SECURITIES
AND EXCHANGE
COMMISSION
Washington,
D.C.
20549
FORM
10-SB
Amendment
No.
2
GENERAL
FORM FOR REGISTRATION OF
SECURITIES
OF
SMALL BUSINESS ISSUERS UNDER
SECTION 12(b)
OR
12(g) OF THE SECURITIES EXCHANGE
OF 1934
The
Resourcing Solutions
Group, Inc.
(Name
of
Small Business Issuer in Its Charter)
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State
of
Nevada
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83-0345237
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(State
or other jurisdiction of incorporation or
organization)
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(I.R.S.
Employer Identification No.)
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7621
Little Ave., Suite 101,
Charlotte, North Carolina 28226
(Address
of Principal Executive Offices)
Issuer’s
telephone number
(704)
643-0676
Securities
to be registered pursuant to Section 12(b) of the
Act: None
Securities
to be registered pursuant to Section 12(g) of the Act:
Common
Stock
(Title
of
class)
INDEX
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Page
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PART
I
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ITEM
1. DESCRIPTION OF BUSINESS
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2
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ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
STATEMENTS.
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21
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ITEM
3. DESCRIPTION OF PROPERTY
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30
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ITEM
4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
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31
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ITEM
5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS.
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33
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ITEM
6. EXECUTIVE COMPENSATION
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35
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ITEM
7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTORS
INDEPENDENCE.
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37
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ITEM
8. DESCRIPTION OF SECURITIES.
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37
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PART
II
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ITEM
1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT’S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
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38
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ITEM
2. LEGAL PROCEEDINGS
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39
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ITEM
3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING OR
FINANCIAL DISCLOSURE
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39
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ITEM
4. RECENT SALES OF UNREGISTERED SECURITIES
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39
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ITEM
5. INDEMNIFICATION OF OFFICERS AND DIRECTORS
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41
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PART
F/S
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INDEX
TO FINANCIAL STATEMENTS
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43
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PART
III
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INDEX
TO EXHIBITS
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44
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SIGNATURES
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45
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Certain
statements in this
Registration Statement relate to management’s future plans and objectives or to
future economic and financial performance. Although any forward-looking
statements made here are, to the knowledge and in the judgment of our
management, expected to prove true and come to pass, management is not able
to
predict the future with any certainty. Forward-looking statements involve known
and unknown risks and uncertainties which may cause our actual performance
and
financial results to differ materially from any projection, estimate or
forecasted results. Certain events or circumstances could cause actual results
to differ materially from those forecasted results. Forward-looking statements
are based on management’s knowledge and judgment as of the date of this
Registration Statement and we do not intend to update any forward-looking
statements to reflect events occurring or circumstances existing
hereafter
.
Unless
otherwise indicated, “the
Company”,” we”, “us” , “our” as used in the Registration Statement refer to the
business of The Resourcing Solutions Group, Inc. and its consolidated
subsidiaries.
PART
I
ITEM
1. DESCRIPTION
OF BUSINESS
General
The
Resourcing Solutions Group,
Inc. is a workforce management solutions company that provides human resources,
professional employer organization
(“PEO”)
and insurance products and services in
areas such as payroll, employee benefits, workers’ compensation insurance
programs, staffing, compensation, recruiting and retention to small and
medium-sized businesses and non-profit organizations. In 2008 we will add
to our menu of products and services by either forming or acquiring a
wholly-owned, commercial property and casualty insurance company
.
Our
workforce management and PEO
products and services are marketed under the name AsmaraHR
℠
. Our insurance products are marketed
under Consolidated Benefits, Inc. Our headquarters are in Charlotte, North
Carolina, and we have regional operations centers in Pittsburgh, Pennsylvania,
Auburn, Maine and Mobile, Alabama and sales and client services centers
in
Houston and El Paso, Texas; Winchester, Virginia; and Raleigh, North
Carolina. We serve clients along the Eastern seaboard and across the Gulf
of
Mexico of the United States. Through a variety of workforce management
and
insurance services and products, we work with a client base ranging
from small businesses up to 500
employees.
We
were
incorporated in the State of Nevada on December 9, 2002 and have been in
continuous operation since that time. Our principal executive and administrative
offices are located at 7621 Little Ave., Suite 101, Charlotte, North Carolina,
where we occupy 5,988 square feet of leased office space. Our telephone
number
is (704) 643-0676. We have 29 full-time employees: 5 in Auburn, Maine,
3
Pittsburgh, Pennsylvania, 4 in Winchester, Virginia, 2 in Raleigh, North
Carolina, 3 in Mobile, Alabama and 12 in Charlotte, North Carolina. None
of our employees is represented by a labor union. We believe our
employee relations are good. Our regional office in Auburn, Maine is
our primary payroll operations center, our regional offices in Pittsburgh,
Pennsylvania and Mobile, Alabama is our primary employee benefits administration
center. Our Charlotte, North Carolina office is our primary accounting,
insurance, information technology and executive management center as well
as our
back-up operations center. Each office also has sales and customer
service.
The
PEO
industry began to evolve in the early 1980s largely in response to the burdens
placed on small and medium-sized employers by an increasingly complex legal
and
regulatory environment. While various service providers were available to assist
these businesses with specific tasks, PEOs emerged as providers of a more
comprehensive range of services relating to the employer/employee relationship.
In a PEO arrangement, the PEO assumes broad aspects of the employer/employee
relationship. Because PEOs provide employer-related services to a large number
of employees, they can achieve economies of scale that allow them to perform
employment-related functions more efficiently, provide a greater variety of
employee benefits and devote more attention to human resources
management.
We
believe the key factors driving demand for PEO services include:
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the
focus on growth and productivity of the small and medium-sized business
community in the United States, utilizing outsourcing to concentrate
on
core competencies;
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the
need to provide competitive health care and related benefits to attract
and retain employees;
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the
increasing costs associated with health and workers’ compensation
insurance coverage, workplace safety programs, employee-related complaints
and litigation; and
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complex
regulation of employment issues and the related costs of compliance,
including the allocation of time and effort to such functions by
owners
and key executives.
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A
significant factor in the development of the PEO industry has been increasing
recognition and acceptance of PEOs and the co-employer relationship by federal
and state governmental authorities. AsmaraHR
℠
and other industry leaders, in concert with the National Association of
Professional Employer Organizations (“NAPEO”), have worked with the relevant
governmental entities for the establishment of a regulatory framework that
protects clients and employees, discourages unscrupulous and financially unsound
companies, and promotes further development of the industry.
Currently,
31 states have enacted legislation either recognizing PEOs or requiring
licensing, registration, or certification, and several others are considering
such regulation. Such laws vary from state to state but generally provide for
monitoring the fiscal responsibility of PEOs. State regulation assists in
screening insufficiently capitalized PEO operations and helps to resolve
interpretive issues concerning employee status for specific purposes under
applicable state law. Though these laws vary between the states, generally
the
states have imposed minimum standards for a PEO’s net worth. The most
restrictive state in which we currently operate requires a minimum of $100,000
net worth as determined by an annual audited balance sheet. Failure of a PEO
to
meet these requirements requires the posting of secondary collateral with the
State such as a letter of credit or a bond which may be used to satisfy any
unpaid tax or insurance liability. States also preclude a PEO from
offering self insured health insurance plans to its client
employees. The cost of compliance with these regulations is not
material to our financial position or results of operations.
Our
Business
We
began
our entry into the human resource outsourcing (“HRO”) market through the April
2003 acquisition of certain assets of Asmara, Inc, a Professional Employer
Organizations (“PEO”) located in North Carolina. In December 2004
we acquired substantially all the assets of Beneorp Business
Services, Inc., a PEO based in Dallas, TX, and sold all the issued and
outstanding shares of Asmara Services I, Inc.. In January 2005, we
acquired substantially all the assets of Rossar HR, LLC, a Pittsburgh,
Pennsylvania based PEO. In January 2006, we acquired the stock of Piedmont
HR;
Inc a northern Virginia based company providing administrative services to
PEO’s. Also in January 2006, we acquired the outstanding stock of United
Personnel Services, Inc. Maine-based PEO. In April 2006, we acquired
the outstanding stock of World Wide Personnel Services of Maine, Inc., a
Maine-
based PEO. In October 2006, we acquired assets of Capital Resources,
LLC a North Carolina HRO company. In June 2007, we acquired all the stock
of
World Wide Personnel Services of Virginia, Inc, a PEO operating in the northern
Virginia.
The
acquisition of these companies solidified the eastern and southern geographic
regions of our operational footprint. We continue to focus our efforts on
the
PEO and Administrative Services Organization (“ASO”) sectors of the HRO
industry, providing human capital management solutions to small and medium
sized
business clients within the United States. Through its PEO and ASO business
unit, we market to our clients, typically small businesses with
between five (5) and five hundred (500) employees, a broad range of products
and
services that provide an outsourced solution for the client’s Human Resources
(“HR”) needs. Robert W. Baird & Co. citing the US Census Bureau and
HRO
Today
estimates indicate that this “middle market” opportunity
encompasses approximately 100,000 small to medium-sized businesses employing
over 40 million people in the United States.
We
operate through various wholly owned subsidiary corporations acquired through
the above describes acquisitions. The Resourcing Solutions Group, Inc. owns
all
the issued and outstanding stock of the following corporations, which are
operated as wholly-owned subsidiaries:
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Asmara
Services II, Inc.
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Asmara
Benefits Inc
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United
Personnel Services, Inc.
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World
Wide Personnel Services of Maine, Inc
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World
Wide Personnel Services of Virginia, Inc
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Piedmont
HR, Inc.
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Consolidated
Services, Inc.
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Additionally,
World Wide Personnel Services of Maine, Inc. operates a wholly- owned
subsidiary, World Wide Personnel Services of Alabama, Inc., an Alabama
corporation.
The
Following is a corporate organizational chart as of October 2007 showing
both
the existing companies and the structure of the proposed insurance
companies.
All
PEO clients execute a Client Service Agreement (“CSA”). The CSA generally
provides for an on-going relationship, subject to termination by us or the
client upon 30 or 60 days written notice or upon shorter notice in the
event of default. The CSA establishes our comprehensive service fee, which
is
subject to periodic adjustments to account for changes in the composition
of the
client’s workforce, employee benefit election changes and statutory changes that
affect our costs.
The
CSA
also establishes the division of responsibilities between the us and the
client
as co-employers. Pursuant to the CSA, we are responsible for personnel
administration and are liable for certain employment-related government
regulations. In addition, we assume liability for payment of salaries and
wages
(as well as related payroll taxes) of our worksite employees and responsibility
for providing specified employee benefits to such persons. These liabilities
are
not contingent on the prepayment by the client of the associated comprehensive
service fee and, as a result of our employment relationship with each of
our
worksite employees, we are liable for payment of salary and wages to the
worksite employees as reported by the client and are responsible for providing
specified employee benefits to such persons, regardless of whether the
client
pays the associated comprehensive service fee. The client retains the employees’
services and remains liable for the purposes of certain government regulations,
requires control of the worksite or daily supervisory responsibility or
is
otherwise beyond our ability to assume. A third group of responsibilities
and
liabilities are shared by us and the client where such joint responsibility
is
appropriate. The specific division of applicable responsibilities under
the CSA
is as follows:
The
Company
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Payment
of wages and salaries as reported by the client and related tax
reporting
and remittance (local, state and federal withholding, FICA, FUTA,
state
unemployment);
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Workers’
compensation compliance, procurement, management and
reporting;
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Compliance
with COBRA, HIPAA and ERISA (for each employee benefit plan sponsored
solely by us), as well as monitoring changes in other governmental
regulations governing the employer/employee relationship and
updating the
client when necessary; and
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Employee
benefits administration of plans sponsored solely by
us
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Client
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Payment,
through us, of commissions, bonuses, paid leaves of absence and
severance
payments;
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Payment
and related tax reporting and remittance of non-qualified deferred
compensation and equity-based
compensation;
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Assignment
to, and ownership of, all client intellectual property
rights;
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Compliance
with OSHA regulations, EPA regulations, FLSA, WARN, USERRA and
state and
local equivalents and compliance with government contracting
provisions;
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Compliance
with the National Labor Relations Act (“NLRA”), including all organizing
efforts and expenses related to a collective bargaining agreement
and
related benefits;
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Professional
licensing requirements, fidelity bonding and professional liability
insurance;
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Products
produced and/or services provided;
and
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COBRA,
HIPAA and ERISA compliance for client-sponsored benefit
plans.
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Implementation
of policies and practices relating to the employee/employer relationship;
and
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Compliance
with all federal, state and local employment laws, including,
but not
limited to Title VII of the Civil Rights Act of 1964, ADEA, Title
I of
ADA, FMLA, the Consumer Credit Protection Act, and immigration
laws and
regulations.
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In
order to more fully serve our
clients and to create multiple revenue streams, we determined that we needed
to
become a full service insurance agency. Our clients are consumers of multiple
insurance products which we administer on their behalf. In order to better
serve
our clients , in September 2006 we, acquired Consolidated Services,
Inc., a full service insurance agency licensed to operate in states
where we have clients.
We
provide
our services through a highly automated modular human resource information
system that works in conjunction with a flexible payroll and tax filing
system.
The systems combined with superior client services resulting from our corporate
expertise in human resources, payroll, employer tax administration, employee
benefits and commercial insurance allows us to be a “one-stop shop” for a
clients work force management needs.
We
provide products as a modular system that can be applied as a complete
integrated system or any combination of separate modules. These modules
provide
distinct but related products and services. The following are the major
modules:
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Payroll
administration
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Employment
tax filings
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Health,
Welfare and Retirement plans and administration
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Workers’
Compensation Insurance and administration
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General
Property & Liability Insurance
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Human
Resource Consulting
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Web-based
Human Resource Information Systems
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Employee
Training and Development
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Workplace
Risk and Safety Consulting
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Government
Compliance Consulting
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In
general, our market consists of the
small- business community with 500 or fewer employees. According to
the US Small Business Administration (SBA), approximately 60 million people
are
employed by companies with fewer than 100 employees. This is half of the
U.S.
workforce and truly the backbone of the U.S. economy.
HR
Products
The
target companies desire to
reduce their administrative costs and burdens and to focus on their core
business concerns, not on the mundane administrative and human resource
activities that are common to all industries. Additionally, many small- to
medium-sized companies have begun to experience difficulty in procuring workers’
compensation and group health insurance coverage on a cost-effective basis.
The
deepening complexity in the legal and regulatory environment cause target market
companies to require guidance from various service providers, such as payroll
processing firms, benefits and safety consultants, and temporary staffing firms.
As a result, workforce management companies have emerged as providers with
comprehensive outsourcing solutions to these burdens..
We
market
to our clients, a broad range of products and services that provide an
out-sourcing solution for the clients’ human resources (“HR”) and insurance
needs. Our products and services will initially include benefits administration,
payroll administration, and governmental compliance, risk management,
unemployment administration, and health, welfare and retirement benefits.
By
allowing the management of these small- to medium-size business clients to
focus
on the “business of business” rather than complicated and time consuming
administrative tasks
,
we are well positioned to improve the efficiency of its clients’ businesses and
enhance their ability to be profitable in their chosen
marketplace. In addition, such initiatives as improving the ability
to attract and retain talent, improving the planning and management of payroll
cash flows and managing employment risks should enhance the success of our
clients.
Insurance
Products
We
recognize the need to provide comprehensive insurance services as part of
the
overall support and administration services offered to
clients. Through Consolidated Services, Inc.,
(“CSI”),
a commercial line
insurance agency with branch offices located in various states, we will obtain
insurance coverage for our clients. Since our staff holds insurance brokerage
licenses, we are able to jointly market our products, employee benefits and
worker’s compensation insurance on a “one-stop” basis From the client’s
perspective this relieves the client of having to shop for benefits. Since
our
sales staff holds valid insurance licenses, we are also able to legally review
the benefit plans of a prospect. In many situations benefits are the lead
into
the sale of our human resource product.
These
products offer strong competitive incentives for attracting quality new
business.
Employee
Benefit
Products
We
currently have multiple
avenues to provide employee health insurance. For clients who desire their
own
specific health insurance plan, we have a long standing relationship with a
medical, health and dental agency allowing us to retain 60% of all insurance
commissions generated from the sale of insurance products. We also can provide
large group health coverage rates to small groups utilizing our PEO services
through United Health Care, and dental coverage through Guardian
Dental. Additionally, we operate a multiple-employer 401(k)
retirement plan for our client companies through Matrix Asset Allocation
from
Abundance Technologies, Inc.. We
receive a sales
commission for new employees entering this plan.
Workers’
Compensation
Products
We
receive 100% of commission paid on workers’ compensation insurance where CSI is
the broker. Currently CSI is admitted as the broker on multiple national,
regional and specialized carriers including Guarantee Insurance Company,
Texas
Mutual Insurance Company, Maine Employers Mutual Insurance Company . We have
established relationships with several insurance wholesale agencies where
commissions are divided between both companies. This arrangement gives us
the
ability to market to virtually any employer.
Proposed
Insurance
Company
In
2008, we propose to add to our menu
of products and services by either forming or acquiring a property and
casualty
insurance company to market traditional commercial lines of insurance through
affiliates and through independent insurance agencies. If such insurance
company is formed or acquired, we will then become a single source solution
for
the human resources, payroll, benefit administration, insurance and risk
management responsibilities and challenges faced by employers. We
will provide clients with “one-stop shopping” for multiple, related products
through internal and external sales forces in two different
industries.
The
proposed insurer will begin
operations by offering workers’ compensation insurance, the coverage most
requested by our clients, in our first year of operation in 2008, adding
multiple lines of coverage including commercial property and package policies
in
2009, with commercial automobile insurance available in 2010.
This
wholly-owned insurance company
will provide a stable market for the business insurance needs of select
clients
that use our human resources outsourcing and payroll administration
services. The insurer’s policies will be sold through consultants in
our human resources outsourcing and payroll division, who will be licensed
insurance agents qualified to advise clients on insurance matters.
The
insurance company will also market
insurance products through a distribution system of non-affiliated independent
insurance agencies. These independent agents will write commercial
insurance for businesses that may or may not be potential human resources
clients of ours.
The
proposed insurer will only write
insurance for risks that qualify under its underwriting guidelines, without
regard to whether the insurance prospect is or may become a client of our
human
resources outsourcing and payroll administration products and
services. For risks outside the interest of the proposed insurer, an
affiliate, Consolidated Benefit Services, a general insurance agency, or
an
independent insurance agent will place the insurance with non-affiliated
carriers.
The
proposed insurance company will
have its home office in Charlotte, North Carolina, where all the primary
functional areas of an insurer will be located, including marketing,
underwriting, claims, information systems, financial, compliance, and
administration. We have already retained as employees the proposed
insurer’s senior management including the president and chief executive officer,
the chief operating officer and chief financial officer, and the chief
underwriting officer. These individuals have many years of industry experience
and have worked together before. They have a thorough knowledge of
the operational aspects and work demands required to successfully operate
a
property and casualty insurance company.
The
senior management is
currently identifying available insurance company shells, visiting with
independent insurance agents, evaluating insurance company information
systems,
and planning for software links between our payroll administration and
insurance
company systems. Technology is a key to our success , and management
will implement an integrated system for policy administration, claims handling,
premiums receivable, and financial and regulatory reporting.
Marketing
Strategy
The
proposed insurer will focus on the
same target market as our human resources outsourcing and payroll administration
division – employers with an employee population of between five and
500. The insurance company will expand its geographic footprint to
serve clients in all our markets and will increase its market penetration
as it
develops its distribution system of independent insurance agencies in each
state
it enters.
The
insurance company will appoint a
select group of the larger, independent insurance agencies who specialize
in the
commercial market and who have made a major commitment to sell employee
benefits
products and services. The proposed insurer’s senior management team
has established long relationships with many such agencies. We will
have opportunities to write insurance for mid-market and larger employers
through such an agency plant.
The
insurance company will have an
internal staff of “Special Agents” knowledgeable in both commercial insurance
and human resources outsourcing and payroll administration. Special
Agents will encourage, train, and assist independent insurance agents to
cross-sell our human resources, payroll, and administrative products and
services to the agent’s existing client base. This process will
increase revenues for the independent insurance agent and us.
The
customer for products of the
insurance company is the independent insurance agent in cases where the
policyholder is not a client for our human resources and payroll products
and
services and both the independent insurance agent and the agent’s client in
cases where the policyholder is a client for our other products and
services.
In
our business model, the proposed
insurer will have an advantage in the risk selection process in many instances,
in that the underwriter will know the risk. After all, the risk will
have been or will likely be a human resources client of ours. For
example, through our role as payroll administrator or the vendor for risk
and
safety programs, we will have the information to (1) pre-qualify clients
for
underwriting eligibility; (2) thoroughly underwrite the risk; (3) provide
initial pricing indications; and (4) evaluate the extent of possible risk
management oversight. Moreover, because of this close relationship
with the client, the insurance company will be positioned to promptly handle
claims and control claims costs.
Synergy
is thus created by our three
operating divisions -- human resources outsourcing and payroll, general
insurance agency, and insurance company -- working together, employing
internal
and external sales forces, utilizing the right information systems technology
--
to make sales and to better serve a growing client base. We will be generating
revenues from multiple sources to reach our revenue goals.
Solutions
for the Independent
Insurance Agent
Independent
insurance agents face
increasing competition from direct writers and alternative market forms
and
sources of insurance. Smaller independent insurance agencies have
been disappearing, and consolidation among the remaining independent insurance
agencies continues.
The
independent insurance agency also
faces changes in the way property and casualty insurance is
sold. Trends indicate that the sales of personal lines products will
be largely internet driven. Small commercial accounts may also become
internet driven. Some national and major regional carriers have taken
over the servicing of small commercial insurance clients from the independent
insurance agency as a strategy to reduce expenses. Mid-market and
larger commercial accounts will however continue to require the expert
advice
found in the larger, commercially focused independent insurance
agencies.
To
compete with the direct writers and
national brokers, independent insurance agencies must sell more than just
property and casualty insurance and provide risk management
advice. The sale of employee benefits products and services has been
a good start. To compete for the long term, the independent insurance
agent must do more. They must provide a wider range of products and
act as a one-stop source for products and services to meet as many of the
needs
of their business clients as they can.
We
will help the independent insurance
agency to compete for the long term. Our business goals and
objectives dovetail with those of the independent agent. We and the
independent insurance agent will provide that one-stop source to meet the
human
resources outsourcing, payroll, administrative, and insurance and risk
management needs of employers.
Solutions
for the
Client
Forward-thinking
business owners are
realizing that there could be significant efficiencies if information from
their
human resources and payroll administration systems were linked to and employed
in the purchase of employment-related services, business insurance, and
risk
management. Related products and services that are delivered in one
integrated package are more effective and valuable to the client than individual
products and services delivered separately through multiple
vendors.
Premiums
for workers’ compensation
insurance are calculated on wages, adjusted by a “modifier”. The
modifier is an experience (usage) factor which follows the employer regardless
of the insurance company it purchases coverage from. Our employee
safety training and risk management services will allow the employer to
reduce
the potential for employee accidents, which will help to control workers’
compensation costs. Moreover, some insurers give premium credits to
employers for an on-going risk and safety program. Our human
resources consulting services will enable the employer to qualify for these
credits.
Through
our human resources outsourcing
services, we can also help the employer to better monitor each work-related
injury suffered by employees. This pro-active process ensures that
employees receive the best medical treatment and on-going high quality
health
care and are on a path leading back to work in the shortest possible
time. Our program is geared toward long-term cost containment so as
to minimize workers’ compensation costs.
A
client using our payroll
administration services will be able to pay workers’ compensation insurance
premiums by automatic deduction from a bank account as part of the payroll
cycle. This is not only convenient but such a “pay-as-you-go” premium
payment plan allows the payment of premiums on a real-time, actual payroll
basis. This eliminates the potential of a year-end premium audit
assessing significant additional premiums due. In addition, our
payroll services will help ensure the proper job classification of employees,
where different premium rates apply to employees performing different
duties. Mid-year changes of duties may change the classification of
an employee and thus workers’ compensation premiums. Proper
monitoring of duties allows for any mid-year adjustments in classification,
thus
avoiding year-end premium assessments for improper classifications.
For
the proposed insurance company,
being close to the client through the activities of affiliates provides
additional underwriting advantages. For example, underwriting
guidelines largely ignore an employer’s human resources practices, which may not
be known by insurers before a policy is issued. Human resources
practices have a bearing on workers’ compensation claims frequency and
severity. (Where there are poor human resources practices, there are
often more problematic workers’ compensation claims filed and less incentive for
employees to get well and promptly return to work.) If an insurer can
be close to potential insureds and have knowledge of an employer’s human
resources practices, it can better underwrite and price its policies and
act as
a resource to improve an employer’s human resources practices and overall risk
management efforts.
Competitive
Position
The
HRO and PEO sector of the industry
is highly fragmented. The primary competition is other HRO’s and
PEO’s, insurance agents, and fee-for-service providers such as payroll
processors and human resources consultants.
The
key competitive factors in the HRO
industry are breadth and quality of services, price, reputation, financial
stability, and choice, quality, and cost of benefits. We will compete through
our ability to provide a full-service human resources outsourcing solution
using
a variety of delivery methods best suited to the individual client with
an
emphasis on leveraging technology.
Smaller
HRO’s and PEOs which do not
have the capital to meet increased collateral requirements for group health
insurance and workers’ compensation insurance providers will be exiting the
industry. HRO and PEO firms that can meet the capital requirements
but do not have their own wholly-owned insurance company capabilities – a stable
market -- will not have the competitive edge enjoyed by us. An
increase in costs and a lack of available group health insurance and workers’
compensation insurance is impacting these organizations.
Several
national human resource
companies provide human resources products and services along with workers’
compensation insurance placed with non-affiliated carriers. We
propose to differentiate ourself from our competitors by providing clients
with
a stable market for all forms of property and casualty business insurance
through a wholly-owned insurance company. A readily available and
stable commercial insurance market is attractive to our clients. This
one-stop-shopping approach to serving our clients creates a significant
competitive advantage for us.
The
following human resource companies
are competitors . These companies however have significantly different
business
models than we do as they do not control the insurance carrier. Each of
these
entities are larger and more established. The following company descriptions
were obtained from each of the named company’s web sires.
Administaff,
Inc - publicly traded stock symbol ASF
Administaff,
Inc. is the nation’s
leading professional employer organization (PEO), serving as a full-service
human resources department for small and medium-sized businesses throughout
the
United States.
Administaff
delivers its personnel
management services by entering into a co-employment relationship with
a client
company and the client company’s existing employees, including the business
owner. Under this arrangement, Administaff assumes or shares many of the
responsibilities of being an employer.
In
addition, Administaff provides the
client company and their worksite employees with a wide array of value-added
benefits and services not typically available at small businesses.
Gevity,
Inc. publicly traded stock symbol GVHR
Thousands
of small and mid-sized
businesses nationwide leverage the flexibility and scalability of Gevity’s human
resources (HR) solution to help them maximize the return on investment
in their
people. Essentially, Gevity serves as the full service HR department
for these businesses, providing each employee with support previously only
available at much larger companies.
ADP
Total
Source subsidiary of Automatic Data Processing (ADP)) publicly traded stock
symbol ADP
As
state and federal workplace
regulations grew in the 1980s, the Professional Employer Organization (PEO)
industry evolved. ADP TotalSource was in the forefront of that
evolution. Early on we identified the needs of business owners and
developed solutions. In so doing, we built not only a company but an
entire industry as well. From our early role as an industry pioneer,
we have emerged as an industry leader, the largest PEO, and the premier
provider
of integrated PEO solutions.
Oasis
Outsourcing – privately held
Oasis
is a Professional Employer
Organization (PEO) that provides innovative workforce solutions for
employment-related functions including Human Resource Services, Payroll
Administration, Employee Benefits and Risk Management. When you
partner with Oasis Outsourcing, you’re able to take full advantage of our
company’s size, strength and relationship with leading benefits
providers. By offering integrated, cost-effective solutions for your
business, Oasis Outsourcing brings remarkable value to your
company.
Advantec
– privately held
Advantec
integrates, develops and
supports human resource business process outsourcing (HR BPO) models to
meet a
variety of client needs. These solutions are Advantec’s co-employment
outsourcing (PEO), our administrative services outsourcing (ASO) and our
full-service human resources outsourcing (HRO). Components of these solutions
include: HR Consulting, HR Workforce Administration, Benefits Administration,
Recruiting Solutions, Payroll and Tax Administration Services, Worker’s
Compensation and Compliance Consulting.
Selective
HR – publicly traded Stock Symbol SIGI
Selective
Insurance Group, Inc. is
primarily a holding company for seven
customer-focused
property
and casualty (P&C) insurance companies
rated “A+” (Superior) and
ranked as the 46th largest P&C insurance group in the United States by A.M.
Best Co. These companies offer a broad range of insurance and alternative
risk
management services. Other subsidiaries offer claims, human resources and
risk
management services. Selective* provides value-added products and services
to
businesses, public entities and individuals through approximately 850
independent agents in
21 primary eastern
and
Midwestern states
.
Insurance
companies generally do not
have this close contact with policyholders, which limit the insurer’s ability to
assist policyholders. Through the integration of human resources
outsourcing, payroll administration, and insurance and risk management,
We and
our wholly-owned insurer have the right business model to get close
to the client – to build lasting relationships. We has identified the following
insurance companies who participate with non-affiliated human resource
companies
Zurich,
AIG, SUA, Guarantee Insurance Company, Liberty Mutual and The Hartford.
These
insurance companies are more established and in some cases very well
financed.
Risk
Factors
The
risks
described below are not the only ones we face. Additional risks not presently
known to us or that we believe are immaterial may also impair our business
operations. Our business could be harmed by any of these risks. The trading
price of our Common Stock could decline as due to any of these risks. In
assessing these risks, reference should be made to the other information
contained in this Registration Statement, including our financial statements
and
related notes.
Risks
Related to Our Business That
May Affect Our Future Results and the Market Price of Our Common
Stock.
We
are subject to uncertainties
concerning our future financial results.
We
have
historically generated losses from our operations. There can be no assurance
that we will generate revenues from operations, or if we do generate such
revenues, whether we will generate profits. Profitability will depend upon
many
factors, including the success of obtaining future debt or equity financing
and
the overall success of our business operations. If adequate financial resources
are not available, we may be required to materially curtail or cease our
operations. Accordingly, our auditors have issued a qualified audit report
in
which they have expressed a concern about our ability to continue as a going
concern.
We
do not have any existing bank
credit facilities. Our ability to obtain such financing may be
limited.
We
do not
have any existing bank credit facilities. Our ability to obtain such financing
may be limited and may have an adverse affect on our results of
operations.
Our
capital resources may not
be sufficient to meet our capital requirements.
We
have
historically generated negative cash flow and significant losses from
operations and could experience negative cash flow and losses from operations
in
the future. Our current and future capital requirements are substantial and,
at
present, cash generated from operations is not sufficient to meet these
requirements. We cannot be sure in the future that cash generated from
operations will be sufficient to meet our requirements or that financing
will be
available at favorable terms when required, or at all. If we are not able
to
obtain financing, we may not be able to meet our financial obligations to
our
creditors when they become due and we may have to curtail or cease
operations.
We
are subject to technology related
failures.
All
or some of our operations may be
adversely impacted, or cease entirely, with a failure in our operating and/or
application software or by the inability of any technology vendor to deliver
critical data processing services. Such events may take place despite
management’s best efforts to select reliable and financially strong vendors;
utilize the latest, most reliable, and most secure technology; protect operating
and application software and our data; and provide comprehensive disaster
recovery plans and facilities.
A
portion of our business
involves assuming certain workers’ compensation risk which could have a material
adverse effect on our results of operations and
profitability.
A
significant portion of our anticipated growth comes from sharing in the workers’
compensation risk of our clients. We purchase workers’ compensation insurance on
a combined experience modifier. If a client has a significant injury, it can
impact our overall experience modifier thereby increasing our cost of workers’
compensation insurance for all clients. There is risk in this approach in that
work-site injuries can significantly impact our financial condition and results
of operations.
We
assume liability for worksite
employee payroll and benefit costs.
Under
our
client service agreements within PEO contracts, we become a co-employer of
worksite employees and assume the obligations to pay the salaries, wages and
related benefits costs and payroll taxes of such employees. In the event that
a
client does not pay us, or if the costs of benefits we provide to the worksite
employees exceed the fees our clients pay us, our obligation for such employee
payroll and benefit costs could have a material adverse effect on our financial
condition and results of operations.
We
are exposed to acts of terrorism
and other catastrophic events.
We
are exposed to interruptions in its
operations due to acts of terrorism and other catastrophic events, including
extreme weather conditions caused by hurricanes and ice storms. The
insurance company may experience both interruptions in its own operations
and
incur claims from any number of its policyholders as a result of acts of
terrorism and catastrophe weather events, which claims may adversely affect
results. Total claims incurred from catastrophes may exceed the
limits of reinsurance purchased by the insurance company, by an amount which
could impair the insurer’s capital and surplus and threaten its existence as a
going concern.
The
human resources and
workforce management industry is intensely competitive with few barriers to
entry, which may adversely affect our operations and financial
results.
The
PEO industry is intensely
competitive and fragmented and numerous companies offer competition in this
market. We anticipate this competition will continue to increase. There are
over
900 companies providing services similar to those we provide, including other
PEO organizations as well as “fee for service” companies such as payroll
processing firms, insurance companies and human resource consultants. There
will
be the on-going risk that others may enter this market. Many of our
competitors have substantially greater capital, sales and marketing resources
and experience. We cannot provide any assure that we will be able to effectively
compete with our current and future competitors.
We
have based the insurance company
segment of ours business plan on certain assumptions, which may prove to
be
incorrect.
We
formulated our strategies and
business plan based on certain assumptions of management regarding the insurance
market, our anticipated share of the market, and the estimated acceptance
of our
specialized insurance products. There have been no special studies
conducted of the insurance market, and there are no plans to do
so. Although members of the senior management team of the insurance
company are all knowledgeable and experienced insurance executives with many
years in the industry, these assumptions are based on the best estimates
of
management, and there can be no assurances that any assumptions will prove
to be
correct.
There
are a number of risks
generally associated with the property and casualty insurance
industry.
Our
success will be subject to numerous factors affecting the property and
casualty
insurance industry over which we may have no control. The insurance
industry is subject to general economic conditions; changes in the laws,
rules,
and regulations governing the various types of insurance coverage; and
legislation and judicial decisions which affect compensability of
claims. Other factors include changes in the industry; increased
levels of competition, including the entry of additional competitors and
increased success by existing competitors; increases in operating costs;
and
changes in regulation by the Federal government and each state.
The
insurance industry is highly
cyclical.
The
property and casualty insurance
industry has historically experienced cycles that are roughly tied to interest
rates, particularly with respect to interest earned on premium
reserves. When interest rates have been high, investment income often
more than offset any underwriting losses. Competition then
intensified and premium rate levels were reduced to attract more funds
for
investment. When interest rates were low, the insurance market
hardened and premium rate levels were increased to address underwriting
losses.
There
is more risk associated with
certain lines of property and casualty insurance, especially workers’
compensation insurance.
Unlike
many other types of property and casualty insurance, workers’ compensation
insurance does not provide definite dollar limits to potential claims
payments. While most states mandate the use of medical fee schedules
and limit claimants to a maximum number of weeks for payment of lost time
claims, estimating ultimate claims payments is difficult. There may
also be awards for disfigurement, partial or total permanent disabilities,
and
attorney’s fees. Since the amounts payable under workers’
compensation policies may differ substantially, our underwriting results
will
depend on management’s skill in selecting risks to insure and on controlling
payout on claims. We will have underwriting guidelines and procedures
for selecting risks to insure – for workers’ compensation and all other lines of
insurance -- but there can be no assurances that these measures will
successfully limit the frequency of claims and exposures to catastrophic
claims.
Insurance
companies are highly
regulated, which may have an impact on operations and financial
results.
Property
and casualty insurance
companies are highly regulated by state and Federal regulatory agencies
with
broad powers to invoke changes that could materially affect our business
plan
and results of operation. Extensive laws, rules, and regulations in
each state govern many aspects of an insurance company’s operations including,
but not limited to, company licensing, establishment of premium rates;
the
insurer’s participation in residual markets such as assigned risk pools and
other residual market mechanisms; transfer of control of an insurance company;
and payment of dividends. Changes in such laws, rules, and
regulations or the adoption of new laws or consumer initiatives regarding
premium rates charged or other matters, could have a material adverse impact
on
the operations of the proposed insurance company. There are no
assurances that licenses to operate as an insurance company can be secured
in
the timeframe proposed or can be maintained in each state contemplated
in the
business plan.
Insurance
laws, rules, and regulations
vary by state but grant broad powers to regulators to examine and supervise
insurance companies, insurance holding companies, and companies having
insurance
company affiliates, including us. Regulators have oversight
responsibilities that may be applied to every significant aspect of an
insurer’s
operation. For example, regulators require insurance companies to
maintain minimum standards of business conduct and financial solvency;
meet
certain financial tests; file information reports; and seek prior approval
of
certain changes in control of licensed insurance companies and their direct
and
indirect parents and affiliates. In addition, regulators may require
prior approval of certain transfers of assets and business transactions
among
affiliates. Such statutes generally mandate that transactions among
affiliates have terms no more or less favorable than the same transactions
between parties negotiating at arm’s length.
Many
states have laws, rules, and
regulations which restrict an insurer’s underwriting discretion, such as the
insurer’s ability to reject insurance coverage on individual or classes of
risks, to increase premium rates, to terminate policies, and to terminate
agents, which may adversely affect operations and financial
results. These laws are designed to protect policyholders rather than
investors in a company owning an insurer.
State
insurance regulators also
administer statues governing insurance agents and brokers, including commissions
paid by insurers to their insurance agent and broker
representatives. There can be no assurances that we will be able to
pay competitive commission rates to agents and brokers or be able to make
adjustments in commissions schedules quickly in response to competitive
pressures.
The
proposed wholly-owned insurance
company will have limited ability to declare dividends to its parent
company.
Regulators
also have statutory
oversight of insurer’s ability to pay dividends to stockholders or to a parent
company. Dividends that can be paid by an insurance company to a
parent company may be subject to prior approval, may not be approved, or
may be
limited to a certain amount at the discretion of the regulator. Thus
moneys invested by us for the capital and surplus of the proposed wholly-owned
insurance company may not later be available to us if the insurer is unable
to
pay a dividend. Cash would not then be available to the parent to pay
dividends to investors, for operating expenses, or for other corporate
purposes.
The
insurance industry is highly
competitive due to the number of participants in a vast
market.
The
proposed property and casualty
insurance company will compete with both large national and smaller regional
insurers for agents and policyholders. Many competing insurance
companies are larger and have far greater financial resources, name recognition,
and marketing capabilities than us. Our competitors may offer lower
premium rates to policyholders and pay higher commissions to
agents. Although management believes that our business plan is
differentiated from the competition and that our business model is well
suited
to our intended market, there can be no assurances that current or future
competitors, most of whom are larger and better financed, will not initiate
similar plans and operations.
Management
believes the principal
competitive factors affecting our insurance business are price; service
to
agents, policyholders, and claimants; agents’ commissions; and the financial
strength and stability of the insurer. We will be competing with
larger organizations for potential policyholders and for the support and
efforts
of independent insurance agents to market its insurance products. We
believes we can compete successfully notwithstanding such factors, but
there can
be no assurances that management’s efforts will be successful.
The
proposed property and casualty
insurance company will need additional capital to
expand.
The
operation of an insurance company
is necessarily a capital intensive endeavor. Insurance regulators set
limits to the amount of premiums that an insurer can write relative to
statutory
capital and surplus, which limits may vary from state to state. The
premium volume that can be written is usually a multiple of an insurer’s
statutory capital and surplus. Such restrictions on leverage are designed
to
protect policyholders and to make sure the insurance company is able to
withstand unexpected losses from claims.
To
execute the business plan for the
next five-year period, the insurance company will require additional infusions
of capital to write the amount of premiums anticipated while maintaining
statutory capital and surplus requirements. Even maintenance of the
statutory minimums cannot guarantee profitability. Unforeseen
difficulties may require additional funds. We may encounter
difficulty in obtaining additional funds at favorable terms or may not
be able
to secure additional financing at all. Since the insurance company’s
growth and the amount of insurance premiums it may sell are directly tied
to its
statutory capital and surplus, lack of needed financing could limit premium
writings.
Ratings
by insurance analysts may
impact the insurance company’s ability to expand.
The
sales of insurance products can
depend to some extent on the rating or lack of a rating of an insurance
company,
by a recognized insurance analyst or rating agency. An example of
such a rating is the Best’s Rating issued by the A. M. Best Company,
Inc. Ratings generally reflect the analyst’s evaluation of the
insurer’s balance sheet, quality of the insurer’s investment portfolio, adequacy
of capital and surplus compared to premium volume, underwriting results
over
time, the strength of our management, and often the sheer financial size
of the
insurer.
The
lack of a rating or sufficiently
high rating may adversely impact our ability to write insurance premiums
and
thus limit our growth. We will be competing with large national
insurers with significant financial resources. There are no
assurances that the proposed insurance company will be able to qualify
for or to
maintain an acceptable insurance company rating to enhance its ability
to
compete in the marketplace.
We
will depend on independent
insurance agencies.
Management
believes that satisfactory
marketing arrangements can be established and maintained with independent
insurance agencies which will enable us to execute our business
plan. Although members of senior management have long relationships
with a number of the larger independent insurance agencies having a focus
on
commercial insurance, for our proposed property and casualty insurer, each
relationship will be new, and there can be no assurances that we will be
successful in finalizing or maintaining such relationships. The
relationship of ours with independent insurance agencies and agents will
be
critical to our success.
The
insurance company will depend on
other third parties.
We
will also rely on third party
vendors to conduct our operations. Such vendors include claims
adjusters, medical bill review firms, and firms that provide information
technology support. Our operations will be adversely impacted if any of
these
vendors are unable to perform their duties as expected.
The
insurance company will be
exposed to underwriting risks.
Underwriting
risk for an insurance
company is the uncertainty that premiums collected from insureds will be
sufficient to cover claims and claims adjusting expenses incurred by the
insurer. Each application for insurance must be thoroughly evaluated and
researched to assess the potential for loss frequency and
severity. To facilitate this process, we will enforce adherence to a
set of underwriting guidelines that rely on best practices, actuarial studies,
and market research designed to reduce the exposure to adverse loss experience.
It is impossible, however, to eliminate the underwriting risk inherent
in
an insurance company. We intends to reinsure all of our policies, but such
reinsurance does not relieve us of our liability if the reinsurance company
does
not or cannot pay its obligations to us.
Claims
and claims adjusting expenses
may be higher than expected.
The
financial projections in the
business plan for expected insurance claims and claims adjusting expenses
are
based largely on historical industry experience in the lines of insurance
and in
the states where we will conduct our business. Claims payments or
“losses” are payments made to claimants for benefits due under an insurance
policy. Claims (or “loss”) adjustment expenses are expenses
associated with settling claims including legal and other fees and expenses
such
as investigation, travel, and clerical costs. Our success will depend
upon the ability of management to reduce amounts payable on claims and
to
correctly estimate the amount of such payments and establish appropriate
reserves for these amounts. We may incur claims and claims adjustment
expenses higher than anticipated.
Reserves
for claims and claims
adjusting expenses may not be adequate.
We
must establish a liability for
claims and claims adjusting expenses incurred for both claims that are
known and
claims that have not yet been reported as of the end of a financial reporting
period. Reserve estimates are based on the facts of each claim,
historical information, economic conditions, expectations on inflation,
legislative and legal developments, and general trends in claims frequency
and
severity. Despite management’s best efforts in the management of
claims, there can be no assurances that our reserves for claims and claims
adjusting expenses will prove to be adequate. Reserves for claims and
claims adjusting expenses at the end of any reporting period may not be
adequate
to meet future unexpected claims payments. Any changes to reserves
applicable to prior financial reporting periods would be reflected in the
current reporting period.
The
insurer may not be able to
purchaser reinsurance to adequately limit potential
losses.
The
insurance company will purchase
reinsurance coverage (an insurance policy for insurance companies) to limit
the
insurer’s losses resulting from claims experience. Reinsurance is
usually secured to guard against higher claims frequency and catastrophic
losses
which could severely impact the insurer’s operating results and capital and
surplus.
Reinsurance
is a contractual
arrangement whereby one insurance company (the “assuming reinsurer” or
“reinsurer”) agrees to assume all or part of the underwriting risk undertaken by
another insurance company (the “ceding insurer”). Reinsuring risk is
a common insurance industry practice. The parties agree upon a
division of the risk and a division of the premiums. In most cases,
the ceding insurer agrees to pay all claims up to an agreed upon amount
and to
pay reinsurance premiums to the reinsurer, from which the reinsurer will
pay
claims above that amount. Reinsurance premiums represent the cost of
reinsurance, which cost is driven by market forces including profitability
of
the reinsurance industry, the line of business being reinsured, and the
claims
experience of the ceding insurer.
Obtaining
reinsurance, however, does
not absolve the ceding insurer from liability. If the reinsurer does
not or cannot pay (due to insolvency of the reinsurer) its agreed upon
portion
of loss, the ceding insurer is responsible for the entire loss. There
can be no assurances that we will be able to secure or maintain adequate
reinsurance protection at an affordable reinsurance premium rate. The
lack of reinsurance could adversely affect underwriting results
There
may be instances where
reinsurance does not cover claims incurred by the insurer. Total
claims from catastrophic events, such as acts of terrorism or extreme weather,
may be so great that the amount exceeds the limits of reinsurance purchased
by
the insurer. The insurance company would then be liable for this
entire excess amount, which could impair the insurer’s capital and surplus or
threaten the insurer’s existence as a going concern.
We
will be subject to assessments
from residual markets.
As
a cost of doing business, insurance
companies writing certain lines of insurance are required to participate
in
residual market mechanisms generally designed to provide coverage for consumers
who are unable to obtain insurance in the voluntary market. Lines of
business having such residual market mechanisms include property, workers’
compensation, and automobile insurance. Insurance companies
participate in the administration and the profit or loss associated with
policies written in the residual market.
The
operating results of residual
market mechanisms generally result in a financial loss, which burden must
be
shared by insurers based on their percentage share of the market in that
line of
business and in that state. Assessments on insurers are made by a
residual market mechanism to recoup losses. Assessments can be
significant, such as those for workers’ compensation insurance in certain
states, and insurance companies are not always able to offset assessments
through increased premium rates. We may have little or no control
over residual market mechanisms and their plans of
operation. Assessments can adversely effect our operating
results.
We
will be subject to assessments
from state guaranty associations that respond to the insolvency of
insurers.
As
a cost of doing business, insurance
companies are required to participate in state guarantee associations in
order
to fund liabilities to policyholders and claimants of insolvent insurance
companies. Assessments typically range from 1% to 2% of premiums
written by an insurer. Since the likelihood and amount of any
particular assessment cannot be determined until an insolvency has occurred,
potentially liabilities for specific assessments may be more than
expected.
We
are subject to
extensive federal, state and local
regulation.
The
PEO
industry as whole and our business in particular are subject to numerous federal
state and local laws and regulations relating to labor, tax and employment
matters. Because of our co-employer relationship with client worksite employees,
we assume obligations and responsibilities of an employer under these laws
and
regulations. Approximately 31 states have laws regarding the recognition,
licensing, certification or registration requirements for PEOs. These laws
generally provide for monitoring the fiscal responsibility of PEOs and for
governing the employment relationship for unemployment, workers’ compensation
and other purposes. We may not be able to satisfy licensing requirements or
other applicable regulations for all states. There can be no assurance that
we
will be able to renew our licenses in the states in which we currently do
business.
We
have credit risk that
clients may dispute financial transactions.
We
have a
risk that payments from clients may be reversed after a payroll has been
processed. We utilize the Automated Clearing House
(“ACH”
) functionality
of
financial institutions in order to receive payment from clients. A client
generally has three days from our initiating an ACH transaction to dispute
that
transaction. We process a payroll for the client before the three day window
lapses. We would be liable for paying the employees even if the client disputes
the ACH transaction.
We
are dependent upon our key sales,
marketing and executive personnel.
We
are
particularly dependent upon our executive personnel. We believe that our
success
will depend in part upon our ability to retain these skilled individuals,
the
competition for which is intense. The failure to retain key management personnel
could harm our business.
Particular
Risks Related to Our
Common Stock.
There
is currently no public market
for our Common Stock.
At
the
present time, our Common Stock is not traded on the over-the-counter
market. We intend to seek the qualification of our Common Stock for quotation
on
the OTC Bulletin Board; however, only a market-maker may apply to the NASD
to
have our Common Stock qualified for quotation on the OTC Bulletin Board.
If and
when such qualification is obtained, for which there can be no assurances,
we
anticipate that the price of our Common Stock is likely to be volatile. Our
results of operations, as well as general stock market conditions, could
adversely affect the price of our Common Stock. In addition, short term trading
strategies of certain investors can also have a significant effect on the
price
of our Common Stock.
We
do not expect to pay
dividends
We
have never paid any cash dividends
on our Common Stock and we do not anticipate paying any cash dividends in the
foreseeable future. We currently intend to retain any future earnings for
funding our business Therefore, you may not receive any return on an investment
in our Common Stock in the form of cash dividends.
ITEM
2. MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL STATEMENTS
.
You
should read the following discussion in conjunction with our Consolidated
Financial Statements and related Notes included elsewhere in
this registration statement. Historical results are not necessarily
indicative of trends in operating results for any future
period.
Year
Ended December 31, 2006 Compared to Year Ended December 31, 2005
Our
revenue is attributable to fees for providing employment services and
commissions for the sale of insurance products. Our revenues are primarily
dependent on the number of clients enrolled, the resulting number of worksite
employees paid each period.
Our
revenue is recognized in three distinct categories, two categories are for
service fees and the third is for the sale of insurance
products:
For
service fee income, we typically enters into agreements for
either;
a
fixed
fee per transaction (e.g., number of payees per payroll);
a
fixed
percentage of gross payroll;
When
we
account for revenue that is a fixed percentage of gross payroll it is accounted
for in accordance with Emerging Issues Task Force (“EITF”) 99-19, Reporting
Revenues Gross as a Principal Versus Net as an Agent. Our revenues are derived
from our billings, which are based on:
the
payroll cost of our worksite employees; and
a
markup
computed as a percentage of the payroll cost.
In
determining the fixed percentage markup component of the billings, we consider
our estimates of the costs directly associated with our worksite employees,
including payroll taxes and workers’ compensation costs, plus an acceptable
gross profit margin. We invoice the billings concurrently with each periodic
payroll of our worksite employees. Revenues, which exclude the payroll cost
component of billings, are recognized ratably over the payroll period as
worksite employees perform their service at the client worksite. We include
revenues that have been recognized but not invoiced in unbilled accounts
receivable on our consolidated balance sheets.
When
our
markup is computed as a percentage of payroll cost, revenues are also affected
by the payroll cost of worksite employees, which can fluctuate based on the
composition of the worksite employee base, inflationary effects on wage levels
and differences in the local economies of our markets.
The
primary direct costs associated with our revenue generating activities
are:
employment-related
taxes (“payroll taxes”);
workers’
compensation claim costs.
Payroll
taxes consist of the employer’s portion of Social Security and Medicare taxes
under FICA, federal unemployment taxes and state unemployment taxes. Payroll
taxes are generally paid as a percentage of payroll cost. The federal tax rates
are defined by federal regulations. State unemployment tax rates are subject
to
claim histories and vary from state to state.
Due
to
the significance of the amounts included in billings to our clients and its
corresponding revenue recognition methods, we have provided the following
reconciliation of billings to revenue for the years ended December 31, 2006
and
December 31, 2005.
|
|
|
Year
Ended
|
|
|
Year
Ended
|
|
|
|
|
December
31,
|
|
|
December
31,
|
|
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation
of billings to revenue recognized:
|
|
|
|
|
|
|
|
|
|
|
Billings
to clients
|
|
$
|
26,091,692
|
|
|
$
|
16,825,320
|
|
|
Less
– Gross wages billed to clients
|
|
|
(21,354,418
|
)
|
|
|
(14,584,477
|
)
|
|
Total
revenue as reported
|
|
|
4,737,274
|
|
|
|
2,240,843
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Cost of Sales
|
|
|
3,384,802
|
|
|
|
1,689,341
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
Profit
|
|
$
|
1,352,472
|
|
|
$
|
551,502
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
consists
of:
|
|
|
|
|
|
|
|
|
|
Revenue
from fees for service
on
a fixed percentage
|
|
$
|
4,604,385
|
|
|
$
|
2,202,078
|
|
|
Revenue
from fees for service
on
a fixed cost
|
|
|
113,093
|
|
|
|
38,765
|
|
|
Revenue
from insurance commissions
|
|
|
19,796
|
|
|
|
0
|
|
|
Total
revenue as reported
|
|
$
|
4,737,274
|
|
|
$
|
2,240,843
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of Sales Consists
of:
|
|
|
|
|
|
|
|
|
|
Employer
portion of Social Security
And
Medicare taxes
|
|
$
|
1,494,961
|
|
|
$
|
973,196
|
|
|
State
and Federal Unemployment taxes
|
|
|
288,899
|
|
|
|
244,985
|
|
|
Workers’
Compensation Premium
|
|
|
1,234,468
|
|
|
|
418,991
|
|
|
Other
Misc. Expense
|
|
|
366,474
|
|
|
|
52,170
|
|
|
Total
Cost of Sales
|
|
$
|
3,384,802
|
|
|
$
|
1,689,341
|
|
When
we
record revenue on a fixed fee per transaction only that fee is recorded as
revenue. When we record revenue for the sale of insurance products only the
commission paid by the insurance carrier is recorded as
revenue.
Revenue
for the year ended December 31, 2006 was $4,737,274 compared to revenue of
$2,240,843 for the year ended December 31, 2005. The increase in revenue
is a direct result of the acquisition of World Wide Personnel
Services of Maine, Inc and United Personnel Services, Inc.The revenue increase
attributable to the WW and United acquisitions from the date acquired April
1,
2006 and January 1, 2006 respectively, to December 31, 2006 was $3,123,848.
Excluding the WW and United revenue, revenue decreased to $627,417 compared
to
2005.
Cost
of Sales for the year ended December 31, 2006 was $3,384,802
compared to $1,689,341 for the year ended December 31, 2005. The Cost of
Sales
increased primarily resulting from the acquisition of World Wide Personnel
Services of Maine, Inc and United Personnel Services, Inc. The Cost of Sales
as
a percentage of revenue decreased from 75% for the year ended December 31,
2005
to 71% for the year ended December 31, 2006. The decrease in the percentage
is
attributable to increased sales of our products other than PEO
services.
General
and Administrative expenses including operating expenses, facilities, salaries,
benefits and professional fees was $1,160,601 for the year ended December
31,
2006 compared to $1,314,928 for the year ended December 31, 2005. The increase
was directly attributed to the integration of World Wide Personnel Services
of
Maine, Inc and United Personnel Services, Inc. acquisition.. In addition
the
increase in expenses was offset by a decrease in expense resulting from a
May
2005 reorganization. In May 2005, we sold unprofitable contracts, reduced
staff
and operating expenses to an appropriate level for the business at
hand. The plan that was made in May, 2005 drastically
reduced management, and operations staff over a period of three months. We
realized the full benefit of these cuts for the year ended December
31, 2006. We believe that the current and future HR operations
can be supported with little or no increase in administrative
expenses. We do believe that our general and administrative expenses
will increase in the future due to our registration statement and our SEC
reporting requirements in the future. We also believe that our
expenses will increase with our expansion into the insurance
business.
Sales
and
Marketing expenses increased to $48,296 for the year ended December 31, 2006
compared to $39,754 for the year ended December 31, 2005. The increase in cost
results from increased commissions paid for the sales of new clients and new
products to existing clients.
Depreciation
expenses decreased to $60,563 for the year ended December 31, 2006 compared
to
$62,595 for the year ended December 31, 2005. The decrease is due to our
fully
depreciating existing assets
Interest
expense for the year ended December 31, 2006 was $20,555 compared to $16,422
for
the year ended December 31, 2005. The increase is due to short term debt
incurred in 2006 and repaid during the same year.
LIQUIDITY
AND CAPITAL RESOURCES
Cash
and
cash equivalents at December 31, 2006 increased to $703,830 from $255,356 at
December 31, 2005. Net cash provided by operating activities for the year ended
December 31, 2006 was $601,552 compared to net cash used in operating activities
of ($1,547,631) for the year ended December 31, 2005. The increase in cash
can
be attributed to the net income of $62,457 the increase in intercom any payable,
of $472,725 accrued work site employee costs of $401,361 and non cash
depreciation of $60,563 offset by an increase in unbilled account receivables
of
$413,751 and prepaid expenses of $55,297.
Cash
used
in investing activities was $95,772 compared to net cash provided by investing
act ivies of $862,112 for the year ended December 31, 2005. The net cash used
in
investing activities can be attributed to the issuance of Letters of credit
for
the set up of an insurance captive, offset by the cash acquired in the United
and World Wide acquisitions.
Cash
used
in financing activities was $66,306 compared to net cash provided by financing
activities of $246,053 for the year ended December 31, 2005. The net
cash used was for the repayment of notes payable.
As
part of its goal to bring us
to profitability , we have developed an aggressive marketing strategy as
well as
an investment to significantly upgrade its HRIS (Human Resource Information
System) capabilities to service its current and prospective clients. This
plan
includes hiring and training the sales team as well as marketing our services
through the sale of insurance products. We have successfully negotiated joint
marketing programs to market our products and services. During the year ending
December 2006 we have increased our sales force resulting in an increased
client base.
To
further our growth we are seeking to
either acquire or form a property and casualty insurance carrier. This carrier
will be operated out of our corporate headquarters in Charlotte, North Carolina.
In order to capitalize the proposed insurance carrier and to fund other
acquisitions we have obtained a Term-Sheet and “best-efforts” Selling Agent’s
Agreement with Bridgestream Partners, LLC to raise $72 million in investmentn
capital for us. We will issue Preferred Series “B: Stock
to investors.. Management believes this investment will allow it to
expand operations sufficiently to to achieve profitability and positive cash
flow.
In
addition to an aggressive organic growth strategy, we continue to evaluate
potential acquisitions. We are seeking to increase its market share in areas
contiguous to its existing operations. With the implementation of the HRIS
system, we have increased our operational capability. Increased
market share through acquisition will more fully utilize the HRIS system.
Currently we have negotiate a Letter of Intent for the acquisition of two
additional PEO and are finalizing the purchase agreements. Additional
acquisitions are in the early stages of negotiations. Our acquisition
strategy is to locate candidates meeting the following
profile:
-
Successful,
entrepreneurial management team in place
-
Small,
privately held
-
Profitable,
or nearly so, on existing book of business
-
Targeted
acquisition multiples are four to five times adjusted
EBITDA.
-
Growth
and expansion potential limited by capital
-
Potential
to reduce operating costs through consolidation
We
believe will be able to add additional clients without significantly
increasing our operational staff. The May 2005 reorganization reduced our
heavy industry and “blue collar” client base allowing us to expand at a greater
pace in other economic sectors which has been our stated goal. The targeted
clients to which we are marketing its services have a greater capability
to the
more automated process integral to the new HRIS system.
Our
auditors have expressed a going concern opinion in their audit reports for
2006
and 2005. Management acknowledges the basis for the going concern opinion,
given
our historical net losses and working capital deficits. However, we have
made
significant improvements in our operating performance in 2006. We have increased
our revenues by approximately 111% compared to 2005, through acquisitions.
We
believe that we need to continue making acquisition of small PEO business,
as
well as grow organically for the going concern opinion to be removed. Management
believes that it has capacity to expand our operations without adding
significant additional overhead for operations. The Companies ability to
execute
its acquisition strategy and build its marketing plan will depend on its
ability
to obtain equity financing.
Liquidity
is our ability to generate
sufficient cash flows from operating activities to meet our obligations and
commitments. In addition, liquidity includes the ability to obtain appropriate
financing. Currently, our financing requirements are primarily driven by
working
capital requirements due to our continued growth. At December 31, 2006, we
had
$703,830 in cash and cash equivalents. Current liabilities at December 31,
2006
were $2,025,004 compared to current assets of $1,965,994. Going forward,
management anticipates that its expected cash flows from operations will
not be
sufficient to provide the necessary liquidity to support operations, expand
its
marketing efforts in the next twelve months.
Three
Months Ended March 31, 2007 compared to the three months ended March 31,
2006.
This
section should be read in conjunction with the Consolidated Financial Statements
and related Notes included elsewhere in this report. Historical results
are not
necessarily indicative of trends in operating results for any future period.
Also, the section should be read in conjunction with the section on the
comparison of December 31, 2006 to December 31, 2005 as the Company’s procedures
and policies are the same.
Due
to
the significance of the amounts included in billings to the Company’s clients
and its corresponding revenue recognition methods, the Company has provided
the
following reconciliation of billings to revenue for the three months ended
March
31, 2007 and March 31, 2006.
|
|
|
Quarter
Ended
|
|
|
Quarter
Ended
|
|
|
|
|
March
31,
|
|
|
March
31,
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation
of billings to revenue recognized:
|
|
|
|
|
|
|
|
Billings
to clients
|
|
$
|
6,679,488
|
|
|
$
|
2,595,632
|
|
|
Less
– Gross wages billed to clients
|
|
|
(5,560,124
|
)
|
|
|
(2,171,514
|
)
|
|
Total
revenue as reported
|
|
|
1,119,364
|
|
|
|
424,118
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Cost of Sales
|
|
|
795,160
|
|
|
|
315,222
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
Profit
|
|
$
|
324,204
|
|
|
$
|
108,896
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
consists
of:
|
|
|
|
|
|
|
|
|
|
Revenue
from fees for service
on
a fixed percentage
|
|
$
|
986,475
|
|
|
$
|
419,751
|
|
|
Revenue
from fees for service
on
a fixed cost
|
|
|
113,093
|
|
|
|
4,367
|
|
|
Revenue
from insurance commissions
|
|
|
19,796
|
|
|
|
0
|
|
|
Total
revenue as reported
|
|
$
|
1,119,364
|
|
|
$
|
424,118
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of Sales Consists
of:
|
|
|
|
|
|
|
|
|
|
Employer
portion of Social Security
And
Medicare taxes
|
|
$
|
342,655
|
|
|
$
|
154,893
|
|
|
State
and Federal Unemployment taxes
|
|
|
114,225
|
|
|
|
49,960
|
|
|
Workers’
Compensation Premium
|
|
|
324,508
|
|
|
|
106,471
|
|
|
Other
Misc. Expense
|
|
|
13,772
|
|
|
|
3,898
|
|
|
Total
Cost of Sales
|
|
$
|
795,160
|
|
|
$
|
315,222
|
|
When
the
Company records revenue on a fixed fee per transaction only that fee is
recorded
as revenue. When the Company records revenue for the sale of insurance
products
only the commission paid by the insurance carrier is recorded as
revenue.
Revenue
for the quarter ending March 31, 2007 is $1,119,364 compared to $424,118
for the
quarter ending March 31, 2006. The increase is primarily due to the acquisition
of World Wide Personnel of Maine, Inc and due to increased sales which
occurred
during 2006. Increases in revenue for fixed cost fees result from organic
growth
by providing non-PEO human resource products to clients. Revenue increase
in
insurance commissions reflects the acquisition of Consolidated Insurance
Services in September 2006.
Cost
of
Sales for the three months ended March 31, 2007 was $795,160 compared to
$315,222 for the three months ended March 31, 2006. The Cost of Sales increased
primarily resulting from the acquisition of World Wide Personnel Services
of
Maine, Inc and United Personnel Services, Inc. The Cost of Sales as a percentage
of revenue decreased from 74% for the period ended March 31, 2004 to 71%
for the
period ended March 31, 2007. The decrease in the percentage is attributable
to
increased sales of the Company’s products other that PEO
services.
General
and Administrative expenses including operating expenses, facilities, salaries,
benefits and professional fees was $640,830 for the period ended March
31, 2007
compared to $343,508 for the period ended March 31, 2006. The increase
is
directly attributed to the integration of World Wide Personnel Services
of
Maine, Inc and United Personnel Services, Inc. acquisition. In addition
the
Company has incurred increased legal and accounting expenses as it prepares
for
the spin off from its former parent company. These costs are reflected
in the
General and Administrative expenses of the Company.
Sales
and
Marketing expenses increased from $31,547 for the period ended March 31,
2007
compared to $7,285 for the period ended March 31, 2006. The increase in
cost
results from increased commissions paid for the sales of new clients and
new
products to existing clients. The Company has increased its sales force
and
compensates its sales force on a commission. As a result of increased revenue
sales costs will also increase.
Depreciation
expenses decreased to $10,950 for the period ended March 31, 2007 compared
to
$14,162 for the period ended March 31, 2006. The decrease is due to the
Company
fully depreciating existing assets.
Interest
expense for the period ended March 31, 2007 was $5,577 compared to $4,516
for
the period ended March 31, 2006. The increase is due to short term debt
incurred
in 2006.
The
Company’s cash requirements for funding its administrative and operating needs
exceeds its cash flows generated from operations. Such shortfalls and other
capital needs continue to be satisfied through equity financing until additional
funds can be generated through acquisitions and organic business
growth.
As
part of its goal to bring the
Company to profitability and less reliant on equity financing for ongoing
operations, the company has developed an aggressive marketing strategy.
In
addition to an aggressive organic growth strategy, the Company continues
to
evaluate potential acquisitions. The Company is seeking to increase its
market
share in areas contiguous to its existing operations.
The Company relies on equity financing to fund its ongoing operations and
investing activities. The Company expects to continue its investing
activities, including expenditures for acquisitions, sales and marketing
initiatives and administrative support. The inability to obtain
equity financing would seriously hinder the Company’s ability to execute its
business strategy and impair its ability to continue as a going
concern.
Our
financial statements are prepared in accordance with accounting principles
generally accepted in the United States. The preparation of these consolidated
financial statements requires us to make estimates and assumptions that
affect
the reported amounts of assets, liabilities, revenues, costs and expenses,
and
related disclosures. On an ongoing basis, we evaluate our estimates and
assumptions based upon historical experience and various other factors
and
circumstances. We believe our estimates and assumptions are reasonable
based
upon information available to us at the time they were made; however, actual
results may differ from these estimates under different future
conditions.
We
believe that the estimates and assumptions discussed below are most important
to
the portrayal of our financial condition and results of operations since
they
require our most difficult, subjective, or complex judgments and form the
basis
for the accounting policies deemed to be most critical to our
operations.
Basis
of
Financial Statement Presentation
The
accompanying financial statements have been prepared on a going concern
basis,
which contemplates the realization of assets and the satisfaction of liabilities
in the normal course of business. Prior to the current fiscal year, we
generated significant losses, and we are unable to predict
profitability for the future. These factors indicate our continuation, as a
going concern is dependent upon our ability to obtain adequate financing
as well
as implement its sales, marketing and acquisition strategy. We are addressing
the going concern by obtaining equity financing and to grow with profitable
sales both organically and through acquisitions. Management believes
successfully executing these tasks will lead to the removal of the going
concern
comment from our audited financials.
We
record
goodwill based on SFAS 142. We identify and record impairment losses on
long-lived assets, including goodwill that is not identified with an
impaired
asset, when events and circumstances indicate that an asset might be
impaired.
Events and circumstances that may indicate that an asset is impaired
include
significant decreases in the market value of an asset, a change in the
operating
model or strategy, and competitive factors. If events and circumstances
indicate that the carrying amount of an asset may not be recoverable
and the
expected undiscounted future cash flow attributable to the asset is less
than
the carrying amount of the asset, we receive an impairment loss equal
to the
excess of the asset’s carrying value over its fair value. We determine fair
value based on the present value of estimated expected future cash flows
using a
discount rate commensurate with the risk involved, quoted market prices,
or
appraised values, depending on the nature of the
assets.
ITEM
3. DESCRIPTION OF
PROPERTY
Our
principal executive and
administrative offices are located at 7621 Little Ave., Suite 101, Charlotte,
North Carolina where we occupy 5,988 square feet of leased office
space. We maintain regional offices on leased premises in Auburn,
Maine; Winchester, Virginia; Coraopolis, Pennsylvania; Mobile, Alabama; Clayton,
North Carolina; and Irvine, Texas. We do not own any real property in connection
with the conduct of our business.
ITEM
4. SECURITY OWNERSHIP
OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The
following table sets forth certain information regarding the beneficial
ownership of our Common Stock as of January 28, 2008 (i) each of our
officers and directors; (ii) each person who is known by us to own beneficially
more than 5% of our outstanding Common Stock; and (iii) all of our officers
and
directors as a group:
|
Title
of
Class
|
Name of
Beneficial
Owner(a)
|
Amount
and Nature
of
Beneficial
Ownership
|
Percent
of
Class
|
|
Common
Stock
|
Gary
Musselman
President/CEO/CFO
and Director
7621
Little Ave, Suite 101
Charlotte,
NC 28226
|
8,000,000
|
22.78%
|
|
|
|
|
|
|
Common
Stock
|
Marcia
Sartori
Vice
President
615
5
th
Ave.
Suite
101
Coraopolis,
PA 15108
|
700,000
|
1.99%
|
|
|
|
|
|
|
Common
Stock
|
Antoinette
Peterson (b)
Vice
President
163
Creekside Lane
Winchester,
VA 22602
|
5,000,000
|
14.24%
|
|
|
|
|
|
|
Common
Stock
|
Michael
Peterson (b)
Vice
President
163
Creekside Lane
Winchester,
VA 22602
|
5,000,000
|
14.24%
|
|
|
|
|
|
|
Common
Stock
|
Frank
A. Moody, II
Director,
Chairman
1
Town Square Blvd. Suite 347
Asheville,
NC 28803
|
-0-
|
0%
|
|
|
|
|
|
|
Common
Stock
|
Carl
Horsely
Director/Secretary
3627
Turtle Dove Blvd.
Punta
Gorda, FL 33950
|
8,000,000
|
22.78%
|
|
|
|
|
|
|
Common
Stock
|
Julie
Snipes
1
Town Square Blvd. Suite 347
Asheville,
NC 28803
|
2,000,000
|
5.69%
|
|
|
|
|
|
|
Common
Stock
|
Alexis
Moody (c)
1
Town Square Blvd. Suite 347
Asheville,
NC 28803
|
3,000,000
|
8.54%
|
|
|
|
|
|
|
Common
Stock
|
Taylor
Moody (c)
1
Town Square Blvd. Suite 347
Asheville,
NC 28803
|
3,000,000
|
8.54%
|
|
|
|
|
|
|
Common
Stock
|
Lilly
Marketing, Group, LLC(d)
9410
Bunsen Parkway, Suite 305
Louisville,
KY 40220
|
2,500,000
|
7.12%
|
|
|
|
|
|
|
All
officers and directors (4 persons)
|
|
21,700,000
|
61.79%
|
|
|
(a)
|
Except
as otherwise indicated, the address of each beneficial owner is
c/o The
Resourcing Solutions Group, Inc., 7621 Little Avenue, Suite 101,
Charlotte, North Carolina 28226.
|
|
|
(b)
|
Michael
and Antoinette Peterson are husband and wife. They hold 5,000,000
shares
in joint ownership .
|
|
|
(c)
|
Alexis
Moody and Taylor Moody are the adult children of Frank A. Moody,
II.
|
|
|
(d)
|
Dan
Shuck is the beneficial owner of 2,500,000 shares owned by Lilly
Marketing, Group, LLC.
|
ITEM
5. DIRECTORS,
EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS.
The
following table sets forth information concerning our directors and executive
officers as of the date hereof:
|
Name
|
Age
|
Position
|
|
|
|
|
|
Gary
Musselman
|
52
|
President/CEO/Director
|
|
Frank
A. Moody, II
|
47
|
Director,
Chairman of Board
|
|
Carl
Horsley
|
48
|
Director
|
|
Paul
Halter
|
48
|
Executive
Vice President
|
|
Marcia
Sartori
|
64
|
Vice
President
|
|
Antoinette
Peterson
|
56
|
Vice
President
|
|
Michael
Peterson
|
58
|
Vice
President
|
The
Board of Directores consists of
three individuals Gary Musselman who is also our Chief Executive Officer,
President and Chief Financial; Officer, Frank A. Moody, II and Carl
Horsley who are independent directors. Mr. Moody services as Chairman of
the
Board. All Directors serve for a term of one year.
Gary
Musselman.
Prior to joining us in 2004, From
June 2002 to April 2004, Mr. Musselman served as the Chief Financial Officer
of
Grace Global, LLC, an international media company operating within the
United
States and three foreign locations. Mr. Musselman was responsible for due
diligence for several companies being considered for acquisition as well
as
overseeing the integration of companies that were acquired. From 2000
to 2002, Mr. Musselman was the Managing Partner for Stratford Financial
Resources, LLC, a business development consulting firm specializing in
commercial finance, human resources and mergers and
acquisitions. From 1993 to 2000, Mr. Musselman founded and served as
the Chief Executive Officer of ECS Financial Management Services, LLC,
a
financial management company specializing in account receivable management.
Since April 2004, Mr. Musselman has also serves as the President and Chief
Executive Officer of Pacel Corp. Mr. Musselman also serves as the Chief
Financial Officer of Pacel Corp. and since July 2007 WatchIt technologies,
Inc.
Mr. Musselman serves on the Board of Pacel Corp. and WatchIt Technologies,
Inc.
Frank
A. Moody,
II.
Mr. Moody has been the managing partner of
Scenic Marketing Group, LLC, since April 2006, a company specializing is
assisting small publicly traded companies achieve growth by understanding
and
properly utilizing available financing mechanisms. Prior to forming Scenic
Marketing Group, LLC, From January 2004 to April 2006, Mr. Moody was the
President/CEO of Homeland Integrated Security Systems, Inc. a high technology
company specializing in security systems in the transportation industry.
Mr.
Moody has been the President of WatchIt Technologies, Inc since March 2007.
Mr.
Moody also serves on the Board of WatchIt technologies, Ince as its
Chairman.
Carl
Horsley
Since January 2005, Mr. Horsley has been
the managing partner of Cherokee Capital Management, LLC a private equity
firm
located in Punta Gorda, FL. Mr. Horsley has been instrumental in
several M & A and LBO deals here in the US and in Europe as well as
providing financial options and services to micro-cap
companies. Prior to forming CCM , Mr. Horsley worked since
1996 as a financial advisor for Morgan Stanley and then Raymond James
Financial in Boca Raton, FL. Mr. Horsley graduated with BBA degrees
in both Business Management and Marketing from Northwood University in
Michigan
Paul
V. H. Halter
Mr.
Halter has twenty-five years in the
property and casualty insurance industry, Mr. Halter has held significant
leadership roles in general management, sales and marketing, and underwriting.
From October 2005 to April 2007 he was President and Chief Operating Officer
of
Guarantee Insurance Company, a workers’ compensation insurer in its early stages
of development. Before this from September 1993 to May 2002 he was
President and Chief Executive Officer of Commerce Casualty Group, Inc., an
insurance holding company he co-founded. After leaving college, Mr.
Halter formed and operated his own independent insurance agency which he
later
sold, to serve as Area Sales Manager for the Personal Client Services Division
of Marsh & McLennan, Inc. While at Crum & Forster Personal
Insurance Company, Mr. Halter was Sales Manager of the year while personally
setting a direct sales record. He also directed the small commercial
and personal lines businesses countrywide for Johnson &
Higgins. He has been published several times in
Best’s
Review
and
American
Agent &
Broker
. Mr. Halter
taught classes
at The Chicago School of Insurance and was on the national faculty of Certified
Insurance Counselors for Agency Management. He is a graduate of the
College of Charleston and holds a number of insurance designations including
Chartered Property Casualty Underwriter (CPCU), Certified Insurance Counselor
(CIC), and Certified Risk Manager (CRM
).
Marcia
Sartori.
Ms. Sartori owned and operated YourStaff Solutions
Ô
from
its beginning
in 1987 until the sale to The Resourcing Solutions Group, Inc. in January 2005
as a professional employer organization providing outsourced human resources
services to small- to medium-sized businesses in the greater Pittsburgh,
Pennsylvania. Services included all employment functions: hiring, firing,
payroll, employee handbooks, policy development, workers compensation
administration, benefits design and administration, 401k and 529 college plan
administration, and a full range of human resource guidance. Ms. Sartori has
been a member of the National Association of Professional Employer Organizations
since 1988. Marcia served on the Board of Directors of the National Association
of Professional Employer Organizations (NAPEO) from 1992-1994. As a member
of
the NAPEO, she has served on the Legislative Affairs Committee as the Head
Delegate for State Sales Tax issues and the NAPEO Task Force.
Antoinette
Peterson
Ms. Peterson co-owned and operated World Wide
Personnel Services of Maine and Virginia agencies since 1989 until they were
sold their company in April 2006 and June 2007 respectively as a professional
employer organization providing outsourced human resources services to small-
to
medium-sized businesses in the New England and Mid-Atlantic regions. Prior
to
forming her own company Ms. Peterson spent several years in health care
administration where she was responsible for integrating several medical
practices into a single larger practice. Ms.. Peterson has a degree in
accounting from the University of Maine- Auburn and a Masters degree from
Husson
College in Portland, Maine.
Michael
Peterson
Mr. Peterson co-owned and operated World Wide Personnel Services
of Maine and Virginia agencies since 1989 until they were sold their in April
2006 and April 2007 respectively as a professional employer organization
providing outsourced human resources services to small- to medium-sized
businesses in the New England and Mid-Atlantic regions. Prior to forming
his own
company Mr. Peterson spent several years in the insurance industry providing
employee benefits and commercial insurance to a diverse client base. Mr.
Peterson has a degree in History and Philosophy from the University of
California – Northridge.
Our
Bylaws currently authorize
not less than three directors. Each director is elected for one year
at the annual meeting of stockholders and serves until the next annual meeting
or until a successor is duly elected and qualified. Our executive officers
serve
at the discretion of our board of directors. The only family relationship among
our directors and executive officers involves Michael Peterson and Antoinette
Peterson, who are husband and wife.
Board
Committees.
The
Board
of Directors has established an Audit Committee and a Compensation Committee.
Frank A. Moody, II and Carl Horsely constitute the members of those
committees.
ITEM
6. EXECUTIVE
COMPENSATION
On
January, 2007 we entered into an employment agreement with Mr. Gary Musselman
the President and Chief Executive Officer. His base salary is $240,000 for
a
term of five years and will automatically renew for three years unless either
party gives written notice to the other 90 days prior to the expiration of
the
agreement commencing January 1, 2007. Thereafter, the agreement may be renewed
upon mutual agreement of the parties. Mr. Musselman is entitled to a cash
incentive bonus equal to 2% of our income from operations if we have positive
income from operations.
The
President/CEO is compensated with a base salary and with a bonus incentive
plan
when we makes a profit in excess of $250,000 or a 15% growth over the previous
years net profit. Bonuses are paid in stock equal to 12.5% of the growth
in
excess of the 15% floor. For example if we have net profit of $1,000,000
in the
base year and net profit of $1,500,000 in the next year the executive will
receive stock equal to $43,750 (1,500,000 – 1,000,000 =$500,000. 15% of previous
year net income is 150,000. 500,000 – 150,000 is 350,000. 12.5% of 350,000 is
43,750) There is a $1,000,000 cap per year on these stock bonuses. In addition
to the stock bonus plan the President/CEO will receive a cash incentive equal
to
two percent and one and one-half percent respectively of the income from
operations each year we are profitable.
In
January 2005, we entered into a five year employment contract with Marcia
Sartori. Compensation will include an annual base salary of $85,000
which was increased to $100,000 per year in March 2007 and an incentive
bonus
plan based on the EBITDA (earnings before interest, tax, depreciation and
amortization). Ms. Sartori will hold the title of Vice
President.
In
April 2006, we entered into a five
year employment contract with Michael Peterson. Compensation will
include an annual base salary of $100,000 and an incentive bonus plan based
on
the EBITDA (earnings before interest, tax, depreciation and amortization).
Mr.
Peterson will hold the title of Vice President.
In
April 2006, we entered into a five
year employment contract with Antoinette Peterson. Compensation will
include an annual base salary of $85,000 and an incentive bonus plan based
on
the EBITDA (earnings before interest, tax, depreciation and amortization)..
Ms.
Peterson will hold the title of Vice President.
In
October 2007, we entered into a five
year employment agreement with Paul V. H. Halter. Compensation will include
an annual base salary of $200,000 per year and an incentive bonus based
on
EBITDA (earnings before interest, tax, depreciation and amortization).
Mr.
Halter will hold the title of Executive Vide
President.
Summary
Compensation
Table
|
Name
and Principal Position
|
Year
|
Salary
($)
|
Bonus
($)
|
Stock
Awards
($)
|
Option
Awards
($)
|
Non-Equity
Incentive
Plan Compensation
($)
|
Changes
in Pension
Value
and Nonqualified Deferred Compensation Earnings
($)
|
All
Other
Compensation
($)
|
Total
($)
|
|
(a)
|
(b)
|
(c)
|
(d)
|
(e)
|
(f)
|
(g)
|
(h)
|
(i)
|
(j)
|
|
Gary
Musselman
President/CEO/Director
|
2005
2006
|
168,000
168,000
|
-0-
-0-
|
-0-
-0-
|
-0-
-0-
|
-0-
-0-
|
-0-
-0-
|
41,836
34,063
|
209,836
202,063
|
|
Marcia
Sartori
Vice
President
|
2005
2006
|
85,000
85,000
|
-0-
-0-
|
-0-
-0-
|
-0-
-0-
|
-0-
-0-
|
-0-
-0-
|
8,394
16,387
|
93,394
101,387
|
|
Michael
Peterson
Vice
President
|
2005
2006
|
-0-
79,690
|
-0-
-0-
|
-0-
-0-
|
-0-
-0-
|
-0-
-0-
|
-0-
-0-
|
-0-
2,662
|
-0-
82,352
|
|
Antoinette
Peterson
Vice
President
|
2005
2006
|
-0-
78,657
|
-0-
-0-
|
-0-
-0-
|
-0-
-0-
|
-0-
-0-
|
-0-
-0-
|
-0-
2,470
|
-0-
81,127
|
The
salary shown for the above executives reflects the total cash compensation
he
received. 50% of the total cash compensation was paid by Pacel Corp,our former
parent company.
Equity
Awards
There
were no outstanding equity awards for the fiscal year ending December 31,
2006.
The employment agreement between us and Gary Musselman calls for the following
payments post employment.
-
In
the
event Mr. Musselman becomes permanently disabled or dies during the
term employment, his salary will continue until the expiration of
the term of employment..
-
In
the
event employment is terminated as a result of a change of control
or a merger,, Mr. Musselman will be entitled to a severance payment of
five
times his previous year’s annual compensation.
-
In
the
event Mr. Musselman or the Company does not renew his employment
contract, he willl serve in an advisory capacity for a period of two
years
with compensation equal to one-half of his salary paid during the previous
12
months.
Directors
Compensation
During
the fiscal year ending December
31, 2006, the Directors did not receive any compensation for services as
directors. The Board of Directors has awarded 8,000,000 shares of our Common
Stock to each of the two independent directors for serving as directors during
2007. Frank A. Moody II, conveyed 6,000,000 of his shares to his adult children
for estate planning purposes and made a gift of 2,000,00 shares to
Julie Snipes. No decision has been made regarding directors’ compensation for
any period after 2007. Additionally, directors will be reimbursed for their
out-of-pocket expenses for attending board or committee
meetings.
ITEM
7. CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTORS
INDEPENDENCE.
Director
Independence
At
this
time, we are not subject to the requirements of a national securities exchange
or an inter-dealer quotation system with respect to the need to have a majority
of its directors be independent. In the absence of such requirements, we
have
elected to use the definition established by the NASDAQ independence rule
which
defines an “independent director” as “a person other than an officer or employee
of us or its subsidiaries or any other individual having a relationship,
which
in the opinion of our board of directors, would interfere with the exercise
of
independent judgment in carrying out the responsibilities of a director.” The
definition further provides that the following relationships are considered
bars
to independent regardless of the board’s determination:
•
Employment by the
company
. Employment of the director or a family member by us or any
parent or subsidiary of ours at any time thereof during the past three years,
other than family members in non-executive officer positions.
•
$100,000
compensation.
Acceptance by the director or a family member
of any compensation from us or any parent or subsidiary in excess of $100,000
during any twelve month period within three years of the independence
determination.
•
Auditor
affiliation.
A director or a family member of the director,
being a partner of our outside auditor or having been an partner or employee
of
our outside auditor who worked on our audit, during the past three
years.
Based
on
the foregoing definition, Frank A. Moody, II and Carl Horsely are “independent
directors”.
ITEM
8. DESCRIPTION OF
SECURITIES
.
We
are
authorized to issue 2,200,000,000 shares of capital stock consisting of
2,000,000,000 shares of Common Stock, par value $0.001 per share and 200,000,000
shares of Preferred Stock, par value $0.001 per share. This Registration
Statement applies only to our Common Stock.
Series
A Preferred
Stock
The
Series A Preferred Stock (‘Series A
Stock”) consists of 30,000,000 shares, par value $.001 per share. Each share of
Series A Stock will be entitled to two hundred (200) votes on all matters
for
which our shareholders have the right to vote. We have the right to
call for redemption of all or any part of the Series A Stock
Series
B Convertible Preferred
Stock
The
Series B Convertible Preferred
Stock (“Series B Stock”) consists of 40,000,000 shares, par value $.001 per
share. Each share of the Series B Stock is entitled to one vote on
all matters for which our shareholders have a right to vote. Series B Stock
converts to Common Shares upon our achieving an annualized per quarter increase
of in Pre Tax Income of 23.5% or and EBITDA of 23.5% or a share price of
$4.00
per share of its Common stock. These milestones must be achieved for three
out
of five consecutive quarters to trigger the mandatory conversion to Common
shares. Series B Stock receives a 4.5% Dividend Preference paid in Common
Stock
upon conversion of the Preferred shares to Common shares.
There
are
35,165,630 shares of Common Stock issued and outstanding as of the date
hereof. All shares of Common Stock have equal rights and privileges
with respect to voting, liquidation and dividend rights. Each share
of Common Stock entitles the holder thereof to (i) one non-cumulative vote
for
each share held of record on all matters submitted to a vote of the
stockholders; (ii) to participate equally and to receive any and all such
dividends as may be declared by the Board of Directors out of funds legally
available therefore; and (iii) to participate pro rata in any distribution
of
assets available for distribution upon liquidation. Stockholders of
ours have no preemptive rights to acquire additional shares of Common Stock
or
any other securities. The Common Stock is not subject to redemption
and carries no subscription or conversion rights. All outstanding
shares of Common Stock are fully paid and non-assessable.
PART
II
ITEM
1.
MARKET PRICE OF AND
DIVIDENDS ON THE
REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our
Common Stock has been thinly
traded in the over-the-counter market and prices for the Common Stock are
published on The Pink Sheets ™ under the symbol RSGX. This market is extremely
limited and the price for our Common Stock quoted by brokers is not a reliable
indication of the value of the Common Stock. The following is the range of
high
and low bid prices for our Common Stock for the each quarter within the last
two
fiscal years and the subsequent interim quarter ending March 31, 2007. These
prices reflect the one for one thousand reverse split of our shares on December
15, 2006.
|
Quarter
Ending
|
High
|
Low
|
|
March
31, 2005
|
$0.10
|
$0.10
|
|
June
30, 2005
|
$0.10
|
$0.10
|
|
September
30, 2005
|
$0.10
|
$0.10
|
|
December
31, 2005
|
$0.10
|
$0.10
|
|
March
31, 2006
|
$0.10
|
$0.10
|
|
June
30, 2006
|
$0.10
|
$0.10
|
|
September
30, 2006
|
$0.10
|
$0.10
|
|
December
31, 2006
|
*
|
*
|
|
March
31, 2007
|
*
|
*
|
*
No market maker existed for the entire quarter;
therefore, no bid price is reported.
These
prices reflect inter-dealer
prices, without retail mark-up, mark-down or commission and may not represent
actual purchases and sales by investors.
Our
Common Stock is held by 270 shareholders of record.
We
have not paid any dividends on our
Common Stock and we are not likely to pay any dividends in the near future.
We
intend to retain all earnings for working capital purposes for the foreseeable
future.
At
the present time, there are no
outstanding options or warrants to purchase, or securities convertible into,
our
Common Stock. In addition, there are no shares of Common Stock that could be
sold pursuant to Rule 144 under the Securities Act of 1933 or that we have
agreed to register under the Securities Act for sale by security holders, or
that are being, or proposed to be, publicly offered by us.
|
Equity
Compensation Plan Information as of December 31, 2006
|
|
Plan
Category
|
Number
of securities to be issued upon exercise of outstanding options,
warrants
and rights.
(a)
|
Weighted
Average exercise price of outstanding options, warrants and
rights.
(b)
|
Number
of securities remaining available for future issuance under equity
compensation plans(excluding securities reflected in column
(a))
(c)
|
|
Equity
compensation plans approved by security holders
|
-0-
|
-0-
|
-0-
|
|
Total
|
-0-
|
-0-
|
-0-
|
ITEM
2.
LEGAL PROCEEDINGS
World
Wide Personnel Services of
Maine, Inc., United Personnel Service, Inc, and World Wide Personnel Services
of
World Wide Personnel Services of Virginia, Inc. wholly owned subsidiaries
of
ours are defendants in a suit in U.S. District Court, Eastern District of
Michigan filed on October 11, 2006.
PML North America, LLC
vs. World
Wide Personnel Service of Virginia, Inc. et al. Case No. 2:06-cv-14447
.
The plaintiff is alleging it is owed premiums for providing workers’
compensation insurance to employees of the defendants prior to our acquiring
these companies. Defendants assert that all earned premiums were paid in
a
timely manner. Defendants are seeking Declaratory Relief that claims made
by the
plaintiff are invalid and unenforceable. We are indemnified by the former
owners
for any losses which may be assessed against us.
ITEM
3.
CHANGES IN AND DISAGREEMENTS
WITH
ACCOUNTANTS
ON ACCOUNTING
OR FINANCIAL DISCLOSURE
There
were no disagreements
between us and our independent accountant on any matter of accounting principles
or practices, financial statement disclosure, or auditing scope or procedure
during the two most recent fiscal years.
ITEM
4.
RECENT SALES OF UNREGISTERED
SECURITIES
On
November 30, 2004, we issued our 8%
Convertible Redeemable Debentures in the aggregate principal amount of $100,000
with a maturity in one year. The Debentures were issued to two purchasers
who
were accredited investors pursuant to the exemption provided by Regulation
D
Rule 504 under the Securities Act of 1933. In May 2006, the Debenture was
amended to provide for repayment over a six-month period on a new fixed term
note. As collateral for the repayment of the original Debentures, we deposited
1,000,000 shares of our Common Stock in an escrow account. In January 2007,
the
amended Debenture was paid in full with funds provided by a Scenic Marketing
Group, LLC an entity controlled by Dan Shuck in consideration of the issuance
of
the 1,000,000 shares of Common Stock in the escrow.
Pursuant
to an agreement effective as of December 4, 2006, we issued 992,696 shares
of
our Common Stock, after a reverse stock split of 1-for1,000, in exchange
for $1,832,014.00 of payables to our then parent company, Pacel Corp. These
shares were issued pursuant to the exemption provided by Section 3(a)(9) under
the Securities Act of 1933 covering exchanges with an existing security holder,
or in the alternative, under Section 4(2) of the Securities Act of 1933, as
non-public offering.
Effective
as of January 1, 2007, we issued 1,500,000 shares of our Common Stock under
a
Consulting Agreement for business advisory services. These shares were issued
pursuant to the exemptions provided by Sections 4(2) and 4(6) of the Securities
Act of 1933. The consulting firm is an accredited investor as defined in Rule
501 under the Securities Act of 1933.
In
January 2007, we issued 25,000,000
shares of our Common Stock to certain of our officers and directors in lieu
of
cash compensation, of which 9,000,000 shares of were issued as performance
based
bonus compensation and 16,000,000 shares were to the directors as compensation
for services as directors. These shares were issued pursuant to the exemptions
provided by Sections 4(2) and 4(6) of the Securities Act of 1933.
In
January 2007, we sold 803,000 shares of our Common Stock to 33 persons for
an
aggregate consideration of $80,300. These shares were issued pursuant to
the
exemptions provided by Sections 4(2) of the Securities Act of 1933 to
sophisticated investors without advertising of general solicitation to person
with whom we have an existing business or personal
relationship.
In
January 2007, we issued 5,000,000 shares of Common Stock to Antoinette
Peterson
in exchange for the cancellation of a promissory note in the amount of
$500,000
which note has been issued in connection with the acquisition of World
Wide
Personnel Services of Maine, Inc. and United Personnel Services, Inc. These
shares were issued pursuant to the exemptions provided by Sections 4(2)
and 4(6)
of the Securities Act of 1933.
In
January 2007, we exchanged 1,000,000 shares of Common Stock held in escrow
for
Scenic Marketing LLC to repay the outstanding balance of $59,815 on the
8% note
originally issued in November 2004.
In
January 2007, we issued 50,000 shares of our Common Stock to Twin Equities,
LLC
for an aggregate consideration of $10,000. These shares were issued pursuant
to
the exemption provided by Regulation D Rule 504 under the Securities Act
of
1933.
In
April 2007, we issued 700,000 shares
of stock to three unaffiliated accredited investors in exchange for $320,000.
In
May 2007 we issued 100,000 shares of Common Stock to an unaffiliated accredited
investor in exchange for $100,000. In July 2007, we issued 40,000 shares
of
Common Stock to three unaffiliated accredited investors in exchange for
$40,000.
These shares were issued pursuant to the exemptions provided by Sections
4(2)
and 4(6) of the Securities Act of 1933.
On
May
17, 2007, we issued our non-negotiable convertible promissory note
in the principal amount of $200,000 to Antoinette Peterson in connection
with
the Stock Acquisition Agreement dated May 17, 2007 with World Wide Personnel
Services of Virginia, Inc.
No
sales
commission was paid to any entity for the sale of these shares of Common
Stock.
During
the first quarter 2,710 shares of Common Stock were issued in order to
eliminate
fractional shares resulting from the December 15, 2006 reverse
split.
ITEM
5.
INDEMNIFICATION OF
OFFICERS AND
DIRECTORS
As
permitted by the provisions of the
Nevada Revised Statutes
(
“NRS”
) and the our Bylaws,
we have the power to indemnify any person
made a party to an action, suit or proceeding by reason of the fact that they
are or were a director, officer, employee or our agent against
expenses, judgments, fines and amounts paid in settlement actually and
reasonably incurred by them in connection with any such action, suit or
proceeding if they acted in good faith and in a manner which they reasonably
believed to be in, or not opposed to, the our best interest and, in any criminal
action or proceeding, they had no reasonable cause to believe their conduct
was
unlawful. Termination of any action, suit or proceeding by judgment,
order, settlement, conviction, or upon a plea of nolo contendere or its
equivalent, does not, of itself, create a presumption that the person did not
act in good faith and in a manner which they reasonably believed to be in or
not
opposed to our best interest, and in any criminal action or proceeding, they
had
no reasonable cause to believe their conduct was unlawful.
We
must indemnify a director, officer,
employee or an agent who is successful, on the merits or otherwise, in the
defense of any action, suit or proceeding, or in defense of any claim, issue,
or
matter in the proceeding, to which they are a party because they are or were
a
director, officer, employee or an agent, against expenses actually and
reasonably incurred by them in connection with the defense.
We
may
agree to pay the expenses of officers and directors incurred in defending a
civil or criminal action, suit or proceeding as the expenses are incurred and
in
advance of the final disposition of the action, suit or proceeding, upon receipt
of an undertaking by or on behalf of the director of officer to repay the amount
if it is ultimately determined by a court of competent jurisdiction that they
are not entitled to be indemnified by us.
The
NRS also permits a corporation to
purchase and maintain liability insurance or make other financial arrangements
on behalf of any person who is or was a director, officer, employee or our
agent, or is or was serving at the request of the corporation as a director,
officer, employee or agent, of another corporation, partnership, joint venture,
trust or other enterprise for any liability asserted against them and liability
and expenses incurred by them in their capacity as a director, officer, employee
or agent, or arising out of their status as such, whether or not we have
the
authority to indemnify them against such liability and
expenses.
PART
F/S
Attached
hereto are the following financial statements:
|
|
(1)
|
Audited
financial statements for the year ended December 31,
2006;
|
|
|
(2)
|
Unaudited
financial statements for the period ended March 31,
2007.
|
INDEX
TO FINANCIAL
STATEMENTS
AUDITED
FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2006
|
Auditor’s
Report
|
F-1
|
|
|
|
|
Balance
Sheets as of December 31, 2006 and 2005
|
F-2
|
|
|
|
|
Statement
of Operations for the years ended December 31, 2006 and
2005
|
F-4
|
|
|
|
|
Statement
of Changes in Stockholder’s Equity for the years ended December 31, 2006
and 2005
|
F-5
|
|
|
|
|
Statement
of Cash Flows for the years ended December 31, 2006 and
2005
|
F-6
|
|
|
|
|
Notes
to Financial Statements
|
F-7
|
UNAUDITED
FINANCIAL STATEMENTS FOR THE PERIOD ENDED MARCH 31, 2007
|
Balance
Sheets for the three months ended March 31, 2007
|
F-20
|
|
|
|
|
Statement
of Operations for the three months ended March 31, 2007 and
2006
|
F-22
|
|
|
|
|
Statement
of Cash Flows for the three months ended March 31, 2007 and
2006
|
F-23
|
|
|
|
|
Notes
to Financial Statements
|
F-25
|
Report
of Independent Registered
Public Accounting Firm
To
The
Board of Directors and Shareholders of
The
Resourcing Solutions Group, Inc.
We
have
audited the accompanying consolidated balance sheets of The Resourcing Solutions
Group, Inc. and subsidiaries as of December 31, 2006 and 2005 and the
related consolidated statements of operations, stockholders’ equity (deficit),
and cash flows for the years then ended. These consolidated financial
statements are the responsibility of the Company’s management. Our
responsibility is to express an opinion on these consolidated 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 audits 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 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 audits provide a reasonable basis
for our opinion.
In
our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the consolidated financial position of The Resourcing
Solutions Group, Inc and subsidiaries as of December 31, 2006 and
2005, and the results of their operations and their cash flows for the years
then ended in conformity with accounting principles generally accepted in the
United States of America.
The
accompanying consolidated financial statements have been prepared assuming
that
The Resourcing Solutions Group, Inc will continue as a going
concern. As discussed in Note1(c) to the consolidated financial
statements, the Company has generated significant losses and requires additional
working capital to continue operations. These conditions raise
substantial doubt about its ability to continue as a going
concern. Management’s plans in regard to these matters are more fully
described in Note 1(c). The consolidated financial statements do not
include any adjustments that might result from the outcome of this
uncertainty.
Peter
C.
Cosmas Co., CPAs
370
Lexington Ave.
New
York,
NY 10017
April
30,
2007
THE
RESOURCING SOLUTIONS GROUP, INC. AND SUBSIDIARIES
Consolidated
Balance Sheets
|
|
|
December
31,
|
|
|
December
31,
|
|
|
|
|
2006
|
|
|
2005
|
|
|
ASSETS
|
|
Current
assets:
|
|
|
|
|
|
|
|
Cash
|
|
$
|
703,830
|
|
|
$
|
255,356
|
|
|
Accounts receivable
|
|
|
169,922
|
|
|
|
15,384
|
|
|
Accounts receivable-Unbilled
|
|
|
583,500
|
|
|
|
169,749
|
|
|
Prepaid expenses
|
|
|
87,170
|
|
|
|
31,873
|
|
|
Workers compensation insurance deposits
|
|
|
66,540
|
|
|
|
26,240
|
|
|
Restricted Cash
|
|
|
355,032
|
|
|
|
179,855
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
1,965,994
|
|
|
|
678,457
|
|
|
|
|
|
|
|
|
|
|
|
|
Property
and equipment, net of accumulated depreciation of
|
|
|
|
|
|
|
|
|
|
$193,593 and $133,031
respectively
|
|
|
75,614
|
|
|
|
125,380
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
assets:
|
|
|
|
|
|
|
|
|
|
Other receivables
|
|
|
25,720
|
|
|
|
65,126
|
|
|
Goodwill and other intangible assets (net)
|
|
|
639,836
|
|
|
|
199,383
|
|
|
Security deposits
|
|
|
3,176
|
|
|
|
3,176
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other assets
|
|
|
668,732
|
|
|
|
267,685
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
2,710,340
|
|
|
$
|
1,071,522
|
|
See
accompanying notes to the consolidated financial
statements.
THE
RESOURCING SOLUTIONS GROUP, INC. AND SUBSIDIARIES
Consolidated
Balance Sheets
|
|
|
December
31,
|
|
|
December
31,
|
|
|
|
|
2006
|
|
|
2005
|
|
|
LIABILITIES
AND
STOCKHOLDERS’ EQUITY (DEFICIT)
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
207,622
|
|
|
$
|
151,133
|
|
|
Payroll and payroll related liabilities
|
|
|
385,642
|
|
|
|
157,371
|
|
|
Accrued work site employee payroll expenses
|
|
|
564,986
|
|
|
|
163,626
|
|
|
Accrued expenses
|
|
|
43,512
|
|
|
|
51,755
|
|
|
Client deposits and advance payments
|
|
|
2,208
|
|
|
|
-0-
|
|
|
Short term payables
|
|
|
821,034
|
|
|
|
1,147,180
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
2,025,004
|
|
|
|
1,671,065
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term
liabilities:
|
|
|
|
|
|
|
|
|
|
Notes payable – Non Current portion
|
|
|
192,805
|
|
|
|
218,926
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term
liabilities
|
|
|
192,805
|
|
|
|
218,926
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
2,217,809
|
|
|
|
1,889,991
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’
equity (deficit):
|
|
|
|
|
|
|
|
|
|
Preferred stock, .001 par value, 200,000,000
|
|
|
|
|
|
|
|
|
|
shares authorized, 0 shares issued
|
|
|
-0-
|
|
|
|
-0-
|
|
|
Common stock, .001 par value, 2,000,000,000 shares
|
|
|
|
|
|
|
|
|
|
authorized, 994,696 and 2,000
shares
|
|
|
|
|
|
|
|
|
|
issued respectively
|
|
|
995
|
|
|
|
2
|
|
|
Additional paid-in capital
|
|
|
1,331,021
|
|
|
|
-0-
|
|
|
Retained
Earnings
|
|
|
(839,485
|
)
|
|
|
(818,471
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders’ equity
(deficit)
|
|
|
492,531
|
|
|
|
(818,469
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders’ equity
(deficit)
|
|
$
|
2,710,340
|
|
|
$
|
1,071,522
|
|
See
accompanying notes to the consolidated financial
statements.
THE
RESOURCING SOLUTIONS GROUP, INC. AND SUBSIDIARIES
Consolidated
Statements of Operations
|
|
|
|
Year
ended December 31,
|
|
|
|
|
|
2006
|
|
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
4,737,274
|
|
|
$
|
2,240,843
|
|
|
Cost
of sales
|
|
|
3,384,802
|
|
|
|
1,689,341
|
|
|
Gross profit
|
|
|
1,352,472
|
|
|
|
551,502
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
costs and expenses:
|
|
|
|
|
|
|
|
|
|
Salary Expense
|
|
|
715,838
|
|
|
|
848,284
|
|
|
General and Administrative
|
|
|
444,763
|
|
|
|
466,644
|
|
|
Sales and Marketing
|
|
|
48,296
|
|
|
|
39,754
|
|
|
Depreciation
|
|
|
60,563
|
|
|
|
62,595
|
|
|
Amortization expense
|
|
|
83,471
|
|
|
|
33,567
|
|
|
Total operating expenses
|
|
|
1,352,931
|
|
|
|
1,450,844
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Profit (Loss)
|
|
|
(459)
|
|
|
|
(899,342
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Other
Expenses:
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(20,555
|
)
|
|
|
(16,422
|
)
|
|
Total other expenses
|
|
|
(20,555
|
)
|
|
|
(16,422
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued
operations:
|
|
|
|
|
|
|
|
|
|
Loss on sale of contracts to Allegro, Inc.
|
|
|
-0-
|
|
|
|
(16,271
|
)
|
|
Total Loss on discontinued operations
|
|
|
-0-
|
|
|
|
(16,271
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income (Loss)
|
|
$
|
(21,014)
|
|
|
$
|
(932,035
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Basic
& diluted earnings per common share:
|
|
|
|
|
|
|
|
|
|
From continuing operations
|
|
$
|
0.82
|
|
|
$
|
(449.67
|
)
|
|
From Discontinued operations
|
|
$
|
-0-
|
|
|
$
|
(8.14
|
)
|
|
Net income (loss)
|
|
$
|
0.82
|
|
|
$
|
(465.,52
|
)
|
|
Weighted
average shares outstanding Basic and Diluted
|
|
|
76,325
|
|
|
|
2,000
|
|
See
accompanying notes to the consolidated financial
statements.
THE
RESOURCING SOLUTIONS GROUP, INC. AND SUBSIDIARIES
Consolidated
Statements of Stockholders’ Equity (Deficit)
For
the
Two Years Ended December 31, 2005 and 2006
|
|
|
|
|
|
|
|
|
Additional
|
|
|
Retained
|
|
|
Total
|
|
|
|
|
Preferred
Stock
|
|
|
Common
Stock
|
|
|
Paid-in-capital
|
|
|
Earnings
|
|
|
Stockholders
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Amount
|
|
|
(Deficit)
|
|
|
Equity
|
|
|
Balance,
December 31, 2004
|
|
|
-
|
|
|
$
|
-
|
|
|
|
2,000
|
|
|
$
|
2
|
|
|
$
|
-
|
|
|
$
|
113,564
|
|
|
$
|
113,566
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(932,035
|
)
|
|
|
(931,035
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2005
|
|
|
-
|
|
|
|
-
|
|
|
|
2,000
|
|
|
|
2
|
|
|
|
-
|
|
|
|
(818,471
|
)
|
|
|
(817,469
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of Common Stock,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
in
exchange for Outstanding Debt
|
|
|
|
|
|
|
|
|
|
|
992,696
|
|
|
|
993
|
|
|
|
1,331,021
|
|
|
|
|
|
|
|
1,332,014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(21,014
|
)
|
|
|
(21,014
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2006
|
|
|
-
|
|
|
$
|
-
|
|
|
|
994,696
|
|
|
$
|
995
|
|
|
$
|
1,331,021
|
|
|
$
|
(839,485
|
)
|
|
$
|
492,531
|
|
(1)
-
Shares are restated to reflect a one-for-one thousand reverse stock split in
December 2006.
See
accompanying notes to the consolidated financial
statements.
THE
RESOURCING SOLUTIONS GROUP, INC. AND SUBSIDIARIES
Consolidated
Statements of Cash Flows
|
|
|
Year
ended December 31,
|
|
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
|
Net Profit (loss)
|
|
$
|
62,457
|
|
|
$
|
(931,035
|
)
|
|
Adjustments
to reconcile net Income (loss) to net cash
|
|
|
|
|
|
|
|
|
|
provided by (used in) operating activities:
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
60,563
|
|
|
|
62,595
|
|
|
Amortization of intangible
|
|
|
83,471
|
|
|
|
33,567
|
|
|
Loss on Sale of Contracts
|
|
|
-0-
|
|
|
|
16,271
|
|
|
(Increase)/Decrease
in cash from changes in assets:
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
29,032
|
|
|
|
214,832
|
|
|
Accounts receivable-Unbilled
|
|
|
(413,751
|
)
|
|
|
123,106
|
|
|
Other receivables
|
|
|
39,407
|
|
|
|
(65,127
|
)
|
|
Insurance deposits
|
|
|
(5,099
|
)
|
|
|
(26,240
|
)
|
|
Prepaid expenses
|
|
|
(55,297
|
)
|
|
|
25,645
|
|
|
Security deposits
|
|
|
-0-
|
|
|
|
(3,176
|
)
|
|
Increase/(Decrease)
in cash from changes in liabilities:
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
|
56,489
|
|
|
|
(938
|
)
|
|
Accrued expenses
|
|
|
(8,244
|
)
|
|
|
(542,720
|
)
|
|
Client deposit
|
|
|
2,208
|
|
|
|
-0-
|
|
|
Payroll and payroll related liabilities
|
|
|
(31,299
|
)
|
|
|
(321,723
|
)
|
|
Accrued work site employee payroll costs
|
|
|
401,361
|
|
|
|
(119,580
|
)
|
|
Pacel Corporation - Intercompany
|
|
|
472,725
|
|
|
|
(12,108
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by operating activities
|
|
|
610,552
|
|
|
|
(1,547,631
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
|
Net
purchases of property and
equipment -
|
|
|
|
|
|
|
(8,271
|
)
|
|
Redemption of Restricted CD
|
|
|
(175,178
|
)
|
|
|
870,383
|
|
|
Cash
Acquired in Acquisitions
|
|
|
79,406
|
|
|
|
-0-
|
|
|
Net cash (used in) provided by
|
|
|
|
|
|
|
|
|
|
investing activities
|
|
|
(95,772
|
)
|
|
|
862,112
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
|
Repayments
of notes payable
|
|
|
(66,306
|
)
|
|
|
(25,947
|
)
|
|
Issuance
of notes
payable
|
|
|
-0-
|
|
|
|
272,000
|
|
|
Net cash provided by (used in) financing activities
|
|
|
(66,306
|
)
|
|
|
246,053
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
increase (decrease) in cash and cash equivalents
|
|
|
448,474
|
|
|
|
(439,466
|
)
|
|
Cash
and cash equivalents, beginning of period
|
|
|
255,356
|
|
|
|
694,822
|
|
|
Cash
and cash equivalents, end of period
|
|
$
|
703,830
|
|
|
$
|
255,356
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
20,555
|
|
|
$
|
16,422
|
|
See
accompanying notes to the consolidated financial
statements.
THE
RESOURCING SOLUTIONS GROUP INC. AND SUBSIDIARIES
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2006 AND 2005
|
Note
1
|
Summary
of Significant Accounting Policies:
|
A.
Nature
of the
business.
The
Resourcing Solutions Group (the "Company" or “TRSG”) was incorporated on
December 9, 2002 under the laws of the State of Nevada.. Until December 14,
2006
the Company was a majority owned subsidiary of Pacel Corp. On
December 21, 2006, the shareholders of Pacel Corp. voted to spin-off and
to
distribute its shares of The Resourcing Solutions Group, Inc to its
shareholders.
The
Company, through its wholly-owned subsidiaries, provides a comprehensive
workforce management solutions that encompasses a broad range of services,
including benefits and payroll administration, health and workers’ compensation
insurance programs, personnel records management, employer liability management,
employee performance management, employee training and development services,
employee benefits, and retirement programs and business insurance
products.
For
the
majority of the clients, the Company provides these services as a professional
employer organization (PEO). In a PEO relationship, the client
transfers certain employment-related risks and liabilities to the Company and
retains other risks and liabilities in this context. The client and the Company
are each viewed as and become a "co-employer" of the client's worksite
employees. As a co-employer, employment -related liabilities are contractually
allocated between the Company and the client under a written professional
services agreement. Under the professional services agreement, the Company
assumes responsibility for and manages the risks associated with each client's
worksite employee payroll obligations, including the liability for payment
of
salaries and wages (including payroll taxes) to each worksite employee and,
at
the client's options, responsibility for planning, providing and administering
group health, welfare and retirement benefits to such individuals. These
obligations of the Company are fixed, whether or not the client makes timely
payment of the associated service fee in this regard. It is important to
understand that, unlike payroll processing service providers, the Company issues
to each of the client's worksite employees, Company payroll checks drawn on
the
Company's bank accounts. The Company also reports and remits all required
employment information and taxes to the respective taxing authorities. The
Company assumes the responsibility for compliance with those employment-related
governmental regulations that can be effectively managed away from the client's
worksite. In many cases, the Company provides the employee workers' compensation
insurance coverage under the Company's insurance policy. The client may elect,
or the workers' compensation carrier may require, retaining its own policy
for
the management of this risk. In all cases, the Company remains heavily involved
with safety and risk management to assist the client in controlling risk and
potentially reducing the cost of such coverage. The client contractually retains
the general day-to-day responsibility to direct, control, hire, terminate and
manage each of the client's worksite employees. The worksite employee services
are performed for the exclusive benefit of the client's business. The client
also remains responsible for compliance with those employment-related
governmental regulations that are more closely related to the day-to-day
management of work site employees.
The
Company also provides human resource outsourcing (“HRO”) services to clients. In
this relationship the client obtains customized solutions for it specific human
resource needs. The Company does not incur employer liability with
these services. Services range from full human resource administration to
payroll processing.
Clients
in both the PEO and HRO relationships may purchase insurance products from
the
Company through our licensed insurance agency. The Company provides access
to a
complete line of business insurance products and employee benefits
products.
B.
Principles
of
consolidation.
The
consolidated financial statements include the accounts of the Company and all
of
its subsidiaries in which a controlling interest is maintained. All
significant inter-company accounts and transactions have been
eliminated in consolidation.
C.
Basis
of
Financial Statement Presentation.
The
accompanying financial statements have been prepared on a going concern basis,
which contemplates the realization of assets and the satisfaction of liabilities
in the normal course of business. Prior to the current fiscal year, the
Company generated significant losses, and it is unable to predict
profitability for the future. These factors indicate the Company’s
continuation, as a going concern is dependent upon its ability to obtain
adequate financing as well as implement its sales, marketing and acquisition
strategy. The Company is addressing the going concern by obtaining equity
financing and to grow the Company with profitable sales both organically and
through acquisitions. Management believes successfully executing these
tasks will lead to the removal of the going concern comment from our audited
financials.
D.
Cash
and cash
equivalents.
Cash
equivalents consist of liquid investments, with a maturity of three months
or
less at the time of purchase. Cash equivalents are stated at cost,
which approximate market value.
E.
Credit
Risk
The
Company routinely maintains cash deposits in various financial institutions
in
excess of the $100,000 FDIC insurance limit.
The
Company has risk that payments from clients may be reversed after a payroll
has
been processed The Company utilizes the Automated Clearing House (ACH)
functionality of financial institutions in order to receive payment from
clients. A client generally has three days from the Company initiating an ACH
transaction to dispute that transaction. The Company processes a payroll for
the
client before the three day window lapses. The Company would be liable for
paying the employees even if the client disputes the ACH
transaction.
F.
Property
and
Equipment.
Property
and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation is determined using the straight-line
method over the estimated useful lives of the
assets. Estimated useful lives of 24 to 36 months are used for
computer equipment and related software, five years for office equipment,
furniture, and fixtures. Depreciation and amortization of leasehold
improvements is computed using the shorter of the remaining lease term or five
years. Maintenance and repairs are charged against income and
betterments are capitalized.
G.
Reclassification.
Certain
prior year amounts have been reclassified to conform to current year's
presentation.
H.
Revenue
recognition.
The
Company’s revenue is attributable to fees for providing employment services and
commissions for the sale of insurance products. Our revenues are primarily
dependent on the number of clients enrolled and the resulting number of worksite
employees paid each period.
The
Company’s revenue is recognized in three distinct categories, two categories are
for service fees and the third is from the commissions on the sale of insurance
products:
For
service fee income, the Company typically enters into agreements for
either;
-
a
fixed
fee per transaction (e.g., number of payees per payroll);
-
a
fixed
percentage of gross payroll;
When
we
account for revenue that is a fixed percentage of gross payroll it is accounted
for in accordance with Emerging Issues Task Force (“EITF”) 99-19, Reporting
Revenues Gross as a Principal Versus Net as an Agent. Our revenues are derived
from our billings, which are based on:
In
determining the fixed percentage markup component of the billings, we consider
our estimates of the costs directly associated with our worksite employees,
including payroll taxes and workers’ compensation costs, plus an acceptable
gross profit margin. We invoice the billings concurrently with each periodic
payroll of our worksite employees. Revenues, which exclude the payroll cost
component of billings, are recognized ratably over the payroll period as
worksite employees perform their service at the client worksite. We include
billings to clients not invoiced in unbilled accounts receivable and the
associated accrued worksite employee expense on the consolidated balance
sheet.
When
our
markup is computed as a percentage of payroll cost, revenues are also affected
by the payroll cost of worksite employees, which can fluctuate based on the
composition of the worksite employee base, inflationary effects on wage levels
and differences in the local economies of our markets.
The
primary direct costs associated with our revenue generating activities
are:
Payroll
taxes consist of the employer’s portion of Social Security and Medicare taxes
under FICA, federal unemployment taxes and state unemployment taxes. Payroll
taxes are generally paid as a percentage of payroll cost subject to maximum
limitations. The federal tax rates are defined by federal regulations. State
unemployment tax rates are subject to claim histories and vary from state to
state.
Due
to
the significance of the amounts included in billings to the Company’s clients
and its corresponding revenue recognition methods, the Company has provided
the
following reconciliation of billings to revenue for the years ended December
31,
2006 and December 31, 2005.
|
|
|
Year
Ended
|
|
|
Year
Ended
|
|
|
|
|
December
31,
|
|
|
December
31,
|
|
|
|
|
2006
|
|
|
2005
|
|
|
|
|
Reconciliation
of billings to revenue recognized:
|
|
|
|
|
|
|
|
|
|
|
Billings
to clients
|
|
$
|
26,091,692
|
|
|
$
|
16,825,320
|
|
|
Less
– Gross wages billed to clients
|
|
|
(21,354,418
|
)
|
|
|
(14,584,477
|
)
|
|
Total
revenue as reported
|
|
|
4,737,274
|
|
|
|
2,240,843
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Cost of Sales
|
|
|
3,384,802
|
|
|
|
1,689,341
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
Profit
|
|
$
|
1,352,472
|
|
|
$
|
551,502
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
consists of:
|
|
|
|
|
|
|
|
|
|
Revenue
from fees for service
|
|
|
|
|
|
|
|
|
|
on
a fixed percentage
|
|
$
|
4,604,385
|
|
|
$
|
2,202,078
|
|
|
Revenue
from fees for service
|
|
|
|
|
|
|
|
|
|
on
a fixed cost
|
|
|
113,093
|
|
|
|
38,765
|
|
|
Revenue
from insurance commissions
|
|
19,796
|
|
|
|
0
|
|
|
Total
revenue as reported
|
|
$
|
4,737,274
|
|
|
$
|
2,240,843
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of Sales Consists of:
|
|
|
|
|
|
|
|
|
|
Employer
portion of Social Security
|
|
|
|
|
|
|
|
|
|
And
Medicare taxes
|
|
$
|
1,494,961
|
|
|
$
|
973,196
|
|
|
State
and Federal Unemployment taxes
|
|
|
288,899
|
|
|
|
244,985
|
|
|
Workers’
Compensation Premium
|
|
|
1,234,468
|
|
|
|
418,991
|
|
|
Other
Misc. Expense
|
|
|
366,474
|
|
|
|
52,170
|
|
|
Total
Cost of Sales
|
|
$
|
3,384,802
|
|
|
$
|
1,689,341
|
|
When
the
Company records revenue on a fixed fee per transaction only that fee is recorded
as revenue. When the Company records revenue for the sale of insurance products
only the commission paid by the insurance carrier is recorded as
revenue.
I.
Advertising
Costs.
The
Company expenses all advertising costs as incurred.
J.
Use
of
Estimates.
The
financial statements have been prepared in accordance with accounting principles
generally accepted in the United States (US GAAP). The preparation of these
financial statements requires management to make estimates and assumptions
that
affect the reported amounts in the financial statements and accompanying notes.
These estimates form the basis for judgments made about the carrying values
of
assets and liabilities that are not readily apparent from other sources.
Estimates and judgments are based on historical experience and on various other
assumptions that the Company believes are reasonable under the circumstances.
However, future events are subject to change and the best estimates and
judgments routinely require adjustment. US GAAP requires estimates and judgments
in several areas, including those related to impairment of goodwill and equity
investments,
revenue
recognition, recoverability of inventory and receivables, the useful lives
of
long lived assets such as property and equipment, the future realization of
deferred income tax benefits and the recording of various accruals. The ultimate
outcome and actual results could differ from the estimates and assumptions
used.
K.
Goodwill
and Other Intangible Assets
Other
intangibles with finite lives arising from acquisitions are amortized over
their
estimated useful lives of 7 years, using the straight-line
method. Goodwill is not amortized. Goodwill and other
intangibles are reviewed to assess recoverability at least annually and when
certain impairment indicators are present. Determination of
recoverability is based on an estimate of discounted future cash flows resulting
from the use of the asset and its eventual disposition. Measurement
of an impairment loss for long-lived assets and certain identifiable intangible
assets that management expects to hold and use are based on the fair value
of
the asset. Long-lived assets and certain identifiable intangible assets to
be
disposed of are reported at the lower of carrying amount or fair value less
costs to sell.
Goodwill
and net other intangibles with finite lives were
$ and
$ , respectively, at December 31,
2006 and 2005.
L.
Fair
Value
Disclosures.
The carrying amounts reported in
the balance sheets for cash and cash equivalents, accounts
receivable, accounts payable and accrued
expenses, approximate fair value because of
the immediate or short-term maturity of these financial
instruments.
M.
Segment
Reporting
The
Company operates in one reportable segment under the Statement of Financial
Accounting Standards (“SFAS”) No. 131,
Disclosures about Segments
of an
Enterprise and Related Information
N.
New
Accounting Pronouncements
In
July 2006, the Financial Accounting Standards Board (“FASB”) issued FASB
Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (“FIN 48”),
an interpretation of FASB Statement No. 109, “Accounting for Income Taxes.”
FIN 48 requires that a position taken or expected to be taken in a tax return
be
recognized in the financial statements when it is more likely than not (i.e.
a
likelihood of more than fifty percent) that the position would be sustained
upon
examination by tax authorities. A recognized tax position is then measured
at
the largest amount of benefit that is greater than fifty percent likely of
being
realized upon ultimate settlement. The effective date for the Company is
January 1, 2007. Upon adoption, the cumulative effect of applying the
recognition and measurement provisions of FIN 48, if any, shall be reflected
as
an adjustment to the opening balance of retained earnings. The adoption of
FIN
48 is not anticipated to have a material impact on our Consolidated Financial
Statements.
In
September 2006, FASB Statement 157, “Fair Value Measurements” (“SFAS 157”)
was issued. SFAS 157 establishes a framework for measuring fair value by
providing a standard definition of fair value as it applies to assets and
liabilities. SFAS 157, which does not require any new fair value measurements,
clarifies the application of other accounting pronouncements that require or
permit fair value measurements. The effective date for the Company is
January 1, 2008. The adoption of SFAS 157 is not anticipated to have a
material impact on our Consolidated Financial Statements.
|
Note
2
|
Acquisitions/Dispositions
|
Acquisition
“Rossar
”
On
January 1, 2005, the Company completed the execution of a Asset Purchase
Agreement (the “Agreement”) with Rossar HR LLC. ("Rossar") The
acquisition of Rossar extends the Company’s operations into new markets,
including the State of Pennsylvania. Based upon criteria set forth in current
accounting standards, the Company has accounted for the acquisition as a
purchase. The results of operations of Rossar are included with those
of the Company for all periods following the date acquired.
In
connection with the Agreement, the Company issued a note payable to the former
Rossar owner for $272,000 payable over 10 years. The total purchase
price of $272,000 was allocated as follows, based upon the fair values of
assets
acquired and liabilities assumed:
|
Category
|
|
Amount
|
|
|
Current
assets
|
|
$
|
20,150
|
|
|
Property
and equipment
|
|
|
25,020
|
|
|
Current
liabilities
|
|
|
(6,120
|
)
|
|
|
|
$
|
39,050
|
|
|
Intangible
assets acquired consisted of the following:
|
|
Life
|
|
|
|
|
|
Customer
Contracts
|
|
|
7
|
|
|
$
|
232,950
|
|
|
Total
amount of intangible assets acquired and weighted average
life
|
|
|
-
|
|
|
$
|
232,950
|
|
In
May
2005, The Resourcing Solutions Group, Inc. sold 16 clients administrative
service contracts to Allegro, Inc. in Columbia, South Carolina. The
Company sold all of its North Carolina, South Carolina and Florida service
contracts. The Company could no longer service these contracts and
make a profit.
In
connection with the sale of these contracts the Company recognized a loss from
sale of contracts of $16,271 at December 31, 2005.
Acquisition
“Consolidated
”
On
September 1, 2006, the Company completed the execution of a Stock Purchase
Agreement (the “Agreement”) with Consolidated Services, Inc.
("Consolidated") The acquisition of Consolidated allows the Company
to receive insurance commissions paid by the carriers to the producer. Based
upon criteria set forth in current accounting standards, the Company has
accounted for the acquisition as its purchase of Rossar. The results of
operations of Consolidated are included with those of the Company for all
periods following the date acquired.
In
connection with the Agreement, the Company issued a note payable to the former
Consolidated owner Antoinette Peterson for $34,090 payable one year from
the
acquisition. The total purchase price, amounted to $34,090 and was
allocated as follows, based upon the fair values of assets acquired and
liabilities assumed:
|
Category
|
|
Amount
|
|
|
Current
assets
|
|
$
|
27,005
|
|
|
Property
and equipment
|
|
|
797
|
|
|
Current
liabilities
|
|
|
(10,242)
|
|
|
|
|
$
|
17,560
|
|
|
Intangible
assets acquired consisted of the following:
|
|
Life
|
|
|
|
|
|
Goodwill
|
|
|
-
|
|
|
$
|
16,532
|
|
|
Total
amount of intangible assets acquired and weighted average
life
|
|
|
-
|
|
|
$
|
16,532
|
|
|
Note
3
|
Accounts
Receivable
|
The
Company’s accounts receivable is primarily composed of trade receivables and
unbilled receivables. The Company evaluates its accounts receivable on a
customer-by-customer basis and has determined that no allowance for doubtful
accounts is necessary at December 31, 2006 and 2005.
The
Company makes an accrual at the end of each accounting period for billings
to
clients not invoiced in unbilled accounts receivable and the associated accrued
worksite employee expense on the consolidated balance sheet. The Company
generally requires that clients pay invoices for service fees no later than
one
day prior to the applicable payroll date. As such, the Company generally does
not require collateral. Customer prepayments directly attributable to unbilled
accounts receivable have been netted against such receivables as the billings
have been earned and the payroll cost has been incurred, thus the Company has
the legal right of offset for these amounts. As of December 31, 2006 and
2005, unbilled accounts receivable consisted of the following:
|
|
|
December
31,
|
|
|
|
|
2006
|
|
|
2005
|
|
|
Accrued
worksite employees payroll cost
|
|
$
|
564,986
|
|
|
$
|
163,626
|
|
|
Unbilled
revenue
|
|
|
18,514
|
|
|
|
6,123
|
|
|
Unbilled
accounts receivable
|
|
$
|
583,500
|
|
|
$
|
169,749
|
|
|
Note
4:
|
Property
and Equipment:
|
Property
and equipment consist of the
following:
|
|
|
December
31,
|
|
|
|
|
2006
|
|
|
2005
|
|
|
Computers
and office Equipment
|
|
$
|
258,411
|
|
|
$
|
258,411
|
|
|
Less
accumulated deprecation
|
|
|
182,797
|
|
|
|
133,031
|
|
|
|
|
$
|
75,614
|
|
|
$
|
125,380
|
|
|
|
|
December
31,
|
|
|
|
|
2006
|
|
|
2005
|
|
|
Short
term payable consists of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current portion M. Sartori note
|
|
$
|
27,127
|
|
|
$
|
27,127
|
|
|
Note payable A. Peterson
|
|
|
534,092
|
|
|
|
-0-
|
|
|
Pacel Corp inter-company payable
|
|
|
-0-
|
|
|
|
1,020,053
|
|
|
Note Payable Pacel Corp.
|
|
|
200,000
|
|
|
|
-0-
|
|
|
Note
Payable –
|
|
|
59,815
|
|
|
|
100,000
|
|
|
Total
Short-term borrowings
|
|
$
|
821,034
|
|
|
$
|
1,147,180
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term
Notes Payable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non current portion – N. Sartori
|
|
$
|
192,805
|
|
|
$
|
218,926
|
|
In
September 2004, the Company issued a Note Payable to the former owner of Rossar
HR LLC for $272,000 for the purchase of the assets of Rossar HR, LLC. $71,337
is
payable over a 5 year period at $1,622 per month. $200,663 is payable over
a 10
year period at $2,228 per month. The balance at December 31, 2006 was $27,127
current portion, $192,905 non current for a total balance
of $219,932. The balance at December 31, 2005 was $27,127
current portion, $218,926 non current for a total balance of
$246,053.
On
November 30, 2004, the Company borrowed $100,000 at an interest rate of 8%
,
payable in one year. In May 2006, the note was modified to be repaid over a
six-month period at $7,500 per month with a balloon payment for the remaining
balance. As collateral for the note, The Resourcing Solutions Group, Inc. placed
1,000,000 shares in escrow. In January 2007 this debenture was paid in full.–see
Note 14. The balance at December 31, 2006 and 2005 was $59,815 and
$100,000 respectively.
In
2006
the Company issued two notes payable to Antoinette Peterson totaling $534,092
which consisted of i) $34,092 in connection with the September
2006, acquisition of Consolidated Services, Inc..ii) $500,000 in
connection with the exchange of debt with Pacel Corp The notes are
payable in one-year at an interest rate of six percent 6%.
The
Company had an inter-company payable to its parent Pacel Corp. of $ 0.00
and
$1,020,053 at December 31, 2006 and 2005 respectively. As part of the
December 4, 2006 agreement the Company issued 992,696 shares of Common Stock
(shares have been restated for 1 for 1000 reverse) in exchange for $1,832,014
of
payables to Pacel Corp. and the assumption of a $500,000 obligation to
Antoinette Peterson. The remaining $200,000 payable has been converted to
a
demand note at an interest rate of eight percent (8%).
At
inception, the Company adopted SFAS No. 109, Accounting for income
taxes. Under the provision of SFAS No. 109, the Company elected not
to restate prior years due to immateriality.
At
this
time, the Company does not believe it can reliably predict profitability for
the
long-term. Accordingly, the deferred tax asset applicable to 2006 and
2005 operation has been reduced in its entirety by the valuation
allowance.
As
a
result of the operating losses for the year ended December 31, 2005, the Company
has available to offset future taxable income a net operating loss of
approximately $360,646 expiring in 2025.
The
components of this provision (credit) for income taxes from continuing
operations is as follow:
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
Deferred
|
|
|
|
|
|
|
|
Federal
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
-
|
|
|
$
|
-
|
|
|
State
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
$
|
-
|
|
|
$
|
|
|
Difference
between the tax provision computed using the statutory federal income tax rate
ant the effective income tax rate on the operations is as follow:
|
|
|
2006
|
|
|
2005
|
|
|
Federal
|
|
|
|
|
|
|
|
Statutory rate
|
|
$
|
21,860
|
|
|
$
|
(360,646
|
)
|
|
Net operating loss carry forwards
|
|
|
(21,860
|
)
|
|
|
|
|
|
Tax
benefit not provided
|
|
|
|
|
|
|
|
|
|
Due
to valuation allowance
|
|
|
|
|
|
$
|
360,646
|
|
|
Provision for income taxes
|
|
$
|
-0-
|
|
|
$
|
-0-
|
|
Components
of the Company’s deferred tax assets and liabilities are as follow:
|
|
|
December
31,
|
|
|
|
|
2006
|
|
|
2005
|
|
|
Deferred
tax assets:
|
|
|
|
|
|
|
|
Tax benefit related to net operating loss carry
forward
|
|
|
|
|
|
|
|
And research tax credit
|
|
$
|
338,786
|
|
|
$
|
360,646
|
|
|
Total deferred tax assets
|
|
$
|
338,786
|
|
|
$
|
360,646
|
|
|
|
|
|
|
|
|
|
|
|
|
Valuation allowance for
|
|
|
|
|
|
|
|
|
|
Deferred tax assets
|
|
$
|
338,786
|
|
|
$
|
360,646
|
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
$
|
-0-
|
|
|
$
|
-0-
|
|
|
Note
7:
|
Earnings
per Share
|
Basic
net
income per common share is computed using the weighted-average number of common
shares outstanding during the period. Diluted net income per common
share is computed using
the weighted-average number of common
and dilutive common equivalent shares outstanding during
the period. Dilutive common equivalent shares
consist of stock options. Share and per-common share data for all
periods presented reflect the effect of all reverses.
The
weighted average number of shares used to compute basic earnings (loss) per
share was 76,325 and 2,000 at December 31, 2006 and 2005
respectively.
|
Note
8:
|
Commitments
and Contingencies:
|
Operating
Leases
The
Company leases its office and sales facilities under non-cancelable operating
leases agreements with expiration dates ranging from 2007 to 2011. Certain
leases include renewal provisions at our option. Most of our leases provide
that
the Company pay the taxes, maintenance and insurance expenses related to
the
leased assets. The Company leases spaces for its head quarters in Charlotte,
North Carolina, its operations and sales offices in Pennsylvania, Texas and
Maine.
The
Company is currently leases it headquarters from it’s former parent Pacel
Corp. We paid $48,528 and $ 41,111 to Pacel for rent in 2006 and 2005
respectively. In 2007 we will assume 100% of the lease obligation
from Pacel for the Charlotte offices. We are in negations with the
lessor to reassign the lease.
Future
annual minimum lease payments under all non-cancelable operating leases as
of
December 31, 2006 are as follows:
|
2007
|
|
|
128,294
|
|
|
2008
|
|
|
132,568
|
|
|
2009
|
|
|
122,583
|
|
|
2010 & thereafter
|
|
|
116,222
|
|
|
Total Minimum Lease Payments
|
|
$
|
499,667
|
|
Rent
expense for December 31, 2006 and 2005 was $113,625 and $82,305
respectively.
|
Note
9:
|
Goodwill
and other Intangible Assets
|
The
Company has $756,874 and $232,950 in 2006 and 2005
respectively, intangible assets are comprised of Customer lists
being amortized over 7 years of $715,342 and goodwill of
$41,532. Amortization expenses at December 31, 2006 and 2005 was
$83,470 and $33,567 at December 31, 2006 and
2005 respectively.
|
Note10:
|
Stockholders'
Equity:
|
A. Preferred
Stock:
In
December 2006, the shareholders of the Company authorized an increase in
Preferred Stock from 20,000,000 to 200,000,000. As of December 31, 2006 there
were no preferred shares issued and outstanding.
B. Common
Stock:
The
authorized Common Stock of the Company consists of 2,000,000,000 shares with
a
par value of $0.001. As of December 31, 2006 there were 221 shareholders
and
994,696 shares issued and outstanding.
In
December 2006 the Company completed a one-for-one thousand reverse split of
its
Common stock. Subsequent to the reverse split there were 994, 696 issued and
outstanding shares of Common stock.
|
Note11:
|
Related
Party Transactions:
|
Exchange
of shares between Pacel
Corp. and Resourcsing Solutions Group Inc.
In
April
2006, the Company exchanged all the outstanding shares of stock of Piedmont
HR,
Inc. World Wide Personnel of Maine, Inc and United Personnel Services, Inc.
from
its parent company Pacel Corp. for a note payable in the amount of the
$525,000. The effective date of the transfer was April 1, 2006 for
World Wide Personnel of Maine, Inc and January 1, 2006 for Piedmont HR, Inc.
and
United Personnel Services, Inc. The total assets transferred were $295,203
which
included $135,906 in cash and $10,000 in fixed assets which consisted of
Office/Computer Equipment. Total Liabilities assumed was $205,498. The Company
recorded goodwill of $507,392 in connection with the
exchange.
Employment
Agreements
In
January 2005, the Company entered into a five year employment contract with
Marcia Sartori. Compensation will include an annual base salary of
$85,000 and an incentive bonus plan based on the EBITDA (earnings before
interest, tax, depreciation and amortization). The agreement also
includes severance payments upon termination of employment. Ms.
Sartori will hold the title of Vice President of Operations.
In
December 2005, the Company entered into a contract with Stratford Financial
Resources, LLC to provide sales services to the Company. Ms.
Musselman is a licensed insurance agent in all states where the Company
operates. Ms. Musselman, through her company, will be selling human resource
services of the Company and selling insurance benefits to clients. Ms.
Musselman’s company will be compensated on commission only basis for the sale of
the Company’s services. During 2005 and 2006, the Company paid to Stratford
Financial Resources, LLC $20,435 and $23,201 for services rendered to the
Company.
|
Note
12:
|
Comprehensive
Income:
|
At
December 31, 2006 and 2005 net income and comprehensive income were the
same.
During
the first quarter of 2005, the Company entered into a lease for new office
space. The landlord required the Company to secure its tenant build
out exposure with a standby letter of credit. The Company secured
this standby letter of credit with an interest bearing CD (certificate of
deposit) in the amount of $100,000. The value of the CD on December
31, 2006 was $102,612.
During
December 2006, as part of obtaining workers’ compensation insurance for its
clients on a shared risk process from one of its insurance carriers, the
Company
obtained an interest bearing CD to secure an irrevocable letter of
credit. The value of the CD on December 31, 2006 was
$250,000.
|
Note
14:
|
Subsequent
Events
|
A. In
January 2007, the Company negotiated part of our workers’ compensation coverage
(the “GIC Program”) with Guarantee Insurance Company Under our arrangement with
GIC, we bear the economic burden, through a captive reinsurance facility, for
a
ninety percent (90%) quota share for the following two layers: first one million
dollar ($1,000,000) of claims per accident, and two; a maximum annual
aggregate of all claims not to exceed one hundred percent (100%) of premiums.
GIC bears the economic burden for all claims in excess of these two layers.
The
GIC Program is a fully insured policy whereby GIC has the ultimate
responsibility to pay all claims incurred under the policy regardless of whether
we satisfy our responsibilities.
Because
the Company bears a substantial economic burden for the first layer of claims
per accident and in the aggregate, such claims, which are the primary component
of the Company’s workers’ compensation costs, are recorded in the period
incurred. Workers compensation insurance includes ongoing healthcare and
indemnity coverage whereby claims are paid over numerous years following the
date of injury. Accordingly, the accrual of related incurred costs in each
reporting period includes estimates, which take into account the ongoing
development of claims and therefore requires a significant level of judgment.
The Company estimates its workers’ compensation costs by applying an aggregate
loss development rate to worksite employee payroll levels.
B.
In
January 2007, the Company exchanged 1,000,000 shares of Common Stock held
in
escrow to repay the outstanding balance of $59,815 on the 8% note originally
issued in November 2004. See Note 5. The Company is currently evaluating
the
value of the shares exchanged.
C.
In
January 2007, the Company granted and issued 25,000,000 shares of Common
Stock
to management and the Board of Directors. 9,000,000 shares
. 16,000,000 shares were issued to the independent board of directors
as consideration for serving on the board in 2007. These shares were immediately
vested. These shares are restricted under Rule 144 and are Control
Shares which further restricts the shares. The Company is currently evaluating
the value of shares issued.
D.
In
January 2007, the Company sold 803,000 shares of restricted stock to various
individuals. These shares are restricted under Rule 144. The Company received
$80,300 for the sale of these shares. There are no options or warrants
associated with these shares. The Company paid no fees in the sales of these
shares.
E.
In
January 2007, the Company issued 1,500,000 shares of Common Stock to Lilly
Marketing Group, LLC to provide the Company with consulting in business
development, capital acquisition strategies and structuring investor relations
and public relations. The Company issued the stock under Regulation D
Rule 504(b)(1)(iii) under the Securities Act of 1933. The Company is currently
evaluating the value of this transaction.
F.
In
January 2007, the Company issued 5,000,000 restricted shares of its Common
Stock
in exchange for the $500,000 note held by the former owner of World Wide
Personnel Services of Maine, Inc. and United Personnel Services, Inc. The
Company is currently evaluating the value of the shares
issued.
G.
In
January 2007 the Company sold 50,000 shares of stock and received $10,000 in
net
proceeds from the sale of these shares.. The Company issued the stock under
Regulation D Rule 504(b)(1)(iii) under the Securities Act of 1933.
H.
In
March 2007, the Company sold 500,000 shares of restricted stock to two
accredited investors. The Company received net proceeds of $120,000 for the
sale
of these shares.
I.
In
April 2007, the Company sold 200,000 shares of restricted stock to an accredited
investor. The Company received net proceeds $200,000 for the sale of these
shares.
J.
In May
2007, the Company sold 100,000 shares of restricted stock to an accredited
investor. The Company received net proceeds of $100,00 for the sale of these
shares.
K.
In
January 2007, the Board of Directors authorized and designated four (4) series
of Preferred Stock which have the following rights, preferences and
limitations:
Series
A Preferred
Stock
The
Series A Preferred Stock consists of 30,000,000 shares, par value $.001 per
share. Each share of Series A Stock will be entitled to two hundred (200) votes
on all matters for which the shareholders of the Company have the right to
vote.
.
The Company has the
right to call for redemption of all or any part of the Series A
Stock
Series
B Convertible Preferred
Stock
The
Series B Convertible Preferred Stock consists of 40,000,000 shares, par value
$.001 per share. The Series B Stock will have no voting rights. Each share
of
Series B Stock will be convertible, at the option of the holder, into ten (10)
shares of Common Stock, without the payment of any additional
consideration.
Series C
Convertible Preferred
Stock
The
Series C Convertible Preferred Stock consists of 100,000,000 shares,
par value $.001 per share. Each share of Series C Stock will be
entitled to one (1) vote on all matters for which the shareholders of the
Company have the right to vote. Series C Stock converts to Common Stock with
a
20% discount.
Series
D Convertible Preferred
Stock
The
Series D Convertible Preferred Stock consists of 20,000,000 shares, par value
$.001 per share. The Series D Stock will have no voting rights. Series D
Stock
converts to Common Stock with a 20% discount.
J.
In
February 2007, the Company entered into a five year employment agreement with
its President and Chief Executive Officer. Compensation will include
an annual base salary of $240,000 and an incentive bonus plan based on the
EBITDA (earnings before interest, tax, depreciation and
amortization). The agreement also includes severance payments upon
termination of employment.
THE
RESOURCING SOLUTIONS GROUP, INC. AND SUBSIDIARIES
Consolidated
Balance Sheets
|
|
|
March
31,
2007
|
|
|
December
31,
2006
|
|
|
|
|
(Unaudited)
|
|
|
(Audited)
|
|
|
ASSETS
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
|
Cash
|
|
$
|
466,125
|
|
|
$
|
703,830
|
|
|
Accounts
receivable
|
|
|
278,106
|
|
|
|
169,922
|
|
|
Accounts
receivable-Unbilled
|
|
|
470,331
|
|
|
|
583,500
|
|
|
Prepaid
expenses
|
|
|
141,485
|
|
|
|
87,170
|
|
|
Workers
compensation insurance deposits
|
|
|
168,129
|
|
|
|
66,540
|
|
|
Restricted
cash
|
|
|
355,033
|
|
|
|
355,032
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
current assets
|
|
|
1,879,209
|
|
|
|
1,965,994
|
|
|
|
|
|
|
|
|
|
|
|
|
Property
and equipment, net of accumulated depreciation of
|
|
|
|
|
|
|
|
|
|
$204,543
and $193,593, respectively
|
|
|
64,664
|
|
|
|
75,614
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
assets:
|
|
|
|
|
|
|
|
|
|
Other
receivables
|
|
|
15,054
|
|
|
|
25,720
|
|
|
Goodwill
and intangible assets
|
|
|
599,898
|
|
|
|
639,837
|
|
|
Security
deposits
|
|
|
3,176
|
|
|
|
3,176
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
other assets
|
|
|
618,128
|
|
|
|
668732
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
2,562,001
|
|
|
$
|
2,710,340
|
|
See
accompanying notes to the consolidated financial
statements.
THE
RESOURCING SOLUTIONS GROUP, INC.
AND SUBSIDIARIES
Consolidated
Balance Sheets
|
|
|
March
31,
|
|
|
December
31,
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
|
(Unaudited)
|
|
|
(Audited)
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND
STOCKHOLDERS’ DEFICIT
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
503,122
|
|
|
$
|
207,622
|
|
|
Payroll
and payroll related liabilities
|
|
|
385,896
|
|
|
|
385,642
|
|
|
Accrued
worksite employee payroll expense
|
|
|
456,705
|
|
|
|
564,986
|
|
|
Accrued
expenses
|
|
|
43,316
|
|
|
|
43,512
|
|
|
Client
deposits and advance payments
|
|
|
6,639
|
|
|
|
2,208
|
|
|
Short
term payables
|
|
|
169,499
|
|
|
|
821,034
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
current liabilities
|
|
|
1,565,177
|
|
|
|
2,025,004
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term
liabilities:
|
|
|
|
|
|
|
|
|
|
Notes
Payable – Non Current portion
|
|
|
179,416
|
|
|
|
192,805
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
long term liabilities
|
|
|
179,416
|
|
|
|
192,805
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
|
1,744,593
|
|
|
|
2,217,809
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’
equity (deficit):
|
|
|
|
|
|
|
|
|
|
Preferred
stock, .001 par value, 200,000,000
|
|
|
|
|
|
|
|
|
|
shares
authorized, 0 shares issued
|
|
|
-0-
|
|
|
|
-0-
|
|
|
Common
stock, .001 par value, 2,000,000,000 shares
|
|
|
|
|
|
|
|
|
|
authorized,
34,850,630 and 994,920 shares
|
|
|
|
|
|
|
|
|
|
issued
respectively
|
|
|
34,851
|
|
|
|
995
|
|
|
Additional
paid-in capital
|
|
|
2,026,680
|
|
|
|
1,331,021
|
|
|
Retained
Earnings
|
|
|
(1,244,123
|
)
|
|
|
(839,485
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total
stockholders’ equity
|
|
|
817,408
|
|
|
|
492,531
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities and stockholders’ equity
|
|
$
|
2,562,001
|
|
|
$
|
2,710,340
|
|
See
accompanying notes to the consolidated financial
statements.
THE
RESOURCING SOLUTIONS GROUP, INC.
AND SUBSIDIARIES
Consolidated
Statements of Operations
(Unaudited)
|
|
|
|
Three
months ended
|
|
|
|
|
|
March
31,
|
|
|
|
|
|
2007
|
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
1,119,364
|
|
|
$
|
424,118
|
|
|
Cost
of services
|
|
|
795,160
|
|
|
|
315,222
|
|
|
Gross
profit
|
|
|
324,204
|
|
|
|
108,896
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
costs and expenses:
|
|
|
|
|
|
|
|
|
|
Salary
Expense
|
|
|
390,184
|
|
|
|
172,121
|
|
|
General
and administrative
|
|
|
250,646
|
|
|
|
171,387
|
|
|
Sales
and marketing
|
|
|
31,547
|
|
|
|
7,285
|
|
|
Depreciation
and amortization
|
|
|
35,976
|
|
|
|
25,669
|
|
|
Total
operating expenses
|
|
|
708,353
|
|
|
|
376,462
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Loss
|
|
|
(384,149
|
)
|
|
|
(267,566
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Other
expenses:
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
(5,577
|
)
|
|
|
(4,516
|
)
|
|
Total
other expense
|
|
|
(5,577
|
)
|
|
|
(4,516
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net
Profit (loss)
|
|
$
|
(389,726
|
)
|
|
$
|
(272,082
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Profit (loss) per common and common equivalent share:
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.013
|
)
|
|
$
|
(136,041
|
)
|
|
Diluted
|
|
$
|
(0.013
|
)
|
|
$
|
(136,041
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average shares outstanding:
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
30,086,323
|
|
|
|
2
|
|
|
Diluted
|
|
|
30,086,323
|
|
|
|
2
|
|
See
accompanying notes to the consolidated financial
statements.
THE
RESOURCING SOLUTIONS GROUP, INC. AND SUBSIDIARIES
Consolidated
Statements of Cash Flows
(Unaudited)
|
|
|
Three
months ended
|
|
|
|
|
March
31,
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
|
Net
profit (loss)
|
|
$
|
(389,726
|
)
|
|
$
|
(272,082
|
)
|
|
Adjustments
to reconcile net Income (loss) to net cash
|
|
|
|
|
|
|
|
|
|
provided
by (used in) operating activities:
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
35,976
|
|
|
|
25,669
|
|
|
Stock
Issued for services
|
|
|
42,000
|
|
|
|
-0-
|
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
(Increase)
decrease in assets:
|
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
(108,183
|
)
|
|
|
(42,860
|
)
|
|
Accounts
receivable-Unbilled
|
|
|
113,170
|
|
|
|
19,017
|
|
|
Other
receivables
|
|
|
10,665
|
|
|
|
5,841
|
|
|
Insurance
deposits
|
|
|
(101,590
|
)
|
|
|
(28,536
|
)
|
|
Prepaid
expenses
|
|
|
(36,315
|
)
|
|
|
(23,195
|
)
|
|
Increase
(decrease) in liabilities:
|
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
|
294,899
|
|
|
|
75,721
|
|
|
Accrued
expenses
|
|
|
(196
|
)
|
|
|
1,365
|
|
|
Payroll
and payroll related liabilities
|
|
|
254
|
|
|
|
58,402
|
|
|
Accrued
work site employee payroll cost
|
|
|
(108,281
|
)
|
|
|
(18,385
|
)
|
|
Client
Deposits and advance payments
|
|
|
4,431
|
|
|
|
-0-
|
|
|
Pacel
Corporation - Intercompany
|
|
|
-0-
|
|
|
|
558,931
|
|
|
Net
cash (used in) operating activities
|
|
|
(242,896
|
)
|
|
|
359,888
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
|
Cash
CD-Restricted
|
|
|
-0-
|
|
|
|
(1,336
|
)
|
|
Cash
acquired in United Personnel Acquisition
|
|
|
-0-
|
|
|
|
28,073
|
|
|
Net
cash (used in) investing activities
|
|
|
-0-
|
|
|
|
26,737
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
|
Repayments
of notes payable
|
|
|
(205,109
|
)
|
|
|
(4,587
|
)
|
|
Issuance
of common stock
|
|
|
210,300
|
|
|
|
-0-
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash provided by financing activities
|
|
|
5,191
|
|
|
|
(4,587
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net
increase (decrease) in cash and cash equivalents
|
|
|
(237,705
|
)
|
|
|
382,038
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents, beginning of period
|
|
|
703,830
|
|
|
|
255,356
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents, end of period
|
|
$
|
466,125
|
|
|
$
|
637,394
|
|
See
accompanying notes to the consolidated financial
statements.
THE
RESOURCING SOLUTIONS GROUP, INC. AND SUBSIDIARIES
Consolidated
Statements of Cash Flows
(Unaudited)
|
|
|
Three
months ended
|
|
|
|
|
March
31,
|
|
|
|
|
2007
|
|
|
2006
|
|
|
Supplemental
disclosure of cash flow information:
|
|
|
|
|
|
|
|
Cash
paid during the years for:
|
|
|
|
|
|
|
|
Interest
|
|
$
|
5,577
|
|
|
$
|
4,516
|
|
|
Income
taxes
|
|
$
|
-0-
|
|
|
$
|
-0-
|
|
See
accompanying notes to the consolidated financial
statements.
THE
RESOURCING SOLUTIONS GROUP INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2007 AND 2006
|
Note
1:
|
Summary
of Significant Accounting
Policies
|
The
unaudited financial statements of The Resourcing Solutions Group, inc.
and
Subsidiaries (collectively, the Company) have been prepared in accordance
with
generally accepted accounting principles for interim financial
information. The financial information furnished herein reflects all
adjustments, which in the opinion of management, are necessary for a fair
presentation of the Company’s financial position, the results of operations and
cash flows for the periods presented.
Certain
information and footnote disclosures normally contained in financial statements
prepared in accordance with generally accepted accounting principles have
been
omitted.
These
interim statements should be read in conjunction with the audited consolidated
financial statements and related notes thereto as presented in the Company’s
certified financial statements for the year ended December 31,
2006. The Company presumes that users of the interim financial
information herein have read or have access to such audited financial statements
and that the adequacy of additional disclosure needed for a fair presentation
may be determined in that context. The results of operations for any
interim period are not necessarily indicative of the results expected or
reported for the full year.
The
accompanying financial statements have been prepared on a going concern
basis,
which contemplates the realization of assets and the satisfaction of liabilities
in the normal course of business. Prior to the current fiscal year, the
Company generated significant losses, and it is unable to predict
profitability for the future. These factors indicate the Company’s
continuation, as a going concern is dependent upon its ability to obtain
adequate financing as well as implement its sales, marketing and acquisition
strategy. The Company is addressing the going concern by obtaining equity
financing and to grow the Company with profitable sales both organically
and
through acquisitions. Management believes successfully executing these
tasks will lead to the removal of the going concern comment from our audited
financials.
|
B:
|
Principles
of consolidation.
|
The
consolidated financial statements include the accounts of the Company and
all of
its subsidiaries in which a controlling interest is maintained. All
significant inter-company accounts and transactions have been
eliminated in consolidation.
The
financial statements have been prepared in accordance with accounting principles
generally accepted in the United States (US GAAP). The preparation of these
financial statements requires management to make estimates and assumptions
that
affect the reported amounts in the financial statements and accompanying
notes.
These
estimates form the basis for judgments made about the carrying values of
assets
and liabilities that are not readily apparent from other sources. Estimates
and
judgments are based on historical experience and on various other assumptions
that the Company believes are reasonable under the circumstances. However,
future events are subject to change and the best estimates and judgments
routinely require adjustment. US GAAP requires estimates and judgments
in
several areas, including those related to impairment of goodwill and equity
investments, revenue recognition, recoverability of inventory and
receivables, the useful lives of long lived assets such as property and
equipment, the future realization of deferred income tax benefits and the
recording of various accruals. The ultimate outcome and actual results
could
differ from the estimates and assumptions used.
The
Company’s revenue is attributable to fees for providing employment services and
commissions for the sale of insurance products. Our revenues are primarily
dependent on the number of clients enrolled and the resulting number of
worksite
employees paid each period.
The
Company’s revenue is recognized in three distinct categories, two categories are
for service fees and the third is from the commissions on the sale of insurance
products:
For
service fee income, the Company typically enters into agreements for
either;
-
a
fixed
fee per transaction (e.g., number of payees per payroll);
-
a
fixed
percentage of gross payroll;
When
we
account for revenue that is a fixed percentage of gross payroll it is accounted
for in accordance with Emerging Issues Task Force (“EITF”) 99-19, Reporting
Revenues Gross as a Principal Versus Net as an Agent. Our revenues are
derived
from our billings, which are based on:
In
determining the fixed percentage markup component of the billings, we consider
our estimates of the costs directly associated with our worksite employees,
including payroll taxes and workers’ compensation costs, plus an acceptable
gross profit margin. We invoice the billings concurrently with each periodic
payroll of our worksite employees. Revenues, which exclude the payroll
cost
component of billings, are recognized ratably over the payroll period as
worksite employees perform their service at the client worksite. We include
billings to clients not invoiced in unbilled accounts receivable and the
associated accrued worksite employee expense on the consolidated balance
sheet.
When
our
markup is computed as a percentage of payroll cost, revenues are also affected
by the payroll cost of worksite employees, which can fluctuate based on
the
composition of the worksite employee base, inflationary effects on wage
levels
and differences in the local economies of our markets.
The
primary direct costs associated with our revenue generating activities
are:
Payroll
taxes consist of the employer’s portion of Social Security and Medicare taxes
under FICA, federal unemployment taxes and state unemployment taxes. Payroll
taxes are generally paid as a percentage of payroll cost subject to maximum
limitations. The federal tax rates are defined by federal regulations.
State
unemployment tax rates are subject to claim histories and vary from state
to
state.
Due
to
the significance of the amounts included in billings to the Company’s clients
and its corresponding revenue recognition methods, the Company has provided
the
following reconciliation of billings to revenue for the 1
st
quarter
ended March 31, 2007 and March 31, 2006.
|
|
|
|
Quarter
Ended
|
|
|
|
Quarter
Ended
|
|
|
|
|
|
March
31,
|
|
|
|
March
31,
|
|
|
|
|
|
2007
|
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation
of billings to revenue recognized:
|
|
|
|
|
|
|
|
|
|
|
|
|
Billings
to clients
|
|
$
|
6,679,488
|
|
|
$
|
2,595,632
|
|
|
Less
– Gross wages billed to clients
|
|
|
(5,560,124
|
)
|
|
|
(2,171,514
|
)
|
|
Total
revenue as reported
|
|
|
1,119,364
|
|
|
|
424,118
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Cost of Sales
|
|
|
795,160
|
|
|
|
315,222
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
Profit
|
|
$
|
324,204
|
|
|
$
|
108,896
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
consists of:
|
|
|
|
|
|
|
|
|
|
Revenue
from fees for service
|
|
|
|
|
|
|
|
|
|
on
a fixed percentage
|
|
$
|
986,475
|
|
|
$
|
419,751
|
|
|
Revenue
from fees for service
|
|
|
|
|
|
|
|
|
|
on
a fixed cost
|
|
|
113,093
|
|
|
|
4,367
|
|
|
Revenue
from insurance commissions
|
|
19,796
|
|
|
|
0
|
|
|
Total
revenue as reported
|
|
$
|
1,119,364
|
|
|
$
|
424,118
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of Sales Consists of:
|
|
|
|
|
|
|
|
|
|
Employer
portion of Social Security
|
|
|
|
|
|
|
|
|
|
And
Medicare taxes
|
|
$
|
342,655
|
|
|
$
|
154,893
|
|
|
State
and Federal Unemployment taxes
|
|
|
114,225
|
|
|
|
49,960
|
|
|
Workers’
Compensation Premium
|
|
|
324,508
|
|
|
|
106,471
|
|
|
Other
Misc. Expense
|
|
|
13,772
|
|
|
|
3,898
|
|
|
Total
Cost of Sales
|
|
$
|
795,160
|
|
|
$
|
315,222
|
|
When
the
Company records revenue on a fixed fee per transaction only that fee is
recorded
as revenue. When the Company records revenue for the sale of insurance
products
only the commission paid by the insurance carrier is recorded as
revenue.
The
goodwill and intangible assets are subject to the provisions of SFAS
No. 142, “
Goodwill and
Other Intangible Assets
” (“SFAS 142”). In accordance with SFAS 142,
goodwill and other intangible assets are tested for impairment on an annual
basis or when indicators of impairment exist, and written down when
impaired
In
January 2007, the Company exchanged 1,000,000 shares of common stock
held in
escrow to repay the outstanding balance of $59,815 on the 8% note originally
issued in November 2004.
In
January 2007, the Company issued 5,000,000 restricted shares of its common
stock
in exchange for the $500,000 note held by the former owner of World Wide
Personnel Services of Maine, Inc. and United Personnel Services,
Inc.
In
January 2007, the Company issued 25,000,000 shares of common stock to
management
and the Board of Directors. 9,000,000 shares were issued to management
as a
bonus for the financial improvements of the Company from 2005 to
2006. 16,000,000 shares were issued to the board of directors as
consideration for serving on the board. These shares were immediately
vested. These shares are restricted under Rule 144 and are Control
Shares which further restricts the shares. Accordingly the Company has
recorded
$6,000.00 compensation to Board of Directors, $13,500 as bonuses for
management.
The Company has also recorded a prepaid expense of $18,000 for Board
service for
the remaining of 2007.
In
January 2007, the Company issued 1,500,000 shares of common stock to
Lilly
Marketing Group, LLC to provide the Company with consulting in business
development, capital acquisition strategies and structuring investor
relations
and public relations. The Company issued the stock under Regulation D
Rule 504(b)(1)(iii) under the Securities Act of 1933.. The Company has
recorded
an expense of $22,500.
In
January 2007, the Company sold 803,000 shares of restricted stock to various
individuals at a price of $0.10 per share. These shares are restricted
under
Rule 144. The Company received $80,300 for the sale of these shares. There
are
no options or warrants associated with these shares. The Company paid no
fees in
the sales of these shares.
In
January 2007 the Company sold 50,000 shares of stock and received $10,000
in net
proceeds from the sale of these shares. The shares were sold at $0.20 per
share
The Company issued the stock under Regulation D Rule 504(b)(1)(iii) under
the
Securities Act of 1933.
In
March
2007, the Company sold 500,000 shares of restricted stock to two accredited
investors. The Company received net proceeds of $120,000 for the sale
of these
shares. These shares were sold at $0.24 per share
During
the first quarter 2,710 share of common stock were issued in order to
eliminate
fractional shares resulting from the reverse split which occurred on
December
15, 2006
|
|
|
March
31,
|
|
|
December
31,
|
|
|
|
|
2007
|
|
|
2006
|
|
|
Short
term payable consists of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
portion M. Sartori note
|
|
$
|
27,127
|
|
|
$
|
27,127
|
|
|
Note
payable A. Peterson
|
|
|
34,092
|
|
|
|
534,092
|
|
|
Note
Payable -
|
|
|
-0-
|
|
|
|
59,815
|
|
|
Note
Payable Pacel Corp.
|
|
|
208,280
|
|
|
|
2
00,000
|
|
|
Total
Short-term borrowings
|
|
$
|
269,499
|
|
|
$
|
821,034
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term
Notes Payable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non
current portion –
M.
Sartori
|
|
$
|
179,416
|
|
|
$
|
214,339
|
|
I
n
September 2004, the Company
issued a Note Payable to the former owner of Rossar HR LLC for $272,000
for the
purchase of the assets of Rossar HR, LLC. $71,337 is payable over a 5
year
period at $1,622 per month. $200,663 is payable over a 10 year period
at $2,228
per month. The balance at March 31, 2007 was $27,127 current portion,
$179,416
non current for a total balance of $206,543. The balance at December
31,, 2006 was $27,127 current portion, $214,339 non current for a total
balance
of $241,466.
In
September 2006, the Company issued a Note Payable to the former owner Antoinette
Peterson of Consolidated Services, Inc. for the acquisition of Consolidated
Services, Inc. for $34,092. The Company paid $551 in interest on this
note.
The
Note
is payable in one-year at an interest rate of six percent (6%). In December
2006
the Company issued a note payable for $500,000, payable in one year at
an
interest rate of six percent (6%) ,when it assumed a $500,000 obligation
from
its former parent as part of the Decedmbe 4, 2006 Pacel agreement. In
January
2007 the Company ssued 5,000,000 shares of common stock in exchange
for the cancellation of the note.
The
Company had a note payable to its former parent of $108,280 and $200,000
at
March 31, 2007 and December 31, 2006 respectively. The Company
paid $3,055 in interest on this note.
On
November 30, 2004, the Company borrowed $100,000 at an interest rate of
8% ,
payable in one year. In May 2006, the note was modified to be repaid over
a
six-month period at $7,500 per month with a balloon payment for the remaining
balance. As collateral for the note, The Resourcing Solutions Group, Inc.
placed
1,000,000 shares in escrow. In January 2007, The balance of the note
$59,815 was exchanged for 1,000,000shares held in
escrow.
|
Note
4:
|
Related
Party Transactions:
|
Employment
Agreements
In
February 2007, the Company entered into a five year employment agreement
with
its President and Chief Executive Officer. Compensation will include
an annual base salary of $240,000 and an incentive bonus plan based on
the
EBITDA (earnings before interest, tax, depreciation and
amortization). The agreement also includes severance payments upon
termination of employment.
|
Note
5:
|
Subsequent
Events
|
In
April
2007, the Company sold 200,000 shares of restricted stock to an accredited
investor. The Company received net proceeds $200,000 for the sale of
these
shares.
In
May
2007, the Company sold 100,000 shares of restricted stock to an accredited
investor. The Company received net proceeds of $100,000 for the sale
of these
shares.
In
June
2007 the Company acquires all the issued and outstanding shares of World
Wide of
Virginia, Inc. The Company issued a note for $200,000 for this acquisition.
World Wide Personnel Services of Virginia, Inc. was originally formed
in October
2000. The company is a fully licensed Professional Employer Organization
with
clients in Virginia, West Virginia and Maryland. The company currently
has
approximately 500 work site employees. The purchase of this company solidifies
the Company’s presence in the northern Virginia and metro-DC
markets.
In
June
2007 the Company canceled the captive program with Guarantee Insurance
Company.
Guarantee Insurance Company had not fulfilled its requirement to provide
re-insurance necessary to activate the program. Guarantee Insurance committed
to
return the Letter of Credit posted to support the program and convert the
existing policies to first dollar coverage thereby removing any loss risk
to the
Company.
In
July
2007, the Company sold 15,000 shares of restricted stock to two accredited
investors. The Company received net proceeds of $15,000 for the sale
of these
shares.
PART
III
Index
to Exhibits
|
Exhibit
Number
|
Description
|
Charter
and
Bylaws
|
3.1
|
Articles
of Incorporation
|
|
3.2
|
Certificate
of Amendment dated February 2, 2007
|
|
3.3
|
Amended
and Restated Bylaws
|
Instruments
Defining Rights of
Security Holders
|
4.1
|
Specimen
Stock Certificate
|
Material
Contracts
|
10.1
|
Asset
Purchase Agreement by and among Asmara, Inc. and The Resourcing Solutions
Group, Inc. Dated April 25, 2003
|
|
10.2
|
Asset Purchase
Agreement between The Resourcing Solutions Group, Inc., Marcia
J. Sartori,
William R. Sartori II, and Rossar, Inc. dated September 21,
2004.
|
|
10.3
|
Stock
Purchase Agreement between The Resourcing Solutions Group,
Inc. Asmara Services I, Inc. and Pacel Corp. dated December 30,
2004
|
|
10.4
|
Asset
Purchase Agreement between Benecorp Business Services, Inc. and
The Resourcing Solutions Group, Inc. dated December 31,
2004
|
|
10.5
|
Stock
Transfer Agreement between Pacel Corp. and The Resourcing Solutions
Group,
Inc. dated April 15, 2006
|
|
10.6
|
Stock
Acquisition Agreement between The Resourcing Solutions Group,
Inc. and Antoinette Peterson dated August 31,
2006
|
|
10.7
|
Asset
Purchase Agreement between Capital Resources, Inc, Eugene F. Butler,
Rose D. Butler, LaDonna Holleman and The Resourcing Solutions Group,
Inc. dated October 19, 2006
|
|
10.8
|
Stock
Acquisition Agreement between The Resourcing Solutions Group, Inc.,
Michael Peterson, Antoinette Peterson and World Wide Personnel
Services of Virginia, Inc. dated May 17,
2007
|
|
10.9
|
Employment
Agreement
dated January 1, 2007 between The Resourcing Solutions Group, Inc.
and
Antoinette Peterson
|
|
10.10
|
Employment
Agreement
dated January 1, 2007 between The Resourcing Solutions Group, Inc.
and
Michael Peterson
|
|
10.11
|
Employment
Agreement
dated January 1, 2007 between The Resourcing Solutions Group, Inc.
and
Gary Musselman
|
|
10.12
|
Employment
Agreement
dated January 1, 2007 between The Resourcing Solutions Group, Inc.
and
Marcia Sartori
|
|
10.13
|
Employment
Agreement
dated September 17, 2007 between The Resourcing Solutions Group,
Inc. and
Paul Halter
|
|
10.14
|
Non-negotiable Convertible
Promissory Note from The Resourcing Solutions Group, Inc. to
Antoinette
Peterson dated May 17,
2007
|
Subsidiaries
|
21
|
Subsidiaries
of The Resourcing Solutions Group,
Inc.
|
SIGNATURES
In
accordance with Section 12 of the Securities Exchange Act of 1934, the
Registrant caused this registration statement to be signed on its behalf by
the
undersigned, thereunto duly authorized.
|
|
The
Resourcing Solutions Group, Inc.
|
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Date: January
29, 2008.
|
|
/s/
GARY MUSSELMAN
|
|
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|
Gary
Musselman,
President
& CEO
|
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45
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