Notes to Financial Statements
For the Year Ended December 31, 2010
| 1. | Organization and Nature of Business |
Incentives Advisors, LLC (the Company) was organized in the state of Arizona in October 2007 and is located in Tempe, Arizona. The Company helps clients, throughout the United States of America, maximize their tax reduction opportunities through the pursuit of available federal, state, and local credits and incentives.
| 2. | Significant Accounting Policies |
Use of Estimates
The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the statements. Actual results could differ from the estimates and assumptions used.
Fair Value of Financial Instruments
The Company follows FASB ASC Topic 820, “Fair Value Measurements and Disclosure,” (ASC 820) which clarifies the definition of fair value, establishes a framework for measuring fair value and expands required disclosure about fair value measurements of assets and liabilities. ASC 820 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:
Level 1 – Quoted prices in active markets for identical assets or liabilities.
Level 2 – Inputs other than quoted prices that are either directly or indirectly observable.
Level 3 – Unobservable inputs that are supported by little or no market activity, therefore requiring an entity to develop its own assumptions that market participants would use in pricing.
Fair value estimates are based upon certain market assumptions and pertinent information available to management at December 31, 2010. The Company uses the market approach to measure fair value for its Level 1 financial assets which include cash equivalents. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities. The carrying amount reported in the balance sheet for cash, accounts receivable, accounts payable and accrued expenses approximates fair market value due to the immediate or short-term maturity of these financial instruments. The fair value of note payable approximates its carrying value based upon current rates available to the Company.
Cash Equivalents
The Company considers cash equivalents to be all short-term investments that have an initial maturity of 90 days or less.
Accounts Receivable
Accounts receivable are customer obligations due under normal trade terms from companies in a broad range of industries located throughout the United States. Credit is extended based on an evaluation of the customer’s financial condition, and collateral is normally not required.
The allowance for all probable uncollectible receivables is based on a combination of historical data, cash payment trends, specific customer issues, write-off trends, general economic conditions and other factors. These factors are continuously monitored by management to arrive at the estimate for the amount of accounts receivable that may be ultimately uncollectible. In circumstances where the Company is aware of a specific customer’s inability to meet its financial obligations, the Company records a specific allowance for bad debts against amounts due, to reduce the net recognized receivable to the amount it reasonable believes will be collected. Based upon the information available, management believes that no allowance for bad debts is necessary at December 31, 2010.
Notes to Financial Statements
For the Year Ended December 31, 2010
Property and Equipment
Property and equipment are recorded at cost. Depreciation on furniture and equipment is computed using accelerated methods over their estimated useful lives ranging from 5 to 7 years. Leasehold improvements are amortized over the shorter of their estimated useful lives or the related lease life.
Long-Lived Assets
When facts and circumstances indicate that the carrying values of long-lived assets may be impaired, an evaluation of recoverability is performed by comparing the carrying values of the assets to projected undiscounted future cash flows in addition to other quantitative and qualitative analyses. Upon indication that the carrying values of such assets may not be recoverable, the Company recognizes an impairment loss by a charge against current operations.
Income Taxes
The Company is organized as a limited liability company, which is taxed in a manner similar to a partnership, whereby income or losses are passed through the Company to the individual members. Accordingly, no provision for income taxes has been presented in the accompanying consolidated financial statements.
The Company has adopted the provisions of FASB ASC Topic 740, “Accounting for Uncertainty in Income Taxes.” FASB ASC Topic 740 clarifies the accounting for uncertainty in income taxes recognized in the Company’s financial statements and prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a return. FASB ASC Topic 740 also provides guidance on derecognition and measurement of a tax position taken or expected to be taken in a tax return.
The Company files income tax returns in the U.S. federal jurisdiction and the state of Arizona. The Company’s federal income tax returns for tax years 2008 and beyond remain subject to examination by the Internal Revenue Service. The Company’s state income tax returns for the years 2008 and beyond remain subject to examination by the Arizona’s Department of Revenue.
The Company did not have unrecognized tax benefits as of December 31, 2010 and does not expect this to change significantly over the next 12 months. As of December 31, 2010, the Company has not accrued interest or penalties related to uncertain tax positions.
Revenue Recognition and Labor Costs
Tax advisory service revenues are generated from transaction fees based on a percentage of the value of the tax credit identified and are recognized in the period that the approval of the underlying eligible employee or program is received from the taxing authority and such credit is reported to the client. Revenue from hourly and fixed fee consulting services is recognized as the services are performed.
Subsequent Events
The Company has evaluated events and transactions occurring subsequent to December 31, 2010 as of April 1, 2011, which is the date the financial statements were available to be issued. Subsequent events occurring after April 1, 2011 have not been evaluated by management. No material events have occurred since December 31, 2010 that require recognition or disclosure in the financial statements except as discussed in Note 7.
Incentives Advisors, LLC
Notes to Financial Statements
For the Year Ended December 31, 2010
As of December 31, 2010, property and equipment is as follows:
| Furniture and equipment | | $ | 18,640 | |
| Leasehold improvements | | | 1,160 | |
| | | | 19,800 | |
| Less accumulated depreciation | | | (10,085 | ) |
| | | $ | 9,715 | |
Depreciation and amortization expense was $3,517 for the year ended December 31, 2010.
| 4. | Commitments and Contingencies |
Legal
In the normal course of conducting its business, the Company may be involved in various litigation. The Company is not a party to any litigation which its management believes could result in any judgments or fines against it that would have a material adverse affect on its financial position, liquidity or results of operations.
Commissions Agreement
On October 28, 2010, the Company entered into a Commissions Agreement (the “Agreement”) with Economic Incentives Advisors Group LLC (“EIAG”) which is owned by a former member of the Company. The Agreement provides for sales commissions to be paid to EIAG at varying rates, as defined, based upon the type of product sold and the gross amount of billings invoiced to the customer. The Agreement remains in effect through December 31, 2012 with one year automatic renewals unless cancelled in writing by both EIAG and the Company.
The Company is obligated under an unsecured, non-interest bearing note payable to a former member. The note is payable in monthly installments of $2,000 through December 2012. The note had a balance of $48,000 at December 31, 2010 and was paid in full in January 2011.
The Company had revenues from one significant customer representing 10.5% of total revenues for the year ended December 31, 2010.
On January 18, 2011, the Company was purchased by Tomahawk Merger Corporation, a wholly owned subsidiary of Workstream, Inc. Consideration received from the purchaser was $2,124,000 consisting of $154,000 in cash, two subordinated promissory notes each in the face amount of $117,500 and 47,508,215 unregistered common shares of Workstream, Inc. valued at $1,735,000.
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