Form 8-K for DIRECT RESPONSE FINANCIAL SERVICES INC
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22-Feb-2006
Non Reliance on Prev Financials, Audits or Interim Review,
ITEM 4.02 Non-Reliance on Previously Issued Financial Statements or a Related Audit Report or Completed Interim Review
In connection with the preparation of responses to comment letters sent to Direct Response Financial Services, Inc. (the "Company") by the Securities and Exchange Commission (the "Commission") on February 10, 2006, management of the Company determined that the financial statements included in the Company's Annual Report on Form 10-KSB for the years ended January 31, 2004 and January 31, 2005 (the "Annual Report"), did not account for certain embedded derivatives during those periods. Such financial statements should no longer be relied upon.
In particular:
o With regard to the Company's 8% convertible debenture and common stock purchase warrants issued to La Jolla Cove Investors, Inc. in January 2003, the Company believes that the convertible debenture and the warrants contain embedded derivatives. The Company has concluded that further adjustment for the embedded derivatives result from the requirement that the conversions and warrant exercises must be settled in shares of free-trading common stock. The Company has further concluded that favorable embedded features present in the instruments should be valued separately at the date of issuance. Further, the Company has determined that the extension of the maturity and expiration dates of the convertible debenture and warrants to January 9, 2006, and January 9, 2007, respectively, on March 23, 2005 requires a recalculation of the favorable embedded features.
In addition to the foregoing, the following additional changes to the Company's financial statements will be made:
o The date contained in the audit opinion of the Company's independent registered public accounting firm for the year ended January 31, 2005 was listed in error. The year "2005" was not noted and was inadvertently omitted. The Company will be amending the Annual Report to revise the date of the audit opinion.
The Company has discussed this matter with its independent registered public accounting firm.
Accordingly, the Company is in the process of amending its Annual Report, originally filed with the Commission on May 2, 2005, and restating its financial statements for the years ended January 31, 2004 and January 31, 2005, to take the above into account. The new financial statements which should be relied upon will be set forth in an amended annual report on Form 10-KSB which the Company anticipates will be filed within thirty (30) days following the date of this Current Report on Form 8-K.
Complete Description
The foregoing description of the anticipated new financial statements is not a complete summary. You are urged to read the complete document on Form 10-KSB, copies of which may be found after filing by the Company, on the website of the Commission at www.sec.gov.
