ELS PERSONNEL SERVICES, LLC
AUDITED FINANCIAL STATEMENTS
December 31, 2003
TABLE OF CONTENTS
Page
Independent Auditor's Report 1
Balance Sheet 2
Statements of Income and Member's Equity 3
Statement of Cash Flows 4
Statement of Operating Expenses 5
Notes to the Financial Statements 6
[LOGO]
Jason F. Clausen & Associates, P.C.
-----------------------------------
certified public accountants
November 10, 2005
To the Board of Directors:
ELS Personnel Services, LLC
3235 Omni Drive
Cincinnati, OH 45245
We have audited the accompanying balance sheet of ELS Personnel Services, LLC, a
wholly-owned subsidiary of Employee Leasing Services, as of December 31, 2003,
and the related statements of income, retained earnings, and cash flows for the
year then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of ELS Personnel Services, LLC as
of December 31, 2003, and the results of its operations and its cash flows for
the year then ended in conformity with generally accepted accounting principles.
/s/ Jason F. Clausen & Associates, P.C.
Jason F. Clausen & Associates, P.C.
Warren, MI 48093
ELS Personnel Services, LLC
(A wholly-owned subsidiary of Employee Leasing Services, Inc.)
BALANCE SHEET
ASSETS
December 31,
2003
--------------
CURRENT ASSETS
Accounts receivable, trade (NOTE A) $ 219,616
Advances to employees 4,610
Prepaid expenses 1,520
--------------
TOTAL CURRENT ASSETS 225,746
PROPERTY AND EQUIPMENT (NOTE B) 19,268
Less accumulated depreciation 8,474
--------------
NET PROPERTY AND EQUIPMENT 10,794
OTHER ASSETS
Deposits 1,550
--------------
TOTAL OTHER ASSETS 1,550
--------------
TOTAL ASSETS $ 238,090
==============
See Auditor's Report and Notes to Financial Statements
2
LIABILITIES
December 31,
2004
--------------
CURRENT LIABILITIES
Bank overdraft (NOTE A) $ 16,137
Accounts payable 32,884
Payroll taxes withheld and accrued 59,992
Accrued other expenses 1,859
Loan payable - Related party (NOTE C) 997,573
--------------
TOTAL CURRENT LIABILITIES 1,108,445
TOTAL LIABILITIES 1,108,445
MEMBER'S EQUITY
Member's Capital Accounts (870,355)
--------------
TOTAL MEMBER'S EQUITY (DEFICIT) (870,355)
--------------
TOTAL LIABILITIES AND MEMBER'S EQUITY $ 238,090
==============
ELS Personnel Services, LLC
(A wholly-owned subsidiary of Employee Leasing Services, Inc.)
STATEMENTS OF INCOME AND MEMBER'S EQUITY
For the period ended December 31, 2003
REVENUE $ 1,494,308
DIRECT COSTS
Salaries - Temporaries 930,455
Payroll taxes - Temporaries 113,004
Workers' Compensation - Temporaries 18,679
Other direct costs 193,391
--------------
Total direct costs 1,255,529
GROSS PROFIT 238,779
OPERATING EXPENSES 463,152
--------------
NET OPERATING INCOME (LOSS) (224, 373)
OTHER INCOME
Miscellaneous 16
--------------
Total Other Income 16
OTHER EXPENSE
Interest expense 2,842
Miscellaneous 190
--------------
Total Other Expenses 3,032
--------------
NET INCOME (LOSS) (227, 389)
MEMBER'S EQUITY (DEFICIT), BEGINNING OF PERIOD (642,966)
--------------
MEMBER'S EQUITY (DEFICIT), END OF PERIOD $ (870,355)
==============
See Auditor's Report and Notes to Financial Statements
3
ELS Personnel Services, LLC
(A wholly-owned subsidiary of Employee Leasing Services, Inc.)
STATEMENT OF CASH FLOWS
For the period ended December 31, 2003
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (227,389)
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation 3,450
(Increase)/decrease in:
Accounts receivable, trade (35,500)
Advances to employees (3,610)
Prepaid expenses (1,520)
Increase/(decrease) in:
Accounts payable 19,894
Payroll taxes withheld and accrued 59,992
Accrued other expenses (1,523)
--------------
Net Cash Provided by Operating Activities (186,206)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment --
--------------
Net Cash Used in Investing Activities --
CASH FLOWS FROM FINANCING ACTIVITIES
Bank overdraft 9,592
Proceeds (payments) on Loans from related party 176,615
--------------
Net Cash Provided (Used In) Financing Activities 186,207
NET INCREASE (DECREASE) IN CASH --
--------------
CASH, BEGINNING OF YEAR CASH, END OF YEAR --
==============
SCHEDULE OF SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest during period $ 2,842
See Auditor's Report and Notes to Financial Statements
4
ELS Personnel Services, LLC
(A wholly-owned subsidiary of Employee Leasing Services, Inc.)
SCHEDULE OF OPERATING EXPENSES
For the period ended December 31, 2003
Salaries and wages $ 291,678
Payroll taxes 25,716
Insurance:
Group 13,299
Workers' compensation 764
Advertising 34,114
Auto expense 1,737
Dues and subscriptions 894
Utilities 1,168
Postage and delivery 159
Outside service fees 640
Rent (NOTE D) 28,822
Repairs and maintenance 2,400
Telephones 18,816
Travel and entertainment 6,464
Office expense 20,346
Seminars and training 155
Business development 2,050
Depreciation 3,450
Banking fees 1,607
Professional fees 4,953
Miscellaneous 100
Bad debt expense 3,820
--------------
$ 463,152
==============
See Auditor's Report and Notes to Financial Statements
5
ELS PERSONNEL SERVICES, LLC
NOTES TO FINANCIAL STATEMENTS
NOTE A-SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ELS Personnel Services, LLC, Inc. (the "Company") is a wholly-owned subsidiary
of Employee Leasing Services, Inc., and was organized under the laws of the
State of Ohio. Operations are conducted from leased facilities located at 3235
Omni Drive, Cincinnati, OH 45245. The Company provides a full range of
supplemental staffing and outsourced solutions, including solutions for
temporary, temporary-to-hire, or direct hire staffing in the clerical, office
administration, customer service, professional and light industrial categories.
The accounting principles followed by the Company that materially affect the
determination of financial position, results of operations and cash flows are
summarized below.
Cash Equivalents
The Company considers all highly liquid debt instruments purchased with a
maturity of three months or less to be cash equivalents. In the event of a bank
overdraft, such overdrafts are presented as a current liability.
Fair Value of Financial Instruments
The carrying value of cash, receivables and accounts payable approximates fair
value due to the short maturity of these instruments. The carrying value of
short and long-term debt approximates fair value based on discounting the
projected cash flows using market rates available for similar maturities. None
of the financial instruments are held for trading purposes.
Accounts Receivable
The Company presents its accounts receivable net of its allowance for doubtful
accounts. At December 31, 2003, the allowance for doubtful accounts was $ 3,820.
Property and Equipment
Property and equipment are recorded at cost. Maintenance and repairs are charged
to expenses as incurred. When items of property and equipment are sold or
retired, the related costs and accumulated depreciation are eliminated from the
accounts and any gains or losses are included in net income.
Depreciation expense is computed using the straight-line method and
declining-balance methods over estimated useful lives for financial statement
purposes. Asset lives for financial statement reporting of depreciation are:
Buildings 7-39 years
Furniture, fixtures and equipment 5-20 years
Leasehold improvements 15 years
Vehicles 5 years
The Company uses the straight-line method to amortize loan origination fees over
the life of the loans involved.
Income Taxes
The Company is a wholly-owned subsidiary of Employee Leasing Services, Inc., and
reports all income and expenses on the consolidated form with the parent
company. The parent company has elected to be taxed under the provisions of
Subchapter S of the Internal Revenue Code. Under those provisions, the Company
has no federal income tax liability. Instead, the stockholders are liable for
individual income taxes on the respective share of the company's taxable income.
See Auditor's Report.
6
ELS PERSONNEL SERVICES, LLC
NOTES TO FINANCIAL STATEMENTS
NOTE A-SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements, and the reported amounts of revenue and expenses during
the reporting period. Actual results could differ from those estimates.
Revenue Recognition
Staffing and managed service revenue and the related labor costs and payroll are
recorded in the period in which services are performed.
NOTE B-PROPERTY AND EQUIPMENT
Property and equipment, at cost, and related accumulated depreciation are
summarized as follows:
December 31, 2003
-----------------
Office equipment $ 5,841
Furniture and Fixtures 12,304
Leasehold improvements 1,123
----------------
Total 19,268
Less accumulated depreciation 8,474
----------------
Net property and equipment $ 10,794
----------------
NOTE C-RELATED PARTY TRANSACTIONS
Loan Payable
The Company maintained a loan from its parent company during the year ended
December 31, 2003. The loan bears no interest and no formal agreement or
repayment schedule currently exists. The amount outstanding to the Company's
shareholder totaled $ 997,573 at December 31, 2003.
Lease Commitments
The Company leased one of its office locations from Surrey Mall Partners, an
Ohio limited partnership. The lease was executed in the name of the parent
company, and was terminated August 31, 2004. The lease required monthly payments
of $625 until March 2004, and thereafter the payments required were at $650 per
month. The Company used the facilities, and therefore paid the lease payments
directly to the landlord, and not to the parent company.
See Auditor's Report.
7
ELS PERSONNEL SERVICES, LLC
NOTES TO FINANCIAL STATEMENTS
NOTE D-OBLIGATIONS UNDER OPERATING LEASES
The Company leases an office location from Frieds L. Kerht under a one year,
renewable lease, expiring January 31, 2004. The lease requires monthly rentals
of $550. The Company has agreed to pay for their portion of any increases in
real estate taxes, insurance, utilities, and service maintenance costs. The
lease was renewed on February 1, 2004 and February 1, 2005.
The Company leases an office location from Multi-Craft Litho, Inc. under a one
year, renewable lease, expiring March 13, 2004. The lease requires monthly
rentals of $ 850, with increases to $900, $950, and $1,000 for first, second,
and third renewal periods, respectively. The Company has agreed to pay for all
utilities and insurance costs. This lease was renewed both March 13, 2004 and
March 13, 2005.
Rent expense for the year ended December 31, 2003 was $ 23,494, for occupancy.
The Company rents various equipment from nonrelated parties under short-term
rental arrangements.
Approximate future maximum rental payments required are as follows at December
31, 2003:
2004 $22,450
2005 17,900
-------
Total future maximum rental payments $40,350
-------
Equipment rent expense for the year ended December 31, 2003 was $3,982.
NOTE E-SUBSEQUENT EVENT
On February 7, 2005, Resolve Staffing, Inc., entered into an equity purchase
agreement ("Agreement"), to purchase ELS Personnel Services from Employee
Leasing Services, Inc.
See Auditor's Report.
8
ELS PERSONNEL SERVICES, LLC
AUDITED FINANCIAL STATEMENTS
December 31, 2004
TABLE OF CONTENTS
Page
Independent Auditor's Report 1
Balance Sheet 2
Statements of Income and Member's Equity 3
Statement of Cash Flows 4
Statement of Operating Expenses 5
Notes to the Financial Statements 6
[LOGO]
Jason F. Clausen & Associates, P.C.
-----------------------------------
certified public accountants
November 10, 2005
To the Board of Directors:
ELS Personnel Services, LLC
3235 Omni Drive
Cincinnati, OH 45245
We have audited the accompanying balance sheet of ELS Personnel Services, LLC, a
wholly-owned subsidiary of Employee Leasing Services, as of December 31, 2004,
and the related statements of income, retained earnings, and cash flows for the
year then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of ELS Personnel Services, LLC as
of December 31, 2004, and the results of its operations and its cash flows for
the year then ended in conformity with generally accepted accounting principles.
/s/ Jason F. Clausen & Associates, P.C.
Jason F. Clausen & Associates, P.C.
Warren, MI 48093
ELS Personnel Services, LLC
(A wholly-owned subsidiary of Employee Leasing Services, Inc.)
BALANCE SHEET
ASSETS
December 31,
2004
--------------
CURRENT ASSETS
Cash (NOTE A) $ 46,996
Accounts receivable, trade (NOTE A) 466,410
Advances to employees 5,373
Prepaid expenses 15,429
--------------
534,208
TOTAL CURRENT ASSETS
PROPERTY AND EQUIPMENT (NOTE B) 19,268
Less accumulated depreciation 10,994
--------------
NET PROPERTY AND EQUIPMENT 8,274
OTHER ASSETS
Deposits 3,049
--------------
TOTAL OTHER ASSETS 3,049
--------------
TOTAL ASSETS $ 545,531
==============
See Auditor's Report and Notes to Financial Statements
2
LIABILITIES
December 31,
2004
--------------
CURRENT LIABILITIES
Accounts payable $ 820
Payroll taxes withheld and accrued 33,547
Accrued other expenses 81,446
Loan payable - Related party (NOTE C) 1,291,062
--------------
TOTAL CURRENT LIABILITIES 1,406,875
LONG-TERM LIABILITIES
Notes payable, less current portion --
--------------
TOTAL LONG-TERM LIABILITIES --
TOTAL LIABILITIES 1,406,875
MEMBER'S EQUITY
Member's Capital Accounts (861,344)
--------------
TOTAL MEMBER'S EQUITY (DEFICIT) (861,344)
--------------
TOTAL LIABILITIES AND MEMBER'S EQUITY $ 545,531
==============
3
ELS Personnel Services, LLC
(A wholly-owned subsidiary of Employee Leasing Services, Inc.)
STATEMENT OF CASH FLOWS
For the year ended December 31, 2004
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 9,012
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation 2,520
(Increase)/decrease in:
Accounts receivable, trade (246,794)
Advances to employees (763)
Prepaid expenses (13,909)
Deposits (1,499)
Increase/(decrease) in:
Accounts payable (32,064)
Payroll taxes withheld and accrued (26,445)
Accrued other expenses 79,587
--------------
Net Cash Used in Operating Activities (230,355)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment --
--------------
Net Cash Used in Investing Activities --
CASH FLOWS FROM FINANCING ACTIVITIES
Bank overdraft (16,137)
Proceeds (payments) on Loans from related party 293,488
--------------
Net Cash Provided by Financing Activities 277,351
NET INCREASE IN CASH 46,996
CASH, BEGINNING OF YEAR --
--------------
CASH, END OF YEAR $ 46,996
==============
SCHEDULE OF SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest during period $ 299
See Auditor's Report and Notes to Financial Statements
3
ELS Personnel Services, LLC
(A wholly-owned subsidiary of Employee Leasing Services, Inc.)
STATEMENTS OF INCOME AND MEMBER'S EQUITY
For the year ended December 31, 2004
REVENUE $ 2,955,831
DIRECT COSTS
Salaries - Temporaries 2,187,368
Payroll taxes - Temporaries 219,621
Workers' Compensation - Temporaries 57,423
Other direct costs 111,600
--------------
Total direct costs 2,576,012
GROSS PROFIT 379,819
OPERATING EXPENSES 370,508
--------------
NET OPERATING INCOME (LOSS) 9,311
OTHER INCOME
Miscellaneous --
--------------
Total Other Income --
OTHER EXPENSE
Interest expense 299
--------------
Total Other Expenses 299
--------------
NET INCOME (LOSS) 9,012
MEMBER'S EQUITY (DEFICIT), BEGINNING OF PERIOD (870,356)
--------------
MEMBER'S EQUITY (DEFICIT), END OF PERIOD $ (861,344)
==============
See Auditor's Report and Notes to Financial Statements
4
ELS Personnel Services, LLC
(A wholly-owned subsidiary of Employee Leasing Services, Inc.)
SCHEDULE OF OPERATING EXPENSES
For the year ended December 31, 2004
Salaries and wages $ 214,448
Payroll taxes 17,011
Insurance:
Group 10,973
Workers' compensation 1,088
Advertising 8,610
Auto expense 13,422
Dues and subscriptions 950
Utilities 3,903
Postage and delivery 2,244
Printing and reproduction 9,760
Outside service fees 395
Rent 20,893
Repairs and maintenance 645
Telephones 20,463
Travel and entertainment 4,552
Office expense 26,404
Professional fees 717
Depreciation 2,520
Banking fees 4,341
Software maintenance fees 2,348
Miscellaneous 1,251
Bad debt expense 3,570
--------------
$ 370,508
==============
See Auditor's Report and Notes to Financial Statements
5
ELS PERSONNEL SERVICES, LLC
NOTES TO FINANCIAL STATEMENTS
NOTE A-SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ELS Personnel Services, LLC, Inc. (the "Company') is a wholly-owned subsidiary
of Employee Leasing Services, Inc., and was organized under the laws of the
State of Ohio. Operations are conducted from leased facilities located at 3235
Omni Drive, Cincinnati, OH 45245. The Company provides a full range of
supplemental staffing and outsourced solutions, including solutions for
temporary, temporary-to-hire, or direct hire staffing in the clerical, office
administration, customer service, professional and light industrial categories.
The accounting principles followed by the Company that materially affect the
determination of financial position, results of operations and cash flows are
summarized below.
Cash Equivalents
The Company considers all highly liquid debt instruments purchased with a
maturity of three months or less to be cash equivalents. In the event of a bank
overdraft, such overdrafts are presented as a current liability.
Fair Value of Financial Instruments
The carrying value of cash, receivables and accounts payable approximates fair
value due to the short maturity of these instruments. The carrying value of
short and long-term debt approximates fair value based on discounting the
projected cash flows using market rates available for similar maturities. None
of the financial instruments are held for trading purposes.
Accounts Receivable
The Company presents its accounts receivable net of its allowance for doubtful
accounts. At December 31, 2004, the allowance for doubtful accounts was $ 7,390.
Property and Equipment
Property and equipment are recorded at cost. Maintenance and repairs are charged
to expenses as incurred. When items of property and equipment are sold or
retired, the related costs and accumulated depreciation are eliminated from the
accounts and any gains or losses are included in net income.
Depreciation expense is computed using the straight-line method and
declining-balance methods over estimated useful lives for financial statement
purposes. Asset lives for financial statement reporting of depreciation are:
Buildings 7-39 years
Furniture, fixtures and equipment 5-20 years
Leasehold improvements 15 years
Vehicles 5 years
The Company uses the straight-line method to amortize loan origination fees over
the life of the loans involved.
Income Taxes
The Company is a wholly-owned subsidiary of Employee Leasing Services, Inc., and
reports all income and expenses on the consolidated form with the parent
company. The parent company has elected to be taxed under the provisions of
Subchapter S of the Internal Revenue Code. Under those provisions, the Company
has no federal income tax liability. Instead, the stockholders are liable for
individual income taxes on the respective share of the company's taxable income.
See Auditor's Report.
6
ELS PERSONNEL SERVICES, LLC
NOTES TO FINANCIAL STATEMENTS
NOTE A-SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements, and the reported amounts of revenue and expenses during
the reporting period. Actual results could differ from those estimates.
Revenue Recognition
Staffing and managed service revenue and the related labor costs and payroll are
recorded in the period in which services are performed.
NOTE B-PROPERTY AND EQUIPMENT
Property and equipment, at cost, and related accumulated depreciation are
summarized as follows:
December 31, 2004
-----------------
Office equipment $ 5,841
Furniture and Fixtures 12,304
Leasehold improvements 1,123
-----------------
Total 19,268
Less accumulated depreciation 10,994
-----------------
Net property and equipment $ 8,274
-----------------
NOTE C-RELATED PARTY TRANSACTIONS Loan Payable
The Company maintained a loan from its parent company during the year ended
December 31, 2004. The loan bears no interest and no formal agreement or
repayment schedule currently exists. The amount outstanding to the Company's
shareholder totaled $ 1,291,062 at December 31, 2004.
Lease Commitments
The Company leased one of its office locations from Surrey Mall Partners, an
Ohio limited partnership. The lease was executed in the name of the parent
company, and was terminated August 31, 2004. The lease required monthly payments
of $625 until March 2004, and thereafter the payments required were at $650 per
month. The Company used the facilities, and therefore paid the lease payments
directly to the landlord, and not to the parent company.
See Auditor's Report.
7
ELS PERSONNEL SERVICES, LLC
NOTES TO FINANCIAL STATEMENTS
NOTE D-OBLIGATIONS UNDER OPERATING LEASES
The Company leases an office location from Frieds L. Kerht under a one year,
renewable lease, expiring January 31, 2004. The lease requires monthly rentals
of $550. The Company has agreed to pay for their portion of any increases in
real estate taxes, insurance, utilities, and service maintenance costs. The
lease was renewed on February 1, 2004 and February 1, 2005.
The Company leases an office location from Multi-Craft Litho, Inc. under a one
year, renewable lease, expiring March 13, 2004. The lease requires monthly
rentals of $ 850, with increases to $900, $950, and $1,000 for first, second,
and third renewal periods, respectively. The Company has agreed to pay for all
utilities and insurance costs. This lease was renewed both March 13, 2004 and
March 13, 2005.
Rent expense for the year ended December 31, 2004 was $ 20,268, for occupancy.
The Company rents various equipment from nonrelated parties under short-term
rental arrangements.
Approximate future maximum rental payments required are as follows at December
31, 2004:
2005 $17,900
-------
Total future maximum rental payments $17,900
-------
NOTE E-SUBSEQUENT EVENT
On February 7, 2005, Resolve Staffing, Inc., entered into an equity purchase
agreement ("Agreement"), to purchase ELS Personnel Services from Employee
Leasing Services, Inc.
See Auditor's Report.
8
FIVE STAR STAFFING (NY), INC.
AUDITED FINANCIAL STATEMENTS
December 31, 2004
TABLE OF CONTENTS
Page
Independent Auditor's Report 1
Balance Sheet 2
Statements of Income and Member's Equity 3
Statement of Cash Flows 4
Statement of Operating Expenses 5
Notes to the Financial Statements 6
[LOGO]
Jason F. Clausen & Associates, P.C.
-----------------------------------
certified public accountants
November 10, 2005
To the Board of Directors:
Five Star Staffing (NY), Inc.
3235 Omni Drive
Cincinnati, OH 45245
We have audited the accompanying balance sheet of Five Star Staffing (NY), Inc.,
a wholly-owned subsidiary of Employee Leasing Services, as of December 31, 2004,
and the related statements of income, retained earnings, and cash flows for the
two months then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Five Star Staffing (NY), Inc.
as of December 31, 2004, and the results of its operations and its cash flows
for the two months then ended in conformity with generally accepted accounting
principles.
/s/ Jason F. Clausen & Associates, P.C.
Jason F. Clausen & Associates, P.C.
Warren, MI 48093
Five Star Staffing (New York), Inc.
(A wholly owned subsidiary of Employee Leasing Services, Inc.)
BALANCE SHEET
ASSETS
December 31,
2004
--------------
CURRENT ASSETS
Cash (NOTE A) $ 20,171
Accounts receivable, trade (NOTE A) 131,663
Accounts receivable, other 7,945
Advances to employees 100
Prepaid expenses 27,979
--------------
TOTAL CURRENT ASSETS 187,858
PROPERTY AND EQUIPMENT (NOTE B) 40,232
Less accumulated depreciation 18,622
--------------
NET PROPERTY AND EQUIPMENT 21,610
OTHER ASSETS
Deposits 9,485
Goodwill 640,000
--------------
TOTAL OTHER ASSETS 649,485
--------------
TOTAL ASSETS $ 858,953
==============
See Auditor's Report and Notes to Financial Statements
2
LIABILITIES
December 31,
2004
--------------
CURRENT LIABILITIES
Accounts payable 12,191
Payroll taxes withheld and accrued 17,512
Accrued other expenses 8,210
Loan payable - Related party (NOTE C) 149,227
--------------
TOTAL CURRENT LIABILITIES 187,140
TOTAL LIABILITIES 187,140
STOCKHOLDER'S EQUITY
10
Common stock
Additional paid in capital 989,951
Retained earnings (318,148)
--------------
TOTAL STOCKHOLDER'S EQUITY 671,813
--------------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 858,953
==============
Five Star Staffing (New York), Inc.
(A wholly owned subsidiary of Employee Leasing Services, Inc.)
STATEMENTS OF INCOME AND RETAINED EARNINGS
For the two months ended December 31, 2004
REVENUE $ 231,737
DIRECT COSTS
Salaries - Temporaries 142,394
Payroll taxes - Temporaries 26,755
Workers' Compensation - Temporaries 1,430
Other direct costs 6,609
--------------
Total direct costs 177,188
GROSS PROFIT 54,549
OPERATING EXPENSES 109,338
--------------
NET OPERATING INCOME (LOSS) (54,789)
OTHER INCOME
Miscellaneous --
--------------
Total Other Income --
OTHER EXPENSE
Interest expense --
Miscellaneous --
Total Other Expenses --
--------------
NET INCOME (LOSS) (54,789)
RETAINED EARNINGS, BEGINNING OF PERIOD (89,267)
LESS: CURRENT PERIOD DISTRIBUTIONS 174,092
--------------
RETAINED EARNINGS, END OF PERIOD $ (318,148)
==============
See Auditor's Report and Notes to Financial Statements
3
Five Star Staffing (New York), Inc.
(A wholly owned subsidiary of Employee Leasing Services, Inc.)
STATEMENT OF CASH FLOWS
For the two months ended December 31, 2004
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (54,789)
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation 1,600
(Increase)/decrease in:
Accounts receivable, trade 12,517
Accounts receivable, other (7,945)
Advances to employees (100)
Prepaid expenses 33,364
Other assets 162
Increase/(decrease) in:
Accounts payable 12,191
Payroll taxes withheld and accrued 9,914
Accrued other expenses 8,210
--------------
Net Cash Provided by Operating Activities 15,124
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment --
--------------
Net Cash Used in Investing Activities --
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds (payments) on Loans from related party 149,227
Shareholder distributions paid (174,092)
--------------
Net Cash Provided (Used In) Financing Activities (24,865)
NET INCREASE (DECREASE) IN CASH (9,741)
CASH, BEGINNING OF YEAR 29,912
--------------
CASH, END OF YEAR $ 20,171
==============
SCHEDULE OF SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest during period $ --
See Auditor's Report and Notes to Financial Statements
4
Five Star Staffing (New York), Inc.
(A wholly owned subsidiary of Employee Leasing Services, Inc.)
SCHEDULE OF OPERATING EXPENSES
For the two months ended December 31, 2004
Salaries and wages $ 35,945
Payroll taxes 3,151
Insurance:
Group 1,601
Property and casualty 39,343
Workers' compensation 215
Advertising 2,996
Auto expense 600
Dues and subscriptions 1,311
Utilities 290
Postage and delivery 21
Printing and reproduction 2,585
Outside service fees 5,025
Rent 3,766
Repairs and maintenance 94
Telephones 2,246
Travel and entertainment 1,646
Office expense 1,398
Depreciation 1,600
Banking fees 165
Property taxes
Professional fees 3,744
Miscellaneous 162
Software maintenance 1,434
--------------
$ 109,338
==============
See Auditor's Report and Notes to Financial Statements
5
FIVE STAR STAFFING (NY), INC.
NOTES TO FINANCIAL STATEMENTS
NOTE A-SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Five Star Staffing (NY), Inc., Inc. (the "Company") is a wholly-owned subsidiary
of Employee Leasing Services, Inc. (ELS), and was organized under the laws of
the State of Ohio. Operations are conducted from leased facilities located at
3235 Omni Drive, Cincinnati, OH 45245. The Company provides a full range of
supplemental staffing and outsourced solutions, including solutions for
temporary, temporary-to-hire, or direct hire staffing in the clerical, office
administration, customer service, professional and light industrial categories.
Five Star Staffing (NY), Inc. was purchase by (ELS) on November 1, 2004.
The accounting principles followed by the Company that materially affect the
determination of financial position, results of operations and cash flows are
summarized below.
Cash Equivalents
The Company considers all highly liquid debt instruments purchased with a
maturity of three months or less to be cash equivalents. In the event of a bank
overdraft, such overdrafts are presented as a current liability.
Fair Value of Financial Instruments
The carrying value of cash, receivables and accounts payable approximates fair
value due to the short maturity of these instruments. The carrying value of
short and long-term debt approximates fair value based on discounting the
projected cash flows using market rates available for similar maturities. None
of the financial instruments are held for trading purposes.
Accounts Receivable
The Company presents its accounts receivable net of its allowance for doubtful
accounts. At December 31, 2004, the allowance for doubtful accounts was $ 580.
Property and Equipment
Property and equipment are recorded at cost. Maintenance and repairs are charged
to expenses as incurred. When items of property and equipment are sold or
retired, the related costs and accumulated depreciation are eliminated from the
accounts and any gains or losses are included in net income.
Depreciation expense is computed using the straight-line method and
declining-balance methods over estimated useful lives for financial statement
purposes. Asset lives for financial statement reporting of depreciation are:
Buildings 7-39 years
Furniture, fixtures and equipment 5-20 years
Leasehold improvements 15 years
Vehicles 5 years
The Company uses the straight-line method to amortize loan origination fees over
the life of the loans involved.
Income Taxes
The Company is a wholly-owned subsidiary of Employee Leasing Services, Inc., and
reports all income and expenses on the consolidated form with the parent
company. The parent company has elected to be taxed under the provisions of
Subchapter S of the Internal Revenue Code. Under those provisions, the Company
has no federal income tax liability. Instead, the stockholders are liable for
individual income taxes on the respective share of the company's taxable income.
See Auditor's Report.
6
FIVE STAR STAFFING (NY), INC.
NOTES TO FINANCIAL STATEMENTS
NOTE A-SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements, and the reported amounts of revenue and expenses during
the reporting period. Actual results could differ from those estimates.
Revenue Recognition
Staffing and managed service revenue and the related labor costs and payroll are
recorded in the period in which services are performed.
NOTE B-PROPERTY AND EQUIPMENT
Property and equipment, at cost, and related accumulated depreciation are
summarized as follows:
December 31. 2004
-----------------
Office equipment $ 25,328
Furniture and Fixtures 14,904
-----------------
Total 40,232
Less accumulated depreciation 18,622
-----------------
Net property and equipment $ 21,611
-----------------
NOTE C-RELATED PARTY TRANSACTIONS
Loan Payable
The Company maintained a loan from its parent company during the year ended
December 31, 2004. The loan bears no interest and no formal agreement or
repayment schedule currently exists. The amount outstanding to the Company's
shareholder totaled $ 149,227 at December 31, 2004.
See Auditor's Report.
7
FIVE STAR STAFFING (NY), INC.
NOTES TO FINANCIAL STATEMENTS
NOTE D-OBLIGATIONS UNDER OPERATING LEASES
The Company leases an office location from Shivom Enterprises, LLC, under a
three year lease, expiring June 30, 2007. The lease requires monthly rentals of
$550. The Company has agreed to pay for their portion of real estate taxes,
insurance, utilities, and service maintenance costs. The lease was terminated on
July 31, 2005.
The Company leases an office location from North Shore Plaza, LLC, under a five
year lease, expiring July 2006. The lease requires monthly rentals of $ 2,755.
The Company has agreed to pay for their portion of real estate taxes, insurance,
utilities, and service maintenance costs.
Rent expense for the two months ended December 31, 2004 was $ 3,766, for
occupancy.
The Company rents various equipment from nonrelated parties under short-term
rental arrangements. Approximate future maximum rental payments required are as
follows at December 31, 2004:
2005 $36,910
2006 16,530
-------
Total future maximum rental payments $53,440
-------
NOTE E-SUBSEQUENT EVENT
On February 7, 2005, Resolve Staffing, Inc., entered into an equity purchase
agreement ("Agreement"), to purchase Five Star Staffing (NY), Inc. from Employee
Leasing Services, Inc.
See Auditor's Report.
8
FIVE STAR STAFFING, INC.
AUDITED FINANCIAL STATEMENTS
December 31, 2004
TABLE OF CONTENTS
Page
Independent Auditor's Report 1
Balance Sheet 2
Statements of Income and Member's Equity 3
Statement of Cash Flows 4
Statement of Operating Expenses 5
Notes to the Financial Statements 6
[LOGO]
Jason F. Clausen & Associates, P.C.
-----------------------------------
certified public accountants
November 10, 2005
To the Board of Directors:
Five Star Staffing, Inc.
3235 Omni Drive
Cincinnati, OH 45245
We have audited the accompanying balance sheet of Five Star Staffing, Inc., a
wholly-owned subsidiary of Employee Leasing Services, as of December 31, 2004,
and the related statements of income, retained earnings, and cash flows for the
five months then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Five Star Staffing, Inc. as of
December 31, 2004, and the results of its operations and its cash flows for the
five months then ended in conformity with generally accepted accounting
principles.
/s/ Jason F. Clausen & Associates, P.C.
Jason F. Clausen & Associates, P.C.
Warren, MI 48093
Five Star Staffing, Inc.
(A wholly owned subsidiary of Employee Leasing Services, Inc.)
BALANCE SHEET
ASSETS
December 31,
2004
--------------
CURRENT ASSETS
Accounts receivable, trade (NOTE A) $ 401,063
Accounts receivable, other
Advances to employees 2,083
Prepaid expenses 398,637
Loan receivable - Related party (NOTE C) 560,193
--------------
TOTAL CURRENT ASSETS 1,361,976
PROPERTY AND EQUIPMENT (NOTE B) 252,797
Less accumulated depreciation 132,726
--------------
NET PROPERTY AND EQUIPMENT 120,071
OTHER ASSETS
Deposits 8,943
--------------
TOTAL OTHER ASSETS 8,943
--------------
TOTAL ASSETS $ 1,490,990
==============
See Auditor's Report and Notes to Financial Statements
2
LIABILITIES
December 31,
2004
--------------
CURRENT LIABILITIES
Bank overdraft (NOTE A) $ 37,871
Notes payable, current portion (NOTE E) 125,621
Lines of credit (NOTE F) 400,000
Accounts payable 18,271
Payroll taxes withheld and accrued 71,704
Accrued other expenses 170,232
--------------
TOTAL CURRENT LIABILITIES 823,699
LONG-TERM LIABILITIES (NOTE E)
Notes payable, less current portion 393,556
--------------
393,556
TOTAL LONG-TERM LIABILITIES
TOTAL LIABILITIES 1,217,255
STOCKHOLDER'S EQUITY
Common stock 100
Additional paid in capital 937
Retained earnings 272,698
--------------
TOTAL STOCKHOLDER'S EQUITY 273,735
--------------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 1,490,990
==============
Five Star Staffing, Inc.
(A wholly owned subsidiary of Employee Leasing Services, Inc.)
STATEMENTS OF INCOME AND RETAINED EARNINGS
For the five months ended December 31, 2004
REVENUE $ 1,042,340
DIRECT COSTS
Salaries - Temporaries 662,590
Payroll taxes - Temporaries 67,428
Workers' Compensation - Temporaries 39,036
Other direct costs 3,773
--------------
Total direct costs 772,827
GROSS PROFIT 269,513
OPERATING EXPENSES 262,677
--------------
NET OPERATING INCOME (LOSS) 6,836
OTHER INCOME --
Miscellaneous --
--------------
Total Other Income --
OTHER EXPENSE
Interest expense 12,861
Miscellaneous --
--------------
Total Other Expenses 12,861
--------------
NET INCOME (LOSS) (6,025)
RETAINED EARNINGS, BEGINNING OF PERIOD 596,081
LESS: CURRENT PERIOD DISTRIBUTIONS 317,358
--------------
RETAINED EARNINGS, END OF PERIOD $ 272,698
==============
See Auditor's Report and Notes to Financial Statements
3
Five Star Staffing, Inc.
(A wholly owned subsidiary of Employee Leasing Services, Inc.)
STATEMENT OF CASH FLOWS
For the five months ended December 31, 2004
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (6,025)
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation 6,000
(Increase)/decrease in:
Accounts receivable, trade (133,787)
Advances to employees (2,083)
Prepaid expenses (244,161)
Deposits (2,438)
Increase/(decrease) in:
Accounts payable 18,271
Payroll taxes withheld and accrued 64,603
Accrued other expenses 170,041
--------------
Net Cash Provided by Operating Activities (129,579)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment --
--------------
Net Cash Used in Investing Activities --
CASH FLOWS FROM FINANCING ACTIVITIES
Bank overdraft 37,871
Proceeds from line of credit (net) 400,000
Proceeds from Long-Term Borrowings (net) 519,177
Proceeds (payments) on Loans from related party (560,193)
Shareholder distributions paid (317,358)
--------------
Net Cash Provided (Used In) Financing Activities 79,497
NET INCREASE (DECREASE) IN CASH (50,082)
CASH, BEGINNING OF YEAR 50,082
--------------
CASH, END OF YEAR $ --
--------------
SCHEDULE OF SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest during period $ 12,861
See Auditor's Report and Notes to Financial Statements
4
Five Star Staffing, Inc.
(A wholly owned subsidiary of Employee Leasing Services, Inc.)
SCHEDULE OF OPERATING EXPENSES
For the five months ended December 31, 2004
Salaries and wages $ 114,030
Payroll taxes 9,444
Insurance:
Group 11,886
Property and casualty
Workers' compensation 253
Advertising 9,049
Auto expense 2,571
Dues and subscriptions 1,083
Utilities 3,489
Postage and delivery 3,260
Printing and reproduction 10,453
Outside service fees 11,064
Rent 23,944
Repairs and maintenance 226
Telephones 11,282
Travel and entertainment 63
Office expense 5,903
Depreciation 6,000
Banking fees 1,747
Property taxes 2,752
Professional fees 30,631
Miscellaneous 82
Software maintenance 860
Bad debt reserve 2,605
--------------
$ 262,677
==============
See Auditor's Report and Notes to Financial Statements
5
FIVE STAR STAFFING, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE A-SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Five Star Staffing, Inc., Inc. (the "Company") is a wholly-owned subsidiary of
Employee Leasing Services, Inc. (ELS), and was organized under the laws of the
State of Ohio. Operations are conducted from leased facilities located at 3235
Omni Drive, Cincinnati, OH 45245. The Company provides a full range of
supplemental staffing and outsourced solutions, including solutions for
temporary, temporary-to-hire, or direct hire staffing in the clerical, office
administration, customer service, professional and light industrial categories.
Five Star Staffing, Inc. was purchase by (ELS) on August 1, 2004.
The accounting principles followed by the Company that materially affect the
determination of financial position, results of operations and cash flows are
summarized below.
Cash Equivalents
The Company considers all highly liquid debt instruments purchased with a
maturity of three months or less to be cash equivalents. In the event of a bank
overdraft, such overdrafts are presented as a current liability.
Fair Value of Financial Instruments
The carrying value of cash, receivables and accounts payable approximates fair
value due to the short maturity of these instruments. The carrying value of
short and long-term debt approximates fair value based on discounting the
projected cash flows using market rates available for similar maturities. None
of the financial instruments are held for trading purposes.
Accounts Receivable
The Company presents its accounts receivable net of its allowance for doubtful
accounts. At December 31, 2004, the allowance for doubtful accounts was $ 2,605.
Property and Equipment
Property and equipment are recorded at cost. Maintenance and repairs are charged
to expenses as incurred. When items of property and equipment are sold or
retired, the related costs and accumulated depreciation are eliminated from the
accounts and any gains or losses are included in net income.
Depreciation expense is computed using the straight-line method and
declining-balance methods over estimated useful lives for financial statement
purposes. Asset lives for financial statement reporting of depreciation are:
Buildings 7-39 years
Furniture, fixtures and equipment 5-20 years
Leasehold improvements 15 years
Vehicles 5 years
The Company uses the straight-line method to amortize loan origination fees over
the life of the loans involved.
Income Taxes
The Company is a wholly-owned subsidiary of Employee Leasing Services, Inc., and
reports all income and expenses on the consolidated form with the parent
company. The parent company has elected to be taxed under the provisions of
Subchapter S of the Internal Revenue Code. Under those provisions, the Company
has no federal income tax liability. Instead, the stockholders are liable for
individual income taxes on the respective share of the company's taxable income.
See Auditor's Report.
6
FIVE STAR STAFFING, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE A-SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements, and the reported amounts of revenue and expenses during
the reporting period. Actual results could differ from those estimates.
Revenue Recognition
Staffing and managed service revenue and the related labor costs and payroll are
recorded in the period in which services are performed.
NOTE B-PROPERTY AND EQUIPMENT
Property and equipment, at cost, and related accumulated depreciation are
summarized as follows:
December 31. 2004
-----------------
Office equipment $ 122,197
Furniture and Fixtures 84,607
Leasehold Improvements 45,994
-----------------
Total 252,797
Less accumulated depreciation 132,726
-----------------
Net property and equipment $ 120,071
-----------------
NOTE C-RELATED PARTY TRANSACTIONS Loan Receivable
The Company maintained a loan to its parent company during the year ended
December 31, 2004. The loan bears no interest and no formal agreement or
repayment schedule currently exists. The amount outstanding from the Company's
shareholder totaled $ 560,193 at December 31, 2004.
See Auditor's Report.
7
FIVE STAR STAFFING, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE D-OBLIGATIONS UNDER OPERATING LEASES
The Company leases an office location from Luigi and Angela Murdocca, under a
three year lease, expiring March 31, 2007. The lease requires monthly rentals of
$1,155, with annual increases at 5%. The Company has agreed to pay for their
portion of real estate taxes, insurance, utilities, and service maintenance
costs.
The Company leases an office location from West Glen Investments, LLC, under a
three year lease, expiring February 2005, renewable at three year option. The
lease requires monthly rentals of $ 1,129. The Company has agreed to pay for
their portion of real estate taxes, insurance, utilities, and service
maintenance costs, and as of the report date has renewed their lease.
The Company leased an office location from New Plan Excel Realty Trust, under a
one year and six month lease, expiring October 2004. The lease requires monthly
rentals of $ 3,200. The Company has agreed to pay for their portion of real
estate taxes, insurance, utilities, and service maintenance costs, and as of the
report date has terminated their lease.
Rent expense for the five months ended December 31, 2004 was $ 23,944, for
occupancy. Approximate future maximum rental payments required are as follows at
December 31, 2004:
2005 $27,408
2006 27,408
2007 27,408
-------
Total future maximum rental payments $82,224
-------
NOTE E-NOTES PAYABLE
December 31, 2004
Note payable with A.I. Credit Corp.; interest is computed at 5.25% $ 43,614
per annum; payable in 10 equal monthly installments of $3,797,
beginning 2/1/2005, and downpayment of $6,542; secured by loan
proceeds, and downpayment
Note payable with Fifth Third Bank; interest is computed at 6.6% 475 563
per annum; payable in 59 equal installments of $ 9,485.00 until -----------------
September 2009; secured by all assets of the corporation
$ 519,177
=================
Total Long term debt $519,177
Less current portion 125,621
--------
Long-term portion $393,556
========
See Auditor's Report.
8
FIVE STAR STAFFING, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE E-NOTES PAYABLE (CONTINUED)
Estimated maturities of the notes payable with subsequent activity are as
follows:
2005 $125,621
2006 95,289
2007 101,720
2008 108,696
2009 83 621
--------
Total $519,177
========
NOTE F-SHORT TERM DEBT
The Company obtained financing from Fifth Third Bank in the form of a revolving
note with a limit of $400,000. The note bears interest at the Bank's prime rate.
The line of credit is secured by all assets of the corporation. The amount
outstanding at December 31, 2004 was $ 400,000.
NOTE G-SUBSEQUENT EVENT
On February 7, 2005, Resolve Staffing, Inc., entered into an equity purchase
agreement ("Agreement"), to purchase Five Star Staffing, Inc. from Employee
Leasing Services, Inc.
See Auditor's Report.
9
AMERICAN STAFFING RESOURCES, LTD
AUDITED FINANCIAL STATEMENTS
December 31, 2004
TABLE OF CONTENTS
Page
Independent Auditor's Report 1
Balance Sheet 2
Statements of Income and Member's Equity 3
Statement of Cash Flows 4
Statement of Operating Expenses 5
Notes to the Financial Statements 6
[LOGO]
Jason F. Clausen & Associates, P.C.
-----------------------------------
certified public accountants
November 10, 2005
To the Board of Directors:
American Staffing Resources, LTD
3235 Omni Drive
Cincinnati, OH 45245
We have audited the accompanying balance sheet of American Staffing Resources,
LTD, a wholly-owned subsidiary of Employee Leasing Services, as of December 31,
2004, and the related statements of income, retained earnings, and cash flows
for the two months then ended. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of American Staffing Resources,
LTD as of December 31, 2004, and the results of its operations and its cash
flows for the two months then ended in conformity with generally accepted
accounting principles.
/s/ Jason F. Clausen & Associates, P.C.
Jason F. Clausen & Associates, P.C.
Warren, MI 48093
American Staffing Resources, LTD
(A wholly-owned subsidiary of Employee Leasing Services, Inc.)
BALANCE SHEET
ASSETS
December 31,
2004
--------------
CURRENT ASSETS
Cash (NOTE A) $ 8,189
Accounts receivable, trade (NOTE A) 47,441
Prepaid expenses 3,285
--------------
TOTAL CURRENT ASSETS 58,915
--------------
TOTAL ASSETS $ 58,915
==============
See Auditor's Report and Notes to Financial Statements
2
LIABILITIES
December 31,
2004
--------------
CURRENT LIABILITIES
Accounts payable 6,463
Payroll taxes withheld and accrued 10,009
Accrued other expenses 2,608
Loan payable - Related party 43,937
--------------
TOTAL CURRENT LIABILITIES 63,017
--------------
TOTAL LIABILITIES 63,017
--------------
STOCKHOLDER'S EQUITY
Common stock --
Additional paid in capital --
Retained earnings (4,102)
--------------
TOTAL STOCKHOLDER'S EQUITY (4,102)
--------------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 58,915
==============
American Staffing Resources, LTD
(A wholly-owned subsidiary of Employee Leasing Services, Inc.)
STATEMENTS OF INCOME AND RETAINED EARNINGS
For the two months ended December 31, 2004
REVENUE $ 54,098
DIRECT COSTS
Salaries - Temporaries 35,534
Payroll taxes - Temporaries 5,317
Workers' Compensation - Temporaries 286
Other direct costs --
--------------
Total direct costs 41,137
GROSS PROFIT 12,961
OPERATING EXPENSES 17,063
--------------
NET OPERATING INCOME (LOSS) (4,102)
OTHER INCOME
Miscellaneous --
--------------
Total Other Income --
OTHER EXPENSE
Interest expense --
Miscellaneous --
--------------
Total Other Expenses --
--------------
NET INCOME (LOSS) (4,102)
RETAINED EARNINGS, BEGINNING OF PERIOD --
LESS: CURRENT PERIOD DISTRIBUTIONS --
--------------
RETAINED EARNINGS, END OF PERIOD $ (4,102)
==============
See Auditor's Report and Notes to Financial Statements
3
American Staffing Resources, LTD
(A wholly-owned subsidiary of Employee Leasing Services, Inc.)
STATEMENT OF CASH FLOWS
For the two months ended December 31, 2004
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (4,102)
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation --
(Increase)/decrease in:
Accounts receivable, trade (47,441)
Prepaid expenses (3,285)
Increase/(decrease) in:
Accounts payable 6,463
Payroll taxes withheld and accrued 10,009
Accrued other expenses 2,608
--------------
Net Cash Provided by Operating Activities (35,748)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment --
--------------
Net Cash Used in Investing Activities --
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds (payments) on Loans from related party 43,937
Shareholder distributions paid --
--------------
Net Cash Provided (Used In) Financing Activities 43,937
NET INCREASE (DECREASE) IN CASH 8,189
CASH, BEGINNING OF YEAR --
--------------
CASH, END OF YEAR $ 8,189
==============
SCHEDULE OF SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest during period $ --
See Auditor's Report and Notes to Financial Statements
4
American Staffing Resources, LTD
(A wholly-owned subsidiary of Employee Leasing Services, Inc.)
SCHEDULE OF OPERATING EXPENSES
For the two months ended December 31, 2004
Salaries and wages $ 7,907
Payroll taxes
Insurance:
Group
Property and casualty 660
Workers' compensation
Advertising 3,878
Auto expense 1,005
Postage and delivery 72
Outside service fees 300
Rent 1,822
Telephones 1,210
Banking fees 39
Miscellaneous 45
Bad debt reserve 125
--------------
$ 17,063
==============
See Auditor's Report and Notes to Financial Statements
5
AMERICAN STAFFING RESOURCES, LTD
NOTES TO FINANCIAL STATEMENTS
NOTE A-SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
American Staffing Resources, LTD, Inc. (the "Company') is a wholly-owned
subsidiary of Employee Leasing Services, Inc., and was organized under the laws
of the State of Ohio. Operations are conducted from leased facilities located at
3235 Omni Drive, Cincinnati, OH 45245. The Company provides a full range of
supplemental staffing and outsourced solutions, including solutions for
temporary, temporary-to-hire, or direct hire staffing in the clerical, office
administration, customer service, professional and light industrial categories.
The accounting principles followed by the Company that materially affect the
determination of financial position, results of operations and cash flows are
summarized below.
Cash Equivalents
The Company considers all highly liquid debt instruments purchased with a
maturity of three months or less to be cash equivalents. In the event of a bank
overdraft, such overdrafts are presented as a current liability.
Fair Value of Financial Instruments
The carrying value of cash, receivables and accounts payable approximates fair
value due to the short maturity of these instruments. The carrying value of
short and long-term debt approximates fair value based on discounting the
projected cash flows using market rates available for similar maturities. None
of the financial instruments are held for trading purposes.
Accounts Receivable
The Company presents its accounts receivable net of its allowance for doubtful
accounts. At December 31, 2004, the allowance for doubtful accounts was $ 125.
Property and Equipment
Property and equipment are recorded at cost. Maintenance and repairs are charged
to expenses as incurred. When items of property and equipment are sold or
retired, the related costs and accumulated depreciation are eliminated from the
accounts and any gains or losses are included in net income.
Depreciation expense is computed using the straight-line method and
declining-balance methods over estimated useful lives for financial statement
purposes. Asset lives for financial statement reporting of depreciation are:
Buildings 7-39 years
Furniture, fixtures and equipment 5-20 years
Leasehold improvements 15 years
Vehicles 5 years
The Company uses the straight-line method to amortize loan origination fees over
the life of the loans involved.
Income Taxes
The Company is a wholly-owned subsidiary of Employee Leasing Services, Inc., and
reports all income and expenses on the consolidated form with the parent
company. The parent company has elected to be taxed under the provisions of
Subchapter S of the Internal Revenue Code. Under those provisions, the Company
has no federal income tax liability. Instead, the stockholders are liable for
individual income taxes on the respective share of the company's taxable income.
See Auditor's Report.
6
AMERICAN STAFFING RESOURCES, LTD
NOTES TO FINANCIAL STATEMENTS
NOTE A-SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements, and the reported amounts of revenue and expenses during
the reporting period. Actual results could differ from those estimates.
Revenue Recognition
Staffing and managed service revenue and the related labor costs and payroll are
recorded in the period in which services are performed.
NOTE B-RELATED PARTY TRANSACTIONS
Loan Payable
The Company maintained a loan from its parent company during the year ended
December 31, 2004. The loan bears no interest and no formal agreement or
repayment schedule currently exists. The amount outstanding to the Company's
shareholder totaled $ 43,937 at December 31, 2004.
NOTE C-SUBSEQUENT EVENT
On February 7, 2005, Resolve Staffing, Inc., entered into an equity purchase
agreement ("Agreement"), to purchase American Staffing Resources, LTD from
Employee Leasing Services, Inc.
See Auditor's Report.
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