Humanity Capital Holding 10QSB 2006 Q2 Quarterly report (small business)

Form 10-QSB

SECURITIES AND EXCHANGE COMMISSION Washington, D.C.

[ X ] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended December 31, 2005

OR

[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from _______ to _______.

Commission File No. 0-31765

Tabatha IV, Inc.

(Exact Name of Small Business Issuer as Specified in its Charter)

COLORADO 84-1536520

(State or Other Jurisdiction of incorporation or organization) (I.R.S. Employer Identification Number)

2735 Villa Creek, Suite 175, Dallas, Texas 75234

(Address of Principal Executive Offices, including Zip Code)

(469) 522-6222

(Issuer’s telephone number, including area code)

Indicate by check mark whether 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 Registrant has been required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: Yes [ ] No [ X ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes [ ] No [ X ]

Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date:

Class Outstanding as of 3-8-06

Common Stock, no par value 75,812,500

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PART I - FINANCIAL INFORMATION

Item 1. Financial Statements.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Tabatha IV, Inc.

Page

Consolidated Balance Sheet as of December 31, 2005 (unaudited), and June 30, 2005 3

Consolidated Statement of Operations for the Three Months and Six Months Ended December 31, 2005 (unaudited) 4

Consolidated Statement of Cash Flows for the Six Months Ended December 31, 2005 (unaudited) 5

Notes to Financial Statements 7

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TABATHA IV, INC.

CONSOLIDATED BALANCE SHEET

ASSETS

12/31/05 (unaudited)
6/30/05

CURRENT ASSETS

Cash and cash equivalents $17,813 $35,790

Accounts receivable 87,048 8,403

Prepaid expenses and other current assets 17,102 8,630

Factor Reserve 14,315 4,231

Total current assets 136,278 57,054

Fixed assets, net of accumulated depreciation of $5,794 and $2,924 38,854 44,594

Other assets 7,493 7,494

Total assets $182,625 $109,142

LIABILITIES AND SHAREHOLDERS’ DEFICIT

CURRENT LIABILITIES

Current maturities of long-term debt 7,237 7,841

Accounts payable and accrued liabilities 164,075 83,859

Advances from shareholder 138,528 110,491

Total current liabilities 309,840 202,191

Long-term debt, less current maturities 24,120 27,738

Total liabilities 333,960 229,929

SHAREHOLDERS’ DEFICIT

Preferred stock, no par value, 10,000,000 shares authorized, no shares issued and outstanding - -

Common stock, no par value; 100,000,000 shares authorized, 75,812,500 and 74,837,500 shares issued and outstanding at December 31, 2005, and June 30, 2005, respectively 98,500 1,000

Accumulated deficit (249,835) (121,787)

Total shareholders’ deficit (151,335) (120,787)

Total liabilities and shareholders’ deficit $182,625 $109,142

The accompanying notes are an integral part of these financial statements.

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TABATHA IV, INC.

CONSOLIDATED STATEMENT OF OPERATIONS

For the Three Months and Six Months Ended December 31, 2005

Three Months Ended 12/31/05
Six Months Ended 12/31/05

STAFFING REVENUES $560,044 $878,211

COST OF SERVICES 443,889 708,532

GROSS PROFIT	116,155	169,679
GENERAL AND ADMINISTRATIVE	126,091	258,420

OPERATING LOSS (9,936) (88,741)

OTHER EXPENSES

Other expenses, net (4,462) (3,846)

Interest expense (11,194) (28,769)

Depreciation and amortization (3,219) (6,692)

NET LOSS $(28,811) $(128,048)

Net loss per share

Basic and diluted $.00 $.00

Weighted average number of shares outstanding

Basic and diluted 75,796,944 75,419,306

The accompanying notes are an integral part of these financial statements.

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TABATHA IV, INC.

CONSOLIDATED STATEMENT OF CASH FLOWS

For the Six Months Ended December 31, 2005

Six Months Ended 12/31/05

CASH FLOWS FROM OPERATING ACTIVITIES

Net loss $(128,048)

Adjustments to reconcile net loss to net cash used for operating activities:

Depreciation and amortization expense 6,692

Changes in operating assets and liabilities:

Increase in prepaid expenses (8,472)

Increase in accounts receivable and factor reserve (88,729)

Increase in accounts payable and accrued liabilities 80,216

Net cash used for operating activities (138,341)

NET CASH USED FOR FINANCING ACTIVITIES

Capital expenditures (951)

Net cash used for investing activities (951)

CASH FLOWS FROM FINANCING ACTIVITIES

Issuance of common stock 97,500

Payments on note payable (4,222)

Net advances from shareholder 28,037

Net cash provided by financing activities 121,315

Net change in cash and cash equivalents (17,977)

Cash and cash equivalents at beginning of period 35,790

Cash and cash equivalents at end of period $17,813

Interest paid $28,769

Taxes paid -

The accompanying notes are an integral part of these financial statements.

TABATHA IV, INC.

NOTES TO FINANCIAL STATEMENTS

December 31, 2005 (unaudited)

NOTE A Management’s Representation of Interim Financial Information

The accompanying financial statements have been prepared by Tabatha IV, Inc. without audit, pursuant to the rules and regulations of the SEC. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted as allowed by such rules and regulations, and management believes that the disclosures are adequate to make the information presented not misleading. These financial statements include all of the adjustments which, in the opinion of management, are necessary to a fair presentation of financial position and results of operations. All such adjustments are of a normal and recurring nature. These financial statements should be read in conjunction with the audited financial statements at June 30, 2005.

NOTE B Sales of Common Stock

During the three months ended December 31, 2005, Tabatha IV sold 100,000 shares of its common stock for $.10 per share and received cash proceeds of $1,000. For the six months ended December 31, 2005, the total number of shares sold at $.10 per share was 975,000, with total cash proceeds being $97,500.

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FORWARD-LOOKING STATEMENTS

This report by Tabatha IV, Inc. contains forward-looking statements. These are statements regarding financial and operating performance and results and other statements that are not historical facts. The words "expect", "project", "estimate", "believe", "anticipate", "intend", "plan", "forecast" and similar expressions are intended to identify forward-looking statements. Certain important risks could cause results to differ materially from those anticipated by some of the forward-looking statements. We do not intend to update forward-looking statements.

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

FORWARD-LOOKING STATEMENTS

This report by Tabatha IV, Inc. contains forward-looking statements. These are statements regarding financial and operating performance and results and other statements that are not historical facts. The words "expect", "project", "estimate", "believe", "anticipate", "intend", "plan", "forecast" and similar expressions are intended to identify forward-looking statements. Certain important risks could cause results to differ materially from those anticipated by some of the forward-looking statements. Some, but not all, of the important risks that could cause actual results to differ materially from those suggested by the forward-looking statements include, among other things:

- Whether or not we can successfully compete in our chosen markets;

- Whether we are able to obtain adequate capital with which to pursue our full business plan; and

- Other uncertainties, all of which are difficult to predict and many of which are beyond our control.

We do not intend to update forward-looking statements.

You should read the following discussion in conjunction with our consolidated financial statements and related notes included elsewhere in this annual report. Historical results are not necessarily indicative of trends in operating results for any future period.

Background

On May 13, 2005, there occurred a change in control of Tabatha IV, Inc. On that date, we completed the acquisition of all of the outstanding capital stock of Humanity Capital, Inc., a Texas corporation, pursuant to an agreement and plan of reorganization. We issued 67,500,000 shares, or approximately 90%, of our common stock to the sole shareholder of Humanity Capital, in exchange for the capital stock of Humanity Capital acquired by us. Following this change-in-control transaction, our then-directors resigned and our new board of directors was installed.

In determining the number of shares of our common stock issued to the shareholder of Humanity Capital, our board of directors did not employ any standard valuation formula or any other standard measure of value. Rather, the number shares issued to the shareholder of Humanity Capital was determined through arm’s-length negotiations.

For accounting purposes, the acquisition of Humanity Capital will be treated as a reverse acquisition and, therefore, will be treated as an acquisition of Tabatha IV, Inc. and a recapitalization of Humanity Capital, Inc. (now a subsidiary of Tabatha IV, Inc.).

Change in Business

Prior to May 13, 2005, we had no active business operations. Currently, through our subsidiary, Humanity Capital, we provide temporary staffing services to the light industrial, hospitality and restaurant industries in the Dallas/Fort Worth, Texas, metro area. Humanity Capital has provided its temporary staffing services since its inception in February 2005.

Critical Accounting Policies and Estimates

There have been no recent changes to our critical accounting policies.

Management's Discussion and Analysis discusses the results of operations and financial condition as reflected in our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. On an ongoing basis, management evaluates its estimates and judgments, including those related to accounts receivable, inventory valuation, amortization and recoverability of long-lived assets, including goodwill, litigation accruals and revenue recognition. Management bases its estimates and judgments on our historical experience and other relevant factors, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.

While we believe that the historical experience and other factors considered provide a meaningful basis for the accounting policies applied in the preparation of our consolidated financial statements, we cannot guarantee that our estimates and assumptions will be accurate. If such estimates and assumptions prove to be inaccurate, we may be required to make adjustments to these estimates in future periods.

Controls and Procedures

Our Chief Financial Officer has reviewed and evaluated the effectiveness of our disclosure controls and procedures (as defined in the Securities Exchange Act of 1934 Rules 240.13a-14(c) and 15d-14(c)) as of the end of the period covered by this report and has concluded that such disclosure controls and procedures are effective in timely alerting him and other members of management to material information about our company required to be disclosed by us in our periodic reports that we file or submit under the Securities Exchange Act of 1934.

There have not been any significant changes in our internal controls over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934) during the past fiscal year that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Overview

We provide temporary staffing services to the light industrial, hospitality and restaurant industries in the Dallas/Fort Wort, Texas, metro area. Our overall operating results are dependent on the number of worksite employees paid and can be measured in terms of revenues, payroll costs, gross profit or operating income per worksite employee per month. However, since we are a new company, having operated for less than one year, our operating results to date have been negatively impacted by costs relating to the start-up of our business. These start-up costs can be expected to affect our operating results through the end of our current fiscal year ending June 30, 2006.

For the month of December 2005, our average gross profit per worksite employee was $77 and our weekly average number of worksite employees was 165. We intend to increase our sales force during each quarter of calendar 2006, with the intention of increasing our total of worksite employees.

Revenues.

We account for our revenues in accordance with Emerging Issues Task Force (“EITF”) 99-19, “Reporting Revenues Gross as a Principal Versus Net as an Agent”. Our revenues are derived from our gross billings, which are based on:

- the payroll cost of our worksite employees; and

- a markup computed as a percentage of the payroll cost.

In determining the pricing of the markup component of the gross billings, we consider our estimates of the costs directly associated with our worksite employees, including payroll taxes and workers’ compensation costs, plus an acceptable gross profit margin. We invoice the gross billings concurrently with each periodic payroll of our worksite employees. Revenues, which exclude the payroll cost component of gross billings, are recognized ratably over the payroll period as worksite employees perform their service at the client worksite. We include revenues that have been recognized but not invoiced in unbilled accounts receivable on our Consolidated Balance Sheets.

Our revenues are primarily dependent on the number of our client companies and the resulting number of worksite employees paid each period. Because our markup is computed as a percentage of payroll cost, revenues are also affected by the payroll cost of worksite employees, which can fluctuate based on the composition of the worksite employee base and inflationary effects, if any, on wage levels.

Direct Costs.

The primary direct costs associated with our revenue generating activities are:

- employment-related taxes (“payroll taxes”); and

- workers’ compensation claim costs.

Payroll taxes consist of the employer’s portion of Social Security and Medicare taxes under FICA, federal unemployment taxes and state unemployment taxes. Payroll taxes are generally paid as a percentage of payroll cost. The federal tax rates are defined by federal regulations. The Texas unemployment tax rate is subject to claim histories.

Our gross profit per worksite employee is determined in part by our ability to estimate accurately and control direct costs and our ability to incorporate changes in these costs into the gross billings charged to our client companies, which are subject to contractual arrangements that typically renew monthly. Gross profit is also affected by the markup portion of gross billings, which is calculated based on a percentage of worksite employee payroll cost, and our direct cost structure. We use gross profit per worksite employee per month as our principal measurement of relative performance at the gross profit level.

Operating Expenses.

Salaries, wages and payroll taxes.

Salaries, wages and payroll taxes are primarily a function of the number of corporate employees and their associated average pay and any additional incentive compensation. Our corporate employees primarily include client services, sales and marketing, benefits, legal, finance, information technology and administrative support personnel.

General and administrative expenses.

Our general and administrative expenses primarily include:

- rent expenses related to our corporate headquarters;

- outside professional service fees related to legal and accounting services;

- administrative costs, such as postage, printing and supplies; and

- repairs and maintenance costs associated with our worksite employee transportation vehicles and technology infrastructure.

Commissions.

Commission expense primarily consists of amounts paid to sales personnel and are based on a percentage of revenue generated by such personnel.

Transactions with Related and Other Certain Parties

For the six months ended December 31, 2005, we obtained loans from one of our directors, Scott B. Gann, in the amount of $28,037. Since our inception in February 2005, Mr. Gann has loaned us a total of $138,528. These loans are not evidenced by promissory notes. Rather, these loans were made on open account, bear interest at 6% per annum and are payable on demand. Mr. Gann has advised us that he does not intend to demand repayment of any amount loaned to us, until such time as any such repayment would not adversely affect our financial condition. Without the loans obtained from Mr. Gann, we would have been unable to continue in business.

Recent Developments

We have recently signed separate letters of intent to acquire three private temporary staffing companies located in the Dallas/Fort Worth metro area. These acquisitions are to be made substantially for cash. We currently do not possess the funds needed to consummate any of these proposed acquisitions. While we are actively pursuing sources of financing for these proposed acquisitions, there is no assurance that we will be successful in this regard. Should we be successful in consummating these transactions, our liquidity and operations will be materially enhanced.

Results of Operations

During the three months ended December 31, 2005, our temporary staffing services generated $560,044 (unaudited) in revenues. During this three-month period, our cost of services was $443,889 (unaudited), with a gross profit of $116,155 (unaudited). Our general and administrative expenses for the three months ended December 31, 2005, were $126,091 (unaudited) and our net loss was $28,811 (unaudited).

During the six months ended December 31, 2005, our temporary staffing services generated $878,211 (unaudited) in revenues. During this six-month period, our cost of services was $708,532 (unaudited), with a gross profit of $169,679 (unaudited). Our general and administrative expenses for the six months ended December 31, 2005, were $258,420 (unaudited) and our net loss was $128,048 (unaudited). Our revenues for the fiscal year ending June 30, 2006, will be significantly greater, on a monthly basis, than for the period ended June 30, 2005, due to the internal growth of our temporary staffing business. Likewise, our cost of services can be expected to increase proportionately. Our general and administrative expenses can be expected to increase, though not at the same rate as our cost of services. Currently, we break even on a monthly basis. However, we currently lack the capital necessary to pursue aggressively our business objectives, and we may never possess enough capital with which to do so.

Liquidity and Capital Resources

At December 31, 2005, we had a working capital deficit of $173,562 (unaudited). Since our inception, we have obtained funds from our largest shareholder, Scott B. Gann, to make up for cash shortfalls in our business. During the six months ended December 31, 2005, we obtained $28,037 from Mr. Gann. These loans are not evidenced by promissory notes. Rather, these loans were made on open account, bear interest at 6% per annum and are payable on demand. Mr. Gann has advised us that he does not intend to demand repayment of any amount loaned to us, until such time as any such repayment would not adversely affect our financial condition. Without the loans obtained from Mr. Gann, we would have been unable to continue in business.

During the six months ended December 31, 2005, we obtained a total of $97,500 from the sale of our common stock.

Cash Flows Used in Operating Activities.

During the six months ended December 31, 2005, our operating activities used $138,341 (unaudited) in cash. Because of the rapid growth of our business, we are unable to predict our use of cash in our operating activities for the year ending June 30, 2006.

Cash Flows Used in Investing Activities.

During the six months ended December 31, 2005, our investing activities used $951 (unaudited) in cash, all of which was for capital expenditures. Because of the rapid growth of our business, we are unable to predict our use of cash in our investing activities for the year ending June 30, 2006.

Cash Flows from Financing Activities.

During the six months ended December 31, 2005, our financing activities provided $121,315 (unaudited), including $97,500 (unaudited) from sales of common stock and $28,037 (unaudited) in net advances from our largest shareholder. Because of the rapid growth of our business, we are unable to predict whether our financing activities will provide cash for the year ending June 30, 2006.

Capital Expenditures

For the six months ended December 31, 2005, we made capital expenditures of $951 (unaudited). Due to our lack of excess capital, we are unable to predict the level of our capital expenditures for the year ending June 30, 2006.

Our Capital Needs

Our current level of operations can be maintained for at least the next six months. However, to begin the aggressive pursuit of our temporary staffing business objectives, we will require approximately $1 million. We cannot assure you that we will obtain such level of funding.

Seasonality and Quarterly Fluctuations

The temporary staffing business is seasonal, with the first calendar quarter generally being the slowest part of the year. It can be expected that our quarterly results for the three months ending March 31, 2006, will reflect this seasonality.

Item 3. Controls and Procedures.

The SEC defines the term “disclosure controls and procedures” to mean a company’s controls and other procedures that are designed to ensure that information required to be disclosed in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. We maintain such a system of controls and procedures in an effort to ensure that all information which we are required to disclose in the reports we file under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified under the SEC's rules and forms.

As of December 31, 2005, an evaluation was performed by our Chief Financial Officer of the effectiveness of the design and operation of our disclosure controls and procedures. Based on that evaluation, our management, including our Chief Financial Officer, concluded that our disclosure controls and procedures were effective as of December 31, 2005.

There have been no significant changes in our internal controls or in other factors that could significantly affect internal controls subsequent to December 31, 2005.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings.

We are not currently involved in any legal proceeding.

Item 2. Changes in Securities.

During the three months ended December 31, 2005, we issued restricted securities, as follows:

1.	(a)	Securities Sold. In December 2005, 100,000 shares of our common stock were issued.
	(b)	Underwriter or Other Purchasers. Such shares of common stock were issued to Chris Clayton.
	(c)	Consideration. Such shares of common stock were issued for $10,000 in cash.
	(d)	Exemption from Registration Claimed. These securities are exempt from registration under the Securities Act of 1933, as amended, pursuant to the provisions of Section 4(2) thereof and Rule 506 thereunder, as a transaction not involving a public offering. This purchaser was an accredited investor capable of evaluating the investment.

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 and Reports on Form 8-K.

(a) Exhibits

Exhibit No. Description

31.1 Certification of Chief Executive Officer required by Rule 13a-14(a) or Rule 15d-14(b)

31.2 Certification of Chief Accounting Officer required by Rule 13a-14(a) or Rule 15d-14(b)

32.1 Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350

32.2 Certification of Chief Accounting Officer Pursuant to 18 U.S.C. Section 1350

(b) Reports on Form 8-K

During the three months ended December 31, 2005, we did not file a Current Report on Form 8-K.

Since December 31, 2005, we have filed five Current Reports on Form 8-K, as follows:

- Date of event: May 13, 2005, wherein we reported a change-in-control transaction.

- Date of event: September 17, 2005, wherein we reported a change in independent accountants.

- Date of event: November 17, 2005, wherein we reported our entering into a material definitive agreement.

- Date of event: December 23, 2005, wherein we reported our terminating a material definitive agreement.

- Date of event: January 16, 2006, wherein we reported the election of a new director.

SIGNATURES

In accordance with the requirements of the Securities Exchange Act of 1934, Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Date: March 22, 2005. TABATHA IV, INC.

By: /s/ CHARLIE DICKERSON

Charlie Dickerson

Chief Financial Officer [Principal Accounting Officer]