Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-Q
(Mark One)
| x | Quarterly report under section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended: June 30, 2004 |
| ¨ | Transition report under section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from to . |
Commission File No: 0-31527
CERTIFIED SERVICES, INC.
(Exact name of registrant as specified in its charter)
| Nevada | 88-0444079 | |
| (State or other jurisdiction of incorporation | (I.R.S. Employer Identification | |
| or organization) | Number) | |
| 5101 N.W. 21st Avenue, Suite 350 | ||
| Fort Lauderdale, Florida | 33309 | |
| (Address of Principal executive offices) | (Zip Code) | |
(Registrant’s Telephone Number Including Area Code):
(954) 315-2300
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST
FIVE YEARS:
Check whether the Registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act after the distribution of securities under a plan confirmed by a court. Yes ¨ No ¨
APPLICABLE ONLY TO CORPORATE ISSUERS:
State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date:
Common Stock, $.001 par value, 14,547,811 shares at June 30, 2004.
Transitional Small Business Disclosure Format (Check one): Yes ¨ No x
1
CERTIFIED SERVICES, INC. AND SUBSIDIARIES
Form 10-Q—Quarter Ended June 30, 2004
| Page | ||||
| PART I |
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| Item 1. |
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| Condensed Consolidated Balance Sheets at June 30, 2004 and December 31, 2003 |
3 | |||
| 4 | ||||
| 5 | ||||
| 6-8 | ||||
| 9-14 | ||||
| Item 2 |
.Management’s Discussion and Analysis of Financial Consolidation and Results of Operations |
14-16 | ||
| Item 4. |
16 | |||
| PART II |
OTHER INFORMATION. |
|||
| Item 1. |
17 | |||
| Item 2. |
18 | |||
| Item 5. |
19 | |||
| Item 6. |
20 | |||
| 20 | ||||
2
The unaudited condensed consolidated balance sheet of the Registrant as of June 30, 2004, the audited consolidated balance sheet at December 31, 2003, and the unaudited condensed consolidated statements of operations for the six month and the three month periods ended June 30, 2004 and June 30, 2003 follow. These condensed consolidated financial statements reflect all adjustments that are, in the opinion of management, necessary to a fair statement of the Registrant’s results for the interim periods presented.
Certified Services, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
| June 30, 2004 |
December 31, 2003 | |||||
| Assets |
(Unaudited) | |||||
| Current Assets |
||||||
| Cash |
$ | 333,976 | $ | 432,414 | ||
| Cash, restricted |
10,045,405 | 3,055,686 | ||||
| Accounts receivable |
25,649,042 | 20,906,147 | ||||
| Insurance deposits |
13,157,754 | 8,208,366 | ||||
| Related party receivables |
— | 286,385 | ||||
| Other current assets |
2,320,086 | 1,153,627 | ||||
| Total Current Assets |
51,506,263 | 34,042,625 | ||||
| Property and equipment, at cost, net of accumulated |
||||||
| depreciation of $2,276,166 and $2,029,155, respectively |
1,469,998 | 1,617,837 | ||||
| Excess purchase price over net book value of assets acquired |
28,471,981 | 26,466,572 | ||||
| Other assets |
2,377,927 | 1,639,676 | ||||
| Total Assets |
$ | 83,826,169 | $ | 63,766,710 | ||
| Liabilities and Shareholders’ Equity |
||||||
| Current liabilities |
||||||
| Current portion of notes payable |
$ | 5,483,703 | $ | 5,127,382 | ||
| Accounts payable |
6,492,701 | 6,041,231 | ||||
| Accrued expenses |
38,414,040 | 28,442,855 | ||||
| Related party payables |
7,382 | — | ||||
| Current portion of capital lease obligations |
41,706 | 140,299 | ||||
| Total Current Liabilities |
50,439,532 | 39,751,767 | ||||
| Long term notes payable |
15,393,655 | 6,227,528 | ||||
| Long term portion of capital lease obligations |
83,703 | 83,506 | ||||
| Long term portion of workers’ compensation claims |
671,334 | 2,753,011 | ||||
| Total Liabilities |
66,588,224 | 48,815,812 | ||||
| Commitments and Contingencies |
||||||
| Shareholders’ Equity |
||||||
| Preferred shares, $.001 par, 5,000,000 authorized,1,551 and 1,930 issued and outstanding in 2004 and 2003, respectively |
5 | 5 | ||||
| Common shares, $.001 par, 100,000,000 authorized,14,547,811 and 9,547,811 issued and outstanding in 2004 and 2003, respectively |
14,548 | 9,548 | ||||
| Additional paid in capital |
13,027,296 | 11,825,152 | ||||
| Accumulated earnings |
4,196,096 | 3,116,193 | ||||
| Total Shareholders’ Equity |
17,237,945 | 14,950,898 | ||||
| Total Liabilities and Shareholders’ Equity |
$ | 83,826,169 | $ | 63,766,710 | ||
See notes to the condensed consolidated financial statements.
3
Certified Services, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
| For the Six Months Ended June 30, |
For the Three Months Ended June 30, | |||||||||||
| 2004 |
2003 |
2004 |
2003 | |||||||||
| (Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | |||||||||
| Revenue (gross billings of $407 million, $414 million, $198 million and $253 million, less worksite employee payroll costs of $359 million, $378 million, $174 million and $230 million, respectively) |
$ | 47,718,328 | $ | 36,226,493 | $ | 23,456,695 | $ | 23,513,966 | ||||
| Cost of services |
30,062,034 | 19,852,654 | 14,156,154 | 13,054,210 | ||||||||
| Gross profit |
17,656,294 | 16,373,839 | 9,300,541 | 10,459,756 | ||||||||
| Operating expenses |
||||||||||||
| Compensation and benefits |
5,992,439 | 5,097,010 | 3,051,391 | 3,512,798 | ||||||||
| Marketing and selling |
2,006,837 | 2,938,952 | 900,664 | 1,625,721 | ||||||||
| General and administrative |
8,275,935 | 6,866,812 | 5,105,959 | 4,587,289 | ||||||||
| Interest, net |
301,180 | 219,213 | 182,208 | 199,546 | ||||||||
| Total Operating Expenses |
16,576,391 | 15,121,987 | 9,240,222 | 9,925,354 | ||||||||
| Net income before tax |
1,079,903 | 1,251,852 | 60,319 | 534,402 | ||||||||
| Income taxes |
— | 113,707 | — | 113,707 | ||||||||
| Net Income |
$ | 1,079,903 | $ | 1,138,145 | $ | 60,319 | $ | 420,695 | ||||
| Net income per share – basic |
$ | .10 | $ | .13 | $ | .01 | $ | .05 | ||||
| Weighted average number of common shares outstanding – basic |
10,381,144 | 8,560,311 | 11,214,478 | 8,656,144 | ||||||||
| Net income per share – fully diluted |
$ | .10 | $ | .13 | $ | .01 | $ | .05 | ||||
| Weighted average number of common shares outstanding – fully diluted |
11,281,144 | 8,560,311 | 13,014,478 | 8,656,144 | ||||||||
See notes to the condensed consolidated financial statements.
4
Certified Services, Inc. and Subsidiaries
Condensed Consolidated Statement of Stockholders’ Equity
| Preferred Stock |
Common Stock |
Additional Capital |
Retained Earnings |
||||||||||||||||||||
| Shares |
Amount |
Shares |
Amount |
Total |
|||||||||||||||||||
| Balance, January 1, 2003 |
2,678 | $ | 3 | 8,447,811 | $ | 8,448 | $ | 22,107,754 | $ | 704,490 | $ | 22,820,695 | |||||||||||
| Issuance of shares for services |
450,000 | 450 | 359,550 | 360,000 | |||||||||||||||||||
| Issuance of shares for Assets |
1,520 | 1 | 18,999,999 | 19,000,000 | |||||||||||||||||||
| Issuance of shares in connection with forming American HR Holdings |
— | — | 650,000 | 650 | 577,850 | 578,500 | |||||||||||||||||
| Cancellation of shares issued for Assets |
(3018 | ) | (2 | ) | (37,719,998 | ) | (37,720,000 | ) | |||||||||||||||
| Preferred Series B – Issuance of shares for assets |
350 | 1 | 3,499,999 | 3,500,000 | |||||||||||||||||||
| Preferred Series D – issuance of shares for cash |
300 | 1 | 2,999,999 | 3,000,000 | |||||||||||||||||||
| Preferred Series E – issuance of shares issued for surplus note |
100 | 1 | 999,999 | 1,000,000 | |||||||||||||||||||
| Net income |
2,411,703 | 2,411,703 | |||||||||||||||||||||
| Balance, December 31, 2003 |
1,930 | 5 | 9,547,811 | 9,548 | 11,825,152 | 3,116,193 | 14,950,898 | ||||||||||||||||
| Preferred Series D – issuance of shares for cash |
121 | 1 | 1,207,144 | 1,207,145 | |||||||||||||||||||
| Additional Shares Issued |
5,000,000 | 5,000 | 4,995,000 | 5,000,000 | |||||||||||||||||||
| Additional Shares Issued Conversion of Preferred B |
(500 | ) | (1 | ) | — | (5,000,000 | ) | (5,000,001 | ) | ||||||||||||||
| Net Income |
1,079,903 | 1,079,903 | |||||||||||||||||||||
| Balance, June 30, 2004 |
1,551 | $ | 5 | 14,547,811 | $ | 14,548 | $ | 13,027,296 | $ | 4,196,096 | $ | 17,237,945 | |||||||||||
See notes to the consolidated financial statements
5
Certified Services, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
| For the Six Months Ended June 30, |
||||||||
| 2004 |
2003 |
|||||||
| (Unaudited) | (Unaudited) | |||||||
| Cash flows from operating activities |
||||||||
| Net income |
1,079,903 | $ | 1,138,145 | |||||
| Adjustments to reconcile net income to net cash provided by (used in) operations: |
||||||||
| Depreciation and amortization |
438,247 | 336,282 | ||||||
| Bad debt expense |
166,361 | 340,390 | ||||||
| Issuance of stock for services |
— | 41,250 | ||||||
| Decrease (increase) in assets |
||||||||
| Accounts receivable |
(4,909,256 | ) | 5,285,389 | |||||
| Other current assets |
(928,254 | ) | 629,864 | |||||
| Restricted cash |
10,281 | 576,111 | ||||||
| Insurance deposits |
(4,949,388 | ) | 197,251 | |||||
| Other assets |
(489,850 | ) | (870,368 | ) | ||||
| Increase (decrease) in liabilities |
||||||||
| Accounts payable |
451,470 | |||||||