common shareholder
  $ (458 )
         
Basic loss per common share
  $ (0.04 )
         
Diluted loss per common share
  $ (0.04 )

NOTE 3 - DEBT ARRANGEMENTS

Term Note

Effective May 29, 2009, the Company entered into a $250 term note payable (note) with a bank. The note matured on October 28, 2009 with interest at the bank’s prime rate plus 2.0%. Effective October 27, 2009 the note was extended until December 28, 2009.  The note was collateralized by certain assets of the Company’s majority shareholders and required the Company to maintain a minimum debt service coverage ratio of 1.25 to 1.0 among other covenants.   During January 2010, the Company was held harmless on the note and was released from obligation by the bank.  The amount forgiven of $250 is included in the Company’s Consolidated Statement of Operations as other income for the three and nine month periods ended March 31, 2010.

NOTE 4– EQUITY INCENTIVE PLANS AND OTHER STOCK COMPENSATION

Restricted Share Units

Effective April 13, 2006, the Company’s shareholders approved the 2006 Equity Incentive Plan. Under terms of the 2006 Equity Incentive Plan, the Company may grant options, restricted share units and other stock-based awards to its management personnel as well as other individuals for up to 1.0 million shares of common stock.  During the period ended March 31, 2010, 142,117 restricted share units were issued under this plan.

NOTE 5- SHAREHOLDERS’ EQUITY

Common Stock

The Company issued 142,117 shares of common stock during the nine month period ended March 31, 2010.

 
12

 

Preferred Stock

Effective November 30, 2008, the Company exchanged the 79,180 shares of non-voting Series B Preferred Stock with $0.10 par value and a dividend of $10.00 per share for 79,180 non-voting Series C Preferred Stock with $0.10 par value and annual dividends of $5 per share in twelve month period ending November 30, 2009 and 2010, $6 per share in the twelve month period ending November 30, 2011 and $7 per share thereafter. The dividends will be paid on a pro-rata basis monthly.

Effective November 30, 2008, the Company issued 217,000 shares of $0.10 par value non-voting Series C Preferred Stock to the Company’s majority shareholder as consideration for cancellation of certain debt obligations owed by the Company under a line of credit promissory note dated June 5, 2008.  The shares are not convertible to common stock and have various restrictions pertaining to their transferability as they are not registered under the Securities Act of 1933.

The shares issued are single class and pay on a monthly basis an annual cash dividend of $5 per share in the twelve month period ending November 30, 2009 and 2010, $6 per share in the twelve month period ending November 30, 2011 and $7 per share thereafter. On September 25, 2009, the Company reached an agreement with the Chairman to amend the dividend rates on the Series C Preferred Stock with an effective date of July 1, 2009.  From the effective date forward the Series C Preferred Stock will bear an annual dividend of $2 per share in the years ending June 30, 2010 and 2011, $5 per share in the year ending June 30, 2012, $6 per share in the year ending June 30, 2013 and $7 per share thereafter.  All other items of the Series C Preferred Shares remained unchanged.  Dividends of $444 and $815 were accrued and/or paid for the nine months ended March 31, 2010 and May 31, 2009, respectively.

NOTE 6 - RELATED PARTY TRANSACTIONS

On September 25, 2009, the Board of Directors approved the Chairman’s request to utilize approximately $8.15 million of the Company’s net operating loss carryforward for individual tax purposes related to the Chairman’s personal loss on indebtedness associated with the sales transaction as described in Note 2.  The transaction had no effect on assets, liabilities, shareholders’ equity and net income as the gross deferred tax asset of approximately $3.3 million related to the net operating loss had a net asset value of $0 due to a corresponding ($3.3) million valuation allowance placed against the asset by management.

NOTE 7 - SEGMENT INFORMATION

Effective November 30, 2008, the Company sold or discontinued operations in its Wireless Infrastructure, Transportation Infrastructure, Ultraviolet Technologies, and Electronics Integration segments.  As a result, the Company currently has one reportable business segment, Business Solutions.  Prior to December 1, 2008, the Company was organized into five reportable business segments;  Business Solutions, Wireless Infrastructure, Transportation Infrastructure, Ultraviolet Technologies, and Electronics Integration.  The Company’s reportable business segments are organized in a manner that reflects how management reviews and evaluates those business activities.  Certain businesses have been grouped together for segment reporting based upon similar products or product lines, marketing, selling and distribution characteristics.  The segments are organized as follows:

Segment & Entity
 
Business Activity
     
Business Solutions
   
Professional Staff Management, Inc. and subsidiaries; CSM, Inc. and subsidiaries and related entities; Employer Solutions Group, Inc. and related entities; Precision Employee Management, LLC
 
Provider of outsourced human resource services
     
Wireless Infrastructure
   
Fortune Wireless, Inc.; Magtech Services, Inc.; Cornerstone Wireless Construction Services, Inc.; James Westbrook & Associates, LLC
 
Provider turnkey development services for the deployment of wireless networks
     
Transportation Infrastructure
   
James H. Drew Corp. and subsidiaries
 
Installer of fiber optic, smart highway systems, traffic signals, street signs, high mast and ornamental lighting, guardrail, wireless communications, and fabrications of structural steel
     
Ultraviolet Technologies
   
Nor-Cote International, Inc. and subsidiaries
 
Manufacturer of UV curable screen printing ink products
     
Electronics Integration
   
Kingston Sales Corporation; Commercial Solutions, Inc.; Telecom Technology, Corp.
 
Distributor and installer of home and commercial electronics
 
 
13

 

The following tables report data by segment and exclude revenues from transactions with other operating segments:

   
Business
   
Holding
   
Segment
 
    
Solutions (1)
   
Company
   
Totals
 
Three months ended March 31, 2010
                 
Revenue
  $ 15,319     $ -     $ 15,319  
Cost of revenue
    12,684       -       12,684  
Gross profit
    2,635       -       2,635  
Operating expenses
                       
Selling, general and administrative
    2,595       149       2,744  
Depreciation and amortization
    138       38       176  
Total operating expenses
    2,733       187       2,920  
                         
Segment operating loss
  $ (98 )   $ (187 )   $ (285 )

(1)  Gross billings of $113,313 less worksite employee payroll costs of $97,994.

   
Business
   
Holding
   
Segment
 
   
Solutions (1)
   
Company
   
Totals
 
Three Months Ended May 31, 2009
                 
Revenue
  $ 15,393     $ -     $ 15,393  
Cost of revenue
    12,300       -       12,300  
Gross profit
    3,093       -       3,093  
Operating expenses
                       
Selling, general and administrative
    2,613       (45 )     2,568  
Depreciation and amortization
    160       47       207  
Total operating expenses
    2,773       2       2,775  
                         
Segment operating income (loss)
  $ 320     $ (2 )   $ 318  

(1) Gross billings of $129,133 less worksite employee payroll costs of $113,740.

   
Business
   
Holding
   
Segment
 
    
Solutions (1)
   
Company
   
Totals
 
Nine months ended March 31, 2010
                 
Revenue
  $ 45,133     $ -     $ 45,133  
Cost of revenue
    35,911       -       35,911  
Gross profit
    9,222       -       9,222  
Operating expenses
                       
Selling, general and administrative
    7,681       446       8,127  
Depreciation and amortization
    437       122       559  
Total operating expenses
    8,118       568       8,686  
                         
Segment operating income (loss)
  $ 1,104     $ (568 )   $ 536  

(1)  Gross billings of $389,539 less worksite employee payroll costs of $344,406.

 
14

 

   
Business
   
Wireless
   
Transportation
   
Ultraviolet
   
Electronics
   
Holding
       
    
Solutions (1)
   
Infrastructure
   
Infrastructure
   
Technologies
   
Integration
   
Company
   
Totals
 
Nine Months Ended May 31, 2009
                                         
Revenue
  $ 48,562     $ 3,312     $ 12,090     $ 2,771     $ 1,251     $ -     $ 67,986  
Cost of revenue
    38,759       2,458       10,747       1,596       912       -       54,472  
Gross profit
    9,803       854       1,343       1,175       339       -       13,514  
Operating expenses
                                                       
Selling, general and administrative
    8,627       650       781       1,320       238       128       11,744  
Depreciation and amortization
    495       11       5       59       1       227       798  
Total operating expenses
    9,122       661       786       1,379       239       355       12,542  
                                                         
Segment operating income (loss)
  $ 681     $ 193     $ 557     $ (204 )   $ 100     $ (355 )   $ 972  

(1) Gross billings of $419,737 less worksite employee payroll costs of $371,175.

   
Business
   
Electronics
   
Holding
       
    
Solutions
   
Integration
   
Company
   
Totals
 
As of March 31, 2010 (Unaudited)
                       
Current Assets
                       
Cash and equivalents
  $ 1,649     $ -     $ 98     $ 1,747  
Restricted cash
    3,258       -       -       3,258  
Accounts receivable, net
    2,452       -       2       2,454  
Deferred tax asset
    1,750       -       -       1,750  
Prepaid expenses and other current assets
    1,189       -       (42 )     1,147  
Assets of discontinued operations, net
    -       18       -       18  
Total Current Assets
    10,298       18       58       10,374  
                                 
Other Assets
                               
Property, plant & equipment, net
    408       -       152       560  
Term note receivable-related party
    -       -       2,509       2,509  
Deferred tax asset
    1,000       -       -       1,000  
Goodwill
    12,339       -       -       12,339  
Other intangible assets, net
    2,958       -       -       2,958  
Other long term assets
    55       -       22       77  
Total Other Assets
    16,760       -       2,683       19,443  
                                 
Total Assets
  $ 27,058     $ 18     $ 2,741     $ 29,817  

 
15

 

   
Business
   
Electronics
   
Holding
       
    
Solutions
   
Integration
   
Company
   
Totals
 
As of June 30, 2009 (Audited)
                       
Current Assets
                       
Cash and equivalents
  $ 1,622     $ -     $ 64     $ 1,686  
Restricted cash
    3,142       -       -       3,142  
Accounts receivable, net
    2,619       -       3       2,622  
Deferred tax asset
    1,750       -       -       1,750  
Prepaid expenses and other current assets
    1,506       -       (10 )     1,496  
Assets of discontinued operations, net
    -       112       -       112  
Total Current Assets
    10,639       112       57       10,808  
                                 
Other Assets
                               
Property, plant & equipment, net
    489       -       275       764  
Term note receivable-related party
    -       -       2,546       2,546  
Deferred tax asset
    750       -       -       750  
Goodwill
    12,339       -       -       12,339  
Other intangible assets, net
    3,263       -       -       3,263  
Other long term assets
    22       -       21       43  
Total Other Assets
    16,863       -       2,842       19,705  
                                 
Total Assets
  $ 27,502     $ 112     $ 2,899     $ 30,513  

NOTE 8 – GOING CONCERN

The accompanying consolidated financials statements have been prepared assuming that the Company will continue as a going concern. As described in Note 2, by selling the subsidiaries in four segments that overall have been underperforming and require a higher level of working capital investment, management believes they will be able to start generating positive cash flows immediately. The conversion of the outstanding debt to preferred stock by the Company’s majority shareholder will also result in a significant decrease in the debt service requirements in 2010. With the Company’s human capital and financial resources all focusing on the profitability of a segment that historically has generated operating income and positive cash flows from operations, management believes the Company will have adequate cash to fund anticipated needs through June 30, 2010. The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

NOTE 9 – SUBSEQUENT EVENT

On April 30, 2010, the Company entered into a $1 million term note with a bank.   The term note requires twenty four consecutive monthly payments of principal plus accrued interest at the Bank’s Prime Rate (not less than 4.5% per annum).  The term note matures on April 30, 2012.   The term note is secured by all assets of the Company and the personal guarantee of the Company’s majority shareholder.  The note is subject to certain covenants including minimum cash flow coverage and current ratio requirements.

Item 2.  Management's Discussion and Analysis of Financial Condition and Results of Operations.

Statements contained in this document, as well as some statements by the Company in periodic press releases and oral statements of Company officials during presentations about the Company constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 (the “Act”).  Forward-looking statements include statements that are predictive in nature, depend on or refer to future events or conditions, which include words such as “expect,” “estimate,” “anticipate,” “predict,” “believe” and similar expressions.  These statements are based on the current intent, belief or expectation of the Company with respect to, among other things, trends affecting the Company’s financial condition or results of operations.  These statements are not guaranties of future performance and the Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Actual events and results involve risks and uncertainties and may differ materially from those expressed or forecasted in forward-looking statements due to a number of factors.  Factors that might cause or contribute to such differences, include, but are not limited to, the risks and uncertainties that are discussed under the heading “Risk Factors” disclosed within Form 10-K for the ten months  ended June 30, 2009. Readers should carefully review the risk factors referred to above and the other documents filed by the Company with the Securities and Exchange Commission.

 
16

 

OVERVIEW

As a holding company of various product and service entities, we have historically invested in businesses that we believe are undervalued or underperforming, and /or in operations that are poised for significant growth. Management’s strategic focus is to support the growth of its operations by increasing revenues and revenue streams, managing costs and creating earnings growth.

Our operations are largely decentralized from the corporate office. Autonomy is given to subsidiary entities, and there are few integrated business functions (i.e. sales, marketing, purchasing and human resources). Day-to-day operating decisions are made by subsidiary management teams. Our Corporate management team assists in operational decisions when deemed necessary, selects subsidiary management teams and handles capital allocation among our operations.

We were incorporated in the state of Delaware in 1988, restructured in 2000 and redomesticated to the state of Indiana in May 2005. Prior to 2001, we conducted business mainly in the entertainment industry.

Until November 30, 2008, we classified our businesses under five operating segments: Business Solutions; Wireless Infrastructure; Transportation Infrastructure; Ultraviolet Technologies; and Electronics Integration.  Effective November 30, 2008, we approved the sale of all of our remaining operating subsidiaries within four of our five segments (Wireless Infrastructure, Transportation Infrastructure, Ultraviolet Infrastructure, and Electronics Integration). Consequently, as of the effective date of the transaction, our Business Solutions segment is the Company’s remaining operating segment. The sales transaction, combined with other significant events disclosed in Note 2 of our financial statements in Item 1, will change the focus of our Company in fiscal 2009 and thereafter. This operational change in our Company will impact the comparability of our financial information compared to historical data presented in past filings.

Recent Developments

On April 30, 2010, the Company entered into a $1 million term note with a bank.   The term note requires twenty four consecutive monthly payments of principal plus accrued interest at the Bank’s Prime Rate (not less than 4.5% per annum).  The term note matures on April 30, 2012.   The term note is secured by all assets of the Company and the personal guarantee of the Company’s majority shareholder.  The note is subject to certain covenants including minimum cash flow coverage and current ratio requirements.

On January 15, 2010, our Board of Directors appointed Tena Mayberry to the position of Chief Executive Officer of the Company.  Ms. Mayberry is replacing John F. Fisbeck as the Company’s Chief Executive Officer.

On January 15, 2010, the Company entered into a Settlement Agreement with its CEO John Fisbeck which included a) immediate resignation of Mr. Fisbeck as CEO of the company, b) immediate resignation of Mr. Fisbeck from the Company’s Board of Directors, and c) waiver of certain severance payments included in his Employment Agreement.

On April 13, 2009, our Board of Directors approved a change in the Company’s fiscal year end from August 31 st to June 30 th commencing with our fiscal year 2009. This resulted in a ten month period for fiscal 2009.

Effective November 30, 2008, the Company completed a transaction to sell all of the outstanding shares of common stock of the following wholly-owned subsidiaries: James H Drew Corporation, Nor-Cote International, Inc., Fortune Wireless, Inc. and Commercial Solutions, Inc.  As of this date, the subsidiaries were sold to related party entities owned by the Company’s majority shareholders in exchange for a $10,000,000 reduction in the outstanding balance of the term loan note due to the majority shareholder and a three-year term note in the amount of $3,240,000.  The transaction also included the conversion of the remaining term loan note balance to Preferred Stock and the issuance of additional warrants.  For further discussion of this transaction, see Note 2 – Disposition of Assets in the Notes to the Consolidated Financial Statements.  The Company did not recognize any gain from the sale as the consideration paid by the two largest shareholders as it was equal to the net book value of the sold subsidiaries.

Effective November 30, 2008, the Company no longer operated in the Wireless Infrastructure, Transportation Infrastructure, Ultraviolet Technologies and Electronics Integration Segments.

Effective December 1, 2008, the Company devoted substantially all its resources on the growth and profitability of the Business Solutions segment.

Business Solutions Segment

The Business Solutions segment is comprised of Professional Employer Organizations (PEOs) which provide full-service human resources outsourcing services through co-employment relationships with their clients.  Companies operating in the Business Solutions Segment include PSM, CSM, PEM, and ESG.  Our PEOs provide services typically managed by a company’s internal human resources and accounting departments, including payroll and tax processing and management, worker’s compensation and risk management, benefits administration, unemployment administration, human resource compliance services, 401k and retirement plan administration and employee assessments.  Clients represent a wide variety of industries from healthcare, professional services, software development, manufacturing logistics, telemarketing and construction. Combined, these organizations provide co-employment services to approximately 13,000 employees in 48 states.

 
17

 

Wireless Infrastructure Segment

Through November 30, 2008, we invested in wireless infrastructure businesses, having completed six acquisitions primarily related to infrastructure products and service offerings related to the development, marketing, management, maintenance and upgrading of wireless telecommunications sites.   Subsidiaries operating in the Company’s Wireless Infrastructure segment included Fortune Wireless, Magtech Services, Inc., Cornerstone Wireless Construction Services, Inc. and James Westbrook & Associates, LLC.

Effective November 30, 2008, the Company sold its subsidiaries operating in the Wireless Infrastructure segment.

Transportation Infrastructure Segment

Through November 30, 2008, the Company owned subsidiaries in its Transportation Infrastructure segment that assist customers with the development, maintenance and upgrading of transportation infrastructure and commercial construction projects. Transportation infrastructure products and services are performed by JH Drew. JH Drew was acquired in April 2004 and has been operating for over fifty years servicing contractors and state departments of transportation throughout the Midwestern United States. JH Drew is a leading specialty contractor in the field of transportation infrastructure, including guardrail, electrical components, and the fabrication and installation of structural steel for commercial buildings.

Effective November 30, 2008, the Company sold its subsidiaries operating in the Transportation Infrastructure segment.

Ultraviolet Technologies Segment

Through November 30, 2008, the Company owned subsidiaries in its Ultraviolet (UV) Technologies segment that manufactured UV curable screen printing inks.  UV Technologies products are manufactured by Nor-Cote, which we acquired in July 2003. These ink products are printed on many types of plastic, metals and other substrates that are compatible with the UV curing process.  Typical applications are plastic sheets, point-of-purchase (POP) signage, banners, decals, cell phones, bottles and containers, CD and DVD, rotary-screen printed labels, and membrane switch overlays for conductive ink.  Nor-Cote has operating facilities in the United States, United Kingdom, China, Singapore and Mexico, with worldwide distributors located in South Africa, Australia, Canada, China, Colombia, Hong Kong, India, Indonesia, Italy, Japan, Korea, Mexico, New Zealand, Poland, Spain, Taiwan, Thailand and the United States.

Effective November 30, 2008, the Company sold its subsidiaries operating in the Ultraviolet Technologies segment.

Electronics Integration Segment

Through November 30, 2008, the Company owned subsidiaries in its Electronics Integration segment that sell and install a variety of electronic products and equipment, including video, sound and security products.  Subsidiaries included Kingston, Commercial Solutions and Telecom Technology Corp. (TTC) d/b/a Audio-Video Revolution, Inc. (AVR).

Effective November 30, 2008, the Company sold its subsidiary Commercial Solutions and discontinued operations of its subsidiaries Kingston and TTC d/b/a AVR in its Electronics Integration segment.

CRITICAL ACCOUNTING POLICIES

The Company’s accounting policies, which are in compliance with accounting principles generally accepted in the United States, require application of methodologies, estimates and judgments that have a significant impact on the results reported in the Company’s financial statements.  Those policies that, in the belief of management, are critical and require the use of complex judgment in their application, are disclosed on the Company’s Form 10-K for the year ended June 30, 2009.  Since June 30, 2009, there have been no material changes to the Company’s critical accounting policies.

New Accounting Pronouncements

In September 2006, the Financial Accounting Standards Board (“FASB”) ASC 820-10 (formerly SFAS 157), “Fair Value Measurements” was issued.  ASC 820-10 establishes a framework for measuring fair value by providing a standard definition of fair value as it applies to assets and liabilities.  ASC 820-10, which does not require any new fair value measurements, clarifies the application of other accounting pronouncements that require or permit fair value measurements.  The standard was effective for fiscal years beginning after November 15, 2007.  However, the FASB delayed the effective date of ASC 820-10 for all non-financial assets and non-financials liabilities until fiscal years beginning after November 15, 2008.  Accordingly, we adopted ASC 820-10 for our financial assets and liabilities on September 1, 2008 and adopted ASC 820-10 for our non-financial assets and liabilities on July 1, 2009.  The adoption did not have a material impact on our consolidated financial statements.

In December 2007, the FASB issued ASC No. 805-10 (formerly SFAS No. 141R) “Business Combinations”.  ASC No.805-10 establishes principles and requirements for how the acquirer of a business recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any non-controlling interest in the acquiree.  The statements also provides guidance for recognizing and measuring the goodwill acquired in the business combination and specifies what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. ASC No. 805-10 is effective for financial statements issued for fiscal years beginning after December 15, 2008.  Our effective date for ASC 805-10 was July 1, 2009. The adoption of ASC No. 805-10 did not have a material impact on our consolidated financial statements.

 
18

 

In June 2008, the FASB issued ASC 260-10 (formerly FASB Staff Position No. EITF 03-6-1), “Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities”. ASC 260-10 concludes that unvested restricted share awards that pay nonforfeitable cash dividends are participating securities and are subject to the two-class method of computing earnings per share. Our effective date for ASC 260-10 was July 1, 2009. The adoption of ASC 260-10 did not have a material impact on our consolidated financial statements.

In April 2009, the FASB issued ASC No. 825-10-65-1 (formerly FAS 107-1 and APB 28-1), “Interim Disclosures about Fair Value of Financial Instruments. This ASC essentially expands the disclosure about fair value of financial instruments that were previously required only annually to also be required for interim period reporting. In addition, the ASC requires certain additional disclosures regarding the methods and significant assumptions used to estimate the fair value of financial instruments. These additional disclosures will be required beginning with the quarter ending September 30, 2009. The adoption of ASC No. 825-10-65-1 did not have a material impact on our consolidated financial statements.

In May 2009, FASB ASC 855-10 (formerly SFAS No. 165), “Subsequent Events” was issued. ASC 855-10 establishes general standards of accounting for and disclosure of events that occur after the balance sheet date (“subsequent events”), but before the financial statements are issued or available to be issued and requires disclosure of the date through which the entity has evaluated subsequent events and the basis for that date. ASC 855-10 is effective for interim and annual periods ending after June 15, 2009; the Company adopted ASC 855-10 for the quarter ended June 30, 2009. The Company evaluated subsequent events through the time we filed our Form 10-Q with the Securities and Exchange Commission on February 16, 2010 and will continue to evaluate subsequent events through the issuance date of future required filings.   The adoption did not have a material impact on our consolidated financial statements.

In June 2009, FASB ASC 105-10 (formerly SFAS 168), “The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles” was issued. ASC 105-10 is the single official source of authoritative U.S. GAAP, superseding all other accounting literature except that issued by the Securities and Exchange Commission. As of July 2009, only one level of authoritative U.S. GAAP exists. All other literature will be considered non-authoritative. The Codification does not change U.S. GAAP; instead, it introduces a new referencing system that is designed to be an easily accessible, user-friendly online research system. ASC 105-10 is effective for financial statements issued for interim and annual periods ending after September 15, 2009. The Company adopted ASC 105-10 for the quarter ended September 30, 2009. The adoption did not have a material impact on our consolidated financial statements.

Other new pronouncements issued but not effective until after March 31, 2010, are not expected to have a significant effect on the company’s consolidated financial statements.

RESULTS OF OPERATIONS:  COMPARISON OF THE THREE AND NINE MONTH PERIODS ENDED MARCH 31, 2010 AND MAY 31, 2009

Executive Overview of Financial Results

Results of operations for the three and nine month periods ended March 31, 2010 and May 31, 2009 are as follows:

   
Revenue for the
   
Operating income (loss) for the
 
    
Three Months Ended
   
Three Months Ended
 
    
March 31,
   
May 31,
   
March 31,
   
May 31,
 
    
2010