Securities and Exchange Commission
Washington, D.C. 20549

FORM 10-K

Annual Report under Section 13 or 15 (d) of the Securities Exchange Act 1934:
Fiscal Year Ended DECEMBER 31, 2003

Commission File Number:  0-31527

CERTIFIED SERVICES, INC.
(Exact name of registrant as specified in its charter)

(Registrant’s Telephone Number Including Area Code):
(954) 315-2300

Securities registered under Section 12(b) of the Exchange Act:  NONE

Securities registered under Section 12(g) of the Exchange Act:  COMMON STOCK, $.001 PAR VALUE

                Indicate by checkmark whether Registrant (1) filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: Yes x   No o

                Indicated by checkmark if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B is not contained in this form, and no disclosure will be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x

                Indicate by checkmark whether the Registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). o

                Registrant’s revenues for the year ended December 31, 2003:  $78,510,210

                The aggregate market value of Common Stock held by non-affiliates (based upon the March 17, 2004 closing bid price for the common stock on the Bulletin Board of $1.00) at March 17, 2004 was approximately $5,482,811

                The number of shares of the Registrant’s common stock, $.001 par, outstanding as of March 17, 2004 was 9,547,811 shares.

                Documents incorporated by reference:  The Registrant’s Form 10-QSB for the quarterly period ended September 30, 2003 and filed with the Commission on November 18, 2003

                Transitional Small Business Disclosure Format (check one): Yes o No x

CERTIFICATIONS

                Cautionary Note Regarding Forward-Looking Statements

                In connection with the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 (the “Reform Act”), Certified Services, Inc. (“Certified” or the “Registrant”) is hereby providing cautionary statements identifying important factors that could cause the Registrant’s actual results to differ materially from those projected in forward-looking statements (as such term is defined in the Reform Act) made by or on behalf of the Registrant herein, in other filings made by the Registrant with the Securities and Exchange Commissions, in press releases or other writings, or orally, whether in presentations, in response to questions or otherwise. Any statements that express, or involve discussions as to, expectations, beliefs, plans, objectives, assumptions or future events or performance (often, but not always, through the use of words or phrases such as “will result,” “are expected to,” “anticipated,” “plans,” intends,” “will continue,” “estimated,” and “projection”) are not historical facts and may be forward-looking and, accordingly, such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results or performance of the Registrant to be materially different from any future results or performance expressed or implied by such forward-looking statements. Such known and unknown risks, uncertainties and other factors include, but are not limited to, the following:

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                    The Registrant cautions that the factors described above could cause actual results or outcomes to differ materially from those expressed in any forward-looking statements made by or on behalf of the Registrant. Any forward-looking statement speaks only as of the date on which such statements is made, and the Registrant undertakes no obligation to update any forward-looking statement or statements to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of unanticipated events. New factors emerge from time to time, and it is not possible for management to predict all of such factors. Further, management cannot assess the impact of each such factor on the business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.

ITEM 1. DESCRIPTION OF BUSINESS

The Company

                    Certified Services, Inc. (“Certified”, “Company”, or “Registrant”)  is a holding company owning subsidiaries engaged in the professional employer organization (“PEO”) industry. Since 1995, the Registrant’s subsidiaries have provided clients with a broad range of human resources (“HR”) services encompassing payroll and benefits administration, employee record keeping and regulatory compliance, health and workers’ compensation insurance programs, risk management and worksite safety management. The Registrant services its client base from six locations with a staff of 200 internal employees. The Registrant’s clients are typically small and medium-size businesses having between 10 and 500 employees. Currently, the Registrant, through its wholly-owned subsidiaries, serve approximately 1,900 clients as measured by individual client Federal Employer Identification Numbers (FEIN) with approximately 53,000 active worksite employees in 32 states.

Company Milestones:

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The Registrant’s principal executive offices are located at 5101 N.W. 21st Avenue, Suite 350, Ft. Lauderdale, FL 33309. The Registrant’s common stock trades on the OTCBB market under the symbol “CSRV”.The Registrant’s registered agent in the State of Nevada is National Registered Agents of Nevada, Inc. and its transfer agent is Pacific Stock Transfer Company of Las Vegas, Nevada.

General

                The Registrant’s operating subsidiaries provide services to the client employees who work at the clients’ workplace. The services include human resources, payroll processing and outsourcing, and are designed to improve regulatory compliance,  productivity and profitability of its clients’ businesses by:

Recent Developments

Name Change of Operating Companies

                On March 11, 2004, the Registrant’s Board of Directors unanimously approved the change of the names of the Registrant’s operating subsidiaries to “Certified HR Services, Inc.” or such similar names. The Registrant’s Board also approved the consolidation and reorganization of the Registrant’s subsidiaries in order to reduce the number of the Registrant’s wholly owned subsidiaries to eliminate redundancies in filing regulatory compliance and promote paperwork reduction.

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Brean Murray &Co., Inc.

                In January 2004, the Registrant retained Brean Murray & Co., Inc., a New York Stock Exchange Member (“BMCI”), as a corporate finance adviser, underwriter and investment banker for the purpose of locating potential acquisition, merger or business combination candidates. Among other monetary and compensatory fees, BMCI is entitled to receive 5% of the market capitalization, in cash and common stock, of the surviving entity for which BMCI was engaged to consummate a transaction.

Restructure of Obligations of Acquisition Two

                    On July 27, 2002, and during the fiscal year covered by this Report, the Registrant executed a Stock Purchase Agreement (the “Agreement”) with The Cura Group, Inc.,  The Cura Group II, Inc. and The Cura Group III, Inc., each Florida corporations (collectively “Cura”) and Alan B. Willard and Danny L. Willard, the sole shareholders of Cura (collectively, the “Shareholders”). The transaction was reported in the Registrant’s Form 8-K dated October 30, 2001 and filed on October 31, 2001. The Registrant agreed to acquire all of issued and outstanding shares of Cura’s common stock (the “Cura Shares”). For the purchase price of: (i) two million (2,000,000) shares of the Registrant’s common stock, $.001 par value, (ii) cash in the amount of $136,111; and (iii) two promissory notes to the Shareholders in the aggregate amount of $2,313,889 with interest at the rate of six percent (6%) per annum, payable in thirty-four (34) equal monthly installments commencing January 2, 2003 (the “Cura Notes”). On January 27, 2004, in an effort to reduce the amount of its debt servicing obligations, the Registrant and the Shareholders agreed to extend the terms of payment of the Cura Notes. Pursuant to this extension, the due dates of the Cura Notes were extended from October 2, 2005 to August 15, 2008.

Change of Management

                    In December 2003, Anthony R. Russo resigned as the Registrant’s Director, Chief Financial Officer and Treasurer. Pursuant to Written Consent to Action by the Board of Directors, Mr. Russo was replaced on the Registrant’s Board of Directors by Judson Wagenseller. Richard M. Steen will serve as the Registrant’s Chief Financial Officer on an interim basis and act as the Registrant’s Treasurer.

                    As reported in the Registrant’s Form 8-K filed on January 23, 2004, and pursuant to the Written Consent to Action of the Board of Directors, O. Raymond McCartha resigned as a member of the Registrant’s Board of Directors and was replaced by Eugene M. Weiss.

Sale of Series B Preferred Stock

                From September 30, 2003 to December 31, 2003, pursuant to a Subscription Agreement, the Registrant sold 350 shares of its Series B Preferred Stock, par value $.001 per share (the “Series B”) to Midwest Merger Management, LLC (“Midwest”) for $3,500,000 in the form of an irrevocable letter of credit. Pursuant to the terms of the Subscription Agreement irrevocable letters of credit in favor of an  unrelated third party insurer (the “Insurer”) of the Registrant issued by a member bank of the United States Federal  Reserve System that are  accepted  by the  Insurer in lieu of cash,  are  deemed  consideration acceptable to the Registrant. The Subscription  Agreement further provides that should the issuing  financial  institution of any letter of credit presented by Midwest fail to automatically renew a letter of credit, Midwest must replace such letter  of credit with one equally acceptable to CSRV or with cash forthwith, for as long a period as the Registrant requires. In consideration for the cash and additional consideration, the Registrant agreed to issue to 350 shares of Series B Preferred Stock, $.001 par value per share (the “Series B Shares”).

                The principal rights and preferences of the Series B Shares are set forth in Item 12. Security Ownership of Certain Beneficial Owners and Managers.

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Sale of Series D Preferred Stock

                From September 30, 2003 to December 31, 2003, the Registrant sold 300 shares of its Series D Preferred Stock for $3,000,000 in cash capital contributions from Midwest. The Registrant’s risk manager executed a Marketing Organization Agreement with Central Leasing Management (“CLM”).

                The following is a summary of the principal rights and preferences of the Series D Shares:

                1. Voting: The Series D Shares, which vote together as a single class with the shares of the Registrant’s common stock on all matters, are entitled to 10,000 votes for each share of Series D held by Brentwood. Accordingly, the Series D Shares are entitled to 3,000,000 votes;

                2. Liquidation: Upon any liquidation, dissolution or winding up of the Registrant, whether voluntary or involuntary, the holders of the Series D Shares shall be entitled to a priority return of their respective investment or reimbursement therefore, on a dollar for dollar basis.

                3. Dividend Provisions:  The holders of the Series D are not entitled to receive any dividends.

                4. Conversion: The holders of the Series D after one (1) year from the date of issuance, are able to convert the shares of Series D on the basis of 12,500 shares of the Registrant’s common stock for each share of Series D.

                5. Redemption:  After ten (10) years from the date of issuance of the Series D (the “Anniversary Date”), the Registrant may (i) redeem all of the Series D at a price per share of 75% of the closing price for the 20 days immediately prior to the Anniversary Date each for 12,500 shares of the Registrant’s common stock; (ii) exchange 12,500 shares of the Registrant’s common stock for each share of Series D; (iii) renew the conversion terms for an additional five (5) years; or (iv) any combination of the above.

Sale of Series E Preferred Stock:

                From September 30, 2003 to December 31, 2003, the Registrant sold 100 shares of its Series E Preferred Stock to Midwest for $1,000,000 in the form of a surplus loan agreement with Providence Property and Casualty Insurance Company (“Providence”) for the benefit of the Registrant’s subsidiaries’ workers’ compensation coverage in various states.

                The following is a summary of the principal rights and preferences of the Series E Shares:

                1. Voting: The Series E Shares, which vote together as a single class with the shares of the Registrant’s common stock on all matters, are entitled to 10,000 votes for each share of Series E held by Midwest. Accordingly, the Series E Shares are entitled to 1,000,000 votes;

                2. Liquidation: Upon any liquidation, dissolution or winding up of the Registrant, whether voluntary or involuntary, the holders of the Series E Shares shall be entitled to a priority return of their respective investment or reimbursement therefore, on a dollar for dollar basis.

                3. Dividend Provisions: The holders of the Series E are not entitled to receive any dividends.

                4. Conversion: The holders of the Series E after one (1) year from the date of issuance, are able to convert the shares of Series E on the basis of 12,500 shares of the Registrant’s common stock for each share of Series E.

                5. Redemption:  After ten (10) years from the date of issuance of the Series E (the “Anniversary Date”), the Registrant may (i) redeem all of the Series E at a price per share of 75% of the closing price for the 20 days immediately prior to the Anniversary Date each for 12,500 shares of the Registrant’s common

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stock; (ii) exchange 12,500 shares of the Registrant’s common stock for each share of Series E; (iii) renew the conversion terms for an additional five (5) years; or (iv) any contribution of the above.

Re-Measurement of Obligations of Acquisition Three

                As reported in the Registrant’s Form 8-K dated July 10, 2003, the Registrant acquired all of the professional employer, staff leasing, payroll and human resources services companies with the exception of StaffAmerica (the “PEO Operations”) from BACE International, Inc., a North Carolina corporation (“BACE”). Subsequent to the consummation of the acquisition of the PEO Operations, the Registrant determined that the liabilities of the PEO Operations exceeded the assets reported in the audited and interim financial statements of the PEO Operations by the amount of $14,300,000. Pursuant to the Stock Purchase Agreement by which the Registrant acquired the PEO Operations, the Registrant is entitled to offset these liabilities against any payments of the purchase price to BACE. Accordingly, since the undisclosed liabilities of the PEO Operations exceed the amounts due to BACE under the acquisition debt and promissory note by approximately $3,000,000, the Registrant has re-measured the nature of the liability so that $6,856,000 is to be stated as a contingent liability. Moreover, on November 24, 2003, the Registrant commenced an action against BACE and its sole shareholder, William L. Baumgardner, to seek the determination of an offset against the purchase price for PEO operations. For more information, see Item 3 “Legal Proceedings”.

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NARRATIVE DESCRIPTION OF BUSINESS

Overview of Client Services

                The Registrant offers a broad range of services including payroll processing and reporting, payroll tax remittance and reporting, human resources administration, employee benefit services administration, risk management, workers’ compensation services, as well as optional retirement and health care programs.

                To begin the relationship with a client, the Registrant requires all clients to enter into the Shared Employment Agreement (“SEA”). The SEA is for an initial term of one-year subject to termination by the Registrant or the client upon thirty days written notice, and subject to immediate termination by the Registrant for non-payment by the client of payroll services, fees or taxes. In some cases, the Registrant may require the owners of a client to either personally guarantee the client’s obligation under the SEA, or maintain a security deposit with the Registrant.

                The Registrant charges a service fee that includes a mark-up on its administrative cost. The service fee is billed concurrently with the clients’ periodic invoice for gross payroll, payroll tax, workers’ compensation coverage, cost of benefits including health and retirement benefit plan costs. If the client has requested additional consulting on specific matters not covered by the SEA, that charge would be added as a separately invoiced item. The fee is determined by and between the Registrant and the client on a client by client basis and the components of the pricing include: number of work-site employees, workers’ compensation risk and historical losses of the client, credit checks, industry type, extent of services provided and gross profit impact.

                The SEA also establishes the Registrant’s responsibility to include the “business of employment,” by establishing an employment relationship with the work-site employees. Thereby, the client is provided with the manpower, time and other resources necessary to better manage its business. The Registrant assumes the responsibility of personnel administration, liability for payment of wages and their related tax payments, compliance with rules and regulations governing the reporting as well as the filing of state and federal payroll tax returns and providing the administration of benefits, workers’ compensation compliance and unemployment claims.

                The client maintains responsibility for the direction and control of the activities at the workplace, equity-based compensation and for severances, bonuses and commissions, although payment is generally made through the Registrant.

                As part of the SEA, the Registrant requires each of its clients to acknowledge that it is the financially responsible party in those aspects of the relationship where the client has retained exclusive control. The client promises to indemnify and hold harmless the Registrant for claims, damages and costs associated with the following: damage to client’s property by a leased employee under the direction and control of the client; claims against the Registrant relating to any person employed by the client outside the PEO relationship; regulatory violations associated with EEOC, OSHA, ADA, discrimination and other such laws, where the client has exclusive control of the workplace; employee benefit matters where the client has provided the benefit outside the SEA; misappropriation of any employee funds by the client; theft by a leased employee engaged in the client’s business and under the direction and control of the client and matters pertaining to collective bargaining agreements to which the Registrant is not a party.

                Once the client is aboard with an executed SEA, the client is assigned to a ‘Client Response Specialist’ or (“CRS”) within the Registrants’ customer service department. The role of the CRS is to support the client as their first point of contact for questions, problem resolution and to facilitate orders for non-recurring services. The CRS undergoes extensive internal training regarding the products and services of the client to manage the needs of the client.

                With respect to those service requests that are beyond the scope of the CRS, the CRS will forward the request to the appropriate individual within the organization using the Registrants’ proprietary software.

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The Registrants’ customer service software platform automates the assignment, status reporting and resolution of client service requests. The system assigns service requests to the appropriate representative of the Registrant with the creation of a service order ticket. The CRS will follow the service ticket to insure that the service order has been completed in a manner that is timely and satisfactory to the client.

                The following PEO services are offered by the Registrant:

Risk Management and Claims Management Services

                The Registrant offers risk management services that are designed to control incidence, frequency and severity of work related injuries.

                The Registrant’s worksite safety department is highly motivated to implement innovative and effective safety programs designed to contain the incurrence of and the cost of workers’ compensation claims. The Registrants’ safety department performs the following specific claim cost containment services:

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Payroll and Tax Administration Services

                The Registrant handles the entire payroll process for the worksite employees. The Registrant is centralizing the processing of payrolls to the Ft. Lauderdale general headquarters to maximize productivity. The Ft. Lauderdale payroll center has current processing capacity in excess of 200,000 paychecks per week. The Registrant utilizes the HR Pyramid, formerly known as ‘ScorPEO’, payroll software system for processing internal and external payrolls. The ScorPEO system is a leading payroll software designed specifically to meet the needs of the PEO industry.

                The primary strategic objective of payroll delivery to the client is to maximize the velocity of the payroll process. To achieve maximum velocity, the Registrant offers and encourages clients to submit payroll data via electronic transmission to the Ft. Lauderdale center. Clients can utilize one of several technology-based tools such as spreadsheet interface, time clock import, file transfer and web based entry. These methods offer several advantages to both the client and Registrant over the traditional ‘fax in’/ manual keystroke entry of payroll. Electronic transmission greatly reduces the processing time dedicated to the payroll and eliminates most if not all errors related to manual entry. The strategy increases the satisfaction of the customer by knowing that their payroll is delivered quickly and accurately. The Registrant benefits from reduced processing time and reduced post payroll error correction.

                To deliver web based payroll processing, the Registrant offers ScorPEO Web, an Internet payroll delivery platform. ScorPEO Web allows customers to enter payroll and print reports via the Internet. To access ScorPEO Web, customers log on to the Registrant’s website,ScorPEO.teamcura.com. Once at the website, customers enter into a client only password protected portion of the site and gain access their customized web portal for payroll entry.

                As a part of the payroll service, the Registrant delivers to the client a complete payroll tax deposit and filing service. Functionally, the Registrant collects the full amount of payroll taxes from the client with each invoice. During 2003 the Registrant implemented the industry leading “Mastertax” software platform to facilitate payroll tax compliance by the Registrant.

                All of the above systems are backed-up at our Tampa, FL facility with both processing and systems software capabilities. Should a natural disaster occur at either facility, no stoppage of processing would occur and the client would never suffer from such an event.

                Additional services offered by the payroll department include: employee benefits reports, direct deposit, maintaining vacation or sick pay accruals, providing payroll reports such as labor distribution and overtime reports, workers’ compensation reporting,  and overall maintenance of payroll records.

Human Resources Services

                The Registrant handles human resource (‘HR’) functions for the client as it relates to unemployment matters, personnel matters and compliance with the ever-changing federal and state laws.

                The Registrant provides guidance on employment related matters, such as substance abuse awareness, sexual harassment awareness, employment law training, wage and hour compliance, employment discrimination awareness and civil rights awareness. Also provided by the Registrant’s human resource department is the administration of human resource records and the management of unemployment claims.

                At the request of the client, the Registrant provides customized consulting services on such focused issues as workplace safety, non-discrimination, employer liability and payroll reporting compliance matters. Additional services offered on a request basis include: customizing employee handbooks specific to the client, creating job descriptions, performing background checks, recruiting and hiring new employees, providing performance appraisal forms, recommending out-placement services, offering compensation, wage and salary guidance, drug testing, providing procedures for discipline and discharge of employees and

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assisting clients with employee relations, from counseling to grievance administration.

                The Registrant’s unemployment services department processes state unemployment claims as they relate to the work-site employees. The Registrant, from time to time, determines unemployment claims to be unwarranted. In those cases, the Registrant will file the necessary protest as allowed in the various states regulatory procedures.

Employee Benefit Services

                The Registrant is able to offer affordable employee benefits programs that would be otherwise unavailable to the client and work-site employees. The Registrant is able to provide this due to its collective size, which provides a certain level of buying power that the clients cannot achieve themselves.

                Additional products offered by the Registrant’s benefits department include: dental insurance, short and long-term disability insurance, life insurances, accidental death and dismemberment insurance, group medical and health insurance options such as PPO, POS and HMO health plans, prescription card and vision, employee assistance plans, job counseling and educational benefits, and group rates for legal services.

                The benefits department offers to its clients a comprehensive benefits administration service on behalf of benefit plans sponsored by the Registrant or the client. As administrators, benefits representatives maintain all aspects of the clients’ benefit plans on the ScorPEO platform. Benefits specialists located at the Registrants’ three service centers perform the following benefit plan services:

                The Registrant offers a multiple employer 401(k) deferred compensation plan. As a multiple employer plan, the Registrant’s work-site employees can customize the plan characteristics such as rules of eligibility and employer matching contributions to suit their needs. Dependent care spending account and flexible care spending accounts, along with Section 125 cafeteria plans, are also offered to employees. There may be certain risks associated with the administration of client-based plans that the Registrant considers to be in the normal course of business and not a material exposure to its operations. Each individual small business’s cost of establishing and administering this range of plans would be prohibitive. However, due to economies of scale, PEOs can sponsor and offer these plans at an affordable cost.

                Participation in any Registrant benefit plan is based on eligibility of the employee. The Registrant is the plan sponsor, and as such pays costs and premiums, negotiates the plans, maintains the plans in accordance with local and federal guidelines and is the interface for enrolled employees.

Other Products and Services

                The Registrant is consistently searching for new opportunities and services to offer to its client companies and worksite employees. These additional services enhance the employer/employee relationship and provide additional revenue sources for the Registrant. Current and future additional products and services include: web banking services, checking accounts, savings accounts, credit cards, payroll secured credit cards, electronic bill payments, consumer loans, residential lending, insurance services, auto/home and life insurance, investment services, company store purchasing power concept, payroll deduction services, payroll lay-away plans, and payroll deduction purchases for poor credit members.

New Business Development

                The Registrant segregates the Business Development Department into Business Development Communities (BDC’s). Each of these BDC’s will be accountable for gross profit margins (net profit as the model matures), quality and growth. The five BDC’s are:

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                The Registrant builds a community that will provide services for the Registrants’s clients and their employees that will not be easily replaced by a single provider. Clients will be extremely reluctant to move to multiple providers. Over the years, the most critical component of the Registrant’s services has proven to be the seamless, single source provision of human resource services.

Sales and Marketing

                The Registrant markets its services through an internal sales force, a commission-based sales force and through several customized market arrangements. The internal sales group and commission-based sales associates provide leads to the Registrant. At this time, the Registrant does not require its various commissioned sales associates to be exclusive agents, although some of the larger producers have signed exclusivity agreements with the Registrant. In addition, the Registrant initiates oversight and marketing meetings with all of its commission-based associates at its headquarters several times each year.

                Submissions generated from the Registrant’s sales efforts are then qualified through the “New Business Development” department. A thorough evaluation of each submission includes the following:

                Once the prospect has met the underwriting criteria and accepted the service pricing, the Vice President of Sales will approve the preparation of a Shared Employment Agreement (“SEA”). Final approval of the client is required by the President and the Chief Risk Officer to confirm that the client has met the Registrants’ client selection guidelines. Once the final approval is granted, the SEA is delivered to the customer for execution.

E-Commerce and Advertising

                The Registrant anticipates expanding the use of its technology in the very near future. As a marketing tool, the Registrant plans to use its web site, CuraGroup.com, to be a showcase of the prowess of the Registrant’s software systems, as well as the ability to deliver payroll and human resource services directly to a customer’s desktop. At TeamCura.com, customers and their employees can access employment training courses, make benefit changes, perform payroll processing as well as gain access to employer forms and publications. The Registrant’s near term plans are to implement additional on-line services, product and services purchase capacity with a browser of integrated services

                The Registrant does not engage in significant advertising activities.

Information Technology

                The Registrant has invested in the development and maintenance of its integrated and comprehensive software system with its high-end hardware and facilities. The Tampa, FL service center with its state of the art data facility serves as the hosting site for the Registrant’s office and production software programs. The software applications are delivered from Tampa to the other locations of the organization via ‘Terminal

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Server’ technology over a wide area network. The Tampa data facility features fire control systems, redundant power supplies and temperature controls to maintain overall system integrity. The investment has provided the Registrant with a hosted information/software delivery system capable of servicing its current needs as well as anticipated future expansion.

                The Registrant delivers the payroll processing system via dual Dell Poweredge 8450 client servers with four (4) Pentium III Xeon microprocessors each (upgradeable to 8 microprocessors each) with Dell Powervault 220S disk storage array enclosures that hold 14, 73-gigabyte disk drives for a total of 1022 gigabytes of disk storage.This configuration does scale to meet the growth plans of the Registrant by processing in excess of 800,000 paychecks per month.

                The Registrant has implemented Great Plains Edition on MS SQL as its financial information system and reporting software platform. Great Plains provides the Registrant with a scaleable and technologically sophisticated accounting and financial reporting platform which integrates with the Registrant’s licensed payroll processing system.

The PEO Industry

                The PEO industry has grown significantly since its start in the late 1980’s, with the last decade showing significant growth due to the number of small and medium size client businesses purchasing the diverse services offered by the PEO industry.

                The industry has seen a significant evolution of the manner in which a successful PEO conducts its business. The PEO of 2004 and beyond will become the provider of value added services rather than the traditional wholesaler of inexpensive insurance products. Today’s successful PEO is a marketplace of services related to human resource and benefits administration, employer regulatory compliance and risk management.

                The Registrant believes the growth trend of the industry will continue. Several key factors it believes are driving the demand for PEO growth include:

                The Small Business Administration estimates there are nearly six million businesses with fewer than 100 employees. These small to mid-size businesses employ more than 52 million workers with an aggregate annual payroll of more than $1.1 trillion. As PEOs are currently serving just 2% of that market, the growth potential for PEO services appears significant. With an average annual growth rate of 20%, more business owners are turning to the PEO industry to provide them with the tools necessary to increase productivity and profits.

                The industry has benefited from The National Association of Professional Employer Organizations (NAPEO), which was formed in 1985 and is the oldest association representing the interests of professional employer organizations. Serving more than two million employees, this organization has helped set standards for fiscal responsibility of its member PEO’s.

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Competition

                According to NAPEO, the PEO industry currently has about 800 companies with between 2-3 million worksite employees with annual payrolls of $43 billion. The Registrant believes that there are several large national PEO’s with annual client payrolls exceeding $500 million. The Registrant considers its primary competition to be national and regional PEO providers, independent insurance agencies and the human resource departments of potential customers.

                At an estimated 2% market penetration, the PEO industry overall has significant room for all participants to advance. The Registrant does experience some price and product competition from other national and regional PEO’s. The PEO’s that are considered the Registrant’s national and regional competition include Administaff, Inc., Gevity HR, Inc.. and Presidion Solutions, respectively.

                In other areas of the country where the PEO penetration is closer to the industry average, the Registrant has a far lower incidence of competition with other companies of its kind. In these areas, the sales and marketing department competes with traditional human resource departments of potential customers. In these instances, the Registrant must educate and convince the prospect of the inherent benefits of the PEO relationship.

                Since the Registrant is a provider of workers’ compensation insurance, competition also comes in the form of independent insurance agents. In some cases, sales prospects have a valued relationship with their insurance agent. The PEO relationship would represent a discontinuance of service with their agent for purposes of workers’ compensation coverage. In cases such as these the Registrant must convince the sales prospect that value added services of the PEO relationship would represent a sound business decision.

EMPLOYEE BENEFIT PLANS

                 The Company provides coverage under various regional medical benefit providers. These plans are all fully insured plans in the various client companies name. The Company assumes no liability for any of these products.

Other Health Benefit Plans

                 The Company’s dental plans, which include both a PPO and HMO offering, are primarily provided by Aetna for all client employees who elect coverage. All dental plans are subject to guaranteed cost contracts that cap the Company’s annual liability.

                In addition to dental coverage, the Company offers various other guaranteed cost insurance programs to client employees such as vision care, life, accidental death and dismemberment, short-term disability and long-term disability. The Company also offers a flexible spending account for healthcare and dependent care costs.

401(k) PLANS

                 The Company offers a 401(k) retirement plan, designed to be a “multiple employer” plan under the Internal Revenue Code of 1986, as amended (the “Code”) Section 413(c). This plan design enables owners of clients and highly-compensated client employees, as well as highly-compensated internal employees of the Company, to participate. Generally, employee benefit plans are subject to provisions of both the Code and the Employee Retirement Income Security Act (“ERISA”).

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WORKERS’ COMPENSATION PLANS

                 The Company has had a loss sensitive Workers’ Compensation insurance program since December 31, 1996. The program was insured by CNA Financial Corporation (“CNA”) from December 31, 1998 through June 30, 2003. Under the guidance of the Company’s Risk Manager (Midwest), the Company has diversified its  programs consisting of several carriers including Union American Insurance Company, Providence Property and Casualty Company, Imperial Casualty and Indemnity Company and Cascade National Insurance Company. Through this diversification, the Company has achieved a spread of risk. The insured loss sensitive programs provides fully funded insurance coverage for claims incurred in each plan year but which may be paid out over future periods. In states where private insurance is not permitted, client employees are covered by state insurance funds.

                The insured loss sensitive programs provide a sharing of risk between the Company and the respective Carriers. As part of these programs, the Company has individual stop loss coverage at $1.0 million per occurrence. In addition, the Company had aggregate stop loss coverage for individual claims though June 30, 2003. The actual premium payable is determined based on the industries serviced by the Company, estimated wages and the losses incurred under the programs.

                The 2003 Workers’ Compensation insurance program provides for a sharing of risk between the Company and its Carriers whereby the Carriers assume risk in a least two areas within the program: (i) individual claim stop loss insurance risk; and (ii) premium payment credit risk.

                With respect to the individual claim stop loss insurance risk, the Company, through its Risk Manager (Midwest), is responsible for paying to its Carriers claim amounts related to the first $1.0 million per occurrence. Claim amounts in excess of $1.0 million per occurrence are insured through the Carriers. The Company remits weekly premium and incurred loss payments through its Risk Manager (Midwest) to its Carriers.

                Finally, with respect to the premium payment credit risk, this program is a fully insured policy written by the Carriers. If the Company were to fail to make premium payments to the Carriers as scheduled, then the Carriers would be responsible for the payment of all losses under the terms of the policy. The Carriers require the Company to provide adequate collateral related to premium payment credit risk. The required collateral is provided in a form of cash, short-term investments and letters of credit placed into a trust account.

                The company, through payments to its Risk Manager, has provided collateral to each of the insurance carriers based on the carrier’s total projected claims covered under each program. The payment of first year claims by the Company and premium payments to fund claims to be paid by the carriers reduce the total collateral required to be provided by the Company.

                The 2003 program year is subject to final audit of 2004, and may be subject to further collateral adjustments at that time.

Market Segments and Customer Selection 

                The Registrant is oriented to becoming a full service HR management company focused on providing value added employer and employee services to the customer. The Registrant believes that this strategy provides a long-term approach to success with controlled risk. The Registrant is subject to downturns in economic conditions but believes that through its diversification of risk and industries, such downturns would have minimal economic impact on the Company.

Market Segments

                The following table displays the Registrant’s client base by industry grouping for the year-ended December 31, 2003:

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                The Registrant typically markets its services to small to mid-size businesses. The Registrant avoids marketing to industries it feels have a high risk of injury, including: occupations that require exterior work performed in excess of two stories, transportation companies that specialize in hazardous materials, amusement parks, circuses, occupations that pose a significant occupational disease hazard (such as asbestos removal), construction of dams or bridges, firemen, police officers or armed security guards, and any occupation that requires working with munitions, explosives, fireworks, fuses, dynamite, nitroglycerine or any other product used in the construction of these devices. The Registrant rejects sales prospects with poor to marginal credit and/or high incidence of workers’ compensation claim count or losses.

                The Registrant reviews all of its clients on a weekly basis for workers’ compensation risk or loss activity, the client’s actual gross profit compared to plan and the client’s payment status. In addition to these standard reviews, the payroll and human resources departments provide the review committee with details of any peculiar problems that might pertain to a client.

                The Registrant reviews pricing on a regular basis and may increase or decrease prices to a client from time to time, based on the overall review of the client and on the business model the Registrant has established. In addition to possible increases or decreases in price, the Registrant may choose to terminate the co-employer relationship if, in the regular reviews of operations, major changes or problems have become the norm or if the desired gross profit margin is in jeopardy.

                The Registrant estimates its retention since inception in 1997 has been approximately 90%. The Registrant has enjoyed this estimated high retention due to its high level of service and controlled growth. A detailed “account-tracking recap” is being established to keep accurate records of new customers and terminated or lost customers, as well as the reasons therefore which include: cost of service, sale, merger, client business failure, and competition from other PEO’s or business service firms.

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Government  Regulation

                Numerous federal and state laws and re