HMS 8K/A Financial Statements and Exhibits | HMSY 20 Nov 06

EXHIBIT 99.5

PUBLIC CONSULTING GROUP, INC.
BENEFIT SOLUTIONS PRACTICE AREA

FINANCIAL STATEMENTS

JULY 1, 2004 - JUNE 30, 2006

TABLE OF CONTENTS

	Page

Report of Certified Public Accountant	1

Comparative Balance Sheets as of June 30, 2006 and June 30, 2005	2-3

Comparative Statements of Income and Retained Earnings For the Years Ended June 30, 2006 and June 30, 2005	4

Comparative Statements of Cash Flows For the Years Ended June 30, 2006 and June 30, 2005	5

Notes to Financial Statements as of June 30, 2006 and June 30, 2005	6-13

September 1, 2006

Public Consulting Group, Inc.
Benefit Solutions Practice Area
148 State Street
Tenth Floor
Boston, MA 02109

Board of Directors and Stockholders:

We have audited the accompanying comparative balance sheet of Public Consulting Group, Inc. – Benefit Solutions Practice Area for the years ended June 30, 2006 and June 30, 2005, and the related comparative statements of earnings and retained earnings and statements of 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 auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides 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 Public Consulting Group, Inc. – Benefit Solutions Practice Area, as of June 30, 2006 and June 30, 2005, 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.

Very truly yours,

Neal A. Price & Company, LLP

NAP&C:pcp

(1)

PUBLIC CONSULTING GROUP, INC.
BENEFIT SOLUTIONS PRACTICE AREA
COMPARATIVE BALANCE SHEETS
FOR THE YEARS ENDED JUNE 30, 2006 AND JUNE 30, 2005

ASSETS

		June 30,			June 30,
		2006			2005


Current Assets:
Cash - Checking	$	26,525		$	33,939
Accounts Receivable		20,688,520			16,085,059
Accounts Receivable - Affiliates		9,170			31,898
Prepaid Expenses		344,833			110,897
Due From Public Consulting Group, Inc.		11,732,454			6,893,619


Total Current Assets		32,801,502			23,155,412

Fixed Assets:
Computers & Equipment	$	1,980,308		$	1,521,457
Furniture and Fixtures		714,979			553,352
Improvements		99,395			69,683

Total		2,794,682			2,144,492

Less: Accumulated Depreciation		(1,595,629	)		(1,174,658	)


Total Fixed Assets		1,199,053			969,834

Other Assets:
Deposits	$	58,326		$	48,841
Cash Surrender Value - Life Insurance		265,886			229,254


Total Other Assets		324,212			278,095


Total Assets	$	34,324,767		$	24,403,341

THE ACCOMPANYING LETTER OF TRANSMITTAL AND NOTES
ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS

(2)

PUBLIC CONSULTING GROUP, INC.
BENEFIT SOLUTIONS PRACTICE AREA
COMPARATIVE BALANCE SHEETS
FOR THE YEARS ENDED JUNE 30, 2006 AND JUNE 30, 2005

LIABILITIES & SHAREHOLDERS' EQUITY

		June 30,		June 30,
		2006		2005


Current Liabilities:
Accounts Payable	$	1,881,524	$	1,540,913
Accrued Payroll		15,507,782		11,220,536
Accrued Pension		281,589		200,081
Equipment Loans Payable		354,971		342,946


Total Current Liabilities		18,025,866		13,304,476

Long-Term Liabilities
Equipment Loans Payable	$	219,720	$	332,768
Deferred Taxes		211,419		211,419


Total Long-Term Liabilities		431,139		544,187

Total Liabilities		18,457,005		13,848,663

Shareholders' Equity:
Retained Earnings	$	15,867,762	$	10,554,678


Total Shareholders' Equity		15,867,762		10,554,678


Total Liabilities &
Shareholders' Equity	$	34,324,767	$	24,403,341

THE ACCOMPANYING LETTER OF TRANSMITTAL AND NOTES
ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS

(3)

PUBLIC CONSULTING GROUP, INC.
BENEFIT SOLUTIONS PRACTICE AREA
COMPARATIVE STATEMENTS OF INCOME AND RETAINED EARNINGS
FOR THE YEARS ENDED JUNE 30, 2006 AND JUNE 30, 2005

		June 30,		June 30,
		2006		2005


Revenue	$	48,414,222	$	39,963,558

Operating Expenses:
Advertising/Business Promotion		55,892		7,966
Business Services		82,825		93,436
Contract & Temporary Labor		8,944,833		7,776,569
Depreciation & Amortization		420,971		369,622
Employee Related Expenses		201,179		259,741
I.T./Communications		675,703		665,483
Insurance		18,500		8,500
Office Expense		2,808,162		3,092,295
Other Employee Benefits		2,033,988		1,961,045
Other Expenses		76,397		73,578
Salaries		12,975,199		11,491,944
Professional Fees		355,985		161,575
Travel & Entertainment		998,353		893,331


Total Operating Expenses		29,647,987		26,855,085


Operating Income	$	18,766,235	$	13,108,473

General & Administrative Expenses		13,453,151		10,246,935


Net Income	$	5,313,084	$	2,861,538

Add: Retained Earnings, Beginning		10,554,678		7,693,140


Retained Earnings, Ending	$	15,867,762	$	10,554,678

THE ACCOMPANYING LETTER OF TRANSMITTAL AND NOTES
ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS

(4)

PUBLIC CONSULTING GROUP, INC.
BENEFIT SOLUTIONS PRACTICE AREA
COMPARATIVE STATEMENT OF CASH FLOWS

FOR THE YEARS ENDED JUNE 30, 2006 AND JUNE 30, 2005

		June 30,			June 30,
		2006			2005


CASH FLOWS FROM OPERATIVING ACTIVITIES:
Net Income	$	5,313,084		$	2,861,538
Noncash Items Included in Net Income
Depreciation & Amortization		420,971			369,622
Changes in:
Accounts Receivable		(4,580,733	)		2,058,292
Prepaid Expenses		(233,936	)		141,343
Due from Public Consulting Group, Inc.		(4,838,835	)		(4,572,159	)
Cash Surrender Value – Life Insurance		(36,632	)		(43,922	)
Accounts Payable & Accrued Payroll		4,709,365			(580,785	)


NET CASH PROVIDED BY (USED BY)
OPERATING ACTIVITIES	$	753,284		$	233,929

CASH FLOWS FROM INVESTING ACTIVITIES:
Capital Expenditures	$	(650,190	)	$	(603,168	)
Deposits		(9,485	)		(23,224	)


NET CASH PROVIDED BY (USED BY)
INVESTING ACTIVITIES	$	(659,675	)	$	(626,392	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on Loans Payable	$	394,211		$	1,028,837
Payments on Loans Payable		(430,590	)		(803,761	)
Increase/(Decrease) in Loans Allocated
To BSPA		(64,644	)		106,456


NET CASH PROVIDED BY (USED BY)
FINANCING ACTIVITIES	$	(101,023	)	$	331,532


NET INCREASE (DECREASE) IN CASH	$	(7,414	)	$	(60,931	)

CASH, BEGINNING OF PERIOD		33,939			94,870


CASH, END OF PERIOD	$	26,525		$	33,939

THE ACCOMPANYING LETTER OF TRANSMITTAL AND NOTES
ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS

(5)

PUBLIC CONSULTING GROUP, INC.
BENEFIT SOLUTIONS PRACTICE AREA
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2006 AND JUNE 30, 2005

NOTE A -

Summary of Significant Accounting Policies:

Basis of Presentation – The Benefit Solutions Practice Area (BSPA) (The Division) is a division of Public Consulting Group, Inc. (The Company). BSPA provides data mining, coordination of benefits, cost containment, revenue recovery, and medical support enforcement services to federal, state, and local health and human services agencies and private sector clients across the country.

Cash and Cash Equivalents - The Division considers cash on hand, deposits in banks, and certificates of deposit with original maturities of three months or less as cash and cash equivalents for financial statement purposes.

Cash reflected on the Balance Sheet of The Division consists of cash in bank accounts established for use by specific projects for purposes of paying lien filing fees, bank fees associated with client lockbox accounts, or for prepayment of Health Insurance Premium Purchase payments. Cash generated from and used in the operations of The Division is combined with the cash of The Company, and accordingly, is not reflected within these financial statements.

As cash used in the operations of The Division is funded by The Company, The Division paid no cash for interest and income taxes during the years ended June 30, 2006 and 2005.

Accounts Receivable – The Division uses the allowance method to account for uncollectible accounts receivable. Accounts receivable are presented net of an allowance for doubtful accounts of $70,000. and $115,000. at June 30, 2006 and June 30, 2005, respectively.

THE ACCOMPANYING LETTER OF TRANSMITTAL AND NOTES
ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS

(6)

PUBLIC CONSULTING GROUP, INC.
BENEFIT SOLUTIONS PRACTICE AREA
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2006 AND JUNE 30, 2005

NOTE A -	Summary of Significant Accounting Policies - Cont’d:

	Fixed Assets - Property and equipment are recorded at cost. Depreciation is provided over the estimated useful lives of the related assets using the straight-line method for financial statement purposes. The Company uses other depreciation methods for tax purposes where appropriate. Amortization of leasehold improvements is computed using the straight-line method over the shorter of the remaining lease term or the estimated useful lives of the improvements. Prior to July 1, 2003, The Company did not account for the Fixed Assets of The Division separately from other divisions of The Company. Therefore, management of The Company was required to make certain assumptions to estimate the beginning Fixed Asset and Accumulated Depreciation balances of The Division as of that date. Revenue Recognition – Revenue is recognized in accordance with generally accepted accounting principles consistently applied and as modified in accordance with the principles set forth below:

		Revenue from Recoveriesis recognized in the period in which all of the following conditions have been met:

		(i)	All required work has been performed, and

		(ii)	The client has received payment from the responsible third party.

		Revenue from addition of names to insurance rollsis recognized in the period in which all of the following conditions have been met:

		(i)	All required work has been performed, and

		(ii)	The data has been delivered to the client.

THE ACCOMPANYING LETTER OF TRANSMITTAL AND NOTES
ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS

(7)

PUBLIC CONSULTING GROUP, INC.
BENEFIT SOLUTIONS PRACTICE AREA
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2006 AND JUNE 30, 2005

NOTE A -	Summary of Significant Accounting Policies - Cont’d:

		Revenue from identification and recoupment of healthcare claims for State Medicaid agenciesis recognized in the period in which all of the following conditions have been met:

		(i)	All required work has been performed, and

		(ii)	The data has been delivered to the client.

	Use of Estimates - The preparation of financial statements, in conformity with generally accepted accounting principles, requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. Prior to July 1, 2003, The Company did not account for The Division separately from other divisions of The Company. Therefore, management of The Company was required to make certain assumptions and use ratio analysis to estimate the balance of certain assets and liabilities of The Division as of that date. Management believes that the assumptions and estimates used to compile the July 1, 2003 opening Balance Sheet would not impact materially the Profit and Loss (Income Statements) of The Division for the years ended June 30, 2006 and June 30, 2005. General & Administrative Expenses represent costs of The Company, allocated to The Division based on The Division’s revenue as a percentage of The Company’s revenue. These costs consist of salaries, benefits, and other corporate costs of the Executive, Human Resources, Information Technology, Marketing, Legal, and Finance Departments of The Company. Reclassifications – Certain reclassifications have been made to the 2005 financial statements in order to conform with the 2006 presentation.

THE ACCOMPANYING LETTER OF TRANSMITTAL AND NOTES
ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS

(8)

PUBLIC CONSULTING GROUP, INC.
BENEFIT SOLUTIONS PRACTICE AREA
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2006 AND JUNE 30, 2005

NOTE B -	Income Tax Expense:

	The Company, with the consent of its Shareholders, elected under the Internal Revenue Code Section 1372(a) to be an "S" Corporation, effective July 1, 1995. In lieu of Corporate Income Taxes, the Shareholders of an "S" Corporation are taxed on their proportionate share of the Company's Taxable Income. Therefore, no provision of liability for Federal Income Taxes has been included in the financial statements. For State Income Tax purposes, as required by the Code of Massachusetts Regulations #62.17A. 1, "S" Status is not available for Corporations generating in excess of $6,000,000. in Total Receipts in a taxable year. The Commonwealth of Massachusetts imposes a 4.5% Tax on the Net Taxable Income of the Corporation. The Company recorded a provision for State Income Taxes in the amount of $187,776. and $117,267. for the years ended June 30, 2006 and June 30, 2005, respectively. $17,625. and $26,189., respectively, were direct expenses of The Division for the same years ended. State Income Taxes considered indirect expenses of The Division have been allocated to the Division based on The Division’s revenue as a percentage of The Company’s revenue. These amounts are included in the General & Administrative Expenses of The Division.

NOTE C -	Deferred Taxes:

	Pursuant to Internal Revenue Code Section 1374, a “Built in Gains” Tax is assessed upon the conversion of a “C” Corporation to an “S” Corporation. The Built in Gains Tax is a tax assessed to an “S” Corporation when the Corporation has built in gains as defined by Internal Revenue Code Section 1374 (d)(2).

THE ACCOMPANYING LETTER OF TRANSMITTAL AND NOTES
ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS

(9)

PUBLIC CONSULTING GROUP, INC.
BENEFIT SOLUTIONS PRACTICE AREA
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2006 AND JUNE 30, 2005

NOTE C -	Deferred Taxes – Cont’d:

	As a result of this provision, The Company recorded a Deferred Tax Liability upon it’s conversion to an “S” Corporation, on July 1, 1995, in the amount of $556,365. The Division has been allocated a portion of this Deferred Tax Liability, based on The Division’s estimated revenue as a percentage of The Company’s revenue for the year ended June 30, 1995, in an amount equal to $211,419. This Deferred Tax Liability reverses on July 1, 2006.

NOTE D -	Profit Sharing Plan:

	The Company instituted a 401(k) Profit Sharing Plan effective July 1, 1991, which covers all eligible employees. Company matching contributions to the Plan are at the discretion of the Board of Directors, but may not exceed the maximum allowable deduction permitted under the Internal Revenue Code at the time of the contribution. The Company matching contribution for employees of The Division, net of estimated forfeitures, equaled $281,589.and $200,081. for the years ended June 30, 2006 and June 30, 2005, respectively.

NOTE E -	Lease Commitments:

	The Division conducts its operations from offices located in Boston, Massachusetts; Charlotte, North Carolina; Anchorage, Alaska; Phoenix, Arizona; Oakland, California; Tallahassee, Florida; Atlanta, Georgia; Boise, Idaho; Chelsea, Massachusetts; Reno, Nevada; Albany, New York; Raleigh, North Carolina; Columbus, Ohio; Austin, Texas; and Charleston, West Virginia. All office space is leased under non-cancelable operating leases. Certain leases include renewal provisions at the Company’s option.

THE ACCOMPANYING LETTER OF TRANSMITTAL AND NOTES
ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS

(10)

PUBLIC CONSULTING GROUP, INC.
BENEFIT SOLUTIONS PRACTICE AREA
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2006 AND JUNE 30, 2005

NOTE E -	Lease Commitments – Cont’d:

	Future minimum rental commitments are as follows:
				MinimumRentalCommitments
		Year Ending June 30^th
		Year Ending June 30^th

		2007	$	1,095,474	.
		2008		726,355	.
		2009		724,856	.
		2010		454,653	.
		2011		181,092	.
		Thereafter		0	.


			$	3,182,429	.





	Rent Expense is categorized under Office Expense within these financial statements. Rent Expense for the years ended June 30, 2006 and 2005 equaled $1,324,333. and $1,103,474., respectively.

NOTE F -	Lines of Credit and Equipment Loan:

	The Company maintains a Loan Agreement with Citizens Bank of Massachusetts (the Bank). Funds from the following credit facilities are used in the operations of The Division:

			Amount

		Equipment Line of Credit	$	1,500,000. Annually

	Funds are drawn from the Equipment Line of Credit approximately biannually and are immediately converted to Term Loans. All of the facilities bear interest at LIBOR plus 1.25 -2.00% (determined based on the ratio of the Company’s Funded Indebtedness to EBITDA). The term“Funded Indebtedness” shall mean all indebtedness owing by the Borrower to the Bank at the time of testing excluding the Working Capital Line of Credit.

THE ACCOMPANYING LETTER OF TRANSMITTAL AND NOTES
ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS

(11)

PUBLIC CONSULTING GROUP, INC.
BENEFIT SOLUTIONS PRACTICE AREA
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2006 AND JUNE 30, 2005

NOTE F -	Lines of Credit and Equipment Loan – Cont’d:

	The outstanding balance, current maturity, and interest rate on these loans were as follows:

			As of June 30, 2006

			Outstanding			Short Term
			Balance			Portion
			Allocated			Allocated		Interest
			to Division			to Division		Rate

	Term Loans #2-3	$	505,856	.	$	286,136	.	6.36	%
	Term Loan #1		68,835	.		68,835	.	6.6	%

		$	574,691	.	$	354,971	.

			As of June 30, 2006

			Outstanding			Short Term
			Balance			Portion
			Allocated			Allocated		Interest
			to Division			to Division		Rate

	Term Loan #2	$	427,751	.	$	171,001	.	4.61	%
	Term Loan #1		247,963	.		171,945	.	4.6	%

		$	675,714	.	$	342,946	.

	All loan payments are made by The Company, not The Division. Accordingly, no aggregate principal payments on loans are reflected in these financial statements. The Company has pledged Equipment to secure the Term Notes.

THE ACCOMPANYING LETTER OF TRANSMITTAL AND NOTES
ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS

(12)

PUBLIC CONSULTING GROUP, INC.
BENEFIT SOLUTIONS PRACTICE AREA
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2006 AND JUNE 30, 2005

NOTE G -	Related Party Transactions:

	The Company rents office space for use by The Division from the following commonly owned affiliates: PCG Land Ventures, LLC – Chelsea, MA 148 State Street, LP – Boston, MA Rental payments to affiliates, apportioned to The Division based on estimated space occupied, were as follows for the years ended June 30, 2006 and 2005:
			6/30/06			6/30/05

	PCG Land Ventures, LLC	$	294,488	.	$	255,402	.
	148 State Street, LP		34,758	.		36,662	.

		$	329,246	.	$	292,064	.


	The Company, from time to time, makes certain payments for affiliates. Accounts receivable from affiliates, attributable to The Division, was as follows for the years ended June 30, 2006 and 2005:

			6/30/06			6/30/05

	PCG Land Ventures, LLC	$	9,170	.	$	31,276	.
	PCG Land Ventures III, LLC		-0-			622	.

		$	9,170	.	$	31,898	.

NOTE H -	Subsequent Events:

	During June 2006, the Company’s stockholders agreed to sell the assets of the Division to a publicly traded company for an amount in excess of book value.

THE ACCOMPANYING LETTER OF TRANSMITTAL AND NOTES
ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS

(13)

PUBLIC CONSULTING GROUP, INC.
BENEFIT SOLUTIONS PRACTICE AREA

FINANCIAL STATEMENTS

JULY 1, 2003 - JUNE 30, 2005

TABLE OF CONTENTS

Report of Certified Public Accountant	1

Comparative Balance Sheets as of June 30, 2005 and June 30, 2004	2-3

Comparative Statements of Income and Retained Earnings For the Years Ended June 30, 2005 and June 30, 2004	4

Comparative Statements of Cash Flows For the Years Ended June 30, 2005 and June 30, 2004	5

Notes to Financial Statements as of June 30, 2005 and June 30, 2004	6-13

August 14, 2006

Public Consulting Group, Inc.
Benefit Solutions Practice Area
148 State Street
Tenth Floor
Boston, MA 02109

Board of Directors and Stockholders:

We have audited the accompanying comparative balance sheet of Public Consulting Group, Inc. – Benefit Solutions Practice Area for the years ended June 30, 2005 and June 30, 2004, and the related comparative statements of earnings and retained earnings and statements of 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.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Public Consulting Group, Inc. – Benefit Solutions Practice Area, as of June 30, 2005 and June 30, 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.

Very truly yours,

Neal A. Price & Company, LLP

NAP&C:pcp

(1)

PUBLIC CONSULTING GROUP, INC.
BENEFIT SOLUTIONS PRACTICE AREA
COMPARATIVE BALANCE SHEETS
FOR THE YEARS ENDED JUNE 30, 2005 AND JUNE 30, 2004

ASSETS

		June 30,			June 30,
		2005			2004


Current Assets:
Cash - Checking	$	33,939		$	94,870
Accounts Receivable		16,085,059			18,051,759
Accounts Receivable - Affiliates		31,898			123,490
Prepaid Expenses		110,897			252,240
Due From Public Consulting Group, Inc.		6,893,619			2,321,460


Total Current Assets		23,155,412			20,843,819

Fixed Assets:
Computers & Equipment	$	1,521,457		$	1,193,872
Furniture and Fixtures		553,352			302,186
Improvements		69,683			45,267

Total		2,144,492			1,541,325
Less: Accumulated Depreciation		(1,174,658	)		(805,037	)


Total Fixed Assets		969,834			736,288

Other Assets:
Deposits	$	48,841		$	25,617
Cash Surrender Value - Life Insurance		229,254			185,332


Total Other Assets		278,095			210,949


Total Assets	$	24,403,341		$	21,791,056

THE ACCOMPANYING LETTER OF TRANSMITTAL AND NOTES
ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS

(2)

PUBLIC CONSULTING GROUP, INC.
BENEFIT SOLUTIONS PRACTICE AREA
COMPARATIVE BALANCE SHEETS
FOR THE YEARS ENDED JUNE 30, 2005 AND JUNE 30, 2004

LIABILITIES & SHAREHOLDERS' EQUITY

		June 30,		June 30,
		2005		2004


Current Liabilities:
Accounts Payable	$	1,539,269	$	1,794,483
Accrued Expenses		11,222,180		11,525,383
Accrued Pension		200,081		222,449
Equipment Loans Payable		342,946		201,588


Total Current Liabilities		13,304,476		13,743,903

Long-Term Liabilities
Equipment Loans Payable	$	332,768	$	142,594
Deferred Taxes		211,419		211,419


Total Long-Term Liabilities		544,187		354,013

Total Liabilities		13,848,663		14,097,916

Shareholders' Equity:
Retained Earnings	$	10,554,678	$	7,693,140


Total Shareholders' Equity		10,554,678		7,693,140


Total Liabilities &
Shareholders' Equity	$	24,403,341	$	21,791,056

THE ACCOMPANYING LETTER OF TRANSMITTAL AND NOTES
ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS

(3)

PUBLIC CONSULTING GROUP, INC.
BENEFIT SOLUTIONS PRACTICE AREA
COMPARATIVE STATEMENTS OF INCOME AND RETAINED EARNINGS

FOR THE YEARS ENDED JUNE 30, 2005 AND JUNE 30, 2004

		June 30,		June 30,
		2005		2004


Revenue	$	39,963,558	$	35,032,362

Operating Expenses:
Advertising/Business Promotion		7,966		403
Business Services		93,436		82,186
Contract & Temporary Labor		7,776,569		5,460,260
Depreciation & Amortization		369,622		255,951
Employee Related Expenses		259,741		83,777
I.T./Communications		665,483		538,088
Insurance		8,500		17,170
Office Expense		3,092,295		1,984,747
Other Employee Benefits		1,961,045		1,435,195
Other Expenses		73,578		71,858
Salaries		11,491,944		10,226,537
Professional Fees		161,575		74,952
Travel & Entertainment		893,331		722,997


Total Operating Expenses		26,855,085		20,954,121


Operating Income	$	13,108,473	$	14,078,241

General & Administrative Expenses		10,246,935		10,988,072


Net Income	$	2,861,538	$	3,090,169

Add: Retained Earnings, Beginning		7,693,140		4,602,971


Retained Earnings, Ending	$	10,554,678	$	7,693,140

THE ACCOMPANYING LETTER OF TRANSMITTAL AND NOTES
ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS

(4)

PUBLIC CONSULTING GROUP, INC.
BENEFIT SOLUTIONS PRACTICE AREA
COMPARATIVE STATEMENT OF CASH FLOWS

FOR THE YEARS ENDED JUNE 30, 2005 AND JUNE 30, 2004

		June 30,			June 30,
		2005			2004


CASH FLOWS FROM OPERATIVING ACTIVITIES:
Net Income	$	2,861,538		$	3,090,169
Noncash Items Included in Net Income
Depreciation & Amortization		369,622			255,951
Changes in:
Accounts Receivable		2,058,292			(2,102,007	)
Prepaid Expenses		141,343			(252,240	)
Due from Public Consulting Group, Inc.		(4,572,159	)		(3,527,833	)
Cash Surrender Value –		(43,922	)		(116,646	)
Accounts Payable & Accrued Payroll		(580,785	)		4,109,098


NET CASH PROVIDED BY (USED BY)
OPERATING ACTIVITIES	$	233,929		$	1,456,492

CASH FLOWS FROM INVESTING ACTIVITIES:
Capital Expenditures	$	(603,168	)	$	(495,197	)
Deposits		(23,224	)		(5,303	)


NET CASH PROVIDED BY (USED BY)
INVESTING ACTIVITIES	$	(626,392	)	$	(500,500	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Net Borrowings on Loans Payable	$	331,532		$	(913,745	)


NET CASH PROVIDED BY (USED BY)
FINANCING ACTIVITIES	$	331,532		$	(913,745	)


NET INCREASE (DECREASE) IN CASH	$	(60,931	)	$	42,247

CASH, BEGINNING OF PERIOD		94,870			52,623


CASH, END OF PERIOD	$	33,939		$	94,870

THE ACCOMPANYING LETTER OF TRANSMITTAL AND NOTES
ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS

(5)

PUBLIC CONSULTING GROUP, INC.
BENEFIT SOLUTIONS PRACTICE AREA
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2005 AND JUNE 30, 2004

NOTE A -

Summary of Significant Accounting Policies:

As cash used in the operations of The Division is funded by The Company, The Division paid no cash for interest and income taxes during the years ended June 30, 2005 and 2004.

Accounts Receivable – The Division uses the allowance method to account for uncollectible accounts receivable. Accounts receivable are presented net of an allowance for doubtful accounts of $115,000. and $34,750. at June 30, 2005 and June 30, 2004, respectively.

THE ACCOMPANYING LETTER OF TRANSMITTAL AND NOTES
ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS

(6)

PUBLIC CONSULTING GROUP, INC.
BENEFIT SOLUTIONS PRACTICE AREA
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2005 AND JUNE 30, 2004

NOTE A -	Summary of Significant Accounting Policies - Cont’d:

	Fixed Assets - Property and equipment are recorded at cost. Depreciation is provided over the estimated useful lives of the related assets using the straight-line method for financial statement purposes. The Company uses other depreciation methods for tax purposes where appropriate. Amortization of leasehold improvements is computed using the straight-line method over the shorter of the remaining lease term or the estimated useful lives of the improvements. Prior to July 1, 2003, The Company did not account for the Fixed Assets of The Division separately from other divisions of The Company. Therefore, management of The Company was required to make certain assumptions to estimate the beginning Fixed Asset and Accumulated Depreciation balances of The Division as of that date. Revenue Recognition – Revenue is recognized in accordance with generally accepted accounting principles consistently applied and as modified in accordance with the principles set forth below:


		Revenue from Recoveriesis recognized in the period in which all of the following conditions have been met:

		(i)	All required work has been performed, and

		(ii)	The client has received payment from the responsible third party.

		Revenue from addition of names to insurance rollsis recognized in the period in which all of the following conditions have been met:

		(i)	All required work has been performed, and

		(ii)	The data has been delivered to the client.

THE ACCOMPANYING LETTER OF TRANSMITTAL AND NOTES
ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS

(7)

PUBLIC CONSULTING GROUP, INC.
BENEFIT SOLUTIONS PRACTICE AREA
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2005 AND JUNE 30, 2004

NOTE A -	Summary of Significant Accounting Policies - Cont’d:

		Revenue from identification and recoupment of healthcare claims for State Medicaid agenciesis recognized in the period in which all of the following conditions have been met:

		(i)	All required work has been performed, and

		(ii)	The data has been delivered to the client.

	Use of Estimates - The preparation of financial statements, in conformity with generally accepted accounting principles, requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. Prior to July 1, 2003, The Company did not account for The Division separately from other divisions of The Company. Therefore, management of The Company was required to make certain assumptions and use ratio analysis to estimate the balance of certain assets and liabilities of The Division as of that date. Management believes that the assumptions and estimates used to compile the July 1, 2003 opening Balance Sheet would not impact materially the Profit and Loss (Income Statements) of The Division for the years ended June 30, 2005 and June 30, 2004. General & Administrative Expenses represent costs of The Company, allocated to The Division based on The Division’s revenue as a percentage of The Company’s revenue. These costs consist of salaries, benefits, and other corporate costs of the Executive, Human Resources, Information Technology, Marketing, Legal, and Finance Departments of The Company.

THE ACCOMPANYING LETTER OF TRANSMITTAL AND NOTES
ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS

(8)

PUBLIC CONSULTING GROUP, INC.
BENEFIT SOLUTIONS PRACTICE AREA
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2005 AND JUNE 30, 2004

NOTE B -	Income Tax Expense:

	The Company, with the consent of its Shareholders, elected under the Internal Revenue Code Section 1372(a) to be an "S" Corporation, effective July 1, 1995. In lieu of Corporate Income Taxes, the Shareholders of an "S" Corporation are taxed on their proportionate share of the Company's Taxable Income. Therefore, no provision of liability for Federal Income Taxes has been included in the financial statements. For State Income Tax purposes, as required by the Code of Massachusetts Regulations #62.17A. 1, "S" Status is not available for Corporations generating in excess of $6,000,000. in Total Receipts in a taxable year. The Commonwealth of Massachusetts imposes a 4.5% Tax on the Net Taxable Income of the Corporation. The Company recorded a provision for State Income Taxes in the amount of $47,425. and $33,424. at June 30, 2005 and June 30, 2004, respectively. The Division was allocated a portion of this, based on The Division’s revenue as a percentage of The Company’s revenue, in an amount equal to $22,076. and $15,931. at June 30, 2005 and June 30, 2004, respectively. These amounts are included in the General & Administrative Expenses of The Division. Massachusetts Department of Revenue Exam – In 2004, the Massachusetts Department of Revenue completed an examination of the Company’s Use Tax returns for 2002 and 2003. The examining agent proposed adjustments that resulted in additional state sales taxes for those years of approximately $57,074. plus interest.

NOTE C -	Deferred Taxes:

	Pursuant to Internal Revenue Code Section 1374, a “Built in Gains” Tax is assessed upon the conversion of a “C” Corporation to an “S” Corporation. The Built in Gains Tax is a tax assessed to an “S” Corporation when the Corporation has built in gains as defined by Internal Revenue Code Section 1374 (d)(2).

THE ACCOMPANYING LETTER OF TRANSMITTAL AND NOTES
ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS

(9)

PUBLIC CONSULTING GROUP, INC.
BENEFIT SOLUTIONS PRACTICE AREA
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2005 AND JUNE 30, 2004

NOTE C -	Deferred Taxes – Cont’d:

	As a result of this provision, The Company recorded a Deferred Tax Liability upon it’s conversion to an “S” Corporation, on July 1, 1995, in the amount of $556,365. The Division has been allocated a portion of this Deferred Tax Liability, based on an estimate of The Division’s revenue as a percentage of The Company’s revenue for the year ended June 30, 1995, in an amount equal to $211,419. This Deferred Tax Liability will reverse on July 1, 2006.

NOTE D -	Profit Sharing Plan:

	The Company instituted a 401(k) Profit Sharing Plan effective July 1, 1991, which covers all eligible employees. Company matching contributions to the Plan are at the discretion of the Board of Directors, but may not exceed the maximum allowable deduction permitted under the Internal Revenue Code at the time of the contribution. The Company matching contribution for employees of The Division, net of estimated forfeitures, equaled $200,081. and $222,449. for the years ended June 30, 2005 and June 30, 2004, respectively.

NOTE E -	Lease Commitments:

	The Division conducts its operations from offices located in Boston, Massachusetts; Charlotte, North Carolina; Anchorage, Alaska; Phoenix, Arizona; Oakland, California; Tallahassee, Florida; Atlanta, Georgia; Boise, Idaho; Chelsea, Massachusetts; Reno, Nevada; Albany, New York; Raleigh, North Carolina; Austin, Texas; and Charleston, West Virginia. All office space is leased under non-cancelable operating leases. Certain leases include renewal provisions at the Company’s option.

THE ACCOMPANYING LETTER OF TRANSMITTAL AND NOTES
ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS

(10)

PUBLIC CONSULTING GROUP, INC.
BENEFIT SOLUTIONS PRACTICE AREA
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2005 AND JUNE 30, 2004

NOTE E -	Lease Commitments – Cont’d:

	Future minimum rental commitments are as follows:

				Minimum
		Year Ending		Rental
		June 30^th		Commitments


		2006	$	1,194,822	.
		2007		1,046,931	.
		2008		992,738	.
		2009		997,321	.
		2010		420,704	.
		Thereafter		28,980	.


			$	4,681,497	.


	Rent Expense is categorized under Office Expense within these financial statements. Rent Expense for the years ended June 30, 2005 and 2004 equaled $1,103,474. and $886,543. accordingly.



NOTE F -	Lines of Credit and Equipment Loan:

	The Company maintains a Loan Agreement with Citizens Bank of Massachusetts (the Bank). Funds from the following credit facilities are used in the operations of The Division:

			Amount

		Equipment Line of Credit	$	1,500,000	.
		Term Note		975,690	.

	All of the facilities bear interest at LIBOR plus 1.25 -2.00% (determined based on the ratio of the Company’s Funded Indebtedness to EBITDA). The term“Funded Indebtedness” shall mean all indebtedness owing by the Borrower to the Bank at the time of testing excluding the Working Capital Line of Credit.

THE ACCOMPANYING LETTER OF TRANSMITTAL AND NOTES
ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS

(11)

PUBLIC CONSULTING GROUP, INC.
BENEFIT SOLUTIONS PRACTICE AREA
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2005 AND JUNE 30, 2004

NOTE F -	Lines of Credit and Equipment Loan – Cont’d:

	The outstanding balance, current maturity, and interest rate on each of these loans was as follows:

		As of June 30, 2005

		Outstanding			Short Term
		Balance			Portion
		Allocated			Allocated			Interest
		to Division			to Division			Rate

	Equipment Loan	$	427,751	.	$	171,001	.	4.61	%
	Term Note		247,963	.		171,945	.	4.6	%

		$	675,714	.	$	342,946	.


			As of June 30, 2005

		Outstanding			Short Term
		Balance			Portion
		Allocated			Allocated			Interest
		to Division			to Division			Rate

	Equipment Loans	$	344,182	.	$	201,588	.	3.11	%


	All loan payments are made by The Company, not The Division. Accordingly, no aggregate principal payments on loans are reflected in these financial statements. The Company has pledged Equipment to secure the Term Notes.

THE ACCOMPANYING LETTER OF TRANSMITTAL AND NOTES
ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS

(12)

PUBLIC CONSULTING GROUP, INC.
BENEFIT SOLUTIONS PRACTICE AREA
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2005 AND JUNE 30, 2004

NOTE G -	Related Party Transactions:

	The Company rents office space for use by The Division from the following commonly owned affiliates: PCG Land Ventures, LLC – Chelsea, MA 148 State Street, LP – Boston, MA Rental payments to affiliates, apportioned to The Division based on estimated space occupied, were as follows for the years ended June 30, 2005 and 2004:

			6/30/05			6/30/04

	PCG Land Ventures, LLC	$	255,402	.	$	306,000	.
	148 State Street, LP		36,662	.		35,609	.

		$	292,064	.	$	341,609	.


	The Company, from time to time, makes certain payments for affiliates. Accounts receivable from affiliates, attributable to The Division, was as follows for the years ended June 30, 2005 and 2004:

			6/30/05			6/30/04

	PCG Land Ventures, LLC	$	31,276	.	$	22,230	.
	PCG Land Ventures III, LLC		622	.		101,260	.

		$	31,898	.	$	123,490	.


NOTE H -	Subsequent Events – During June 2006, the Company’s stockholders agreed to sell the assets of the Division to a publicly traded company for an amount in excess of book value.

THE ACCOMPANYING LETTER OF TRANSMITTAL AND NOTES
ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS

(13)

HMS (HMSY) 8-K/AFinancial Statements and Exhibits