EX-99.1 2 dalrada_8k-ex9901.txt AUDITED FS Exhibit 99.1 ALL STAFFING, INC. AUDITED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2005 AND 2004 AND SIX MONTHS ENDED JUNE 30, 2006 AND 2005 All Staffing, Inc Index to Financial Statements CONTENTS -------- Page ---- Report of Independent Registered Public Accounting Firm........................1 FINANCIAL STATEMENTS: --------------------- Balance Sheets...............................................................2-3 Statements of Operations.......................................................4 Statements of Stockholders' Equity (Deficit)...................................5 Statements of Cash Flows.......................................................6 Notes to Financial Statements...............................................7-16 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Stockholders of All Staffing, Inc. We have audited the accompanying balance sheets of All Staffing, Inc. as of December 31, 2005 and 2004, and the related statements of operations, stockholders' equity (deficit) and cash flows for the years then ended. These financial statements are the responsibility of the company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide 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 All Staffing, Inc. as of December 31, 2005 and 2004, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. Goff Backa Alfera & Company, LLC Pittsburgh, Pennsylvania December 6, 2006 1
ALL STAFFING, INC. BALANCE SHEETS JUNE 30, DECEMBER 31, 2006 2005 2005 2004 ------------ ------------ ------------ ------------ (UNAUDITED) (UNAUDITED) Assets CURRENT Accounts Receivable, trade $ 3,195,087 $ 1,949,195 $ 2,279,671 $ 2,189,401 Accounts Receivable, affiliates 491,421 362,352 493,686 327,414 Other Receivables 93,117 23,450 3,450 405,022 Prepaid Expenses 121,605 85,664 101,266 104,933 Advances to Employees 37,085 2,181 38,053 16,305 Officer Advances 67,788 3,384 61,384 3,384 Prepaid Corporate Taxes 54,545 34,909 51,998 13,719 ------------ ------------ ------------ ------------ Total Current Assets 4,060,648 2,461,135 3,029,508 3,060,178 PROPERTY AND EQUIPMENT Office Equipment and Fixtures 92,324 82,728 82,728 74,107 Computing Equipment 272,280 220,890 256,822 203,849 Leasehold Improvements 104,566 85,912 102,232 74,293 Vehicles 594,449 559,672 594,449 530,172 ------------ ------------ ------------ ------------ 1,063,619 949,202 1,036,231 882,421 Less: Accumulated Depreciation (479,818) (333,892) (401,339) (265,938) ------------ ------------ ------------ ------------ Net Property and Equipment 583,801 615,310 634,892 616,483 OTHER ASSETS Deferred Tax Asset 467,175 622,011 653,640 519,315 Worker's Compensation Insurance Escrow 250,000 - - - Investments 105,000 75,000 75,000 75,000 ------------ ------------ ------------ ------------ Total Other Assets 822,175 697,011 728,640 594,315 ------------ ------------ ------------ ------------ TOTAL ASSETS $ 5,466,624 $ 3,773,456 $ 4,393,040 $ 4,270,976 ============ ============ ============ ============ See accompanying notes to these financial statements 2 ALL STAFFING, INC. BALANCE SHEETS (CONTINUED) JUNE 30, DECEMBER 31, 2006 2005 2005 2004 ------------ ------------ ------------ ------------ (UNAUDITED) (UNAUDITED) Liabilities CURRENT Bank Overdraft $ 750,643 $ 350,203 $ 459,011 $ 629,346 Line of Credit 1,014,522 244 500,000 100,171 Accounts Payable 2,600,820 2,249,648 2,275,165 2,242,606 Accounts Payable, affiliates 658,662 437,225 513,241 409,225 Accrued Payroll and Withholdings 1,176,707 1,084,494 1,304,028 1,198,687 Accrued Liabilities 303,465 594,264 247,752 394,576 Current Portion of Notes Payable 82,301 74,368 81,744 74,368 ------------ ------------ ------------ ------------ Total Current Liabilities 6,587,120 4,790,446 5,380,941 5,048,979 ------------ ------------ ------------ ------------ LONG TERM Notes Payable net of current portion 651,662 702,408 693,358 715,988 Workmen's Compensation Loss Reserve 1,056,606 1,398,533 1,386,668 1,360,048 ------------ ------------ ------------ ------------ Total Long Term Liabilities 1,708,268 2,100,941 2,080,026 2,076,036 ------------ ------------ ------------ ------------ Total liabilities 8,295,388 6,891,387 7,460,967 7,125,015 ------------ ------------ ------------ ------------ STOCKHOLDERS' EQUITY Common Stock, no par value 150 shares authorized, 110 shares issued and outstanding - - - - Additional Paid in Capital 200 200 200 200 Retained Earnings (Deficit) (2,748,898) (3,038,065) (2,988,061) (2,774,173) Less: Treasury Stock, 40 shares at cost (80,066) (80,066) (80,066) (80,066) ------------ ------------ ------------ ------------ Total Stockholders' Equity (2,828,764) (3,117,931) (3,067,927) (2,854,039) ------------ ------------ ------------ ------------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 5,466,624 $ 3,773,456 $ 4,393,040 $ 4,270,976 ============ ============ ============ ============ See accompanying notes to these financial statements 3 ALL STAFFING, INC. STATEMENTS OF OPERATIONS SIX MONTHS ENDED JUNE 30, YEAR ENDED DECEMBER 31, ---------------------------- ---------------------------- 2006 2005 2005 2004 ------------ ------------ ------------ ------------ (UNAUDITED) (UNAUDITED) PEO Service Revenues (gross billings of $49,281,044 $47,225,620, $104,677,163 and $92,984,212 less worksite employee payroll costs of $41,910,106, $40,074,219, $91,091,068 and $80,063,909, respectively) $ 7,370,938 $ 7,151,401 $13,586,095 $12,920,303 COST OF PEO SERVICES 5,669,841 6,025,746 10,934,198 9,854,080 ------------ ------------ ------------ ------------ GROSS PROFIT 1,701,097 1,125,655 2,651,897 3,066,223 OPERATING EXPENSES Personnel Costs 379,950 718,183 1,342,614 1,180,042 Advertising 10,868 17,969 36,104 35,569 Bad Debt Expense - - 150,000 110,000 Bank Charges 55,151 59,256 161,399 91,274 Commissions 34,748 25,089 45,830 41,112 Consulting Fees 9,783 44,185 121,471 77,604 Contributions 6,640 5,153 6,748 6,085 Corporate Taxes 3,641 1,429 4,703 1,318 Depreciation 78,479 67,954 141,112 105,382 Dues and Subscriptions 19,780 23,312 38,438 38,048 Insurance 65,626 96,087 178,522 158,376 Legal and Professional 64,415 10,659 96,055 12,584 Meals & Entertainment 988 8,364 16,198 15,296 Miscellaneous 13,400 - - - Office Expenses 258,282 108,701 251,893 126,530 Public Relations 1,825 20,162 30,724 49,980 Rent 41,380 26,897 57,314 35,650 Penalties & Assessments 43,090 101,827 6,085 221,190 Repairs & Maintenance 30,366 35,932 70,942 77,644 Staff Expenses 27,759 18,985 45,543 33,928 Travel and Lodging 16,319 59,957 104,485 105,914 Utilities 25,207 29,864 55,434 56,243 ------------ ------------ ------------ ------------ TOTAL OPERATING EXPENSES 1,187,697 1,479,965 2,961,614 2,579,769 ------------ ------------ ------------ ------------ OPERATING INCOME (LOSS) 513,400 (354,310) (309,717) 486,454 OTHER INCOME (EXPENSE) Interest Income 907 1,240 2,380 585 Gain (Loss) on Sale of Fixed Assets - - (138) 200 Gain (Loss) in Deferred Comp Plan - - (6,096) (1,168) Interest Expense (88,680) (13,518) (34,642) (32,508) ------------ ------------ ------------ ------------ TOTAL OTHER INCOME (EXPENSE) (87,773) (12,278) (38,496) (32,891) ------------ ------------ ------------ ------------ INCOME (LOSS) BEFORE TAXES 425,627 (366,588) (348,213) 453,563 PROVISION (BENEFIT) FOR INCOME TAXES 186,464 (102,696) (134,325) 270,675 ------------ ------------ ------------ ------------ NET INCOME (LOSS) $ 239,163 $ (263,892) $ (213,888) $ 182,888 ============ ============ ============ ============ See accompanying notes to these financial statements 4 ALL STAFFING, INC. STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT) (ACTIVITY SUBSEQUENT TO DECEMBER 31, 2005 IS UNAUDITED) FOR THE PERIOD FROM JANUARY 1, 2004 TO JUNE 30, 2006 ADDITIONAL RETAINED TREASURY NUMBER OF PAR PAID IN EARNINGS STOCK, SHARES VALUE CAPITAL (DEFICIT) AT COST TOTAL Balance January 1, 2004 110 $ 0 $ 200 $(2,957,061) $ (80,066) $(3,036,927) Net Income for the Year - - - 182,888 - 182,888 ------------ ------- ----------- ------------ ---------- ------------ Balance December 31, 2004 110 0 200 (2,774,173) (80,066) (2,854,039) Net Loss for the Year - - - (213,888) - (213,888) ------------ ------- ----------- ------------ ---------- ------------ Balance December 31, 2005 110 0 200 (2,988,061) (80,066) (3,067,927) Net Income for the Period - - - 239,163 - 239,163 ------------ ------- ----------- ------------ ---------- ------------ Balance June 30, 2006 (unaudited) 110 $ 0 $ 200 $(2,748,898) $ (80,066) $(2,828,764) ============ ======= =========== ============ ========== ============ See accompanying notes to these financial statements 5 ALL STAFFING, INC. STATEMENTS OF CASH FLOWS SIX MONTHS ENDED JUNE 30, YEAR ENDED DECEMBER 31, ---------------------------- ---------------------------- 2006 2005 2005 2004 ------------ ------------ ------------ ------------ (UNAUDITED) (UNAUDITED) OPERATING ACTIVITIES Net Income (Loss) for the Period $ 239,163 $ (263,892) $ (213,888) $ 182,888 Adjustments to reconcile net income (loss) to net cash provided (used) by operating activities: Depreciation 78,479 67,954 141,112 105,382 (Gain) Loss on sale of fixed assets - - 139 (200) Deferred income tax expense (benefit) 186,464 (102,696) (134,325) 270,675 Changes in operating assets and liabilities: Trade accounts and other receivables (1,005,083) 621,788 311,302 (1,320,788) Advances to employees and officers (5,436) 14,124 (79,748) 6,006 Prepaid expenses (22,886) (1,921) (34,612) (5,867) Operating advances due from related parties 2,265 (34,938) (166,272) (74,828) Worker's Compensation Insurance Escrow (250,000) - - - Accounts payable and accrued liabilities 254,047 92,537 (8,924) 1,232,929 Worker's Compensation Loss Reserve (330,062) 38,485 26,620 (11,447) Operating advances due to related parties 145,421 28,000 104,016 26,821 ------------ ------------ ------------ ------------ Net cash provided (used) by operating activities (707,628) 459,441 (54,580) 411,571 INVESTING ACTIVITIES Acquisition of property and equipment (27,389) (66,791) (159,660) (266,335) Acquisition of investments (30,000) - - (75,000) ------------ ------------ ------------ ------------ Net cash used by investing activities (57,389) (66,791) (159,660) (341,335) FINANCING ACTIVITIES Net (repayments) borrowings on line of credit 514,522 (99,927) 399,829 (387,373) Net (repayments) borrowings on long term debt (41,137) (13,580) (15,254) 92,773 ------------ ------------ ------------ ------------ Net cash provided (used) by financing activities 473,385 (113,507) 384,575 (294,600) ------------ ------------ ------------ ------------ INCREASE (DECREASE) IN CASH (291,632) 279,143 170,335 (224,364) CASH OVERDRAFT, BEGINNING OF PERIOD (459,011) (629,346) (629,346) (404,982) ------------ ------------ ------------ ------------ CASH OVERDRAFT, END OF PERIOD $ (750,643) $ (350,203) $ (459,011) $ (629,346) ============ ============ ============ ============ SUPPLEMENTAL CASH FLOW INFORMATION Interest paid $ 88,680 $ 13,518 $34,642 $ 32,508 Income taxes paid $ - $ 17,089 $17,089 $ 21,165 See accompanying notes to these financial statements 6
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION The accompanying financial statements include the accounts of All Staffing, Inc. ("ASI" or "The Company"). NATURE OF OPERATIONS The Company is a Professional Employer Organization (PEO) that provides full service to its clients' entire employee-related administration including payroll, benefits, insurance, retirement and the legal employment responsibilities for their clients' workers. The Company is a Tennessee corporation with its main office located in Lansford, Pennsylvania. The Company also has offices located in Crossville, Tennessee and Hartford and Meriden, Connecticut. UNAUDITED INFORMATION The balance sheets as of June 30, 2005 and 2006 and the statements of operations and cash flows for the six months then ended were taken from the Company's books and records without an audit. However, in the opinion of management, such information includes all adjustments (consisting only of normal accruals) which are necessary to properly reflect the financial position on the Company as of June 30, 2005 and 2006 and the results of operations and cash flows for the six months ending June 30, 2005 and 2006. USE OF ESTIMATES Management uses estimates and assumptions in preparing these financial statements in accordance with generally accepted accounting principles in the United States of America. Those estimates and assumptions affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the balance sheet dates, and the reported revenues and expenses for the reporting periods. Actual results could vary from the estimates that were used. BASIS OF ACCOUNTING The Company prepares its financial statements on the accrual basis of accounting. Under this basis of accounting, revenues are recognized when earned rather than when collected and expenses are recognized when incurred rather than when paid. IMPAIRMENT OF LONG-LIVED ASSETS In accordance with SFAS Nos. 142 and 144, long lived assets to be held and used are analyzed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. SFAS No. 142 relates to assets with an indefinite life where SFAS 144 relates to assets that can be amortized and have a determinable life. The Company evaluates at each balance sheet date whether events and circumstances have occurred that indicate possible impairment. If there are indications of impairment, the Company uses remaining life in measuring whether the assets are recoverable. In the event such cash flows are not expected to be sufficient to recover the recorded asset values, the assets are written down to their estimated fair value. Long-lived assets to be disposed of are reported at the lower of carrying amount or fair value of asset less the cost to sell. 7 PROPERTY AND EQUIPMENT Acquisitions of property and equipment are recorded at cost. Improvements and replacements of property and equipment are capitalized. Maintenance and repairs that do not improve or extend the lives of property and equipment are charged to expense as incurred. When assets are sold or retired, their cost and related accumulated depreciation are removed from the accounts and any gain or loss is reported in the statements of income and retained earnings. Depreciation is provided over the estimated useful life of each class of depreciable assets and is computed for financial statement purposes using the straight-line and double-declining balance methods. The estimated useful lives of the assets are: Estimated Useful Lives: Furniture Fixtures and Office Equipment 5 - 7 Years Computer Equipment 5 Years Leasehold Improvements 7 - 40 Years Vehicle 5 Years Depreciation expense for the years ended December 31, 2005 and 2004 were $141,112 and $105,432 respectively. Depreciation expense for the six month periods ending June 30, 2006 and 2005 were $78,479 and $67,954 respectively. ACCOUNTS RECEIVABLE AND BAD DEBTS The Company provides an allowance for doubtful accounts equal to the estimated uncollectible amounts. The Company's estimate is based on historical collection experience and review of the current status of trade accounts receivable. It is reasonably possible that the Company's estimate of the allowance for doubtful accounts will change. Accounts receivable are presented net of allowances of $860,000 and $710,000 at December 31, 2005 and 2004 respectively. Accounts deemed uncollectible are written off against the allowance. INVESTMENTS Investments are recorded at cost and periodically reviewed for impairment. INCOME TAXES Income taxes are provided for using the liability accounting method of accounting in accordance with Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes". A deferred tax asset or liability is recorded for all temporary differences between financial and tax reporting. Deferred tax expense (benefit) results from the change during the year of deferred tax assets and liabilities. A valuation allowance for deferred tax assets is recorded when it is more likely than not that the benefit from the deferred tax asset will not be realized. 8 The Company recognizes the amount of taxes payable or refundable for the current year and recognizes deferred tax liabilities and assets for the expected future tax consequences of events or transactions that have been recognized in the Company's financial statements of tax returns. REVENUE RECOGNITION PEO Service Fees The Company recognizes its revenues associated with its PEO business pursuant to EITF 99-19 "Reporting Revenues Gross as a Principal versus Net as an agent." The Company revenues are reported net of worksite employee payroll costs (net method). Consistent with its revenue recognition policy, revenue is netted by the amount of the Company's gross payroll costs. The Company's costs of PEO services reported in the statements of operations are comprised of all other costs related to its worksite employees, such as employer portion of payroll-related taxes, employee benefit plan premiums and workers' compensation insurance premiums. WORKER'S COMPENSATION ASI's insurance provides workmen's compensation for catastrophic losses. The policy has a deductible of $250,000 per claim payable by All Staffing, Inc. The insurance company requires an escrow deposit to be established in case of policy termination or carrier change. In February 2006, the Company changed insurance carriers. The new policy required $250,000 deposit in case of policy termination or carrier change. As of June 30, 2006, the total cash escrow account was $250,000. (See note 8) COMPENSATED ABSENCES Employees of the Corporation are entitled to paid vacation, sick leave and other paid absences depending on length of service, position and other factors. It is the Corporation's policy to recognize the cost of compensated absences when actually paid. Therefore, there are no expenses or accruals for future compensated absences in these financial statements. NOTE 2 PROVISION FOR INCOME TAXES The income tax provision consisted of the following: Six Months Ended Year Ended June 30 December 31 2006 2005 (unaudited) (unaudited) 2005 2004 -------------------------------------------------------- Current $ 0 $ 0 $ 0 $ 0 Deferred 186,464 (102,696) (134,325) 270,675 -------------------------------------------------------- Total Tax Provision (Benefit) $ 186,464 $(102,696) $(134,325) $ 270,675 ======================================================== 9 The US Statutory tax rate applicable is 40% (estimated rates of 34% for Federal and 6% for state taxes) for 2004, 2005 and 2006. The income tax provision differed from a provision computed at the US statutory tax rate because of nondeductible expenses and the partial deductibility of certain items. Deferred tax assets and liabilities are recognized for the expected future tax consequences attributable to differences between the financial statements and tax bases of assets and liabilities using enacted tax rates expected to apply in the years in which the temporary differences are expected to reverse. The significant components of the deferred tax assets and deferred tax liabilities are presented below: June 30 December 31 2006 2005 (unaudited) (unaudited) 2005 2004 -------------------------------------------------------- Deferred Tax Assets: Net Operating Losses $ 162,000 $ 194,000 $ 226,000 $ 114,000 Workmen's Compensation Loss Reserve 422,030 559,413 554,667 544,019 ---------- ---------- ---------- ---------- 584,030 753,413 780,667 658,019 Deferred Tax Liabilities: Depreciation $(116,855) $(131,402) $(127,027) $(138,704) ---------- ---------- ---------- ---------- Net deferred tax asset $ 467,175 $ 622,011 $ 653,640 $ 519,315 ========== ========== ========== ========== As of December 31, 2005 there were net operating losses of approximately $576,000 expiring in 2024 and 2025. The net operating losses may also be limited by various statutory requirements. NOTE 3 ADVERTISING EXPENSE Advertising costs are expensed as incurred. Advertising expense totaled $36,104 and $35,569 for the years ended December 31, 2005 and 2004 respectively. Advertising expense amounted to $10,868 and $17,969 for the six months ended June 30, 2006 and 2005 respectively. 10 NOTE 4 NOTES PAYABLE Notes payable consisted of the following:
June 30, December 31, 2006 (unaudited) 2005 2004 ------------------ ------------ ------------ Note Payable to M & T Credit Corporation in monthly $ 254 $ 1,959 $ 5,170 installments of $273, including interest at 7.99%. The note is secured by an automobile and matures in August 2006. Note Payable to GMAC in monthly installments of $750. The note is non-interest bearing, secured by an automobile and matures in April 2008. 16,495 20,994 29,991 Note Payable to GMAC in monthly installments of $528. The note is non-interest bearing, secured by an automobile and matures in April 2008. 11,610 14,776 21,109 Note Payable to GMAC in monthly installments of $683. The note is non-interest bearing, is secured by an automobile and matures in June 2008. 16,394 20,493 28,690 Note Payable to the Ford Motor Co. in monthly installments of $267. The note is non-interest bearing and matures in September 2008. 7,209 8,811 12,015 June 30, December 31, 2006 (unaudited) 2005 2004 ------------------ ------------ ------------ Note Payable to M & T Credit Corporation in monthly 5,481 7,544 11,464 installments of $382, including interest at 6.90%. The note is secured by an automobile and matures in September 2007. Note Payable to GMAC in monthly installments of $952. The note is non-interest bearing, secured by an automobile and was repaid in 2005. 0 0 42,268 Note Payable to M & T Credit Corporation in monthly installments of $251, including interest at 6.90%. The note is secured by an automobile and matures in March 2008. 4,728 6,044 8,544 Note Payable to M & T Credit Corporation in monthly installments of $279, including interest at 3.50%. The note is secured by an automobile and was repaid in 2005, 0 0 10,287 Note Payable to GMAC in monthly installments of $579, including interest at 3.89%. The note is secured by an automobile and matures in May 2009. 18,002 21,089 27,173 11 June 30, December 31, 2006 (unaudited) 2005 2004 ------------------ ------------ ------------ Note Payable to M & T Credit Corporation in monthly 19,725 20,589 22,340 installments of $295, including interest at 8.75%. The note is secured by an automobile and matures in June 2014. Note Payable to GMAC in monthly installments of $470, including interest at 8.99%. The note is secured by an automobile and matures in October 2008. 11,439 13,683 17,880 Note Payable to M & T Credit Corporation in monthly installments of $441, including interest at 8.99%. The note is secured by an automobile and matures in October 2008. 10,945 13,141 17,297 Note Payable to M & T Credit Corporation in monthly installments of $559, including interest at 7.99%. The note is secured by an automobile and matures in October 2008. 13,779 16,520 21,685 Note Payable to Ford Motor Corp. in monthly installments of $352, including interest at 5.90%. The note is secured by an automobile and matures in December 2008. 9,176 10,983 14,443 June 30, December 31, 2006 (unaudited) 2005 2004 ------------------ ------------ ------------ Note Payable to Old Guard. Interest at 6% is payable 500,000 500,000 500,000 semi-annually. The note is secured by a $500,000 debenture. (see notes 9 and 11) Note Payable to Harleysville National Bank in monthly installments of $482, including interest at 6.75%. The note is secured by a vehicle and matures in March 2010. 19,125 21,329 0 Note Payable to Chrysler Financial in monthly installments of $359, including interest at 7.13%. The note is secured by a vehicle and matures in August 2010. 15,481 17,049 0 Note Payable to M&T Credit Service in monthly installments of $299, including interest at 6.99%. The note is secured by a vehicle and matures in August 2009. 10,129 11,540 0 Note Payable Chase in monthly installments of $1,006, including interest at 6.29%. The note is secured by a vehicle and matures in August 2010. 43,991 48,558 0 ------------------ ------------ ------------ 733,963 775,102 790,356 Less: Current Portion (82,301) (81,744) (74,368) ------------------ ------------ ------------ TOTAL LONG-TERM DEBT $ 651,662 $ 693,358 $ 715,988 ================== ============ ============
As of December 31, 2005 maturities of long-term debt were as follows: Year Ended December 31, 2006 $ 81,744 2007 82,341 2008 59,818 2009 26,895 2010 14,497 Thereafter 509,807 ------------------ $ 775,102 ------------------ 12 NOTE 5 INVESTMENTS Investments of $75,000 as of December 31, 2005 and 2004 consist of a 10% interest in Pay Plus Software, Inc. Investments of $105,000 as of June 30, 2006 consist of a 14% interest in Pay Plus Software, Inc. Investments are recorded at cost and periodically reviewed for impairment. As of June 30, 2006, ASI's interest in Pay Plus Software was pledged as collateral security for the Line of Credit held with Penn Business Credit (see NOTE 6). NOTE 6 LINE OF CREDIT As of December, 31, 2005 and 2004, ASI had a line of credit of $500,000 with M & T Bank. The line was secured by the accounts receivable of All Staffing, Inc. Interest was payable in monthly installments at a rate of prime plus 1%. The balance as of December 31, 2005 and 2004 was $500,000 and $100,171, respectively. The line was closed in March of 2006, and a new $1,000,000 line was secured from Penn Business Credit in 2006. The line is secured by all of the Company's assets and receivables. NOTE 7 RETIREMENT PLANS 401(k)-Profit Sharing Plan The Company maintains a qualified 401(k) - profit sharing plan. Employer contributions during the years ended December 31, 2005 and 2004 were approximately $18,915 and $16,138, respectively. Employer contributions for the six month periods ending June 30, 2006 and 2005 were $15,958 and $18,915 respectively. The Rabbi Trust In May 2002, ASI established a non-qualified deferred compensation plan ("Rabbi Trust") for a select group of management and highly compensated employees as determined by the Company. Qualified employees may elect to defer up to 20% of compensation annually, including bonuses. The Rabbi Trust is not qualified under 404(A) of the Internal Revenue Code and is subject to general creditors of the Company. For the years ended December 31, 2005 and 2004, contributions payable to the Rabbi Trust were $87,585 and $62,596 respectively. These amounts were included in accounts payable on the balance sheet. The liability increases or decreases based on additional employee deferrals, investment returns, and distributions to employees. For the six months ending June 30, 2006 and 2005, contributions payable to the Rabbi Trust were $97,031 and $72,042 respectively. NOTE 8 CASH ESCROW The Company's workmen's compensation policy has a $250,000 deductible, per claim, payable by All Staffing, Inc. The insurance company requires an escrow deposit to be established by the Company in case of policy termination or carrier charge. The deposits held at December 31, 2005 are currently in dispute with the insurance carriers and as such have been written off. The balance of the escrow account at December 31, 2005 and 2004 was $0 and $0, respectively. The balance of the escrow account at June 30, 2006 was $250,000. 13 NOTE 9 NOTE PAYABLE - OLD GUARD The Old Guard Insurance Group had made a strategic investment in All Staffing, Inc. and had committed to an exclusive marketing partnership. In December 1999, Old Guard entered into a convertible subordinate debenture purchase agreement with All Staffing, Inc. Old Guard had the right to convert the debenture, in whole, into shares of common stock equal to 8% of the number of All Staffing, Inc. shares outstanding on the date of conversion. At the time of the agreement, Old Guard deposited $500,000 with All Staffing, Inc., which was recorded as a note payable. The maturity date of the debenture was December 29, 2003 at which time the entire unpaid principal balance, accrued unpaid interest and other sums were due. However, the amounts were not paid, and are potentially subject to litigation. (See Note 11) NOTE 10 TRANSACTIONS WITH AFFILIATES All Staffing, Inc. provides services to two entities affiliated through common ownership. The following summarizes the revenue and related expenses directly relating to providing those services: June 30 December 31 2006 2005 (unaudited) (unaudited) 2005 2004 -------------------------------------------------------- Garber Group, LTD: PEO Service Revenue $75,442 $73,187 $162,381 $139,402 Personnel Costs $80,050 $71,724 $153,781 $132,514 JC Data Enterprises, Inc. PEO Service Revenue $80,483 $88,820 $176,505 $183,177 Personnel Costs $77,692 $85,751 $170,311 $176,776 All Staffing, Inc. borrows funds from JC Data Enterprises to cover ordinary operating expenses when necessary. The total amount due to JC Data Enterprises as of December 31, 2005 and 2004 was $513,241 and $409,225, respectively. As of June 30, 2006, the total due to JC Data Enterprises was $658,662. ASI rents office space from A&S Associates. Total rent expense for the years ended December 31, 2005 and 2004 was $57,314 and $35,650, respectively. Total rent expense for the six months ended June 30, 2006 and 2005 was $41,380 and $26,897, respectively. Accounts receivable - affiliates is comprised of the following: June 30 December 31 2006 2005 (unaudited) (unaudited) 2005 2004 -------------------------------------------------------- JC Data Enterprises, Inc. 215,831 124,235 215,831 124,235 Garber Group 203,980 173,242 204,503 172,913 A&S Associates 71,610 64,875 73,352 30,266 -------------------------------------------------------- 491,421 362,352 493,686 327,414 ======================================================== 14 The stockholders' of the Company guarantee the debt of All Staffing, Inc. and its affiliates, JC Data Enterprises, Inc., The Garber Group, LTD, and A&S Associates. NOTE 11 CONTINGENCIES As of December 31, 2005 the Company had the following contingent liabilities: A civil action with a possible liability of $27,954. A civil action to recover workers compensation deposits. The amount is undetermined. A civil action filed against the Corporation, its client, and another employment service company based on discrimination in termination of employment. The amount is undetermined. The Corporation has filed for dismissal. The Corporation has an indemnity clause in its contract with its client which it feels will insulate it from the action. A civil action filed to recover penalties in the amount of $20,000 for failure to have workers compensation insurance based on an alleged breach of contract. A claim filed by an insurance company for $500,000, plus accrued interest and penalties based on the conditions of the note payable to Old Guard Insurance Group. See Note Payable - Old Guard note 9. As the result of the insolvency of a health insurance trust that was used by the Corporation for its employee's health coverage, the Company may have to share between $900,000 and $1,300,000 in health insurance claims with other companies. As of June 30, 2006, no filings were made by any of the parties. The Corporation is looking into remedies through its errors and omissions carrier, although as of June 30, 2006 the errors and omissions carrier has denied claims for this situation. Claims and security deposit to an insurance company. No action filed at this time, no amount determined. Appeal of a ruling by the Pennsylvania Department of Revenue concerning the payment of sales tax on the entire amount invoiced to a client as opposed to the service fee portion of the invoice. The amount in question is $242,254. A claim against the Corporation and its stockholders in the amount of $27,458 by the California State EDD for employer taxes. The Corporation believes the taxes are the liability of a former California client that is out of business and not that of the Corporation or its stockholders. Occasionally, the Company is involved in various lawsuits and certain governmental proceedings arising in the ordinary course of business. Management does not believe that the ultimate resolution of any current matters will have a material effect on the Company's financial position or results of operations. NOTE 12 CONCENTRATIONS As of December 31, 2005, accounts receivable contains five customers that each make up 10% or more of total accounts receivable making a total concentration of 56%. A substantial portion of the Company's revenues are also generated from these same five customers. 15 NOTE 13 SUBSEQUENT EVENTS On September 12, 2006, the outstanding stock of the Company was purchased by Dalrada Financial Corporation. Without the effectuation of this stock purchase agreement, the Company's ability to continue as a going concern would be substantially in doubt. ASI opened a $1,000,000 line of credit with Penn Business Credit in March of 2006. The line is secured by the Company's assets and receivables as well as the personal assets of the shareholders. Interest is currently payable in monthly installments at a rate of prime plus 2%. Any unpaid principal and interest is payable on demand. The balance as of June 30, 2006 was $1,014,522. In February 2006, the Company changed insurance carriers for their workman's compensation insurance. The new policy required a $250,000 deposit in case of policy termination or carrier change. 16