HARRISON LAW, P.A.
Diane J. Harrison Bar Admissions: Florida and Nevada | 6860 Gulfport Blvd. S. PMB 162 South Pasadena, Florida 33707 Phone: (941) 723-7564 Fax: (941) 531-4935 HarrisonDJEsq@tampabay.rr.com |
February 12, 2007
Mr. John Cannarella,
Staff Accountant
Division of Corporation Finance
U.S. Securities and Exchange Commission
Mail Stop 3561
100 F Street, NE
Washington D.C., 20549
Re:
Contracted Services, Inc. (the “Company”)
File No. 333-136643
Revised Financial Statements
Dear Mr. Cannarella:
As per your discussions with Randall N. Drake, CPA, the Company’s PCAOB auditor, and Jay Solomon, CPA, the Company’s accountant, please find below revised financials for Contracted Services, Inc.
You may contact Randall N. Drake at (727) 536-4863 or Jay Solomon at (727) 322-5111 regarding the financials or me at (941) 723-7564 regarding any other questions or comments.
Sincerely,
/s/ Diane J. Harrison
Diane J. Harrison, Esq.
Enclosure (1)
F-1
ENCLOSURE
Contracted Services, Inc.
Draft FINANCIAL STATEMENTS
F-2
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and
Stockholders of Contracted Services, Inc.
F-3
CONTRACTED SERVICES, INC.
BALANCE SHEET
As of September 30, 2006 and 2005
(Unaudited)
|
|
|
|
| Sep 30, 06 |
| Sep 30, 05 |
ASSETS |
|
|
|
|
| ||
| Current Assets |
|
|
| |||
|
| Cash and Cash Equivalents | 15,827.85 |
| 37,636.59 | ||
|
| Accounts Receivable | 30,573.62 |
| 7,443.35 | ||
|
| Loans to Shareholder | 1,617.09 |
| (1,938.94) | ||
| Total Current Assets | 48,018.56 |
| 43,141.00 | |||
| Fixed Assets |
|
|
| |||
|
| Computer Equipment | 2,365.00 |
| 2,365.00 | ||
|
| Mowing Equipment | 19,112.98 |
| 27,420.68 | ||
|
| Vehicles | 31,115.88 |
| 73,981.16 | ||
|
| Less: Accumulated Depreciation | (15,574.85) |
| (52,367.36) | ||
| Total Fixed Assets | 37,019.01 |
| 51,399.48 | |||
|
|
|
|
|
|
|
|
| Other Assets |
|
|
| |||
|
| Note Receivable - Idocubox - Note C | 12,500.00 |
| 20,000.00 | ||
| Total Other Assets | 12,500.00 |
| 20,000.00 | |||
TOTAL ASSETS | 97,537.57 |
| 114,540.48 | ||||
LIABILITIES & EQUITY |
|
|
| ||||
| Current Liabilities |
|
|
| |||
|
| Accounts Payable | 20,418.38 |
| 1,756.22 | ||
|
| Sales Tax Payable | 975.70 |
| (945.77) | ||
|
| Provision for Income Taxes | 286.00 |
| 0.00 | ||
|
| Current Portion of Long-Term Liabilities - Note D | 7,000.00 |
| 10,000.00 | ||
| Total Current Liabilities | 28,680.08 |
| 10,810.45 | |||
| Long Term Liabilities |
|
|
| |||
|
| Notes Payable - Long Term - Note D | 32,500.07 |
| 31,871.88 | ||
| Total Long Term Liabilities | 32,500.07 |
| 31,871.88 | |||
TOTAL LIABILITIES | 61,180.15 |
| 42,682.33 | ||||
| Stockholders- Equity: - Note G |
|
|
| |||
|
| Common Stock, $.01 par value, 75,000,000 shares | 13,550.00 |
| 12,500.00 | ||
|
| authorized, 1,355,000 shares issued and outstanding |
|
| |||
|
| Paid-In-Capital | 26,069.67 |
| (4,530.00) | ||
|
| Stock Subscription Receivable | (5.00) |
| 0.00 | ||
|
| Retained Earnings | (3,257.25) |
| 63,888.15 | ||
| Total Equity | 36,357.42 |
| 71,858.15 | |||
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY | 97,537.57 |
| 114,540.48 | ||||
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| See accompanying notes and accountant's report. |
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| ||||
F-4
CONTRACTED SERVICES, INC.
STATEMENTS OF OPERATIONS – As Restated
For the Nine Month Periods Ended September 30, 2006 and 2005
(Unaudited)
|
|
|
|
|
| Jan - Sep 06 |
| Jan - Sep 05 |
|
| Revenues |
|
|
|
| ||
|
|
| Sales - Computer Maintenance & Repairs | 129,771.50 |
| 129,564.40 | ||
|
|
| Sales - Lawn Mowing Service | 0.00 |
| 18,365.26 | ||
|
|
| Miscellaneous Income | 0.00 |
| 570.29 | ||
|
|
|
|
|
| 129,771.50 |
| 148,499.95 |
|
| Operating Expenses: |
|
|
| |||
|
|
| Advertising | 3,565.62 |
| 183.63 | ||
|
|
| Automobile Expense | 5,260.87 |
| 3,457.84 | ||
|
|
| Bad Debts | 2,499.75 |
| 0.00 | ||
|
|
| Bank Fees | 512.00 |
| 239.06 | ||
|
|
| Contracted Labor | 1,115.00 |
| 0.00 | ||
|
|
| Cost of Goods | 39,075.26 |
| 17,886.63 | ||
|
|
| Depreciation Expense | 13,891.64 |
| 22,000.00 | ||
|
|
| Donations - Charitable | 0.00 |
| 1,000.00 | ||
|
|
| Dues and Subscriptions | 1,304.70 |
| 916.16 | ||
|
|
| Employee Leasing | 40,320.00 |
| 73,201.94 | ||
|
|
| Gifts |
| 0.00 |
| 412.89 | |
|
|
| Insurance | (510.56) |
| 9,352.07 | ||
|
|
| Interest Expense | 3,173.75 |
| 867.29 | ||
|
|
| Legal & Professional Fees Fees | 18,655.00 |
| 1,699.00 | ||
|
|
| Materials | 3,081.48 |
| 606.48 | ||
|
|
| Merchant Services | 15.00 |
| 0.00 | ||
|
|
| Miscellaneous | 0.00 |
| 234.43 | ||
|
|
| Mowing Expenses | 443.76 |
| 13,097.67 | ||
|
|
| Office Supplies | 724.96 |
| 2,330.89 | ||
|
|
| Officers Compensation | 2,880.00 |
| 2,880.00 | ||
|
|
| Penalties | 470.17 |
| 151.84 | ||
|
|
| Postage and Delivery | 1,124.19 |
| 849.48 | ||
|
|
| Professional Development | 0.00 |
| 175.00 | ||
|
|
| Rent |
| 164.80 |
| 3,746.85 | |
|
|
| Repairs | 0.00 |
| 260.47 | ||
|
|
| Software Support | 89.85 |
| 273.89 | ||
|
|
| Telephone | 4,212.68 |
| 9,464.06 | ||
|
|
| Travel & Entertainment | 879.67 |
| 506.80 | ||
|
|
| Utilities | 103.00 |
| 1,150.76 | ||
|
|
|
|
|
| 143,052.59 |
| 166,945.13 |
|
|
|
|
|
| (13,281.09) |
| (18,445.18) |
|
| Other Income |
|
|
| |||
|
|
| Gain on Sale of Assets | 12,309.84 |
| 71,910.82 | ||
|
|
|
|
|
| 12,309.84 |
| 71,910.82 |
|
| Income (Loss) Before Provision for Income Taxes | (971.25) |
| 53,465.64 | |||
|
|
|
|
|
|
|
|
|
|
| Provision for Income Taxes |
|
|
| |||
|
|
| Current Tax Provision | 286.00 |
| 0.00 | ||
|
|
| Deferred Taxes | 0.00 |
| 0.00 | ||
|
|
|
|
|
| 286.00 |
| 0.00 |
Net Income |
|
| (1,257.25) |
| 53,465.64 | |||
|
|
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|
Earnings per common share: - Note F |
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| |||||
| Net Income (Loss) per share | (0.00) |
| 0.04 | ||||
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See accompanying notes and accountant's report. | ||||||||
F-5
CONTRACTED SERVICES, INC.
STATEMENT OF CHANGES IN STOCKHOLDER'S EQUITY
For the Nine Month Period Ended September 30, 2006
(Unaudited)
|
| Common Stock | Contributed | Stock | Retained |
| |
|
| Shares | Amount | Capital | Sub. Rec. | Earnings | Total |
Balances at January 1, 2006 | 1,250,000 | $12,500.00 | ($3,570.00) |
| 27,767.67 | $36,697.67 | |
|
|
|
|
|
|
|
|
Net Income (Loss) |
|
|
|
| (1,257.25) | (1,257.25) | |
|
|
|
|
|
|
|
|
Constructive Distribution - S Corp. termination |
|
| 27,767.67 |
| (27,767.67) | 0.00 | |
|
|
|
|
|
|
|
|
AAA Distributions |
|
|
|
| (2,000.00) | (2,000.00) | |
|
|
|
|
|
|
|
|
Issuance of Capital Stock | 105,000 | 1,050.00 | (1,008.00) | -5.00 |
| $37.00 | |
|
|
|
|
|
|
|
|
Contributed Noncash Officers Compensation - Note H |
| 2,880.00 |
|
| $2,880.00 | ||
|
|
|
|
|
|
|
|
Balances at September 30, 2006 | 1,355,000 | $13,550.00 | $26,069.67 | ($5.00) | ($3,257.25) | $36,357.42 | |
See accompanying notes and accountant's report. |
F-6
CONTRACTED SERVICES, INC.
STATEMENT OF CASH FLOWS – As Restated
For The Nine Month Periods Ended September 30, 2006 and 2005
(Unaudited)
|
|
| Sep-06 | Sep-05 |
OPERATING ACTIVITIES: |
|
| ||
| Net Income (Loss) | (1,257.25) | 53,465.64 | |
| Adjustments to reconcile Net Income (Loss) |
|
| |
| to net cash provided by operations: |
|
| |
|
| Depreciation | 13,891.64 | 22,000.00 |
|
| Gain on Sale of Assets | (12,309.84) | (71,910.82) |
|
| Noncash Officers Compensation | 2,880.00 | 2,880.00 |
| (Increase) Decrease in: |
|
| |
|
| Accounts Receivable | (29,416.77) | 6,069.64 |
| Increase (Decrease) in: |
|
| |
|
| Accounts Payable | 12,346.22 | (2,369.12) |
|
| Sales Tax Payable | 864.33 | (1,032.66) |
|
| Provision for Income Taxes | 286.00 | 0.00 |
|
|
| (12,715.67) | 9,102.68 |
INVESTING ACTIVITIES: |
|
| ||
| Purchase of Fixed Assets | 0.00 | (42,083.57) | |
| Proceeeds from Sale of Assets | 15,500.00 | 110,212.94 | |
| Shareholder Loans | (1,610.00) | 306.37 | |
| Issuance of Notes Receivable | 0.00 | (20,000.00) | |
| Payments Received on Notes Receivable | 7,500.00 | 0.00 | |
|
|
| 21,390.00 | 48,435.74 |
FINANCING ACTIVITIES: |
|
| ||
| Issuance of Capital Stock | 37.00 | 250.00 | |
| Payments on Notes Payable | (10,459.41) | (22,330.54) | |
| Shareholder AAA Distributions | (2,000.00) | (4,150.00) | |
|
|
| (12,422.41) | (26,230.54) |
NET CASH INCREASE (DECREASE) FOR THE YEAR | (3,748.08) | 31,307.88 | ||
BEGINNING CASH | 19,575.93 | 6,328.71 | ||
ENDING CASH | 15,827.85 | 37,636.59 | ||
|
|
|
|
|
SUPPLEMENTAL DISCLOSURE: |
|
| ||
| Interest Expense | $3,173.75 | $867.29 | |
| Income Tax | $0.00 | $0.00 | |
|
|
|
|
|
Noncash Investing & Financing Activities: |
|
| ||
| Cost of fixed asset trade-in | $54,863.29 | $0.00 | |
| Accumulated depreciation on fixed asset trade-in | $33,795.79 | $0.00 | |
| Note Payable Proceeds from trade-in | $40,586.86 | $0.00 | |
| Note Payable Paid off from trade-in | $30,538.48 | $0.00 | |
| Stock Subscription Receivable | $5.00 | $0.00 | |
| Noncash Officers Compensation | $2,880.00 | $2,880.00 | |
See accompanying notes and accountant's report. | ||||
F-7
CONTRACTED SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
September 30, 2006
NOTE A – ORGANIZATION AND NATURE OF BUSINESS
The Company was incorporated June 30, 2000 in the State of Florida. The Company is a computer consulting company and a commercial lawn maintenance company and is located in St. Petersburg, Florida.
NOTE B – SIGNIFICANT ACCOUNTING POLICIES
Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers all short-term securities with a maturity of three months or less to be cash equivalents.
Fixed Assets
Property and equipment are stated at cost. Depreciation is computed using accelerated methods over the estimated useful lives of the assets, ranging from five to seven years. Expenditures for major renewals and betterments that extend the useful lives of property and equipment are capitalized. Expenditures for maintenance and repairs are charged to expense as incurred.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires the corporation to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates.
Revenue Recognition
The Company generates revenue by providing services in the field of computer consulting and commercial lawn maintenance. The Company recognizes its revenue when consulting services and commercial lawn maintenance have been completed and its customers are billed.
Income Taxes
The Company had elected to be taxed under the provisions of Subchapter S of the Internal Revenue Code. Under those provisions, the Company does not pay federal income taxes on its taxable income and is not allowed a net operating loss carryover or carryback as a deduction. Instead, the stockholders are liable for individual federal income taxes on their respective shares of the Company's taxable income and include their respective shares of the Company's net operating losses in their individual income tax returns. In 2006, the Company will be taxed under Subchapter C of the Internal Revenue Code. Income taxes are provided for the tax effects of transactions reported in the financial statements and consist of taxes currently due plus deferred taxes, if and when applicable, related primarily to differences between the bases of certain assets and liabilities for financial and tax reporting. Any deferred taxes would r epresent the future tax return consequences of those differences, which will either be taxable when the assets and liabilities are recovered or settled.
NOTE C – NOTE RECEIVABLE
The Company has a promissory note receivable from a party related by common ownership, Idocubox, in the amount of $20,000.00 dated September 21, 2005. The note is due on September 21, 2008 and interest is payable annually at a rate of 4.68% on any unpaid balance.
F-8
CONTRACTED SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
September 30, 2006
(continued)
NOTE D – NOTES PAYABLE
The Company has three notes payable to Ford Motor Credit Company. The first note is dated March 19, 2002 in the original amount of $24,036.43 and is payable in monthly installments of $431.34 over five (5) years with a fixed interest rate of 2.9%. This vehicle was sold and the note was paid in its entirety during the year. The note is secured by a 2002 Ford E-250 vehicle. The second note is dated January 16, 2004 in the original amount of $54,863.29 and is payable in monthly installments of $1,009.53 over five (5) years with a fixed interest rate of 3.9%. The note is secured by a 2004 Ford F-550 vehicle. This vehicle was traded in and the note was paid in its entirety during the year. The third note is dated June 20, 2006 in the original amount of $40,586.86 and is payable in monthly installments of $845.43 over five (5) years with a fixed interest rate of 8.99%. The note is secured by a 2007 Ford F-350 vehicle.
Scheduled principal maturities of the mortgage over the next five years are as follows:
Year ending December 31,
2007………………………………………………………….$ 7,028.34
2008………………………………………………………….$ 7.686.87
2009………………………………………………………….$ 8,407.11
2010………………………………………………………….$ 9,194.86
2011………………………………………………………….$ 5,521.98
NOTE E – RENT
The Company is leasing storage facilities on a month to month basis.
NOTE F – EARNINGS PER COMMON SHARE
Earnings (Loss) per common share of ($.00) for the nine month period ended were calculated based on a net income (loss) numerator of ($1,257.25) divided by a denominator of 1,323,193 shares of outstanding common stock (Average number of shares issued during the period ended September 30, 2006).
NOTE G – FORWARD STOCK SPLIT
On March 24, 2006 the Company’s Board received 42 executed stock subscription agreements for the purchase of stock in the corporation at $1.00 per share. After the sale of stock there were 542 shares total issued and outstanding. The Board filed amended and restated articles changing the par value to $0.01 per share resulting in 100 shares of stock for each share previously owned. This increased the shares issued and outstanding to 54,200 shares total. On April 28, 2006 the Company further ratified and authorized a 25:1 forward stock split that will result in 1,355,000 issued and outstanding shares. All references in these financial statements to amounts per share and number of shares outstanding have been restated to give effect to this stock split.
NOTE H – OFFICERS COMPENSATION
The Company recognized contributed noncash officers compensation for one of its officers who provides approximately 16 hours of service per month to the Company.
F-9
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and
Stockholders of Contracted Services, Inc.
F-10
CONTRACTED SERVICES, INC.
BALANCE SHEET
December 31, 2005
ASSETS | ||||||
| Current Assets: |
| ||||
|
| Cash and Cash Equivalents | 19,575.93 | |||
|
| Accounts Receivable | 1,156.85 | |||
|
| Loans to Shareholder | 7.09 | |||
| Total Current Assets | 20,739.87 | ||||
| Fixed Assets: |
| ||||
|
| Computer Equipment | 2,365.00 | |||
|
| Mowing Equipment | 27,420.68 | |||
|
| Vehicles | 73,981.16 | |||
|
| Less: Accumulated Depreciation | (59,714.41) | |||
| Total Fixed Assets | 44,052.43 | ||||
|
|
|
|
|
| |
| Other Assets: |
| ||||
|
| Note Receivable - Idocubox Note C | 20,000.00 | |||
| Total Other Assets | 20,000.00 | ||||
| TOTAL ASSETS | 84,792.30 | ||||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||
| Current Liabilities: |
| ||||
|
| Accounts Payable | 8,072.16 | |||
|
| Sales Tax Payable | 111.37 | |||
|
| Current Portion of Long-Term Liabilities - Note D | 14,878.87 | |||
| Total Current Liabilities | 23,062.40 | ||||
|
|
|
|
|
| |
| Long-Term Liabilities |
| ||||
|
| Notes Payable - Note D | 25,032.23 | |||
| Total Long-Term Liabilities | 25,032.23 | ||||
| TOTAL LIABILITIES | 48,094.63 | ||||
| Stockholders' Equity: - Note H |
| ||||
|
| Common Stock, $.01 par value, 75,000,000 shares |
| |||
|
| authorized, 1,250,000 shares issued and outstanding | 12,500.00 | |||
|
| Paid-In-Capital | (3,570.00) | |||
|
| Retained Earnings | 27,767.67 | |||
| Total Equity | 36,697.67 | ||||
| TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | 84,792.30 | ||||
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| The accompanying notes are an integral part of these financial statements | |||||
F-11
CONTRACTED SERVICES, INC.
STATEMENT OF OPERATIONS
For the Year Ended December 31, 2005
Revenues |
| |||||
| Sales - Computer Maintenance & Repairs | 144,403.68 | ||||
| Sales - Lawn Mowing Service | 18,365.26 | ||||
| Miscellaneous Income | 1,013.83 | ||||
|
|
|
| 163,782.77 | ||
Operating Expenses: |
| |||||
| Advertising | 588.63 | ||||
| Automobile Expense | 4,576.22 | ||||
| Bank Charges | 264.06 | ||||
| Contributions | 1,000.00 | ||||
| Cost of Goods Sold | 25,373.25 | ||||
| Depreciation | 29,347.05 | ||||
| Dues & Subscriptions | 1,173.13 | ||||
| Employee Leasing | 87,761.94 | ||||
| Insurance | 9,352.07 | ||||
| Interest Expense | 3,118.75 | ||||
| Legal & Professional Fees | 12,155.31 | ||||
| Materials | 627.82 | ||||
| Miscellaneous Expense | 464.00 | ||||
| Mowing Expenses | 13,651.64 | ||||
| Office Expense | 4,693.29 | ||||
| Officers Compensation - Note I | 3,840.00 | ||||
| Postage | 1,192.27 | ||||
| Rent - Note E | 3,782.18 | ||||
| Repairs & Maintenance | 260.47 | ||||
| Software Support | 993.88 | ||||
| Taxes |
| 33.69 | |||
| Telephone | 12,347.25 | ||||
| Travel & Entertainment | 565.80 | ||||
| Utilities | 1,185.73 | ||||
|
|
|
| 218,348.43 | ||
|
|
|
| (54,565.66) | ||
Other Income |
| |||||
| Gain on Sale of Assets - Note F | 71,910.82 | ||||
|
|
|
| 71,910.82 | ||
Net Income Before Provision for Income Taxes | 17,345.16 | |||||
Provision for Income Tax Expense |
| |||||
| Current Tax Provision | 0.00 | ||||
| Deferred Taxes | 0.00 | ||||
|
|
|
| 0.00 | ||
|
|
|
|
| ||
Net Income | 17,345.16 | |||||
|
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| ||
Earnings per common share: - Note G |
| |||||
| Net Income (Loss) per share - Note G | 0.01 | ||||
| The accompanying notes are an integral part of these financial statements | |||||
F-12
CONTRACTED SERVICES, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
For the Year Ended December 31, 2005
|
| Common Stock | Contributed | Retained |
| |
|
| Shares | Amount | Capital | Earnings | Total |
Balances at January 1, 2005 | 625,000 | $6,250.00 | ($1,410.00) | 14,572.51 | $19,412.51 | |
|
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|
|
Net Income (Loss) |
|
|
| 17,345.16 | 17,345.16 | |
|
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|
AAA Distribution |
|
|
| (4,150.00) | (4,150.00) | |
|
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|
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|
|
Issuance of Capital Stock | 625,000 | 6,250.00 | (6,000.00) |
| $250.00 | |
|
|
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|
|
Contributed Noncash Officers Compensation - Note I |
|
| 3,840.00 |
| $3,840.00 | |
|
|
|
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|
|
Balances at December 31, 2005 | 1,250,000 | $12,500.00 | ($3,570.00) | $27,767.67 | $36,697.67 | |
The accompanying notes are an integral part of these financial statements. |
F-13
CONTRACTED SERVICES, INC.
STATEMENT OF CASH FLOWS
For the Year Ended December 31, 2005
OPERATING ACTIVITIES: |
| ||
| Net Income (Loss) | 17,345.16 | |
| Adjustments to reconcile Net Income (Loss) |
| |
| to net cash provided by operations: |
| |
|
| Depreciation | 29,347.05 |
|
| Gain on Sale of Assets | (71,910.82) |
|
| Noncash Officers Compensation | 3,840.00 |
| (Increase) Decrease in: |
| |
|
| Accounts Receivable | 12,356.14 |
| Increase (Decrease) in: |
| |
|
| Accounts Payable | 3,946.82 |
|
| Sales Tax Payable | 24.48 |
|
|
| (5,051.17) |
INVESTING ACTIVITIES: |
| ||
| Proceeeds from Sale of Assets | 110,212.94 | |
| Purchase of Fixed Assets | (41,529.60) | |
| Issuance of Notes Receivable | (20,000.00) | |
| Shareholder Loans | (2,193.63) | |
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| 46,489.71 |
FINANCING ACTIVITIES: |
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| Issuance of Capital Stock | 250.00 | |
| Payments on Notes Payable | (24,291.32) | |
| Shareholder AAA Distributions | (4,150.00) | |
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| (28,191.32) |
NET CASH INCREASE (DECREASE) FOR THE YEAR | 13,247.22 | ||
BEGINNING CASH | 6,328.71 | ||
ENDING CASH | 19,575.93 | ||
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SUPPLEMENTAL DISCLOSURE: |
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| Interest Expense | $3,118.75 | |
| Income Tax | $0.00 | |
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| Noncash Investing and Financial Activities: |
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| Noncash Officers Compensation | $3,840.00 |
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The accompanying notes are an integral part of these financial statements. | |||
F-14
CONTRACTED SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 2005
NOTE A – ORGANIZATION AND NATURE OF BUSINESS
The Company was incorporated June 30, 2000 in the State of Florida. The Company is a computer consulting company and a commercial lawn maintenance company and is located in St. Petersburg, Florida.
NOTE B – SIGNIFICANT ACCOUNTING POLICIES
Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers all short-term securities with a maturity of three months or less to be cash equivalents.
Fixed Assets
Property and equipment are stated at cost. Depreciation is computed using accelerated methods over the estimated useful lives of the assets, ranging from five to seven years. Expenditures for major renewals and betterments that extend the useful lives of property and equipment are capitalized. Expenditures for maintenance and repairs are charged to expense as incurred.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires the corporation to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates.
Revenue Recognition
The Company generates revenue by providing services in the field of computer consulting and commercial lawn maintenance. The Company recognizes its revenue when consulting services and commercial lawn maintenance have been completed and its customers are billed.
Income Taxes
The Company has elected to be taxed under the provisions of Subchapter S of the Internal Revenue Code. Under those provisions, the Company does not pay federal income taxes on its taxable income and is not allowed a net operating loss carryover or carryback as a deduction. Instead, the stockholders are liable for individual federal income taxes on their respective shares of the Company's taxable income and include their respective shares of the Company's net operating losses in their individual income tax returns.
Reclassifications
Certain reclassifications and corrections were made to the financial statement presentation in order to properly reflect reporting of classifications of cash flows from shareholder loans, notes receivable recognition of noncash officers compensation.
NOTE C – NOTE RECEIVABLE
The Company has a promissory note receivable from a party related by common ownership, Idocubox, in the amount of $20,000.00 dated September 21, 2005. The note is due on September 21, 2008 and interest is payable annually at a rate of 4.68% on any unpaid balance.
F-15
CONTRACTED SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 2005
(continued)
NOTE D – NOTES PAYABLE
The Company has three notes payable to Ford Motor Credit Company. The first note is dated November 17, 2001 in the original amount of $17,117.87 and is payable in monthly installments of $354.53 over five (5) years with a fixed interest rate of 8.75%. The note is secured by a 2000 Ford E-350 vehicle. This vehicle was sold and the note was paid in its entirety during the year. The second note is dated March 19, 2002 in the original amount of $24,036.43 and is payable in monthly installments of $431.34 over five (5) years with a fixed interest rate of 2.9%. The note is secured by a 2002 Ford E-250 vehicle. The third note is dated January 16, 2004 in the
original amount of $54,863.29 and is payable in monthly installments of $1,009.53 over five (5) years with a fixed interest rate of 3.9%. The note is secured by a 2004 Ford F-550 vehicle.
Scheduled principal maturities of the mortgage over the next five years are as follows:
Year ending December 31,
2006………………………………………………………….$14,878.87
2007………………………………………………………….$11,339.37
2008………………………………………………………….$11,789.59
2009………………………………………………………….$ 1,903.27
2010………………………………………………………….$ 0.00
NOTE E – RENT
The Company is leasing its facilities under the terms of a one year lease dated October 10, 2003 that ended October 31, 2004 and was renewed for one additional year. The lease provides for payments of $650.00 per month plus state sales tax and was subject to a three percent increase upon lease renewal. On July 8, 2005 this lease was assigned and the Company obligation was terminated at the end of the extended lease term. The Company is leasing storage facilities on a month to month basis.
NOTE F – SALE OF ASSETS
The Company, on June 28, 2005, entered into an asset sale agreement in which the company sold its computer consulting operations, including equipment and inventory, to Etech Source, LLC for $105,000.00. Etech Source, LLC did not continue in the computer consulting business and the Company resumed its computer consulting operations in October 2005, prior to the end of the fiscal year. Therefore, the Company continues to report the computer consulting portion of the business as a continuing operation.
NOTE G – EARNINGS PER COMMON SHARE
Earnings (Loss) per common share of $.01 were calculated based on a net income (loss) numerator of $17,345.16 divided by a denominator of 1,250,000 shares of outstanding common stock (Average number of shares issued during the year ended December 31, 2005).
NOTE H – FORWARD STOCK SPLIT
On March 24, 2006 the Company’s Board received 42 executed stock subscription agreements for the purchase of stock in the corporation at $1.00 per share. After the sale of stock there were 542 shares total issued and outstanding. The Board filed amended and restated articles changing the par value to $0.01 per share resulting in 100 shares of stock for each share previously owned. This increased the shares issued and outstanding to 54,200 shares total. On April 28, 2006 the Company further ratified and authorized a 25:1 forward stock split that will result in 1,355,000 issued and outstanding shares. All references in these financial statements to amounts per share and number of shares outstanding have been restated to give effect to this stock split.
F-16
CONTRACTED SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 2005
(continued)
NOTE H – FORWARD STOCK SPLIT – (continued)
At December 31, 2005 the Company had 500 shares of common stock issued at $1.00 per share. As a result of the amended articles and 25:1 forward split the number of issued and outstanding shares is now restated to 1,250,000 shares.
NOTE I – OFFICERS COMPENSATION
The Company recognized contributed noncash officers compensation for one of its officers who provides approximately 16 hours of service per month to the Company.
F-17
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and
Stockholders of Contracted Services, Inc.
F-18
CONTRACTED SERVICES, INC.
BALANCE SHEET
December 31, 2004
ASSETS | |||||
| Current Assets: |
| |||
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| Cash and Cash Equivalents | 6,328.71 | ||
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| Accounts Receivable | 13,512.99 | ||
| Total Current Assets | 19,841.70 | |||
| Fixed Assets: |
| |||
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| Computer Equipment | 2,365.00 | ||
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| Mowing Equipment | 17,049.70 | ||
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| Vehicles | 102,452.59 | ||
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| Less: Accumulated Depreciation | (51,695.29) | ||
| Total Fixed Assets | 70,172.00 | |||
| TOTAL ASSETS | 90,013.70 | |||
LIABILITIES AND STOCKHOLDERS' EQUITY | |||||
| Current Liabilities: |
| |||
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| Accounts Payable | 4,125.34 | ||
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| Sales Tax Payable | 86.89 | ||
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| Current Portion of Long-Term Liabilities - Note C | 17,560.90 | ||
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| Loans from Shareholders | 2,186.54 | ||
| Total Current Liabilities | 23,959.67 | |||
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| Long-Term Liabilities |
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| Notes Payable - Note C | 46,641.52 | ||
| Total Long-Term Liabilities | 46,641.52 | |||
| TOTAL LIABILITIES | 70,601.19 | |||
| Stockholders' Equity: -Note F |
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| Common Stock, $.01 par value, 75,000,000 shares |
| ||
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| authorized, 625,000 shares issued and outstanding | 6,250.00 | ||
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| Paid-In-Capital - Note G | (1,410.00) | ||
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| Retained Earnings | 14,572.51 | ||
| Total Equity | 19,412.51 | |||
| TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | 90,013.70 | |||
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The accompanying notes are an integral part of these financial statements | |||||
F-19
CONTRACTED SERVICES, INC.
STATEMENT OF OPERATIONS
For the Year Ended December 31, 2004
Revenues |
| ||||
| Sales - Computer Maintenance & Repairs | 316,364.90 | |||
| Sales - Lawm Mowing Service | 0.00 | |||
| Miscellaneous Income | 4,258.42 | |||
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| 320,623.32 | |
Operating Expenses: |
| ||||
| Advertising | 560.04 | |||
| Automobile Expense | 9,251.94 | |||
| Bank Charges | 230.85 | |||
| Contract Labor | 920.16 | |||
| Contributions | 325.00 | |||
| Cost of Goods Sold | 79,176.94 | |||
| Depreciation | 22,810.34 | |||
| Dues & Subscriptions | 2,313.01 | |||
| Employee Leasing | 142,411.80 | |||
| Insurance | 5,797.00 | |||
| Interest Expense | 2,101.37 | |||
| Legal & Professional Fees | 85.00 | |||
| Licenses & Permits | 150.00 | |||
| Manuals | 23.90 | |||
| Materials | 888.19 | |||
| Miscellaneous Expense | 1,279.64 | |||
| Mowing Expenses | 797.53 | |||
| Office Expense | 3,505.89 | |||
| Officers Compensation - Note G | 3,840.00 | |||
| Postage | 2,505.67 | |||
| Rent - Note D | 9,473.11 | |||
| Repairs & Maintenance | 1,557.95 | |||
| Telephone | 14,841.69 | |||
| Travel & Entertainment | 1,594.63 | |||
| Utilities | 2,225.86 | |||
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| 308,667.51 | |
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Net Income Before Provision for Income Taxes | 11,955.81 | ||||
Provision for Pro Forma Income Tax Expense |
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| Current Tax Provision | 0.00 | |||
| Deferred Taxes | 0.00 | |||
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| 0.00 | |
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Pro Forma Net Income | 11,955.81 | ||||
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Earnings per common share: - Note E |
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| Net Income (Loss) per share | 0.02 | |||
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The accompanying notes are an integral part of these financial statements | |||||
F-20
CONTRACTED SERVICES, INC.
STATEMENT OF CHANGES IN STOCKHOLDER’S EQUITY
For the Year Ended December 31, 2004
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| Common Stock | Contributed | Retained |
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| Shares | Amount | Capital | Earnings | Total |
Balances at January 1, 2004 | 250 | $250.00 | $750.00 | 12,616.70 | $13,616.70 | |
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Net Income (Loss) |
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| 11,955.81 | 11,955.81 | |
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AAA Distribution |
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| (10,000.00) | (10,000.00) | |
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Forward Split @ April 28, 2006 | 624,750 | 6,000.00 | (6,000.00) |
| $0.00 | |
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Contributed Noncash Officers Compensation - Note G |
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| 3,840.00 |
| $3,840.00 | |
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Balances at December 31, 2004 | 625,000 | $6,250.00 | ($1,410.00) | $14,572.51 | $19,412.51 | |
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The accompanying notes are an integral part of these financial statements |
F-21
CONTRACTED SERVICES, INC.
STATEMENT OF CASH FLOWS
For the Year Ended December 31, 2004
OPERATING ACTIVITIES: |
| ||
| Net Income (Loss) | 11,955.81 | |
| Adjustments to reconcile Net Income (Loss) |
| |
| to net cash provided by operations: |
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| Depreciation | 22,810.34 |
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| Noncash Officers Compensation | 3,840.00 |
| (Increase) Decrease in: |
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| Accounts Receivable | 19,867.35 |
| Increase (Decrease) in: |
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| Accounts Payable | (4,183.05) |
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| Sales Tax Payable | (1,946.02) |
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| 52,344.43 |
INVESTING ACTIVITIES: |
| ||
| Purchase of Fixed Assets | (19,414.70) | |
| Shareholder Loans | (2,070.41) | |
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| (21,485.11) |
FINANCING ACTIVITIES: |
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| Payments on Notes Payable | (19,376.38) | |
| Shareholder AAA Distributions | (10,000.00) | |
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| (29,376.38) |
NET CASH INCREASE (DECREASE) FOR THE YEAR | 1,482.94 | ||
BEGINNING CASH | 4,845.77 | ||
ENDING CASH | 6,328.71 | ||
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SUPPLEMENTAL DISCLOSURE: |
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| Interest Expense | $2,101.37 | |
| Income Tax | $0.00 | |
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| Noncash Investing and Financial Activities: |
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| Purchase of Fixed Asset | ($54,863.29) |
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| Issuance of Note Payable | $54,863.29 |
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| Noncash Officers Compensation | $3,840.00 |
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The accompanying notes are an integral part of these financial statements. | |||
F-22
CONTRACTED SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 2004
NOTE A – ORGANIZATION AND NATURE OF BUSINESS
The Company was incorporated June 30, 2000 in the State of Florida. The Company is a computer consulting company and a commercial lawn maintenance company and is located in St. Petersburg, Florida.
NOTE B – SIGNIFICANT ACCOUNTING POLICIES
Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers all short-term securities with a maturity of three months or less to be cash equivalents.
Fixed Assets
Property and equipment are stated at cost. Depreciation is computed using accelerated methods over the estimated useful lives of the assets, ranging from five to seven years. Expenditures for major renewals and betterments that extend the useful lives of property and equipment are capitalized. Expenditures for maintenance and repairs are charged to expense as incurred.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires the corporation to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates.
Revenue Recognition
The Company generates revenue by providing services in the field of computer consulting and commercial lawn maintenance. The Company recognizes its revenue when consulting services and commercial lawn maintenance have been completed and its customers are billed.
Income Taxes
The Company has elected to be taxed under the provisions of Subchapter S of the Internal Revenue Code. Under those provisions, the Company does not pay federal income taxes on its taxable income and is not allowed a net operating loss carryover or carryback as a deduction. Instead, the stockholders are liable for individual federal income taxes on their respective shares of the Company's taxable income and include their respective shares of the Company's net operating losses in their individual income tax returns.
Reclassifications
Certain reclassifications and corrections were made to the financial statement presentation in order to properly reflect reporting of classifications of cash flows from shareholder loans, property and equipment acquired by incurring debt and recognition of noncash officers compensation.
F-23
CONTRACTED SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 2004
(continued)
NOTE C – NOTES PAYABLE
The Company has three notes payable to Ford Motor Credit Company. The first note is dated November 17, 2001 in the original amount of $17,117.87 and is payable in monthly installments of $354.53 over five (5) years with a fixed interest rate of 8.75%. The note is secured by a 2000 Ford E-350 vehicle. The second note is dated March 19, 2002 in the original amount of $24,036.43 and is payable in monthly installments of $431.34 over five (5) years with a fixed interest rate of 2.9%. The note is secured by a 2002 Ford E-250 vehicle. The third note is dated January 16, 2004 in the original amount of $54,863.29 and is payable in monthly installments of $1,009.53 over five (5) years with a fixed interest rate of 3.9%. The note is secured by a 2004 Ford F-550 vehicle.
Scheduled principal maturities of the mortgage over the next five years are as follows:
Year ending December 31,
2005………………………………………………………….$17,560.90
2006………………………………………………………….$19,926.50
2007………………………………………………………….$13,022.16
2008………………………………………………………….$11,789.59
2009………………………………………………………….$ 1,903.27
NOTE D – RENT
The Company is leasing its facilities under the terms of a one year lease dated October 10, 2003 that ended October 31, 2004 and was renewed for one additional year. The lease provides for payments of $650.00 per month plus state sales tax and was subject to a three percent increase upon lease renewal.
NOTE E – EARNINGS PER COMMON SHARE
Earnings (Loss) per common share of $.02 were calculated based on a net income (loss) numerator of $11,955.81 divided by a denominator of 625,000 shares of outstanding common stock (Average number of shares issued during the year ended December 31, 2004).
NOTE F – FORWARD STOCK SPLIT
On March 24, 2006 the Company’s Board received 42 executed stock subscription agreements for the purchase of stock in the corporation at $1.00 per share. After the sale of stock there were 542 shares total issued and outstanding. The Board filed amended and restated articles changing the par value to $0.01 per share resulting in 100 shares of stock for each share previously owned. This increased the shares issued and outstanding to 54,200 shares total. On April 28, 2006 the Company further ratified and authorized a 25:1 forward stock split that will result in 1,355,000 issued and outstanding shares. All references in these financial statements to amounts per share and number of shares outstanding have been restated to give effect to this stock split.
At December 31, 2004 the Company had 250 shares of common stock issued at $1.00 per share. As a result of the amended articles and 25:1 forward split the number of issued and outstanding shares is now restated to 625,000 shares.
NOTE G – OFFICERS COMPENSATION
The Company recognized contributed noncash officers compensation for one of its officers who provides approximately 16 hours of service per month to the Company.
F-24
48
