Exhibit 99.1
ALL STAFFING, INC.
AUDITED FINANCIAL STATEMENTS
FOR THE YEARS ENDED
DECEMBER 31, 2005 AND 2004 AND SIX MONTHS ENDED JUNE 30, 2006 AND 2005
All Staffing, Inc
Index to Financial Statements
CONTENTS
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Page
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Report of Independent Registered Public Accounting Firm........................1
FINANCIAL STATEMENTS:
- ---------------------
Balance Sheets...............................................................2-3
Statements of Operations.......................................................4
Statements of Stockholders' Equity (Deficit)...................................5
Statements of Cash Flows.......................................................6
Notes to Financial Statements...............................................7-16
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and
Stockholders of All Staffing, Inc.
We have audited the accompanying balance sheets of All Staffing, Inc. as of
December 31, 2005 and 2004, and the related statements of operations,
stockholders' equity (deficit) and cash flows for the years then ended. These
financial statements are the responsibility of the company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of All Staffing, Inc. as of
December 31, 2005 and 2004, and the results of its operations and its cash flows
for the years then ended in conformity with accounting principles generally
accepted in the United States of America.
Goff Backa Alfera & Company, LLC
Pittsburgh, Pennsylvania
December 6, 2006
1
ALL STAFFING, INC.
BALANCE SHEETS
JUNE 30, DECEMBER 31,
2006 2005 2005 2004
------------ ------------ ------------ ------------
(UNAUDITED) (UNAUDITED)
Assets
CURRENT
Accounts Receivable, trade $ 3,195,087 $ 1,949,195 $ 2,279,671 $ 2,189,401
Accounts Receivable, affiliates 491,421 362,352 493,686 327,414
Other Receivables 93,117 23,450 3,450 405,022
Prepaid Expenses 121,605 85,664 101,266 104,933
Advances to Employees 37,085 2,181 38,053 16,305
Officer Advances 67,788 3,384 61,384 3,384
Prepaid Corporate Taxes 54,545 34,909 51,998 13,719
------------ ------------ ------------ ------------
Total Current Assets 4,060,648 2,461,135 3,029,508 3,060,178
PROPERTY AND EQUIPMENT
Office Equipment and Fixtures 92,324 82,728 82,728 74,107
Computing Equipment 272,280 220,890 256,822 203,849
Leasehold Improvements 104,566 85,912 102,232 74,293
Vehicles 594,449 559,672 594,449 530,172
------------ ------------ ------------ ------------
1,063,619 949,202 1,036,231 882,421
Less: Accumulated Depreciation (479,818) (333,892) (401,339) (265,938)
------------ ------------ ------------ ------------
Net Property and Equipment 583,801 615,310 634,892 616,483
OTHER ASSETS
Deferred Tax Asset 467,175 622,011 653,640 519,315
Worker's Compensation Insurance Escrow 250,000 - - -
Investments 105,000 75,000 75,000 75,000
------------ ------------ ------------ ------------
Total Other Assets 822,175 697,011 728,640 594,315
------------ ------------ ------------ ------------
TOTAL ASSETS $ 5,466,624 $ 3,773,456 $ 4,393,040 $ 4,270,976
============ ============ ============ ============
See accompanying notes to these financial statements 2
ALL STAFFING, INC.
BALANCE SHEETS (CONTINUED)
JUNE 30, DECEMBER 31,
2006 2005 2005 2004
------------ ------------ ------------ ------------
(UNAUDITED) (UNAUDITED)
Liabilities
CURRENT
Bank Overdraft $ 750,643 $ 350,203 $ 459,011 $ 629,346
Line of Credit 1,014,522 244 500,000 100,171
Accounts Payable 2,600,820 2,249,648 2,275,165 2,242,606
Accounts Payable, affiliates 658,662 437,225 513,241 409,225
Accrued Payroll and Withholdings 1,176,707 1,084,494 1,304,028 1,198,687
Accrued Liabilities 303,465 594,264 247,752 394,576
Current Portion of Notes Payable 82,301 74,368 81,744 74,368
------------ ------------ ------------ ------------
Total Current Liabilities 6,587,120 4,790,446 5,380,941 5,048,979
------------ ------------ ------------ ------------
LONG TERM
Notes Payable net of current portion 651,662 702,408 693,358 715,988
Workmen's Compensation Loss Reserve 1,056,606 1,398,533 1,386,668 1,360,048
------------ ------------ ------------ ------------
Total Long Term Liabilities 1,708,268 2,100,941 2,080,026 2,076,036
------------ ------------ ------------ ------------
Total liabilities 8,295,388 6,891,387 7,460,967 7,125,015
------------ ------------ ------------ ------------
STOCKHOLDERS' EQUITY
Common Stock, no par value
150 shares authorized, 110 shares
issued and outstanding - - - -
Additional Paid in Capital 200 200 200 200
Retained Earnings (Deficit) (2,748,898) (3,038,065) (2,988,061) (2,774,173)
Less: Treasury Stock, 40 shares at cost (80,066) (80,066) (80,066) (80,066)
------------ ------------ ------------ ------------
Total Stockholders' Equity (2,828,764) (3,117,931) (3,067,927) (2,854,039)
------------ ------------ ------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 5,466,624 $ 3,773,456 $ 4,393,040 $ 4,270,976
============ ============ ============ ============
See accompanying notes to these financial statements 3
ALL STAFFING, INC.
STATEMENTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, YEAR ENDED DECEMBER 31,
---------------------------- ----------------------------
2006 2005 2005 2004
------------ ------------ ------------ ------------
(UNAUDITED) (UNAUDITED)
PEO Service Revenues (gross billings of
$49,281,044 $47,225,620, $104,677,163 and
$92,984,212 less worksite employee payroll
costs of $41,910,106, $40,074,219,
$91,091,068 and $80,063,909, respectively) $ 7,370,938 $ 7,151,401 $13,586,095 $12,920,303
COST OF PEO SERVICES 5,669,841 6,025,746 10,934,198 9,854,080
------------ ------------ ------------ ------------
GROSS PROFIT 1,701,097 1,125,655 2,651,897 3,066,223
OPERATING EXPENSES
Personnel Costs 379,950 718,183 1,342,614 1,180,042
Advertising 10,868 17,969 36,104 35,569
Bad Debt Expense - - 150,000 110,000
Bank Charges 55,151 59,256 161,399 91,274
Commissions 34,748 25,089 45,830 41,112
Consulting Fees 9,783 44,185 121,471 77,604
Contributions 6,640 5,153 6,748 6,085
Corporate Taxes 3,641 1,429 4,703 1,318
Depreciation 78,479 67,954 141,112 105,382
Dues and Subscriptions 19,780 23,312 38,438 38,048
Insurance 65,626 96,087 178,522 158,376
Legal and Professional 64,415 10,659 96,055 12,584
Meals & Entertainment 988 8,364 16,198 15,296
Miscellaneous 13,400 - - -
Office Expenses 258,282 108,701 251,893 126,530
Public Relations 1,825 20,162 30,724 49,980
Rent 41,380 26,897 57,314 35,650
Penalties & Assessments 43,090 101,827 6,085 221,190
Repairs & Maintenance 30,366 35,932 70,942 77,644
Staff Expenses 27,759 18,985 45,543 33,928
Travel and Lodging 16,319 59,957 104,485 105,914
Utilities 25,207 29,864 55,434 56,243
------------ ------------ ------------ ------------
TOTAL OPERATING EXPENSES 1,187,697 1,479,965 2,961,614 2,579,769
------------ ------------ ------------ ------------
OPERATING INCOME (LOSS) 513,400 (354,310) (309,717) 486,454
OTHER INCOME (EXPENSE)
Interest Income 907 1,240 2,380 585
Gain (Loss) on Sale of
Fixed Assets - - (138) 200
Gain (Loss) in Deferred
Comp Plan - - (6,096) (1,168)
Interest Expense (88,680) (13,518) (34,642) (32,508)
------------ ------------ ------------ ------------
TOTAL OTHER INCOME (EXPENSE) (87,773) (12,278) (38,496) (32,891)
------------ ------------ ------------ ------------
INCOME (LOSS) BEFORE TAXES 425,627 (366,588) (348,213) 453,563
PROVISION (BENEFIT) FOR INCOME TAXES 186,464 (102,696) (134,325) 270,675
------------ ------------ ------------ ------------
NET INCOME (LOSS) $ 239,163 $ (263,892) $ (213,888) $ 182,888
============ ============ ============ ============
See accompanying notes to these financial statements 4
ALL STAFFING, INC.
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
(ACTIVITY SUBSEQUENT TO DECEMBER 31, 2005 IS UNAUDITED)
FOR THE PERIOD FROM JANUARY 1, 2004 TO JUNE 30, 2006
ADDITIONAL RETAINED TREASURY
NUMBER OF PAR PAID IN EARNINGS STOCK,
SHARES VALUE CAPITAL (DEFICIT) AT COST TOTAL
Balance January 1, 2004 110 $ 0 $ 200 $(2,957,061) $ (80,066) $(3,036,927)
Net Income for the Year - - - 182,888 - 182,888
------------ ------- ----------- ------------ ---------- ------------
Balance December 31, 2004 110 0 200 (2,774,173) (80,066) (2,854,039)
Net Loss for the Year - - - (213,888) - (213,888)
------------ ------- ----------- ------------ ---------- ------------
Balance December 31, 2005 110 0 200 (2,988,061) (80,066) (3,067,927)
Net Income for the Period - - - 239,163 - 239,163
------------ ------- ----------- ------------ ---------- ------------
Balance June 30, 2006 (unaudited) 110 $ 0 $ 200 $(2,748,898) $ (80,066) $(2,828,764)
============ ======= =========== ============ ========== ============
See accompanying notes to these financial statements 5
ALL STAFFING, INC.
STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, YEAR ENDED DECEMBER 31,
---------------------------- ----------------------------
2006 2005 2005 2004
------------ ------------ ------------ ------------
(UNAUDITED) (UNAUDITED)
OPERATING ACTIVITIES
Net Income (Loss) for the Period $ 239,163 $ (263,892) $ (213,888) $ 182,888
Adjustments to reconcile net income
(loss) to net cash provided (used) by
operating activities:
Depreciation 78,479 67,954 141,112 105,382
(Gain) Loss on sale of fixed assets - - 139 (200)
Deferred income tax expense (benefit) 186,464 (102,696) (134,325) 270,675
Changes in operating assets and liabilities:
Trade accounts and other receivables (1,005,083) 621,788 311,302 (1,320,788)
Advances to employees and officers (5,436) 14,124 (79,748) 6,006
Prepaid expenses (22,886) (1,921) (34,612) (5,867)
Operating advances due from related parties 2,265 (34,938) (166,272) (74,828)
Worker's Compensation Insurance Escrow (250,000) - - -
Accounts payable and accrued liabilities 254,047 92,537 (8,924) 1,232,929
Worker's Compensation Loss Reserve (330,062) 38,485 26,620 (11,447)
Operating advances due to related parties 145,421 28,000 104,016 26,821
------------ ------------ ------------ ------------
Net cash provided (used) by operating activities (707,628) 459,441 (54,580) 411,571
INVESTING ACTIVITIES
Acquisition of property and equipment (27,389) (66,791) (159,660) (266,335)
Acquisition of investments (30,000) - - (75,000)
------------ ------------ ------------ ------------
Net cash used by investing activities (57,389) (66,791) (159,660) (341,335)
FINANCING ACTIVITIES
Net (repayments) borrowings on line of credit 514,522 (99,927) 399,829 (387,373)
Net (repayments) borrowings on long term debt (41,137) (13,580) (15,254) 92,773
------------ ------------ ------------ ------------
Net cash provided (used) by financing activities 473,385 (113,507) 384,575 (294,600)
------------ ------------ ------------ ------------
INCREASE (DECREASE) IN CASH (291,632) 279,143 170,335 (224,364)
CASH OVERDRAFT, BEGINNING OF PERIOD (459,011) (629,346) (629,346) (404,982)
------------ ------------ ------------ ------------
CASH OVERDRAFT, END OF PERIOD $ (750,643) $ (350,203) $ (459,011) $ (629,346)
============ ============ ============ ============
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid $ 88,680 $ 13,518 $34,642 $ 32,508
Income taxes paid $ - $ 17,089 $17,089 $ 21,165
See accompanying notes to these financial statements 6
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying financial statements include the accounts of All Staffing, Inc.
("ASI" or "The Company").
NATURE OF OPERATIONS
The Company is a Professional Employer Organization (PEO) that provides full
service to its clients' entire employee-related administration including
payroll, benefits, insurance, retirement and the legal employment
responsibilities for their clients' workers. The Company is a Tennessee
corporation with its main office located in Lansford, Pennsylvania. The Company
also has offices located in Crossville, Tennessee and Hartford and Meriden,
Connecticut.
UNAUDITED INFORMATION
The balance sheets as of June 30, 2005 and 2006 and the statements of operations
and cash flows for the six months then ended were taken from the Company's books
and records without an audit. However, in the opinion of management, such
information includes all adjustments (consisting only of normal accruals) which
are necessary to properly reflect the financial position on the Company as of
June 30, 2005 and 2006 and the results of operations and cash flows for the six
months ending June 30, 2005 and 2006.
USE OF ESTIMATES
Management uses estimates and assumptions in preparing these financial
statements in accordance with generally accepted accounting principles in the
United States of America. Those estimates and assumptions affect the reported
amounts of assets and liabilities and the disclosure of contingent assets and
liabilities at the balance sheet dates, and the reported revenues and expenses
for the reporting periods. Actual results could vary from the estimates that
were used.
BASIS OF ACCOUNTING
The Company prepares its financial statements on the accrual basis of
accounting. Under this basis of accounting, revenues are recognized when earned
rather than when collected and expenses are recognized when incurred rather than
when paid.
IMPAIRMENT OF LONG-LIVED ASSETS
In accordance with SFAS Nos. 142 and 144, long lived assets to be held and used
are analyzed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. SFAS No. 142
relates to assets with an indefinite life where SFAS 144 relates to assets that
can be amortized and have a determinable life. The Company evaluates at each
balance sheet date whether events and circumstances have occurred that indicate
possible impairment. If there are indications of impairment, the Company uses
remaining life in measuring whether the assets are recoverable. In the event
such cash flows are not expected to be sufficient to recover the recorded asset
values, the assets are written down to their estimated fair value. Long-lived
assets to be disposed of are reported at the lower of carrying amount or fair
value of asset less the cost to sell.
7
PROPERTY AND EQUIPMENT
Acquisitions of property and equipment are recorded at cost. Improvements and
replacements of property and equipment are capitalized. Maintenance and repairs
that do not improve or extend the lives of property and equipment are charged to
expense as incurred. When assets are sold or retired, their cost and related
accumulated depreciation are removed from the accounts and any gain or loss is
reported in the statements of income and retained earnings. Depreciation is
provided over the estimated useful life of each class of depreciable assets and
is computed for financial statement purposes using the straight-line and
double-declining balance methods. The estimated useful lives of the assets are:
Estimated Useful Lives:
Furniture Fixtures and Office Equipment 5 - 7 Years
Computer Equipment 5 Years
Leasehold Improvements 7 - 40 Years
Vehicle 5 Years
Depreciation expense for the years ended December 31, 2005 and 2004 were
$141,112 and $105,432 respectively.
Depreciation expense for the six month periods ending June 30, 2006 and 2005
were $78,479 and $67,954 respectively.
ACCOUNTS RECEIVABLE AND BAD DEBTS
The Company provides an allowance for doubtful accounts equal to the estimated
uncollectible amounts. The Company's estimate is based on historical collection
experience and review of the current status of trade accounts receivable. It is
reasonably possible that the Company's estimate of the allowance for doubtful
accounts will change. Accounts receivable are presented net of allowances of
$860,000 and $710,000 at December 31, 2005 and 2004 respectively. Accounts
deemed uncollectible are written off against the allowance.
INVESTMENTS
Investments are recorded at cost and periodically reviewed for impairment.
INCOME TAXES
Income taxes are provided for using the liability accounting method of
accounting in accordance with Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes". A deferred tax asset or liability is
recorded for all temporary differences between financial and tax reporting.
Deferred tax expense (benefit) results from the change during the year of
deferred tax assets and liabilities. A valuation allowance for deferred tax
assets is recorded when it is more likely than not that the benefit from the
deferred tax asset will not be realized.
8
The Company recognizes the amount of taxes payable or refundable for the current
year and recognizes deferred tax liabilities and assets for the expected future
tax consequences of events or transactions that have been recognized in the
Company's financial statements of tax returns.
REVENUE RECOGNITION
PEO Service Fees
The Company recognizes its revenues associated with its PEO business pursuant to
EITF 99-19 "Reporting Revenues Gross as a Principal versus Net as an agent." The
Company revenues are reported net of worksite employee payroll costs (net
method).
Consistent with its revenue recognition policy, revenue is netted by the amount
of the Company's gross payroll costs. The Company's costs of PEO services
reported in the statements of operations are comprised of all other costs
related to its worksite employees, such as employer portion of payroll-related
taxes, employee benefit plan premiums and workers' compensation insurance
premiums.
WORKER'S COMPENSATION
ASI's insurance provides workmen's compensation for catastrophic losses. The
policy has a deductible of $250,000 per claim payable by All Staffing, Inc. The
insurance company requires an escrow deposit to be established in case of policy
termination or carrier change.
In February 2006, the Company changed insurance carriers. The new policy
required $250,000 deposit in case of policy termination or carrier change.
As of June 30, 2006, the total cash escrow account was $250,000. (See note 8)
COMPENSATED ABSENCES
Employees of the Corporation are entitled to paid vacation, sick leave and other
paid absences depending on length of service, position and other factors. It is
the Corporation's policy to recognize the cost of compensated absences when
actually paid. Therefore, there are no expenses or accruals for future
compensated absences in these financial statements.
NOTE 2 PROVISION FOR INCOME TAXES
The income tax provision consisted of the following:
Six Months Ended Year Ended
June 30 December 31
2006 2005
(unaudited) (unaudited) 2005 2004
--------------------------------------------------------
Current $ 0 $ 0 $ 0 $ 0
Deferred 186,464 (102,696) (134,325) 270,675
--------------------------------------------------------
Total Tax Provision
(Benefit) $ 186,464 $(102,696) $(134,325) $ 270,675
========================================================
9
The US Statutory tax rate applicable is 40% (estimated rates of 34% for Federal
and 6% for state taxes) for 2004, 2005 and 2006. The income tax provision
differed from a provision computed at the US statutory tax rate because of
nondeductible expenses and the partial deductibility of certain items.
Deferred tax assets and liabilities are recognized for the expected future tax
consequences attributable to differences between the financial statements and
tax bases of assets and liabilities using enacted tax rates expected to apply in
the years in which the temporary differences are expected to reverse.
The significant components of the deferred tax assets and deferred tax
liabilities are presented below:
June 30 December 31
2006 2005
(unaudited) (unaudited) 2005 2004
--------------------------------------------------------
Deferred Tax Assets:
Net Operating Losses $ 162,000 $ 194,000 $ 226,000 $ 114,000
Workmen's Compensation
Loss Reserve 422,030 559,413 554,667 544,019
---------- ---------- ---------- ----------
584,030 753,413 780,667 658,019
Deferred Tax
Liabilities:
Depreciation $(116,855) $(131,402) $(127,027) $(138,704)
---------- ---------- ---------- ----------
Net deferred tax asset $ 467,175 $ 622,011 $ 653,640 $ 519,315
========== ========== ========== ==========
As of December 31, 2005 there were net operating losses of approximately
$576,000 expiring in 2024 and 2025. The net operating losses may also be limited
by various statutory requirements.
NOTE 3 ADVERTISING EXPENSE
Advertising costs are expensed as incurred. Advertising expense totaled $36,104
and $35,569 for the years ended December 31, 2005 and 2004 respectively.
Advertising expense amounted to $10,868 and $17,969 for the six months ended
June 30, 2006 and 2005 respectively.
10
NOTE 4 NOTES PAYABLE
Notes payable consisted of the following:
June 30, December 31,
2006 (unaudited) 2005 2004
------------------ ------------ ------------
Note Payable to M & T Credit Corporation in monthly $ 254 $ 1,959 $ 5,170
installments of $273, including interest at 7.99%.
The note is secured by an automobile and matures in
August 2006.
Note Payable to GMAC in monthly installments of
$750. The note is non-interest bearing, secured by
an automobile and matures in April 2008. 16,495 20,994 29,991
Note Payable to GMAC in monthly installments of
$528. The note is non-interest bearing, secured by
an automobile and matures in April 2008. 11,610 14,776 21,109
Note Payable to GMAC in monthly installments of
$683. The note is non-interest bearing, is secured
by an automobile and matures in June 2008. 16,394 20,493 28,690
Note Payable to the Ford Motor Co. in monthly
installments of $267. The note is non-interest
bearing and matures in September 2008. 7,209 8,811 12,015
June 30, December 31,
2006 (unaudited) 2005 2004
------------------ ------------ ------------
Note Payable to M & T Credit Corporation in monthly 5,481 7,544 11,464
installments of $382, including interest at 6.90%.
The note is secured by an automobile and matures in
September 2007.
Note Payable to GMAC in monthly installments of
$952. The note is non-interest bearing, secured by
an automobile and was repaid in 2005. 0 0 42,268
Note Payable to M & T Credit Corporation in monthly
installments of $251, including interest at 6.90%.
The note is secured by an automobile and matures in
March 2008. 4,728 6,044 8,544
Note Payable to M & T Credit Corporation in monthly
installments of $279, including interest at 3.50%.
The note is secured by an automobile and was repaid
in 2005, 0 0 10,287
Note Payable to GMAC in monthly installments of $579,
including interest at 3.89%. The note is secured by
an automobile and matures in May 2009. 18,002 21,089 27,173
11
June 30, December 31,
2006 (unaudited) 2005 2004
------------------ ------------ ------------
Note Payable to M & T Credit Corporation in monthly 19,725 20,589 22,340
installments of $295, including interest at 8.75%.
The note is secured by an automobile and matures in
June 2014.
Note Payable to GMAC in monthly installments of $470,
including interest at 8.99%. The note is secured by
an automobile and matures in October 2008. 11,439 13,683 17,880
Note Payable to M & T Credit Corporation in monthly
installments of $441, including interest at 8.99%.
The note is secured by an automobile and matures in
October 2008. 10,945 13,141 17,297
Note Payable to M & T Credit Corporation in monthly
installments of $559, including interest at 7.99%.
The note is secured by an automobile and matures in
October 2008. 13,779 16,520 21,685
Note Payable to Ford Motor Corp. in monthly
installments of $352, including interest at 5.90%.
The note is secured by an automobile and matures in
December 2008. 9,176 10,983 14,443
June 30, December 31,
2006 (unaudited) 2005 2004
------------------ ------------ ------------
Note Payable to Old Guard. Interest at 6% is payable 500,000 500,000 500,000
semi-annually. The note is secured by a $500,000
debenture. (see notes 9 and 11)
Note Payable to Harleysville National Bank in monthly
installments of $482, including interest at 6.75%.
The note is secured by a vehicle and matures in March
2010. 19,125 21,329 0
Note Payable to Chrysler Financial in monthly
installments of $359, including interest at 7.13%.
The note is secured by a vehicle and matures in
August 2010. 15,481 17,049 0
Note Payable to M&T Credit Service in monthly
installments of $299, including interest at 6.99%.
The note is secured by a vehicle and matures in
August 2009. 10,129 11,540 0
Note Payable Chase in monthly installments of $1,006,
including interest at 6.29%. The note is secured by
a vehicle and matures in August 2010. 43,991 48,558 0
------------------ ------------ ------------
733,963 775,102 790,356
Less: Current Portion (82,301) (81,744) (74,368)
------------------ ------------ ------------
TOTAL LONG-TERM DEBT $ 651,662 $ 693,358 $ 715,988
================== ============ ============
As of December 31, 2005 maturities of long-term debt were as follows:
Year Ended December 31, 2006 $ 81,744
2007 82,341
2008 59,818
2009 26,895
2010 14,497
Thereafter 509,807
------------------
$ 775,102
------------------
12
NOTE 5 INVESTMENTS
Investments of $75,000 as of December 31, 2005 and 2004 consist of a 10%
interest in Pay Plus Software, Inc.
Investments of $105,000 as of June 30, 2006 consist of a 14% interest in Pay
Plus Software, Inc. Investments are recorded at cost and periodically reviewed
for impairment.
As of June 30, 2006, ASI's interest in Pay Plus Software was pledged as
collateral security for the Line of Credit held with Penn Business Credit (see
NOTE 6).
NOTE 6 LINE OF CREDIT
As of December, 31, 2005 and 2004, ASI had a line of credit of $500,000 with M &
T Bank. The line was secured by the accounts receivable of All Staffing, Inc.
Interest was payable in monthly installments at a rate of prime plus 1%. The
balance as of December 31, 2005 and 2004 was $500,000 and $100,171,
respectively. The line was closed in March of 2006, and a new $1,000,000 line
was secured from Penn Business Credit in 2006. The line is secured by all of the
Company's assets and receivables.
NOTE 7 RETIREMENT PLANS
401(k)-Profit Sharing Plan
The Company maintains a qualified 401(k) - profit sharing plan. Employer
contributions during the years ended December 31, 2005 and 2004 were
approximately $18,915 and $16,138, respectively. Employer contributions for the
six month periods ending June 30, 2006 and 2005 were $15,958 and $18,915
respectively.
The Rabbi Trust
In May 2002, ASI established a non-qualified deferred compensation plan ("Rabbi
Trust") for a select group of management and highly compensated employees as
determined by the Company. Qualified employees may elect to defer up to 20% of
compensation annually, including bonuses.
The Rabbi Trust is not qualified under 404(A) of the Internal Revenue Code and
is subject to general creditors of the Company.
For the years ended December 31, 2005 and 2004, contributions payable to the
Rabbi Trust were $87,585 and $62,596 respectively. These amounts were included
in accounts payable on the balance sheet. The liability increases or decreases
based on additional employee deferrals, investment returns, and distributions to
employees.
For the six months ending June 30, 2006 and 2005, contributions payable to the
Rabbi Trust were $97,031 and $72,042 respectively.
NOTE 8 CASH ESCROW
The Company's workmen's compensation policy has a $250,000 deductible, per
claim, payable by All Staffing, Inc. The insurance company requires an escrow
deposit to be established by the Company in case of policy termination or
carrier charge. The deposits held at December 31, 2005 are currently in dispute
with the insurance carriers and as such have been written off. The balance of
the escrow account at December 31, 2005 and 2004 was $0 and $0, respectively.
The balance of the escrow account at June 30, 2006 was $250,000.
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NOTE 9 NOTE PAYABLE - OLD GUARD
The Old Guard Insurance Group had made a strategic investment in All Staffing,
Inc. and had committed to an exclusive marketing partnership. In December 1999,
Old Guard entered into a convertible subordinate debenture purchase agreement
with All Staffing, Inc. Old Guard had the right to convert the debenture, in
whole, into shares of common stock equal to 8% of the number of All Staffing,
Inc. shares outstanding on the date of conversion. At the time of the agreement,
Old Guard deposited $500,000 with All Staffing, Inc., which was recorded as a
note payable.
The maturity date of the debenture was December 29, 2003 at which time the
entire unpaid principal balance, accrued unpaid interest and other sums were
due. However, the amounts were not paid, and are potentially subject to
litigation. (See Note 11)
NOTE 10 TRANSACTIONS WITH AFFILIATES
All Staffing, Inc. provides services to two entities affiliated through common
ownership. The following summarizes the revenue and related expenses directly
relating to providing those services:
June 30 December 31
2006 2005
(unaudited) (unaudited) 2005 2004
--------------------------------------------------------
Garber Group, LTD:
PEO Service Revenue $75,442 $73,187 $162,381 $139,402
Personnel Costs $80,050 $71,724 $153,781 $132,514
JC Data Enterprises, Inc.
PEO Service Revenue $80,483 $88,820 $176,505 $183,177
Personnel Costs $77,692 $85,751 $170,311 $176,776
All Staffing, Inc. borrows funds from JC Data Enterprises to cover ordinary
operating expenses when necessary. The total amount due to JC Data Enterprises
as of December 31, 2005 and 2004 was $513,241 and $409,225, respectively. As of
June 30, 2006, the total due to JC Data Enterprises was $658,662.
ASI rents office space from A&S Associates. Total rent expense for the years
ended December 31, 2005 and 2004 was $57,314 and $35,650, respectively. Total
rent expense for the six months ended June 30, 2006 and 2005 was $41,380 and
$26,897, respectively.
Accounts receivable - affiliates is comprised of the following:
June 30 December 31
2006 2005
(unaudited) (unaudited) 2005 2004
--------------------------------------------------------
JC Data Enterprises, Inc. 215,831 124,235 215,831 124,235
Garber Group 203,980 173,242 204,503 172,913
A&S Associates 71,610 64,875 73,352 30,266
--------------------------------------------------------
491,421 362,352 493,686 327,414
========================================================
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The stockholders' of the Company guarantee the debt of All Staffing, Inc. and
its affiliates, JC Data Enterprises, Inc., The Garber Group, LTD, and A&S
Associates.
NOTE 11 CONTINGENCIES
As of December 31, 2005 the Company had the following contingent liabilities:
A civil action with a possible liability of $27,954.
A civil action to recover workers compensation deposits. The amount is
undetermined.
A civil action filed against the Corporation, its client, and another employment
service company based on discrimination in termination of employment. The amount
is undetermined. The Corporation has filed for dismissal. The Corporation has an
indemnity clause in its contract with its client which it feels will insulate it
from the action.
A civil action filed to recover penalties in the amount of $20,000 for failure
to have workers compensation insurance based on an alleged breach of contract.
A claim filed by an insurance company for $500,000, plus accrued interest and
penalties based on the conditions of the note payable to Old Guard Insurance
Group. See Note Payable - Old Guard note 9.
As the result of the insolvency of a health insurance trust that was used by the
Corporation for its employee's health coverage, the Company may have to share
between $900,000 and $1,300,000 in health insurance claims with other companies.
As of June 30, 2006, no filings were made by any of the parties. The Corporation
is looking into remedies through its errors and omissions carrier, although as
of June 30, 2006 the errors and omissions carrier has denied claims for this
situation.
Claims and security deposit to an insurance company. No action filed at this
time, no amount determined.
Appeal of a ruling by the Pennsylvania Department of Revenue concerning the
payment of sales tax on the entire amount invoiced to a client as opposed to the
service fee portion of the invoice. The amount in question is $242,254.
A claim against the Corporation and its stockholders in the amount of $27,458 by
the California State EDD for employer taxes. The Corporation believes the taxes
are the liability of a former California client that is out of business and not
that of the Corporation or its stockholders.
Occasionally, the Company is involved in various lawsuits and certain
governmental proceedings arising in the ordinary course of business. Management
does not believe that the ultimate resolution of any current matters will have a
material effect on the Company's financial position or results of operations.
NOTE 12 CONCENTRATIONS
As of December 31, 2005, accounts receivable contains five customers that each
make up 10% or more of total accounts receivable making a total concentration of
56%. A substantial portion of the Company's revenues are also generated from
these same five customers.
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NOTE 13 SUBSEQUENT EVENTS
On September 12, 2006, the outstanding stock of the Company was purchased by
Dalrada Financial Corporation. Without the effectuation of this stock purchase
agreement, the Company's ability to continue as a going concern would be
substantially in doubt.
ASI opened a $1,000,000 line of credit with Penn Business Credit in March of
2006. The line is secured by the Company's assets and receivables as well as the
personal assets of the shareholders. Interest is currently payable in monthly
installments at a rate of prime plus 2%. Any unpaid principal and interest is
payable on demand. The balance as of June 30, 2006 was $1,014,522.
In February 2006, the Company changed insurance carriers for their workman's
compensation insurance. The new policy required a $250,000 deposit in case of
policy termination or carrier change.
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