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 September 30, 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
      Employerincorporation
      or organization)
            Identification
      Number)





6402
      Corporate Drive
            46278Indianapolis,
      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 x   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
November 15, 2010, 12,235,790 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 September 30, 2010





INDEX





PagePART I. Financial
      InformationITEM 1.Financial StatementsConsolidated Balance Sheets as ofSeptember30, 2010 (unaudited) andJune30,
      2010
                  3Consolidated Statements of Operations for the
      three-month periods endedSeptember30, 2010 (unaudited) andSeptember30, 2009 (unaudited)
                  5Consolidated Statement of Changes in Shareholders’
      Equity for thethree-month period endedSeptember30, 2010 (unaudited)
                  6ConsolidatedStatements of Cash Flows for three-month
      periods endedSeptember
      30, 2010(unaudited)and
      September 30, 2009(unaudited)
                  7Notes to the Unaudited Interim Consolidated
      Financial Statements
                  9ITEM 2.Management's Discussion and Analysis of Financial
      Condition and Results of Operations
                  11ITEM 3.Quantitative and Qualitative Disclosures About
      Market Risk
                  15ITEM 4.Controls and
    Procedures
                  16PART
      II. Other InformationITEM 1.Legal
      Proceedings
                  16ITEM 1A. Risk Factors
                  16ITEM 2.Unregistered Sales of Equity Securities and Use of
      Proceeds
                  16ITEM 3Defaults Upon Senior
      Securities
                  16ITEM 4.Submission of Matters to a Vote of Security
      Holders
                  16ITEM 5.Other
      Information
                  16ITEM 6.Exhibits
                  16Signatures
                  17


2





PART
1 - FINANCIAL INFORMATION


Item
1. Financial Statements.





FORTUNE
INDUSTRIES, INC. AND SUBSIDIARIES


CONSOLIDATED
BALANCE SHEETS


(DOLLARS
IN THOUSANDS)





September
      30,
                
                
                June
      30,2010
                
                
                2010(Unaudited)
                
                
                (Audited)ASSETSCURRENT
      ASSETSCash
      and equivalents
                
                $
                5,334
                
                
                $
                2,324Restricted
      cash (Note 1)
                
                
                2,517
                
                
                
                2,820Accounts
      receivable, net of allowance for doubtful accounts of $6 and
      $29
                
                
                2,472
                
                
                
                2,247Deferred
      tax asset
                
                
                1,750
                
                
                
                1,750Prepaid
      expenses and other current assets
                
                
                802
                
                
                
                943Assets
      of discontinued operations, net
                
                
                -
                
                
                
                8Total
      Current Assets
                
                
                12,875
                
                
                
                10,092OTHER
      ASSETSProperty,
      plant & equipment, net of accumulated depreciation of $2,425 and
      $2,353
                
                
                407
                
                
                
                455Term
      note receivable related party
                
                
                2,563
                
                
                
                2,536Deferred
      tax asset
                
                
                1,000
                
                
                
                1,000Goodwill
                
                
                12,339
                
                
                
                12,339Other
      intangible assets, net of accumulated amortization of $1,897 and
      $1,796
                
                
                2,755
                
                
                
                2,857Other
      long-term assets
                
                
                62
                
                
                
                62Total
      Other Assets
                
                
                19,126
                
                
                
                19,249TOTAL
      ASSETS
                
                $
                32,001
                
                
                $
                29,341





See
Accompanying Notes to the Unaudited Interim Consolidated Financial
Statements


3


FORTUNE
INDUSTRIES, INC. AND SUBSIDIARIES


CONSOLIDATED
BALANCE SHEETS (CONTINUED)


(DOLLARS
IN THOUSANDS)





LIABILITIES
      AND SHAREHOLDERS' EQUITYCURRENT
      LIABILITIESShort-term
      debt and current maturities of long-term debt (Note 3)
                
                $
                504
                
                
                $
                511Accounts
      payable
                
                
                986
                
                
                
                909Health
      and workers' compensation reserves
                
                
                1,604
                
                
                
                1,696Customer
      deposits
                
                
                3,247
                
                
                
                -Accrued
      expenses
                
                
                4,707
                
                
                
                5,530Other
      current liabilities
                
                
                154
                
                
                
                234Total
      Current Liabilities
                
                
                11,202
                
                
                
                8,880LONG-TERM
      LIABILITIESHealth
      and workers' compensation reserves
                
                
                592
                
                
                
                435Long-term
      debt, less current maturities (Note 3)
                
                
                292
                
                
                
                417Total
      Long-Term Liabilities
                
                
                884
                
                
                
                852Total
      Liabilities
                
                
                12,086
                
                
                
                9,732SHAREHOLDERS'
      EQUITY (NOTE 5)Common
      stock, $0.10 par value; 150,000,000 authorized; 12,234,290 and 12,224,290
      issued and outstanding at September 30, 2010 and June 30, 2010,
      respectively
                
                
                1,207
                
                
                
                1,206Series
      C Preferred stock, $0.10 par value; 1,000,000 authorized; 296,180 issued
      and outstanding at September 30, 2010 and June 30, 2010,
      respectively
                
                
                29,618
                
                
                
                29,618Treasury
      stock, at cost, 48,263 shares
                
                
                (186
                )
                
                
                (186
                )Additional
      paid-in capital and warrants outstanding
                
                
                19,518
                
                
                
                19,515Accumulated
      deficit
                
                
                (30,242
                )
                
                
                (30,544
                )Total
      Shareholders' Equity
                
                
                19,915
                
                
                
                19,609TOTAL
      LIABILITIES AND SHAREHOLDERS' EQUITY
                
                $
                32,001
                
                
                $
                29,341





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 EndedSeptember 30,
                                                
                                                
                                                September 30,2010
                                                
                                                
                                                2009REVENUES
                                                
                                                $
                                                15,571
                                                
                                                
                                                $
                                                14,829DIRECT
      COSTS
                                                
                                                
                                                12,373
                                                
                                                
                                                
                                                11,428GROSS
      PROFIT
                                                
                                                
                                                3,198
                                                
                                                
                                                
                                                3,401OPERATING
      EXPENSESSelling,
      general and administrative expenses
                                                
                                                
                                                2,553
                                                
                                                
                                                
                                                2,676Depreciation
      and amortization
                                                
                                                
                                                174
                                                
                                                
                                                
                                                201Total
      Operating Expenses
                                                
                                                
                                                2,727
                                                
                                                
                                                
                                                2,877OPERATING
      INCOME
                                                
                                                
                                                471
                                                
                                                
                                                
                                                524OTHER
      INCOME (EXPENSE)Interest
      income
                                                
                                                
                                                28
                                                
                                                
                                                
                                                28Interest
      expense
                                                
                                                
                                                (10
                                                )
                                                
                                                
                                                (4
                                                )Other
      income
                                                
                                                
                                                3
                                                
                                                
                                                
                                                -Total
      Other Income (Expense)
                                                
                                                
                                                21
                                                
                                                
                                                
                                                24INCOME
      BEFORE PROVISION FOR INCOME TAXES
                                                
                                                
                                                492
                                                
                                                
                                                
                                                548Provision
      for income tax expense (benefit)
                                                
                                                
                                                35
                                                
                                                
                                                
                                                (271
                                                )NET
      INCOME FROM CONTINUING OPERATIONS
                                                
                                                
                                                457
                                                
                                                
                                                
                                                819DISCONTINUED
      OPERATIONSLoss
      from discontinued operations
                                                
                                                
                                                (7
                                                )
                                                
                                                
                                                (11
                                                )NET
      INCOME
                                                
                                                
                                                450
                                                
                                                
                                                
                                                808Preferred
      stock dividends
                                                
                                                
                                                148
                                                
                                                
                                                
                                                148NET
      INCOME AVAILABLE TO COMMON SHAREHOLDERS
                                                
                                                $
                                                302
                                                
                                                
                                                $
                                                660Basic
      Income Per Common Share-Continuing Operations
                                                
                                                $
                                                0.02
                                                
                                                
                                                $
                                                0.05Basic
      Loss Per Common Share-Discontinued Operations
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -BASIC
      INCOME PER COMMON SHARE
                                                
                                                $
                                                0.02
                                                
                                                
                                                $
                                                0.05Basic
      Weighted Average Shares Outstanding
                                                
                                                
                                                12,231,543
                                                
                                                
                                                
                                                12,089,380Diluted
      Income Per Common Share-Continuing Operations
                                                
                                                $
                                                0.02
                                                
                                                
                                                $
                                                0.05Diluted
      Loss Per Common Share-Discontinued Operations
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -DILUTED
      INCOME PER COMMON SHARE
                                                
                                                $
                                                0.02
                                                
                                                
                                                $
                                                0.05Diluted
      Weighted Average Shares Outstanding
                                                
                                                
                                                14,754,108
                                                
                                                
                                                
                                                14,599,543


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)





AdditionalPaid-in Capital
                  
                  
                  
                  
                  
                  TotalCommon
                  
                  
                  Treasury
                  
                  
                  Preferred
                  
                  
                  and Warrants
                  
                  
                  Accumulated
                  
                  
                  Shareholders'Stock
                  
                  
                  Stock
                  
                  
                  Stock
                  
                  
                  Outstanding
                  
                  
                  Deficit
                  
                  
                  EquityBALANCE
      AT JUNE 30, 2010 (Audited)
                  
                  $
                  1,206
                  
                  
                  $
                  (186
                  )
                  
                  $
                  29,618
                  
                  
                  $
                  19,515
                  
                  
                  $
                  (30,544
                  )
                  
                  $
                  19,609Issuance
      of 10,000 shares of common stock for compensation
                  
                  
                  1
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  3
                  
                  
                  
                  -
                  
                  
                  
                  4Net
      income
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  450
                  
                  
                  
                  450Preferred
      stock dividends
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (148
                  )
                  
                  
                  (148
                  )BALANCE
      AT SEPTEMBER 30, 2010 (Unaudited)
                  
                  $
                  1,207
                  
                  
                  $
                  (186
                  )
                  
                  $
                  29,618
                  
                  
                  $
                  19,518
                  
                  
                  $
                  (30,242
                  )
                  
                  $
                  19,915





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)





Three Months EndedSeptember 30,
                            
                            
                            September 30,2010
                            
                            
                            2009CASH
      FLOWS FROM OPERATING ACTIVITIESNet
      Income
                            
                            $
                            450
                            
                            
                            $
                            808Adjustments
      to reconcile net income to net cash provided by (used in) operating
      activities:Depreciation
      and amortization
                            
                            
                            174
                            
                            
                            
                            201Provision
      for losses on accounts receivable
                            
                            
                            (20
                            )
                            
                            
                            (116
                            )Stock
      based compensation
                            
                            
                            4
                            
                            
                            
                            79Deferred
      income taxes
                            
                            
                            -
                            
                            
                            
                            (250
                            )Changes
      in certain operating assets and liabilities:Restricted
      cash
                            
                            
                            303
                            
                            
                            
                            (366
                            )Accounts
      receivable
                            
                            
                            (205
                            )
                            
                            
                            321Inventory,
      net
                            
                            
                            -
                            
                            
                            
                            3Prepaid
      assets and other current assets
                            
                            
                            140
                            
                            
                            
                            (248
                            )Assets
      of discontinued operations
                            
                            
                            8
                            
                            
                            
                            (82
                            )Other
      long-term assets
                            
                            
                            (27
                            )
                            
                            
                            -Accounts
      payable
                            
                            
                            77
                            
                            
                            
                            321Health
      and workers' compensation reserves
                            
                            
                            64
                            
                            
                            
                            (1,079
                            )Customer
      deposits
                            
                            
                            3,247
                            
                            
                            
                            -Accrued
      expenses and other current liabilities
                            
                            
                            (950
                            )
                            
                            
                            (563
                            )Liabilities
      of discontinued operations
                            
                            
                            -
                            
                            
                            
                            (1
                            )Net
      Cash Provided by (Used in) Operating Activities
                            
                            
                            3,265
                            
                            
                            
                            (972
                            )CASH
      FLOWS FROM INVESTING ACTIVITIESCapital
      expenditures
                            
                            
                            (24
                            )
                            
                            
                            (10
                            )Net
      Cash Used in Investing Activities
                            
                            
                            (24
                            )
                            
                            
                            (10
                            )CASH
      FLOWS FROM FINANCING ACTIVITIESPayments
      on term debt
                            
                            
                            (132
                            )
                            
                            
                            (6
                            )Dividends
      paid on preferred stock
                            
                            
                            (99
                            )
                            
                            
                            -Net
      Cash Used in Financing Activities
                            
                            
                            (231
                            )
                            
                            
                            (6
                            )NET
      INCREASE (DECREASE) IN CASH AND EQUIVALENTS
                            
                            
                            3,010
                            
                            
                            
                            (988
                            )CASH
      AND EQUIVALENTSBeginning
      of Period
                            
                            
                            2,324
                            
                            
                            
                            1,686End
      of Period
                            
                            $
                            5,334
                            
                            
                            $
                            698





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)





Three Months EndedSeptember 30,
                  
                  
                  September 30,2010
                  
                  
                  2009SUPPLEMENTAL
      DISCLOSURESInterest
      paid
                  
                  $
                  10
                  
                  
                  $
                  4Income
      taxes paid
                  
                  $
                  35
                  
                  
                  $
                  (21
                  )





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 2010 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,
2010 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 September 30, 2010, and
the consolidated statements of operations, cash flows and shareholders’ equity
for the period ended September 30, 2010 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. The operating results for the three-month period ended September 30,
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 is comprised of Professional Employer Organizations (PEOs)
which provide full-service human resources outsourcing services through
co-employment relationships with their clients. Wholly owned subsidiaries
operating in this industry include Professional Staff Management, Inc. and
related entities (“PSM”); CSM, Inc. and related subsidiaries (“CSM”); Precision
Employee Management, LLC (“PEM”); and Employer Solutions Group, Inc. and related
entities (“ESG”).





The
Companies bill their clients under Professional Services Agreements as licensed
PEOs. The billing includes amounts for the client’s gross wages, payroll taxes,
employee benefits, workers’ compensation insurance and an administration fee.
The administration fee charged by the companies in this segment is typically a
percentage of the gross payroll and is sufficient to allow the companies in this
segment to provide payroll administration services, human resources consulting
services, worksite safety training, and employment regulatory compliance for no
additional fees.





The
component of the administration fee related to administration varies, in part,
according to the size of the client, the amount and frequency of payroll
payments and the delivery method of such payments. The component of the
administration fee related to health, workers’ compensation and unemployment
insurance is based, in part, on the client’s historical claims experience.
Charges by the Companies in this segment are invoiced along with each periodic
payroll delivered to the client.





Through
the co-employment contractual relationship, the Companies become the statutory
employer and, as such, all payroll-related taxes are filed on these Companies’
federal, state, and local tax identification numbers. The clients are not
required to file any payroll related taxes on their own behalf. The calculations
of amounts the Companies in this segment owe and pay the various government and
employment insurance vendors are based on the experience levels and activity of
the Companies in this segment.





Restricted Cash: Restricted
cash includes certificates of deposits and letters of credit issued to
collateralize its obligations under its workers’ compensation program and
certain general insurance coverage. At September 30, 2010, the Company had
$2,517 in total restricted cash. Of this, $2,247 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. As of November 15, 2010, the current annual impairment test is in
process. 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.


9





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 $225 per employee, with an aggregate liability limit of
approximately $7.6 million. 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.





NOTE
2 – MEASUREMENT OF FAIR VALUE





Effective
September 1, 2008, the Company adopted ASC 820, which provides a framework for
measuring fair value under GAAP. As defined in ASC 820, fair value is the price
that would be received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants at the measurement date (exit
price). In determining fair value in accordance with ASC 820, we utilize market
data or assumptions that we believe market participants would use in pricing the
asset or liability that maximize the use of observable inputs and minimize the
use of unobservable inputs to the extent possible, including assumptions about
risk and the risks inherent in the inputs to the valuation technique.
Classification of the financial asset or liability within the hierarchy is
determined based on the lowest level input that is significant to the fair value
measurement.





ASC 820
establishes a fair value hierarchy that prioritizes the inputs used to measure
fair value. The hierarchy gives the highest priority to unadjusted quoted prices
in active markets for identical assets or liabilities (Level 1 measurement) and
the lowest priority to unobservable inputs (Level 3 measurement). The three
levels of the fair value hierarchy defined by ASC 820 are as
follows:





Level
      1
            Quoted
      prices are available in active markets for identical assets or liabilities
      as of the reporting date. Active markets are those in which transactions
      for the asset or liability occur in sufficient frequency and volume to
      provide pricing information on an ongoing
basis.





Level
      2
            Financial
      instruments lacking unadjusted, quoted prices from active market
      exchanges, including over-the-counter traded financial instruments. The
      prices for the financial instruments are determined using prices for
      recently traded financial instruments with similar underlying terms as
      well as directly or indirectly observable inputs, such as interest rates
      and yield curves that are observable at commonly quoted
      intervals.





Level
      3
            Financial
      instruments that are not actively traded on a market exchange. This
      category includes situations where there is little, if any, market
      activity for the financial instrument. The prices are determined using
      significant unobservable inputs or valuation
  techniques.





As of
September 30, 2010 and June 30, 2010, we did not have any financial assets
utilizing Level 1. Financial assets utilizing Level 2 inputs consist of cash
held in certificates of deposit with various financial institutions. The fair
value measurement of these items is determined by using prices for recently
traded CD’s with similar interest rates. The fair value for the Level 2
financial instruments was $1,448 and $1,745 as of September 30, 2010 and June
30, 2010, respectively. Financial liabilities utilizing Level 3 inputs included
put options related to common stock issued in conjunction with the purchase of
ESG. The fair value measurement of this Level 3 item has been estimated using
the stated contractual put price of $3.75 per share. The fair value for the
Level 3 financial instruments was $116 and $247 as of September 30, 2010 and
June 30, 2010, respectively.





NOTE 3 - DEBT ARRANGEMENTS





Term
Note





On May
29, 2009, the Company entered into a $250 term loan note with a bank. The term
loan note matured on October 28, 2009 and incurred interest at the Prime Rate
plus 2.0%. The note was collateralized by certain assets of the Company’s
majority shareholders. The loan required the Company to maintain a minimum debt
service coverage ratio of 1.25 to 1.0 among other covenants. In January 2010,
the Company was held harmless on the note and was released from the obligation
by the bank. The amount forgiven of $250 is included in the Company’s
Consolidated Statement of Operations as other income for the year ended June 30,
2010.


10





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.





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 September 30, 2010, 10,000 restricted share units
were issued under this plan.





NOTE
5- SHAREHOLDERS’ EQUITY





Common
Stock





The
Company issued 10,000 shares of common stock during the three-month period ended
September 30, 2010.





Preferred
Stock





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 $148 and $148 were accrued
and/or paid for the three months ended September 30, 2010 and September 30,
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 capital 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 Company had established that the capital loss carryforwards
presented no material value to the Company and therefore have not been included
in the calculation of deferred tax assets.





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 year ended June 30,
2010. Readers should carefully review the risk factors referred to above and the
other documents filed by the Company with the Securities and Exchange
Commission.





OVERVIEW





As a
holding company 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.


11





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 the Companies
Form 10-K for the year ended June 30, 2010, changed the focus of our Company in
fiscal 2009 and thereafter. This operational change in our Company impacts our
comparability of our financial information compared to historical data presented
in past filings.





Recent
Developments





Effective
May 2010, Ms. Julia Reed resigned from the Company’s Board of Directors and
Audit Committee. Ms. Reed’s resignation was not due to a disagreement with the
Company on any matter relating to the Company’s operations, policies or
practices. As a result of Ms. Reed’s resignation, the Company does not meet the
minimum audit committee requirements of the NYSE Amex guidelines. Therefore by
letter dated July 2, 2010 the Company was notified by the NYSE Amex that it is
not in compliance with Section 803(B)(2)(c) of the NYSE Amex Company Guide, in
that the Company’s audit committee is not comprised of at least two independent
directors. Pursuant to Section 803(B)(6) of the Company Guide, the Company has
until the earlier of its next annual shareholders’ meeting or one year from the
occurrence of the event that caused the failure to comply with the requirement
to regain compliance. The Company is currently interviewing potential candidates
for the position of independent director and audit committee member and expects
to have this position filled by the required timeframe.





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 replaced 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.





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, 2010. Since June 30, 2010, 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.





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.


12





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 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.





In
January 2010, the FASB issued an amendment to the disclosure requirement related
to fair value measurements. The amendment, FASB ASC 820-10-65 requires new
disclosures related to transfers in and out of Levels 1 and 2 and activity in
Level 3 fair value measurements. A reporting entity is required to disclose
separately the amounts of significant transfers in and out of Level 1 and Level
2 fair value measurements and describe the reasons for the transfers.
Additionally, in the reconciliation for fair value measurements in Level 3, a
reporting entity must present separately information about purchases, sales,
issuances and settlements (on a gross basis rather than a net number). The new
disclosures are effective for interim and annual reporting periods beginning
after December 15, 2009, except for the disclosures about purchases, sales,
issuances and settlements in the roll forward of activity in Level 3 fair value
measurements. Those disclosures are effective for fiscal years beginning after
December 15, 2010 and for interim periods within those fiscal years. The Company
does not anticipate that our adoption of this amendment will have a material
effect on its financial position, results of operations or cash
flows.





Other new
pronouncements issued but not effective until after September 30, 2010, are not
expected to have a significant effect on the company’s consolidated financial
statements.





RESULTS
OF OPERATIONS: COMPARISON OF THE THREE-MONTH PERIOD ENDED SEPTEMBER 30, 2010 AND
SEPTEMBER 30, 2009





Executive
Overview of Financial Results





Results
of operations for the three month periods ended September 30, 2010 and September
30, 2009 are as follows:





Revenue for the
                      
                      
                      Operating income (loss) for theThree Months Ended
                      
                      
                      Three Months EndedSeptember 30,
                      
                      
                      September 30,
                      
                      
                      September 30,
                      
                      
                      September 30,2010
                      
                      
                      2009
                      
                      
                      2010
                      
                      
                      2009(Dollars in thousands)Business
      Solutions
                      
                      $
                      15,571
                      
                      
                      $
                      14,829
                      
                      
                      $
                      471
                      
                      
                      $
                      721Holding
      Company
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      (197
                      )Segment
      Totals
                      
                      $
                      15,571
                      
                      
                      $
                      14,829
                      
                      
                      $
                      471
                      
                      
                      $
                      524Net
      Income Available to Common Shareholders
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      $
                      302
                      
                      
                      $
                      660





Net
income available to common stock shareholders was $0.3 million or $0.02 per
diluted share on revenue of $15.6 million for the three-month period ended
September 30, 2010 compared with net income available to common stock
shareholders of $0.7 million or $0.05 per diluted share on revenue of $14.8
million for the three-month period ended September 30, 2009. This represents a
5% increase in revenue and a 54% decrease in net income.


13





The
increase in revenue for the three-month period ended September 30, 2010 is
primarily due to an increase in worksite employees.





The
decrease in net income available to common shareholders for the three-month
period ended September 30, 2010 is primarily due to a deferred tax benefit in
the amount of $0.271 million recognized in the three-month period ended
September 30, 2009.





Results
are described in further detail as follows:





Operating
results for three-month period ended September 30, 2010 and September 30, 2009
are as follows:





Three-Month Period EndedSeptember 30, 2010
                      
                      
                      September 30, 2009(Dollars in thousands)Revenues
                      
                      $
                      15,571
                      
                      
                      
                      100
                      %
                      
                      $
                      14,829
                      
                      
                      
                      100
                      %Cost
      of revenues
                      
                      
                      12,373
                      
                      
                      
                      79.5
                      %
                      
                      
                      11,428
                      
                      
                      
                      77.1
                      %Gross
      profit
                      
                      
                      3,198
                      
                      
                      
                      20.5
                      %
                      
                      
                      3,401
                      
                      
                      
                      22.9
                      %Operating
      expensesSelling,
      general and administrative
                      
                      
                      2,553
                      
                      
                      
                      16.4
                      %
                      
                      
                      2,676
                      
                      
                      
                      18.0
                      %Depreciation
      and amortization
                      
                      
                      174
                      
                      
                      
                      1.1
                      %
                      
                      
                      201
                      
                      
                      
                      1.4
                      %Total
      operating expenses
                      
                      
                      2,727
                      
                      
                      
                      17.5
                      %
                      
                      
                      2,877
                      
                      
                      
                      19.4
                      %Segment
      operating income
                      
                      $
                      471
                      
                      
                      
                      3.0
                      %
                      
                      $
                      524
                      
                      
                      
                      3.5
                      %





Revenue





Revenue
for the three-month period ended September 30, 2010 was $15.6 million, compared
to $14.8 million for the three-month period ended September 30, 2009, an
increase of $0.7 million or 5%. Revenue increased primarily due to an increase
in worksite employees.





Gross
Profit





Gross
profit for the three-month period ended September 30, 2010 was $3.2 million,
representing 21% of revenue, compared to $3.4 million, representing 23% of
revenue for the three-month period ended September 30, 2009, a decrease of $0.2
million or 6%. Gross profit decreased due to an increase in the claims incurred
for workers compensation.





Operating
Income





Operating
income for the three-month period ended September 30, 2010 was $0.5 million,
compared to operating income of $0.5 million for the three-month period ended
September 30, 2009. Operating income remained relatively unchanged. The decrease
in operating income as a percentage of the overall revenue was due to an
increase in the claims incurred for workers compensation during the three month
period ending September 30, 2010.





Interest
Expense





Interest
expense was $0.01 million for the three-month period ended September 30, 2010,
compared to $0.004 million for the three-month period ended September 30, 2009,
an increase of $0.006 million or 150%. The increase was due to interest payments
on the term note entered into on April 30, 2010.





Income
Taxes





Income
tax expense was $0.035 and ($0.271) million for the three months ended September
30, 2010 and, 2009, respectively. This increase is due to the fact that the
Company recognized a deferred tax benefit of $250,000 in the three month period
ending September 30, 2009 based on Management’s evaluation of the deferred tax
assets and the valuation allowance at that time. A valuation allowance is
necessary to reduce the deferred tax assets, if the Company had a federal tax
operating loss and based on the weight of the evidence; it is more likely than
not that some portion or all of the deferred tax assets will not be realized.
Management determined that a $250,000 adjustment to the valuation allowance for
the three month period ending September 30, 2009 was necessary to increase the
deferred tax assets to the amount that will more likely than not be realized.
The change in the valuation allowance for that period resulted in the
recognition of a tax benefit of $250,000.


14





LIQUIDITY
AND CAPITAL RESOURCES





Our
principal sources of liquidity include cash and equivalents and proceeds from
debt borrowings. We had cash and equivalents of $5.3 million at September 30,
2010 and $2.3 million at June 30, 2010. The increase in cash was due to the
timing of the quarter end in relation to the timing of our client’s payroll
processing cycles. Due to the quarter ending on a Thursday, the Company received
approximately $3.2 million in customer deposits to fund our worksite employee
payrolls for the Friday payroll cycle. This resulted in an elevated cash balance
as well as an increase in current liabilities of approximately $3.2 million as
of September 30, 2010.





We had
working capital of $1.7 million at September 30, 2010 compared with $1.2 million
at June 30, 2010. The increase in working capital was a direct result of an
additional quarter of profitability and positive EBITDA. Current assets are
primarily comprised of cash and equivalents, net accounts receivable, and
prepaid expenses. Current liabilities are primarily comprised of accounts
payable and accrued expenses.





The
Company is required to collateralize its obligations under its workers’
compensation and certain general insurance coverage. The Company uses its cash
and cash equivalents to collateralize these obligations. Restricted cash was
approximately $2.5 million and $2.8 million at September 30, 2010 and June 30,
2010, respectively.





Total
debt at September 30, 2010 and June 30, 2010 was $0.8 and $0.9 million,
respectively.





Cash
Flows





Cash
flows provided by operations for the three-month period ended September 30, 2010
and September 30, 2009 were $3.3 million and ($1.0) million, respectively. This
increase in operating cash flows was due primarily to customer deposits received
due to the timing of the end of the period and fluctuations in other accrued
liabilities and health and workers’ compensation reserves.





Net cash
flow used in investing activities was ($0.02) million for the three-month period
ended September 30, 2010 compared to ($0.01) million for the three-month period
ended September 30, 2009. The decrease was primarily due to an increase in
capital expenditures.





Net cash
flow used in financing activities was ($0.231) million for the three-month
period ended September 30, 2010 compared to ($0.006) million for the three-month
period ended September 30, 2009. The decrease was primarily due to payments on
term debt and preferred stock dividends.





CONTRACTUAL
OBLIGATIONS AND COMMERCIAL COMMITMENTS





There
have been no material changes to the Company’s contractual obligations from
those disclosed in the Form 10-K for the year ended June 30, 2010 under “Item
7-Management’s Discussion and Analysis of Financial Condition and Results of
Operations.”





OFF
BALANCE SHEET ARRANGEMENTS





As is
common in the industries we operate in, we have entered into certain off-balance
sheet arrangements in the ordinary course of business that result in risks not
directly reflected in our balance sheets. Our significant off-balance sheet
transactions include transactions with related parties, liabilities associated
with guarantees, letter of credit obligations and surety
guarantees.





Guarantees





Significant
portions of our letters of credit are personally guaranteed by the Company’s
Chairman. Future changes to these guarantees would affect financing capacity of
the Company.





Restricted
Cash





Certain
states and vendors require us to post letters of credit to ensure payment of
taxes or payments to our vendors under workers’ compensation contracts and to
guarantee performance under our contracts. Such letters of credit are generally
issued by a bank or similar financial institution. The letter of credit commits
the issuer to pay specified amounts to the holder of the letter of credit if the
holder demonstrates that we have failed to perform specified actions. If this
situation were to occur, we would be required to reimburse the issuer of the
letter of credit. Depending on the circumstances of such a reimbursement, we may
also have to record a charge to earnings for the reimbursement. We do not
believe that it is likely that any claims will be made under a letter of credit
in the foreseeable future. As of September 30, 2010, we had approximately $2.5
million in restricted cash primarily to secure obligations under our PEO
contracts in the Business Solutions segment.





Item
3. Quantitative and Qualitative Disclosures about Market Risk





There
have been no material changes from the information previously reported under
“Item 7A. Quantitative and Qualitative Disclosures About Market Risk” in the
Form 10-K for the year ended June 30, 2010.


15





Item
4. Controls and Procedures





The
Company maintains disclosure controls and procedures that are designed to ensure
that information required to be disclosed in the reports the Company file
pursuant to the Securities Exchange Act of 1934 is recorded, processed,
summarized and reported within the time periods specified in the SEC’s rules and
forms and that such information is accumulated and communicated to the Company’s
management, including its Chief Executive Officer and Chief Financial Officer as
appropriate, to allow timely decisions regarding required disclosure. The
Company’s management, including the Chief Executive Officer and Chief Financial
Officer recognizes that, because the design of any system of controls is based
in part upon certain assumptions about the likelihood of future events and also
is subject to other inherent limitations, disclosure controls and procedures, no
matter how well designed and operated, can provide only reasonable, and not
absolute, assurance of achieving the desired objectives.





Under the
supervision and with the participation of the Company’s management, including
the Company’s Chief Executive Officer and Chief Financial Officer the Company
has evaluated the effectiveness of the Company’s disclosure controls and
procedures as of September 30, 2010. Based on this evaluation, the Chief
Executive Officer, Chief Financial Officer conclude that as of September 30,
2010 the Company’s Disclosure Controls are effective to provide reasonable
assurance that information relating to the Company that is required to be
disclosed by us in the reports we file or submit, is recorded, processed,
summarized and reported, within the time periods specified in the Securities and
Exchange Commission’s rules and forms, and is accumulated and communicated to
our management, including our principal executive and principal financial
officers, or persons performing similar functions, as appropriate to allow
timely decisions regarding required disclosure.





It should
be noted that any control system, no matter how well designed and operated, can
provide only reasonable, not absolute, assurance that the control system’s
objectives will be met.





PART II--OTHER
INFORMATION.





Item
1. Legal Proceedings.





The
Company is not involved in any legal proceedings or claims that management
believes will have a material adverse effect on the Company's business or
financial condition.





Item
1A. Risk Factors





There
have been no material changes with regard to the risk factors previously
disclosed in our most recent Annual Report on Form 10-K for the year ended June
30, 2010.





Item
2. Unregistered Sales of Equity Securities and Use of Proceeds.





None





Item
3. Defaults upon Senior Securities.





None





Item
4. Submission of Matters to a Vote of Security Holders.





None





Item
5. Other Information.





None





Item
6. Exhibits





The
following exhibits are included herein:





31.1
            Rule
      15d-14(a) Certification of CEO


31.2
            Rule
      15d-14(a) Certification of CFO


32.1
            Section
      1350 Certification of CEO


32.2
            Section
      1350 Certification of CFO


16





SIGNATURES





In
accordance with the requirements of the Exchange Act, the registrant caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.





Fortune
      Industries, Inc.(Registrant)Date:  11/15/10
              By:
              /s/ Tena MayberryTena
      Mayberry,Chief
      Executive OfficerDate:  11/15/10
              By:
              /s/ Randy E. ButlerRandy
      E. Butler,Chief
      Financial Officer


17