UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB/A
[X] Quarterly report under Section 13 or 15(d) of the
Securities Exchange Act of 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2005
[ ] Transition report under Section 13 or 15(d) of the Exchange Act
For the transition period from __________ to __________
Commission File Number 0-29485
RESOLVE STAFFING, INC.
--------------------------
(Exact Name of Small Business Issuer as Specified in Its Charter)
NEVADA
-------------------------------
(State or Other Jurisdiction of
Incorporation or Organization)
33-0850639
(IRS Employer Identification No.)
3235 OMNI DRIVE
CINCINNATI, OH 45245
---------------------------------------
(Address of Principal Executive Offices)
(800) 894-4250
------------------------------------------------
(Issuer's Telephone Number, Including Area Code)
N/A
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(Former Name, Former Address and Former Fiscal Year,
If changed since Last Report)
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: As of November 26, 2005, there were
outstanding 14,789,101 shares of common stock, par value $0.0001, and no shares
of preferred stock.
1
RESOLVE STAFFING, INC.
FORM 10-QSB/A FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2005
INDEX
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated balance sheets as of March 31, 2005 and
December 31, 2004 3
Consolidated statements of operations for the three months
ended March 31, 2005 and 2004 4
Consolidated statements of cash flows for the three months
ended March 31, 2005 and 2004 5
Notes to consolidated financial statements 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS 16
ITEM 3. CONTROLS AND PROCEDURES 18
PART II OTHER INFORMATION
ITEM 4. CHANGES IN SECURITIES 19
ITEM 5. OTHER INFORMATION 19
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 20
2
RESOLVE STAFFING, INC.
CONSOLIDATED BALANCE SHEETS
MARCH 31, 2005 AND DECEMBER 31, 2004
ASSETS 2005 2004
----------- -----------
Current Assets
Cash and cash equivalents $ 34,359 $ 75,356
Accounts receivable, net of allowance for bad
debts of $15,654 for 2005 and $7,890 for 2004 876,904 1,039,187
Prepaid and other assets 532,115 482,308
----------- -----------
Total current assets 1,443,378 1,596,851
Property and Equipment
Property and equipment 426,144 312,297
Less: Accumulated depreciation 202,300 162,342
----------- -----------
Net property and equipment 223,844 149,955
Other Assets
Goodwill 2,692,724 640,000
----------- -----------
Total other assets 2,692,724 640,000
----------- -----------
Total Assets $ 4,359,946 $ 2,386,806
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Bank overdraft $ -- $ 37,871
Accounts payable 192,740 300,242
Accrued salaries and payroll taxes 134,565 132,772
Line of credit 867,000 400,000
Notes payable 201,244 125,621
Notes payable - related party 2,460,535 924,033
----------- -----------
Total current liabilities 3,856,084 1,920,539
----------- -----------
Long Term Liabilities
Notes payable 458,060 393,556
----------- -----------
Total long term liabilities 458,060 393,556
----------- -----------
Stockholders' Equity
Common stock, $.0001 par value, 50,000,000 shares
authorized, issued and outstanding: March 31, 2005 - 14,539,101 shares; December 31,
2004 - 13,000,000 shares 1,454 1,300
Paid-in capital 1,119,544 989,698
Accumulated deficit (1,075,196) (918,287)
----------- -----------
Total stockholders' equity 45,802 72,711
----------- -----------
Total Liabilities and Stockholders'
Deficit $ 4,359,946 $ 2,386,806
=========== ===========
See accompanying notes to these financial statements.
3
RESOLVE STAFFING, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2005 AND 2004
2005 2004
------------ ------------
Service Revenues $ 2,678,450 $ 334,270
Cost of Services 2,172,689 306,799
------------ ------------
Gross Margin 505,761 27,471
Operating Expenses
Legal & professional fees 41,836 3,000
Advertising/Promotion 24,814 2,121
Salaries and benefits 329,065 96,029
Taxes & licenses 107 284
Rent & leases 50,599 5,715
Travel & entertainment 6,500 726
Administrative expenses 179,223 16,185
------------ ------------
Total operating expenses 632,144 124,060
Loss From Operations (126,383) (96,589)
Other Expenses
Interest expense (30,526) --
------------ ------------
Net other expenses (30,526) --
Net Loss $ (156,909) $ (96,589)
============ ============
Loss Per Share
Basic and diluted $ (.01) $ (00)
============ ============
Weighted Average Number of Shares Outstanding
used to Calculate Loss Per Share
Basic and diluted 13,906,359 13,000,000
============ ============
See accompanying notes to these financial statements.
4
RESOLVE STAFFING, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2005 AND 2004
2005 2004
----------- -----------
Cash Flows From Operating Activities
Net loss $ (156,909) $ (96,589)
Adjustments to reconcile net loss to cash provided by (used in) operating activities:
Depreciation and amortization 39,958 --
Change in allowance for doubtful accounts (500) --
Decrease (increase) in current assets:
Accounts receivable 193,239 (18,126)
Prepaid and other assets 35,343 (43,223)
Increase (decrease) in current liabilities:
Accounts payable (178,973) 7,192
Accrued salaries and payroll taxes 1,793 (65,208)
----------- -----------
Total adjustments 90,860 (119,365)
Net cash used in operating activities (66,049) (215,954)
----------- -----------
Cash Flows From Investing Activities
Acquistion of net assets of subsidiaries, net of cash (75,000) --
Purchase of property and equipment (86,462) --
----------- -----------
Net cash used in investing activities (161,462) --
----------- -----------
Cash Flows From Financing Activities
Repayment of bank overdraft (37,871) (9,024)
Proceeds from line of credit 467,000 --
Proceeds from notes payable 51,027 --
Proceeds from loans payable - related party -- 224,978
Repayment of loans payable - related party (293,642) --
----------- -----------
Net cash provided by financing activities 186,514 215,954
----------- -----------
Net Increase in Cash and Cash Equivalents (40,997) --
Cash and Cash Equivalents, Beginning of the Period 75,356 --
----------- -----------
Cash and Cash Equivalents, End of the Period $ 34,359 $ --
=========== ===========
5
RESOLVE STAFFING, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE THREE MONTHS ENDED MARCH 31, 2005 AND 2004
NON-CASH INVESTING AND FINANCING ACTIVITIES
In connection with the Combination on February 7, 2005, described below in the
Basis of Presentation section of the notes to consolidated financial statements,
ELS was deemed to be the acquiring company for accounting purposes and the
Combination was accounted for as a reverse acquisition under the purchase method
of accounting for business combinations in accordance with accounting principles
generally accepted in the United States. In conjunction with this transaction,
Resolve issued 13,000,000 shares of restricted common stock valued at $130,000
and a note payable in the amount of $1,500,000 in exchange for 100% of the
ownership interest in 4 entities with 10 staffing locations. The fair value of
the assets and liabilities assumed, on the date of acquisition were as follows:
Accounts receivable $ 30,457
Prepaid and other assets 48,483
Property and equipment 15,280
Goodwill 2,026,496
Accounts payable and accrued liabilities (71,472)
Notes payable (419,244)
-----------
$ 1,630,000
===========
See accompanying notes to these financial statements.
6
RESOLVE STAFFING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2005
NOTE A - ORGANIZATION, NATURE OF OPERATIONS AND BASIS OF PRESENTATION
Organization and Nature of Operations
Resolve Staffing, Inc., ("Resolve" or the "Company") was organized under
the laws of the State of Nevada on April 9, 1998. Integra Staffing, Inc.,
("Integra") is a wholly owned subsidiary that was organized under the laws of
the State of Florida on August 16, 1999 (collectively referred to as "Resolve")
and acquired in 2001. The Company is engaged in providing human resource
services (which include recruiting, training, and placement of temporary
personnel) focusing on the professional, clerical, administrative and light
industrial staffing market in the eastern United States.
On January 24, 2005, Resolve acquired certain assets from Solaris Staffing, Inc.
These assets included the operations of certain temporary staffing offices
located in upstate New York. The aggregate purchase price was $125,000, of which
$90,000 has been paid to date.
On February 20, 2005, Resolve acquired SupportStaff Employment Services, a
full-service staffing firm located in Sebring, FL. The aggregate purchase price
was $75,000, which has been paid in full.
Acquisition of Entities from Related Parties
On February 7, 2005, Resolve Staffing, Inc., entered into an equity
purchase agreement ("Agreement"), to purchase ELS Personnel Services ("ELS")
(the "Combination") from Employee Leasing Services, Inc., ("ELS Inc."), a
privately-held company located in Cincinnati, Ohio. The Company's Chief
Executive Officer and director, Ronald Heineman, is a principal shareholder,
officer and director of ELS. Pursuant to the equity purchase agreement, Resolve
acquired the ownership interest in the group of companies which comprised ELS
Personnel Services, (ELS Personnel Services, LLC, Five Star Staffing, Inc., Five
Star Staffing (NY), Inc., and American Staffing Resources, Ltd.) comprising a
total of 10 temporary employee staffing locations. See Basis of Presentation
section for discussion of accounting treatment of the acquisition of ELS.
Employee Leasing Services, Inc., operated 3 locations and acquired the 7
temporary employee staffing locations throughout fiscal 2004. ELS Inc. acquired
3 locations from Five Star Staffing, Inc., in August 2004, 3 locations from Five
Star Staffing (NY), Inc., in November 2004 and 1 location from American Staffing
Resources, Ltd., in November 2004. Prior to ELS Inc.'s acquisition of these
entities, these entities were owned and operated by unrelated third parties in
various locations throughout Florida, New York and Ohio.
In connection with the Combination on February 7, 2005, described below in the
Basis of Presentation section of these notes to consolidated financial
statements, ELS was deemed to be the acquiring company for accounting purposes
and the Combination was accounted for as a reverse acquisition under the
purchase method of accounting for business combinations in accordance with
accounting principles generally accepted in the United States.
The acquisition of the ELS entities was treated as a reverse acquisition
for financial accounting purposes and therefore the accompanying comparative
financial information is that of ELS rather than the historical financial
statements of Resolve Staffing, Inc.
7
RESOLVE STAFFING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2005
NOTE A - ORGANIZATION, NATURE OF OPERATIONS AND BASIS OF PRESENTATION
(CONTINUED)
In connection with the Combination on February 7, 2005, described below in the
Basis of Presentation section of the notes to consolidated financial statements,
ELS was deemed to be the acquiring company for accounting purposes and the
Combination was accounted for as a reverse acquisition under the purchase method
of accounting for business combinations in accordance with accounting principles
generally accepted in the United States. In conjunction with this transaction,
Resolve issued 13,000,000 shares of restricted common stock valued at $130,000
and a note payable in the amount of $1,500,000 in exchange for 100% of the
ownership interest in 3 entities with 10 staffing locations. The fair value of
the assets and liabilities assumed, on the date of acquisition were as follows:
Accounts receivable $ 30,457
Prepaid and other assets 48,483
Property and equipment 15,280
Goodwill 2,026,496
Accounts payable and accrued liabilities (71,472)
Notes payable (419,244)
-----------
$ 1,630,000
===========
Acquisition of Entities from Unrelated Parties
During the three months ended March 31, 2005, Resolve Staffing, Inc., entered
into a purchase agreement ("Agreement"), to acquire all of the assets and/or
ownership of a separate privately-held entity owned and operated by unrelated
parties located in Sebring, Florida. Pursuant to the acquisition agreement,
Resolve acquired one temporary employee staffing location from the newly
acquired entity.
Resolve paid cash in the amount of $75,000 in exchange for the assets and
liabilities of the above staffing entity as described below. The following table
summarizes the estimated fair value, of the assets acquired and liabilities
assumed, on the date of acquisition:
Property and equipment $12,105
Goodwill 26,228
Other assets 36,667
$75,000
=======
To date the books and records of the locations acquired from unrelated parties
during 2005 have not been audited, and therefore the allocation of the purchase
price is subject to refinement.
In conjunction with the acquisitions from all parties during the three months
ended March 31, 2005, approximately $2,052,000 has been assigned to goodwill.
Approximately $480,000 of the goodwill is expected to be deductible for tax
purposes.
The financial results of these acquired entities are included in the
consolidated financial statements from the date of acquisition.
8
RESOLVE STAFFING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2005
NOTE A - ORGANIZATION, NATURE OF OPERATIONS AND BASIS OF PRESENTATION
(CONTINUED)
Basis of Presentation
The accompanying unaudited financial statements have been prepared in accordance
with accounting principles generally accepted in the United States of America
for interim financial information and with the instructions incorporated in
Regulation S-B, Item 310(b) of the Securities and Exchange Commission.
Accordingly, they do not include all the information and footnotes required by
accounting principles generally accepted in the United States of America for
complete financial statements. The financial statements are unaudited, but in
the opinion of management, all adjustments (consisting of normal recurring
adjustments and accruals) considered necessary for a fair presentation of the
Company's financial position, results of operations and cash flows for the three
months ended March 31, 2005 and 2004 have been included.
These statements are not necessarily indicative of the results to be expected
for the full fiscal year. These statements should be read in conjunction with
the financial statements and notes thereto included in the Company's Form 10-KSB
for the year ended December 31, 2004 as filed with the Securities and Exchange
Commission.
Because the owners of ELS held approximately 90% of the Company's outstanding
common stock after the Combination, as well as the Company's analysis of the
other criteria used for determining which entity is the accounting acquirer
under SFAS No. 141, ELS is deemed to be the acquiring company for accounting
purposes and the Combination has been accounted for as a reverse acquisition
under the purchase method of accounting for business combinations in accordance
with accounting principles generally accepted in the United States. Accordingly,
historical financial statements prior to the Combination reflect those of ELS.
The audited financial statements of Resolve for each of the two years ended
December 31, 2004 are included in the Resolve Staffing, Inc. Annual Report on
Form 10-KSB, filed with the Securities and Exchange Commission (the "SEC"). The
audited financial statements of the entities which comprised the temporary
staffing division of ELS, Inc. for the two years ended December 31, 2004, or
such time as the entity was under the control of ELS, Inc. through December 31,
2004 will be included in Resolve Staffing, Inc.'s Current Report on Form 8-K/A
which the Company anticipates filing with the SEC prior to December 10, 2005.
Principles of Consolidation
The consolidated financial statements at March 31, 2005 include the accounts of
the Company and its subsidiaries: ELS Personnel Services, LLC, Five Star
Staffing, Inc., Five Star Staffing (NY), Inc., and American Staffing Resources.
All significant inter-company accounts and transactions have been eliminated in
preparing the accompanying financial statements.
Revenue Recognition
Staffing and managed service revenue and the related labor costs and payroll are
recorded in the period in which services are performed. The Company follows
Emerging Issues Task Force ("EITF") 99-19, "Reporting Revenue Gross as a
Principal versus Net as an Agent," in the presentation of revenues and expenses.
This guidance requires Resolve to assess whether it acts as a principal in the
transaction or as an agent acting on behalf of others. In situations where
Resolve is the principal in the transaction and has the risks and rewards of
ownership, the transactions are recorded gross in the consolidated statements of
operations.
9
RESOLVE STAFFING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2005
NOTE A - ORGANIZATION, NATURE OF OPERATIONS AND BASIS OF PRESENTATION
(CONTINUED)
Stock Based Employee Compensation:
Resolve accounts for and reports its stock-based employee compensation
arrangements using the intrinsic value method as prescribed in Accounting
Principles Board Opinion No. 25, Accounting for Stock Issued to Employees ("APB
25"), Financial Accounting Standards Board Interpretation No, 44, Accounting for
Certain Transactions Involving Stock Compensation ("FIN 44"), and Statement of
Financial Accounting Standards No. 148, Accounting for Stock-Based Compensation
- - Transition and Disclosure ("SFAS 148"). Accordingly, compensation cost for
stock options and warrants are measured as the excess, if any, of the fair value
of the Company's stock at the date of grant over the stock option exercise
price. Resolve accounts for stock issued to non-employees in accordance with the
provisions of Statement of Financial Accounting Standards No. 123, Accounting
for Stock-Based Compensation ("SFAS 123"). Under SFAS 123, stock option awards
issued to non-employees are accounted for at their fair value on the date
issued, where fair value is determined using the Black-Scholes option pricing
method.
There are no differences between the historical and pro-forma stock based
compensation value.
Recent Accounting Principles
In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities". The statement amends and
clarifies accounting and reporting for derivative instruments, including certain
derivative instruments embedded in other contracts, and hedging activities. This
statement is designed to improve financial reporting such that contracts with
comparable characteristics are accounted for similarly. The statement is
generally effective for contracts entered into or modified after June 30, 2003.
The Company currently has no such financial instruments outstanding or under
consideration and does not expect the adoption of this standard to effect the
Company's financial position or results of operations.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of Both Liabilities and Equity". This statement
establishes standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liabilities and equity. This
statement is effective for financial instruments entered into or modified after
May 31, 2003, and is otherwise effective at the beginning of the first interim
period beginning after June 15, 2003. The Company currently has no such
financial instruments outstanding or under consideration and therefore adoption
of this standard currently has no financial reporting implications.
In December 2003, the FASB issued FASB Interpretation No. 46, "Amended
Consolidation of Variable Interest Entities" ("FIN No. 46"). This interpretation
clarifies rules relating to consolidation where entities are controlled by means
other than a majority voting interest and instances in which equity investors do
not bear the residual economic risks. This interpretation is effective
immediately for variable interest entities created after January 31, 2003 and,
for interim periods beginning after December 15, 2003, for interests acquired
prior to February 1, 2003. The Company does not currently have relationships
with entities meeting the criteria set forth in FIN No. 46 and is not required
to include any such entities in its financial statements pursuant to the
provisions of FIN No. 46.
Effective as of December 31, 2004, the Company adopted the revised
interpretation of Financial Accounting Standards Board (FASB) Interpretation No.
46 (FIN 46), "Consolidation of Variable Interest Entities," (FIN 46-R). FIN 46-R
requires that certain variable interest entities be consolidated by the primary
beneficiary of the entity if the equity investors in the entity do not have the
characteristics of a controlling financial interest or do not have sufficient
equity at risk for the entity to finance its activities without additional
subordinated financial support from other parties. The Company does not have any
investments in entities it believes are variable interest entities for which the
Company is the primary beneficiary.
10
RESOLVE STAFFING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2005
NOTE A - ORGANIZATION, NATURE OF OPERATIONS AND BASIS OF PRESENTATION
(CONTINUED)
In December 2004, FASB issued SFAS No. 123 (revised 2004) "Share Based Payment"
(SFAS No. 123R), a revision to Statement No. 123, Accounting for Stock-Based
Compensation which supersedes APB Opinion No. 25, Accounting for Stock Issued to
Employees. The revised SFAS 123 eliminates the alternative to use Opinion 25's
intrinsic value method of accounting and, instead, requires entities to
recognize the cost of employee services received in exchange for awards of
equity instruments based on the grant-date fair value of those awards.
Furthermore, public entities are required to measure liabilities incurred to
employees in share-based payment transactions at fair value as well as estimate
the number of instruments for which the requisite service is expected to be
rendered. Any incremental compensation cost for a modification of the terms or
conditions of an award is measured by comparing the fair values before and after
the modification. The Company has yet to determine the effect SFAS No. 123R may
have on its financial statements, if any.
In March 2005, the Securities and Exchange Commission ("SEC") issued Staff
Accounting Bulletin No. 107 ("SAB No. 107"), Share-Based Payment, providing
guidance on option valuation methods, the accounting for income tax effects of
share-based payment arrangements upon adoption of SFAS No. 123R, and the
disclosures in MD&A subsequent to the adoption. The Company will provide SAB No.
107 required disclosures upon adoption of SFAS No. 123R on January 1, 2006 and
is currently evaluating the impact the adoption of the standard will have on the
Company's financial condition, results of operations, and cash flows.
In December 2004, FASB issued SFAS No. 153, Exchanges of Nonmonetary Assets- An
Amendment of APB Opinion No. 29. The guidance in APB Opinion No. 29, Accounting
for Nonmonetary Transactions, is based on the principle that exchanges of
nonmonetary assets should be measured based on the fair value of the assets
exchanged. The guidance in that Opinion, however, included certain exceptions to
that principle. SFAS No. 153 amends Opinion No. 29 to eliminate the exception
for nonmonetary exchanges of similar productive assets and replaces it with a
general exception for exchanges of nonmonetary assets that do not have
commercial substance. A nonmonetary exchange has commercial substance if the
future cash flows of the entity are expected to change significantly as a result
of the exchange. The provisions of SFAS No. 153 are effective for nonmonetary
asset exchanges occurring in fiscal periods beginning after June 15, 2005. Early
application is permitted and companies must apply the standard prospectively.
The adoption of this standard is not expected to have a material effect on the
Company's results of operations or financial position.
NOTE B - LIQUIDITY AND MANAGEMENT'S PLANS
As reflected in the accompanying financial statements, the Company has a working
capital deficiency and a stockholder's equity of $2,412,706 and $45,802,
respectively, as of March 31, 2005. In addition, the Company has incurred
substantial losses and has been dependent upon the financial support of
stockholders, management and other related parties.
Management has successfully obtained additional financial resources, which the
Company believes will support operations until profitability can be achieved.
These financial resources include financing from both related and non-related
third parties, as discussed in the accompanying footnotes to the financial
statements. There can be no assurance that management will be successful in
these efforts. The financial statements do not reflect any adjustments that may
arise as a result of this uncertainty.
11
RESOLVE STAFFING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2005
NOTE C - NOTES PAYABLE
Note Payable
During May and June 2002, Resolve obtained loans from an unrelated individual
for a total of $40,000. The underlying notes payable bear interest at 12% per
annum payable quarterly in arrears and are secured by the accounts receivable of
the Company. The maturities were extended to July 3, 2004, and have subsequently
been extended to be due on demand.
Revolving Note
On March 3, 2005, Resolve Staffing, Inc., secured a revolving note from Fifth
Third Bank for an amount of $1,900,000 with a maturity date of June 1, 2006.
Interest is payable on the principal balance outstanding on a monthly basis, at
the bank's prime rate. Borrowings under this note are limited to 80% of the
Company's accounts receivable balance which have been outstanding for less than
90 days.
Term Note
On March 3, 2005, Resolve Staffing, Inc., secured a term note ("note") from
Fifth Third Bank for an amount of $465,000 with a maturity date of September 1,
2009. The outstanding balance of the Note is to be paid in 53 installments of
principal and interest, each in the amount of $9,845, commencing April 1, 2005.
Interest is payable on the principal balance outstanding at a rate of 6.6% per
annum.
NOTE D - NOTE PAYABLE - RELATED PARTY
Notes payable-related party represents aggregate borrowings totaling $91,500 to
William Brown, a director and shareholder of Resolve. The underlying note bears
interest at 5% and is due on March 31, 2004. Resolve has a verbal agreement to
extend the maturity on a month to month basis.
On December 8, 2003, Resolve entered into a non-interest bearing short-term
credit agreement with ELS, Inc that provides for borrowings of up to $200,000.
ELS, Inc. is a company owned by Ronald Heineman, the Company's Chief Executive
Officer. The underlying promissory note is secured by 400,000 shares of common
stock that were released to an escrow agent, but not issued for accounting or
reporting purposes. As of March 31, 2005, there was $225,655 outstanding under
this agreement. Balances due under the credit agreement were originally due May
8, 2004. On June 1, 2004, the agreement was amended to extend the line to a
maximum of $500,000.
On February 7, 2005 Resolve entered into a loan agreement with ELS, a company
owned by Resolve's Chief Executive Officer, Ron Heineman, for the principal sum
of $1,500,000 for the purchase of ELS. The note bears interest at 10% and is
payable upon demand.
As of March 31, 2005 Resolve Staffing had collected a total of $620,977 in
accounts receivable that are due to ELS as per the acquisition on February 7,
2005.
NOTE E - STOCKHOLDERS' EQUITY
On February 7, 2005, Resolve Staffing, Inc., entered into an equity purchase
agreement ("Agreement"), to purchase ELS Personnel Services ("ELS") (the
"Combination") from Employee Leasing Services, Inc., ("ELS Inc."), a
privately-held company located in Cincinnati, Ohio. The Company's Chief
Executive Officer and director, Ronald Heineman, is a principal shareholder,
officer and director of ELS.
12
RESOLVE STAFFING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2005
NOTE E - STOCKHOLDERS' EQUITY (CONTINUED)
Pursuant to the equity purchase agreement, Resolve acquired the ownership
interest in the group of companies which comprised ELS, (Five Star Staffing,
Inc., Five Star Staffing (NY), Inc., and American Staffing Resources, Ltd.)
comprising a total of 10 temporary employee staffing locations. See Basis of
Presentation section for discussion of accounting treatment of the acquisition
of ELS.
The aggregate purchase price was $1,630,000, including 13,000,000 shares of the
Company's restricted common stock valued at $130,000 based on management's
estimate of the fair value of the restricted common stock, and a demand
promissory note in the principal amount of $1,500,000, which accrues interest at
the rate of 10% per annum. The agreement does not specify any contingent
payments, options or other commitments.
Common Stock Warrants
As of March 31, 2005 there were 851,320 stock warrants outstanding which are due
to expire on June 30, 2007. Each warrant has an exercise price of $.75 per share
price. All stock warrants are exercisable.
NOTE F - SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest during the three months ended March 31, 2005 and 2004
amounted to $30,526 and $0 respectively.
NOTE G - NET LOSS PER SHARE
Net loss per share is computed based upon the weighted outstanding shares of the
Company's common stock for each period presented. The weighted average number of
shares excludes 851,320 common stock equivalents, representing principally
warrants and stock options, since the effect of including them would be
anti-dilutive.
NOTE H - SUBSEQUENT EVENTS
On April 1, 2005 Resolve opened a new temporary staffing location in Salisbury,
North Carolina.
On April 21, 2005, the board of directors of Resolve Staffing appointed William
Walton as a director of the Company. Mr. Walton was not appointed to serve on
any committees of Resolve's Board of Directors, however Mr. Walton may be
appointed to one or more committees of Resolve's Board of Directors in the
future.
On May 9, 2005, Resolve acquired certain assets from Pride Staffing, Inc. These
assets include a temporary staffing office located in Erie, PA.
On June 13, 2005 Resolved acquired The Arnold Group, a Southern California
staffing firm.
On June 20, 2005 Resolve acquired Taylor Personnel Services, a Buffalo, New York
staffing firm.
On August 22, 2005 Resolve acquired Truckers Plus, Inc., a thirteen location
truck driver staffing firm headquartered in Nashville, Tennessee.
On September 14, 2005 Resolve acquired Delta Staffing, a Southern California
staffing firm.
On September 30, 2005 Resolve acquired Midwest Staffing, a medical staffing firm
located in Oklahoma City, Oklahoma.
13
RESOLVE STAFFING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2005
On October 31, 2005, Resolve acquired Project Solvers, located in New York, New
York, and Star Personnel, located in Ashland, Kentucky.
On or about September 26, 2005, Resolve received a comment letter from the
Securities and Exchange Commission ("Commission") subsequent to its review of
the Registrant's Form 8-K filed on February 9, 2005 disclosing certain business
acquisitions ("Acquisitions") made by the Registrant. The Registrant at the time
believed that the accounting treatment of the Acquisitions did not result in the
Registrant deeming the employee staffing division of ELS, Inc. as the accounting
acquirer under SFAS No. 141--Business Combinations. ELS Inc. is a large,
privately-held company that operated a separate employee staffing division,
(ELS) that complimented its other business segments, and it is ELS that has been
determined to be the accounting acquirer of the Acquisitions rather than the
Registrant. Although initially, the Registrant determined that the accounting
acquirer was the Registrant, upon further consideration and comment by the
Commission, ELS has been determined to be the accounting acquirer. Members of
the Board of Directors and officers of the Company have discussed this change as
well as all other items disclosed in the filing with the Registrant's auditors.
ELS Inc. is the seller in the Acquisitions.
On October 27, 2005, Resolve filed a Form 8-K regarding the letter from the
Commission. On November 7, 2005, the Commission issued comments to the
Registrant in connection with the Commission's review of the Form 8-K filed by
the Registrant on October 27, 2005. The Registrant then filed an amendment to
that Form 8-K, designed to make additional disclosures and address the
Commission's comments.
The Registrant's officers, with the concurrence of the board of directors,
determined that the financial statements contained in the Forms 10-QSB for the
periods ended March 31, 2005 and June 30, 2005 ("Reports"), should no longer be
relied upon because such Reports do not include the financial statement
disclosures and accurately present the financial results that are necessary and
required to report the acquisitions made by the Registrant, as discussed above.
Upon further consideration and additional interpretation of SFAS 141, as it
relates to the Acquisitions, the Registrant has determined that ELS is the
accounting acquirer. As a result of this determination, it is the Registrant's
intention to more fully comply with Item 310(c) of Regulation S-B by amending
the Form 8-K filed February 9, 2005 by including two years audited financial
statements of ELS (temporary staffing division) operated by ELS Inc. and the pro
forma financial information required by Item 310(C) of Regulation S-B.
NOTE I - PROFORMA INFORMATION
The interim financial statements for the three months ended March 31, 2005 are
presented in accordance with accounting principles generally accepted in the
United States (GAAP), which requires that the financial results of these
acquired entities (as detailed in Footnote A) are included in the consolidated
financial statements from the date of acquisition. As a result, the consolidated
statement of operations does not include the activity of the acquired companies,
including the acquisition of Resolve which has been recorded a reverse
acquisition, for the period from January 1, 2005 to the respective dates of
acquisition.
Presented below is the unaudited pro forma statement of operations for the three
months ended March 31, 2005 as if the acquisition of Resolve from related
parties (Note A) had been acquired January 1, 2005.
14
Pro-forma adjustments for
------------------------------------------
Actual three months
ended Resolve Adjusted
March 31, 2005 Staffing, Inc. March 31, 2005
------------------- -------------- ---------- --------- --------------
Service Revenues $ 2,678,450 $ 45,069 $ 2,723,519
Cost of Services 2,172,689 -- 2,172,689
----------- ----------- -----------
Gross Margin 505,761 45,069 550,830
----------- ----------- -----------
Operating Expenses
Legal and professional fees 41,836 25,964 67,800
Advertising/Promotion 24,814 -- 24,814
Salaries and benefits 329,065 -- 329,065
Taxes & licences 107 -- 107
Rent & leases 50,599 1,183 51,782
Travel & entertainment 6,500 -- 6,500
Administrative expenses 179,223 36,520 215,743
----------- ----------- -----------
Total operating expenses 632,144 63,667 695,811
Profit (Loss) From Operation (126,383) (18,598) (144,981)
Other Expenses
Interest expense (30,526) (400) (30,926)
----------- ----------- -----------
Net other expenses (30,526) (400) (30,926)
Net Loss $ (156,909) $ (18,998) ($ 175,907)
----------- ----------- -----------
Pro-forma earnings per share information for the three months ended March 31,
2005:
Basic weighted average shares outstanding: 14,539,101
Pro forma basic net loss per common share: $(.01)
The Company has been unable to obtain the necessary information to present
pro-forma financial information reflecting the combined operations of Resolve
Staffing, Inc, and the various acquired staffing locations from unrelated
parties, for the period ended March 31, 2005. This current Report on Form 10-QSB
will be supplemented by amendment to provide the necessary comparative pro-forma
information as soon as the information becomes available.
15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
This report and other reports, as well as other written and oral statements made
or released by us, may contain forward-looking statements. Forward-looking
statements are statements that describe, or that are based on, our current
expectations, estimates, projections and beliefs. Forward-looking statements are
based on assumptions made by us, and on information currently available to us.
Forward-looking statements describe our expectations today of what we believe is
most likely to occur or may be reasonably achievable in the future, but such
statements do not predict or assure any future occurrence and may turn out to be
wrong. You can identify forward-looking statements by the fact that they do not
relate strictly to historical or current facts. The words "believe,"
"anticipate," "intend," "expect," "estimate," "project", "predict", "hope",
"should", and "may", other words and expressions that have similar meanings, and
variations of such words and expressions, among others, usually are intended to
help identify forward-looking statements.
Forward-looking statements are subject to both known and unknown risks and
uncertainties and can be affected by inaccurate assumptions we might make.
Risks, uncertainties and inaccurate assumptions could cause actual results to
differ materially from historical results or those currently anticipated.
Consequently, no forward-looking statement can be guaranteed. The potential
risks and uncertainties that could affect forward looking statements include,
but are not limited to the ability to raise needed financing, increased
competition, extent of the market demand for and supply of goods and services of
the types provided by the Company, governmental regulation, performance of
information systems, and the ability of the Company to hire, train and retain
qualified employees. In addition, other risks, uncertainties, assumptions, and
factors that could affect the Company's results and prospects have been and may
further be described in the Company's prior and future filings with the
Securities and Exchange Commission and other written and oral statements made or
released by the Company.
We caution you not to place undue reliance on any forward-looking statements,
which speak only as of the date of this document. The information contained in
this report is current only as of its date, and we assume no obligation to
update any forward-looking statements.
The financial information set forth in the following discussion should be read
in conjunction with, and qualified in its entirety by, the Company's unaudited
consolidated financial statements and notes included herein. The results
described below are not necessarily indicative of the results to be expected in
any future period. Certain statements in this discussion and analysis, including
statements regarding our strategy, financial performance and revenue sources,
are forward-looking information based on current expectations and entail various
risks and uncertainties that could cause actual results to differ materially
from those expressed in the forward-looking statements. Readers are referred to
our Annual Report on Form 10-KSB for the fiscal year ended December 31, 2004.
RESULTS OF OPERATIONS
COMPARISON OF CONSOLIDATED OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2005
AND 2004.
As discussed above, the Company entered into a reverse acquisition transaction
between ELS and Resolve on February 7, 2005. Prior period amounts presented in
the consolidated balance sheets, statements of operations and cash flows reflect
the balances of ELS only as ELS is deemed to be the acquirer for accounting
purposes.
Our net loss increased from $96,589 for three months ended March 31, 2004 to
$156,909 or a $60,320 increase for three months ended March 31, 2005. A
line-by-line discussion of our results of operations is as follows:
16
Revenues for three months ended March 31, 2004 compared to 2005 increased from
$334,270 to $2,678,450 or a 704% increase. This increase is attributable to the
Combination described above and the increase in staffing locations.
Our cost of services increased from $306,799 for the three months ended March
31, 2004 to $2,172,689 for the three months ended March 31, 2005. This increase
was largely due to the increased revenues as noted above. However, as a
percentage of revenue our cost of services decreased from 91.8% to 81.1%, which
is attributable to an increase in higher margin staffing opportunities in new
markets.
For the three months ended March 31, 2005 and 2004 the major categories of
expenses, as a percent of revenue were as follows:
2005 2004
---- ----
Legal & professional 2% 1%
Advertising & promotion 1% 1%
Salaries & benefits 12% 29%
Taxes & licenses 0% 0%
Rent & leases 2% 2%
Travel & entertainment 0% 0%
Administrative expenses 7% 5%
Legal & professional expense increased from $3,000 in 2004 to $41,836 in 2005 or
a $38,836 increase, reflecting an increase in accounting and legal costs
associated with audits and the acquisition of new locations.
Advertising and promotion expense increased from $2,121 in 2004 to $24,814 in
2005, reflecting an increased level of outside advertising and promotion. This
increase is attributable to the additional locations. Advertising and promotion
expense was relatively unchanged, as a percent of total sales.
Salaries and benefits increased from $96,029 in 2004 to $329,065 in 2005, or a
243% increase, reflecting an increase in administrative and management
compensation required to operate the increased number of locations.
Taxes & licenses decreased slightly from $284 in 2004 to $107 in 2005.
Rent & leases expense increased from $5,715 in 2004 to $50,599 in 2005,
reflecting an increase in the total locations being operated as a result of the
recent acquisitions.
Travel & entertainment increased from $726 in 2004 to $6,500 in 2005, reflecting
the increased effort by our staff to market our services on a national basis.
Administrative expenses increased from $16,185 in 2004 to $179,223 in 2005. This
increase reflects increased expenses associated with operating multiple staffing
locations. These changes include increased cost of various administrative
expenses, which include, but are not limited to printing, postage, shipping,
computer support, and other various public company expenses.
Interest expense increased from $0 in 2004 to $30,526 in 2005. The change was
due to additional borrowing on the credit line and other notes payable
associated with our recent acquisition.
LIQUIDITY AND CAPITAL RESOURCES
As reflected in the accompanying financial statements, the Company has a working
capital deficiency and a stockholder's equity of $2,412,706 and $45,802,
respectively, as of March 31, 2005. In addition, the Company has incurred
substantial losses and has been dependent upon the financial support of
stockholders, management and other related parties.
17
Management has successfully obtained additional financial resources, which the
Company believes will support operations until profitability can be achieved.
These financial resources include financing from both related and non-related
third parties, as discussed in the footnotes to the financial statements. There
can be no assurance that management will be successful in these efforts. The
financial statements do not reflect any adjustments that may arise as a result
of this uncertainty.
FOR THE THREE MONTHS ENDED MARCH 31, 2005
For the three months ended March 31, 2005 we incurred a net loss of $156,909. Of
this loss, $39,958 was for depreciation and did not represent the use of cash.
Changes in accounts receivable, prepaid and other expenses, offset by increases
in accounts payable, payroll, salary, and other accruals brought the total cash
used by operations to $66,049.
Our average monthly revenue for the first quarter of 2004 was $111,423, and has
increased to a monthly average of $892,816 for the first quarter of 2005.
Although we have seen our average monthly revenues and business activity
increase, we expect to continue to incur losses for the foreseeable future.
We expect our operating expenses to increase significantly in the near future as
we attempt to build our brand and expand our customer base. We hope our expenses
will be funded from operations and short-term loans from officers, shareholders
or others; however, our operations may not provide such funds and we may not be
able obtain short-term loans from officers, shareholders or others. Our officers
and shareholders are under no obligation to provide additional loans to the
company.
ITEM 3. CONTROLS AND PROCEDURES
As required by Rule 13a-14 under the Securities Exchange Act of 1934, as of the
end of the period covered by this report, Resolve carried out an evaluation of
the effectiveness of the design and operation of Resolve's disclosure controls
and procedures. This evaluation was carried out under the supervision and with
the participation of Resolve's management, including Resolve's Chief Financial
Officer, who concluded that Resolve's disclosure controls and procedures are
effective. There have been no significant changes in Resolve's internal controls
or in other factors, which could significantly affect internal controls
subsequent to the date Resolve carried out its evaluation.
Disclosure controls and procedures are controls and other procedures that are
designed to ensure that information required to be disclosed in Resolve's
reports filed or submitted under the Exchange Act is recorded, processed,
summarized and reported, within the time periods specified in the Securities and
Exchange Commission's rules and forms. Disclosure controls and procedures
include, without limitation, controls and procedures designed to ensure that
information required to be disclosed in Resolve's reports filed under the
Exchange Act is accumulated and communicated to management, including Resolve's
Chief Financial Officer, to allow timely decisions regarding required
disclosure.
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PART II - OTHER INFORMATION
ITEM 4. CHANGES IN SECURITIES
On August 20, 2004, the Board of Directors, with a written consent of
shareholders, approved a one for five reverse split of the Company's common
stock. An Information Statement was mailed on or about November 30, 2004 to the
holders of record at the close of business on November 25, 2004, of the common
stock, $.0001 par value per share (the "Common Stock") of Resolve Staffing, Inc.
(the "Company"), in connection with action by written consent to authorize and
approve the filing of an amendment to the Company's Articles of Incorporation
for the purpose of effecting:(i) a reverse stock split of the outstanding shares
of the Company's Common Stock on a one-for-five basis, with no fractional shares
to issue for any uneven or odd number of shares. The Reverse Split shall be
accomplished by using rounding up principals rather than issuing any fractional
shares of common stock or cash in lieu of fractional shares; (ii) maintaining
the par value of the Company's Common Stock at $.0001; and (iii) maintaining the
current number of shares of Common Stock the Company is authorized to issue at
50,000,000. Members of the Board of Directors and three shareholders owned or
had voting authority represents approximately 73% of the total outstanding votes
of all issued and outstanding shares of Common Stock of the Company and such
votes were sufficient to approve the action on the record date of November 25,
2004. The reverse split took place on December 28, 2004.
On February 7, 2005, Resolve Staffing, Inc., entered into an equity purchase
agreement ("Agreement"), to purchase ELS Personnel Services ("ELS") from
Employee Leasing Services, Inc., ("ELS Inc."), a privately-held company located
in Cincinnati, Ohio. Resolve issued a total of 13,000,000 shares of common stock
as part of the payment for the acquisition. See Item 5. Other Information for
additional information. In accordance with SFAS No. 141 - Business Combinations,
the transaction has been recorded as a reverse acquisition whereby ELS is
considered the accounting acquirer.
ITEM 5. OTHER INFORMATION
On January 10, 2005, Mr. Michael Knox resigned as an officer of Resolve
Staffing, Inc. There were no disputes between the Company and Mr. Knox. The
Company intends to appoint another individual as chief financial officer in the
near future.
On February 7, 2005, Resolve Staffing, Inc., entered into an equity purchase
agreement ("Agreement"), to purchase ELS Personnel Services ("ELS") (the
"Combination") from Employee Leasing Services, Inc., ("ELS Inc."), a
privately-held company located in Cincinnati, Ohio. The Company's Chief
Executive Officer and director, Ronald Heineman, is a principal shareholder,
officer and director of ELS. Pursuant to the equity purchase agreement, Resolve
acquired the ownership interest in the group of companies which comprised ELS,
(Five Star Staffing, Inc., Five Star Staffing (NY), Inc., and American Staffing
Resources, Ltd.) comprising a total of 10 temporary employee staffing locations.
See Basis of Presentation section for discussion of accounting treatment of the
acquisition of ELS.
The aggregate purchase price was $1,630,000, including 13,000,000 shares of the
Company's restricted common stock valued at $130,000 based on management's
estimate of the fair value of the restricted common stock, and a demand
promissory note in the principal amount of $1,500,000, which accrues interest at
the rate of 10% per annum. The agreement does not specify any contingent
payments, options or other commitments.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 31.1 Certification by Ronald Heineman, Chief Executive
Officer pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 302 of the Sarbanes-
Oxley Act of 2002.
Exhibit 32.1 Certification by Ronald Heineman, Chief Executive
Officer pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002.
(b) Reports on Form 8-K
We filed the following reports on Form 8-K during the first quarter of
2005:
Form 8-K, January 13, 2005, Item 5 - Change in Registrants Officers;
Reporting the Resignation of Michael Knox as an Officer.
Form 8-K, February 9, 2005, Item 1 - Entry into a Material Definitive
Agreement; Reporting the acquisition of ELS' Staffing Division.
20
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
RESOLVE STAFFING, INC.
Dated: December 9, 2005 /s/ Ronald Heineman
----------------------------------------
By: Ronald Heineman
Chief Executive Officer (principal
executive officer, director)
21