Attached files
file | filename |
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8-K/A - 8-K/A - root9B Holdings, Inc. | pag100609_8ka.htm |
EX-99.2 - PRO FORMA FINANCIAL STATEMENTS - root9B Holdings, Inc. | proforma.htm |
EXHIBIT
99.1
Turlington
and Company, LLP
Certified
Public Accountants
INDEPENDENT AUDITORS'
REPORT
To the
Stockholder
PeopleSource,
Inc.
Winston-Salem,
North Carolina
We have
audited the accompanying balance sheet of PeopleSource, Inc. (an S Corporation)
as of December 31, 2008, and the related statements of income, stockholder's
equity, and cash flows for the year then ended. These
financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We
conducted our audit in accordance with auditing standards generally accepted in
the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of the Company's
internal control over financial reporting. Accordingly, we express no
such opinion. An audit also includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of PeopleSource, Inc. as of December
31, 2008, and the results of its operations and its cash flows for the year then
ended in conformity with accounting principles generally accepted in the United
States of America.
Winston-Salem,
North Carolina
September
17, 2009
509 East
Center Street – Post Office Box 1697 – Lexington, North Carolina
27293-1697
Office:
336-249-6856 – Facsimile: 336-248-8697
1338
Westgate Center Drive – Winston Salem, North Carolina 27103
Office:
336-765-2410 – Facsimile: 336-765-6241
www.turlingtonandcompany.com
PEOPLESOURCE,
INC.
|
||||
BALANCE
SHEET
|
||||
December 31, 2008
|
||||
ASSETS
|
||||
Current
assets:
|
||||
Cash
|
$ | 3,980 | ||
Accounts
receivable - trade
|
406,511 | |||
410,491 | ||||
Property
and equipment:
|
||||
Computer
equipment
|
33,319 | |||
Furniture
and equipment
|
18,293 | |||
51,612 | ||||
Less,
accumulated depreciation
|
46,205 | |||
5,407 | ||||
Other
assets:
|
||||
Deposits
|
3,138 | |||
$ | 419,036 | |||
LIABILITIES
|
||||
Current
liabilities:
|
||||
Note
payable
|
$ | 40,000 | ||
Accounts
payable - trade
|
69,238 | |||
Other
accrued liabilities
|
76,104 | |||
185,342 | ||||
STOCKHOLDER'S
EQUITY
|
||||
Capital
stock
|
1,000 | |||
Retained
earnings
|
232,694 | |||
233,694 | ||||
$ | 419,036 | |||
The
accompanying notes are an integral part of the financial
statements
|
PEOPLESOURCE,
INC.
|
||||||||
STATEMENT
OF STOCKHOLDER'S EQUITY
|
||||||||
Year Ended December 31,
2008
|
||||||||
Capital
stock:
|
||||||||
Common;
no par value; 1,000 shares issued and outstanding,
|
||||||||
with
no changes during the year
|
$ | 1,000 | ||||||
Retained
earnings:
|
||||||||
Balance
- beginning of year
|
245,909 | |||||||
Net
income for the year
|
64,185 | |||||||
Distributions
to stockholder
|
( | 77,400 | ) | |||||
Balance
- end of year
|
232,694 | |||||||
$ | 233,694 | |||||||
The
accompanying notes are an integral part of the financial
statements
|
||||||||
PEOPLESOURCE,
INC.
|
||||
STATEMENT
OF INCOME
|
||||
Year Ended December 31,
2008
|
||||
Revenue:
|
||||
Fee
revenue
|
$ | 3,272,323 | ||
Cost
of revenue:
|
||||
Salaries
and wages
|
1,814,220 | |||
Employee
benefits
|
48,070 | |||
Payroll
taxes
|
177,960 | |||
Temporary
services
|
679,492 | |||
2,719,742 | ||||
Gross
profit
|
552,581 | |||
Operating
expenses:
|
||||
Salaries
and wages
|
257,082 | |||
Employee
benefits
|
19,311 | |||
Payroll
taxes
|
19,667 | |||
Taxes
and licenses
|
2,621 | |||
Office
rent
|
40,070 | |||
Depreciation
|
2,945 | |||
Advertising
|
5,948 | |||
Office
expense
|
13,442 | |||
Telephone
|
7,772 | |||
Insurance
|
28,878 | |||
Travel
|
29,100 | |||
Professional
fees
|
17,715 | |||
Recruitment
expense
|
14,265 | |||
Meals
and entertainment
|
11,179 | |||
Staff
development
|
13,530 | |||
483,525 | ||||
Operating
income
|
69,056 | |||
Other
deductions:
|
||||
Interest
paid
|
4,871 | |||
Net
income for the year
|
$ | 64,185 | ||
The
accompanying notes are an integral part of the financial
statements
|
PEOPLESOURCE,
INC.
|
||||||||
STATEMENT
OF CASH FLOWS
|
||||||||
Year Ended December 31,
2008
|
||||||||
Cash
flows from operating activities:
|
||||||||
Net
income for the year
|
$ | 64,185 | ||||||
Adjustments
to reconcile net income to net cash
|
||||||||
provided
by operating activities:
|
||||||||
Depreciation
|
2,945 | |||||||
Changes
in assets and liabilities:
|
||||||||
Accounts
receivable
|
151,779 | |||||||
Accounts
payable - trade
|
( | 82,781 | ) | |||||
Other
accrued liabilities
|
( | 9,639 | ) | |||||
Net
cash provided by operating activities
|
126,489 | |||||||
Cash
flows from financing activities:
|
||||||||
Proceeds
from short-term borrowings
|
323,000 | |||||||
Payments
on short-term debt
|
( | 390,000 | ) | |||||
Distributions
to stockholder
|
( | 77,400 | ) | |||||
Net
cash used for financing activities
|
( | 144,400 | ) | |||||
Net
decrease in cash
|
( | 17,911 | ) | |||||
Cash
- beginning of year
|
21,891 | |||||||
Cash
- end of year
|
$ | 3,980 | ||||||
Cash
paid during the year for interest
|
$ | 4,871 | ||||||
The
accompanying notes are an integral part of the financial
statements
|
PEOPLESOURCE,
INC.
NOTES
TO FINANCIAL STATEMENTS
As of and for the Year Ended
December 31, 2008
1. Nature
of Operations and Concentration of Credit Risk:
PeopleSource,
Inc., located in Winston-Salem, North Carolina, provides predominantly long-term
contract information technology staffing services as well as permanent placement
in employment positions.
The
Company places its cash and cash equivalents on deposit with financial
institutions in the United States. In October and November 2008, the
Federal Deposit Insurance Corporation (FDIC) temporarily increased coverage to
$250,000 for substantially all depository accounts and temporarily provides
unlimited coverage for certain qualifying and participating non-interest bearing
transaction accounts. The increased coverage is scheduled to expire
on December 31, 2013, at which time it is anticipated amounts insured by the
FDIC will return to $100,000. During the year, the Company from time
to time may have had amounts on deposit in excess of the insured
limits.
2. Summary
of Significant Accounting Policies:
These
financial statements were prepared on the basis of accounting principles
generally accepted in the United States of America. The more
significant of the principles used are described as follows:
The
Company's cash, as stated for cash flow purposes, consists entirely of interest
and non-interest bearing cash accounts and petty cash. The Company
has no other assets that are
considered cash
equivalents.
Customer
accounts receivable are stated at the amount management expects to collect from
outstanding balances. The Company performs ongoing credit evaluations
of its customers and generally does not require
collateral. Management provides for probable uncollectible amounts
through a charge to earnings and a credit to a valuation allowance based on its
assessment of the current status of individual accounts. Balances
which remain outstanding after management has used reasonable collection efforts
are written off through a charge to the valuation allowance and a credit to
trade accounts receivable. Historically, credit losses have not been
significant, and management believes that no allowance for doubtful accounts is
required at this time.
Property
and equipment is carried at cost less accumulated depreciation. New
assets and expenditures which substantially increase the useful lives of
existing assets are capitalized. Maintenance and repairs are expensed
as incurred. Depreciation is computed by use of the straight-line
method over the estimated useful lives of the assets.
FASB
Staff Position (FSP) 48-3 defers the effective date of FASB Interpretation No.
48 (FIN 48), Accounting for
Uncertainty in Income Taxes, for certain non-public enterprises for
fiscal years beginning after December 15, 2008. The Company has
elected to defer the application of FIN 48 in accordance with FSP
48-3. During the deferral period of the application of FIN 48, the
Company will continue to evaluate uncertain tax positions utilizing the
underlying principles of FAS 109, Accounting for Income Taxes,
and FAS 5, Accounting for
Contingencies.
PEOPLESOURCE,
INC.
NOTES TO FINANCIAL
STATEMENTS (CONTINUED)
2. Summary
of Significant Accounting Policies (Continued):
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
3. Note
Payable:
A summary
of the Company's note payable as of December 31, 2008 is as
follows:
Martha I. Cox:
Note payable to relative of
stockholder;
payable in monthly
installments of accrued
interest at prime plus
1%; due on demand;
secured by accounts
receivable $
40,000
The
Company has a revolving line of credit of $100,000 with Bank of the
Carolinas. Under the terms of this note, the outstanding principal
balance plus any unpaid accrued interest is due on demand. Accrued
interest is payable monthly at Bank of the Carolinas' prime
rate. This note is secured by the Company's deposit accounts with
Bank of the Carolinas. The balance outstanding under this revolving
line of credit was $-0- at December 31, 2008.
4. Employee Benefit
Plan:
The
Company maintains a defined contribution deferred income retirement plan (Plan)
established under Section 401(k) of the Internal Revenue Code. The
Plan is available to substantially all employees of the Company who have met
certain service requirements. Employee contributions to the Plan are
limited to a percentage of compensation as defined by the
Plan. Company contributions to the Plan are made at the discretion of
the Board of Directors. The Company made no contributions to the Plan
during 2008.
5. Leases:
The
Company leases office space for $3,331 per month under an operating lease that
commenced on December 15, 2004 and terminates on December 31,
2009. Operating lease expense for the year ended December 31, 2008
amounted to $40,070.
Following
is a schedule of future minimum lease payments under the above operating lease
as of December 31, 2008:
Year Ending December
31
Amount
2009 $
40,767
PEOPLESOURCE,
INC.
NOTES TO FINANCIAL
STATEMENTS (CONTINUED)
6. Income Taxes:
Effective
January 1, 1998, the Company has elected to be taxed under Subchapter S of the
Internal Revenue Code. Under this election, the income or loss of the
Company is required to be reported by the stockholders on their individual
income tax returns. As a result, no provision for income taxes would
normally be recognized.
The
taxable income or loss reported by the stockholder will differ from the net
income or loss reflected in these financial statements, due to the
tax return being prepared on the cash basis.
The
Company's income tax returns have not been examined by the Internal Revenue
Service. The Company's management believes that only the years ended
December 31, 2008, 2007, and 2006 are subject to audit.
7. Capital
Structure:
Shares of
common stock represent voting shares, and dividends are paid at the discretion
of the Board of Directors.
8. Concentrations:
Operating
revenue from two customers accounted for approximately 63% of the Company's
revenue for the year ended December 31, 2008.
9. Subsequent Event:
The sole
stockholder of the Company has entered into an agreement to sell all of the
Company's fixed assets as well as the Company's client list and executed
contracts in force to an unrelated party.
Turlington
and Company, LLP
Certified
Public Accountants
INDEPENDENT ACCOUNTANTS'
REVIEW REPORT
To the
Stockholder
PeopleSource,
Inc.
Winston-Salem,
North Carolina
We have
reviewed the accompanying balance sheet of PeopleSource, Inc. (an S Corporation)
as of September 30, 2009, and the related statements of income, changes in
stockholder's equity, and cash flows for the nine-month period then ended, in
accordance with Statements on Standards for Accounting and Review Services
issued by the American Institute of Certified Public Accountants. All
information included in these financial statements is the representation of the
management of PeopleSource, Inc.
A review
consists principally of inquiries of Company personnel and analytical procedures
applied to financial data. It is substantially less in scope than an
audit in accordance with generally accepted auditing standards, the objective of
which is the expression of an opinion regarding the financial statements taken
as a whole. Accordingly, we do not express such an
opinion.
Based on
our review, we are not aware of any material modifications that should be made
to the accompanying financial statements in order for them to be in conformity
with generally accepted accounting principles.
Our
review was made for the purpose of expressing limited assurance that there are
no material modifications that should be made to the financial statements in
order for them to be in conformity with generally accepted accounting
principles. The information included in the accompanying Schedules I,
II, III, and IV is presented only for supplementary analysis
purposes. Such information has been subjected to the inquiry and
analytical procedures applied in the review of the basic financial statements,
and we are not aware of any material modifications that should be made
thereto.
t
Winston-Salem,
North Carolina
October
21, 2009
509 East
Center Street – Post Office Box 1697 – Lexington, North Carolina
27293-1697
Office:
336-249-6856 – Facsimile: 336-248-8697
1338
Westgate Center Drive – Winston Salem, North Carolina 27103
Office:
336-765-2410 – Facsimile: 336-765-6241
www.turlingtonandcompany.com
PEOPLESOURCE,
INC.
|
||||
BALANCE
SHEET
|
||||
September 30, 2009
|
||||
ASSETS
|
||||
Current
assets:
|
||||
Accounts
receivable:
|
||||
Trade
|
$
|
278,846
|
||
Other
|
3,428
|
|||
Prepaid
expenses
|
4,742
|
|||
287,016
|
||||
Property
and equipment:
|
||||
Computer
equipment
|
21,716
|
|||
Furniture
and equipment
|
17,395
|
|||
39,111
|
||||
Less,
accumulated depreciation
|
35,671
|
|||
3,440
|
||||
Other
assets:
|
||||
Deposits
|
3,138
|
|||
$
|
293,594
|
|||
LIABILITIES
|
||||
Current
liabilities:
|
||||
Bank
overdraft
|
$
|
41,864
|
||
Accounts
payable - trade
|
56,187
|
|||
Other
accrued liabilities
|
49,906
|
|||
147,957
|
||||
STOCKHOLDER'S
EQUITY
|
||||
Capital
stock
|
1,000
|
|||
Retained
earnings
|
144,637
|
|||
145,637
|
||||
$
|
293,594
|
|||
The
accompanying notes are an integral part of the financial
statements
|
||||
See
independent accountants' review
report
|
PEOPLESOURCE,
INC.
|
||||||||
STATEMENT
OF STOCKHOLDER'S EQUITY
|
||||||||
Nine-Month Period Ended September 30,
2009
|
||||||||
Capital
stock:
|
||||||||
Common;
no par value; 1,000 shares issued and
|
||||||||
outstanding,
with no changes during the period
|
$ | 1,000 | ||||||
Retained
earnings:
|
||||||||
Balance
at beginning of period
|
232,693 | |||||||
Net
income for the period
|
41,967 | |||||||
Distributions
to stockholder
|
( | 130,023 | ) | |||||
Balance
at end of period
|
144,637 | |||||||
$ | 145,637 | |||||||
The
accompanying notes are an integral part of the financial
statements
|
||||||||
See
independent accountants' review report
|
PEOPLESOURCE,
INC.
|
||||
STATEMENT
OF INCOME
|
||||
Nine-Month Period Ended September 30,
2009
|
||||
Revenue:
|
||||
Fee
revenue
|
$
|
1,627,166
|
||
Cost
of revenue:
|
||||
Salaries
and wages
|
758,229
|
|||
Employee
benefits
|
34,105
|
|||
Payroll
taxes
|
55,882
|
|||
Temporary
services
|
422,821
|
|||
1,271,037
|
||||
Gross
profit
|
356,129
|
|||
Operating
expenses:
|
||||
Salaries
and wages
|
161,755
|
|||
Employee
benefits
|
12,694
|
|||
Payroll
taxes
|
11,455
|
|||
Taxes
and licenses
|
4,647
|
|||
Office
rent
|
30,854
|
|||
Depreciation
|
1,633
|
|||
Advertising
|
1,531
|
|||
Office
expense
|
11,186
|
|||
Telephone
|
2,754
|
|||
Insurance
|
15,159
|
|||
Travel
|
7,236
|
|||
Professional
fees
|
44,154
|
|||
Dues
and subscriptions
|
254
|
|||
Recruitment
expense
|
4,002
|
|||
Meals
and entertainment
|
4,315
|
|||
313,629
|
||||
Operating
income
|
42,500
|
|||
Other
deductions:
|
||||
Loss
on sale of equipment
|
8
|
|||
Interest
paid
|
525
|
|||
533
|
||||
Net
income for the period
|
$
|
41,967
|
||
The
accompanying notes are an integral part of the financial
statements
|
||||
See
independent accountants' review
report
|
PEOPLESOURCE,
INC.
|
||||||||
STATEMENT
OF CASH FLOWS
|
||||||||
Nine-Month Period Ended September 30,
2009
|
||||||||
Cash
flows from operating activities:
|
||||||||
Net
income for the period
|
$ | 41,967 | ||||||
Adjustments
to reconcile net income to net cash
|
||||||||
provided
by operating activities:
|
||||||||
Depreciation
|
1,633 | |||||||
Loss
on sale of equipment
|
8 | |||||||
Changes
in assets and liabilities:
|
||||||||
Accounts
receivable - trade
|
127,665 | |||||||
Accounts
receivable - other
|
( | 3,428 | ) | |||||
Prepaid
expenses
|
( | 4,742 | ) | |||||
Bank
overdraft
|
41,864 | |||||||
Accounts
payable
|
( | 13,051 | ) | |||||
Other
accrued liabilities
|
( | 26,198 | ) | |||||
Net
cash provided by operating activities
|
165,718 | |||||||
Cash
flows from investing activities:
|
||||||||
Proceeds
from sale of equipment
|
325 | |||||||
Cash
flows from financing activities:
|
||||||||
Proceeds
from short-term borrowings
|
60,000 | |||||||
Payments
on short-term debt
|
( | 100,000 | ) | |||||
Distributions
to stockholder
|
( | 130,023 | ) | |||||
Net
cash used for financing activities
|
( | 170,023 | ) | |||||
Net
decrease in cash
|
( | 3,980 | ) | |||||
Cash
- beginning of period
|
3,980 | |||||||
Cash
- end of period
|
$ | - | ||||||
Cash
paid during the period for interest
|
$ | 525 | ||||||
The
accompanying notes are an integral part of the financial
statements
|
||||||||
See
independent accountants' review report
|
PEOPLESOURCE,
INC.
NOTES
TO FINANCIAL STATEMENTS
As of and for the Nine-Month
Period Ended September 30, 2009
1. Nature
of Operations and Concentration of Credit Risk:
PeopleSource,
Inc., located in Winston-Salem, North Carolina, provides predominantly long-term
contract information technology staffing services as well as permanent placement
in employment positions.
The
Company places its cash and cash equivalents on deposit with financial
institutions in the United States. In October and November 2008, the
Federal Deposit Insurance Corporation (FDIC) temporarily increased coverage to
$250,000 for substantially all depository accounts and temporarily provides
unlimited coverage for certain qualifying and participating non-interest bearing
transaction accounts. The increased coverage is scheduled to expire
on December 31, 2013, at which time it is anticipated amounts insured by the
FDIC will return to $100,000. During the period, the Company from
time to time may have had amounts on deposit in excess of the insured
limits.
2. Summary
of Significant Accounting Policies:
These
financial statements were prepared on the basis of generally accepted accounting
principles. The more significant of the principles used are described
as follows:
The
Company's cash, as stated for cash flow purposes, consists entirely of interest
and non-interest bearing cash accounts and petty cash. The Company
has no other assets that are considered cash equivalents.
Customer
accounts receivable are stated at the amount management expects to collect from
outstanding balances. The Company performs ongoing credit evaluations
of its customers and generally does not require
collateral. Management provides for probable uncollectible amounts
through a charge to earnings and a credit to a valuation allowance based on its
assessment of the current status of individual accounts. Balances
which remain outstanding after management has used reasonable collection efforts
are written off through a charge to the valuation allowance and a credit to
trade accounts receivable. Historically, credit losses have not been
significant, and management believes that no allowance for doubtful accounts is
required at this time.
Property
and equipment is carried at cost less accumulated depreciation. New
assets and expenditures which substantially increase the useful lives of
existing assets are capitalized. Maintenance and repairs are expensed
as incurred. Depreciation is computed by use of the straight-line
method over the estimated useful lives of the assets.
FASB
Staff Position (FSP) 48-3 defers the effective date of FASB Interpretation No.
48 (FIN 48), Accounting for
Uncertainty in Income Taxes, for certain non-public enterprises for
fiscal years beginning after December 15, 2008. The Company has
elected to defer the application of FIN 48 in accordance with FSP
48-3. During the deferral period of the application of FIN 48, the
Company will continue to evaluate uncertain tax positions utilizing the
underlying principles of FAS 109, Accounting for Income Taxes,
and FAS 5, Accounting for
Contingencies.
PEOPLESOURCE,
INC.
NOTES TO FINANCIAL
STATEMENTS (CONTINUED)
2. Summary
of Significant Accounting Policies (Continued):
The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those
estimates.
3. Note
Payable:
The
Company has a revolving line of credit of $150,000 with a bank. Under
the terms of this note, the outstanding principal balance plus any unpaid
accrued interest is due on demand. Accrued interest is payable
monthly at the bank's prime rate plus .5%. This note is secured by
the Company's accounts receivable. The balance outstanding under this
revolving line of credit was $-0- at September 30, 2009.
4. Income Taxes:
Effective
January 1, 1998, the Company elected to be taxed under Subchapter S of the
Internal Revenue Code. Under this election, the income or loss of the
Company is required to be reported by the stockholders on their individual
income tax returns. As a result, no provision for income taxes would
normally be recognized.
The
taxable income or loss reported by the stockholder will differ from the net
income or loss reflected in these financial statements, due to the
tax return being prepared on the cash basis.
The
Company's income tax returns have not been examined by the Internal Revenue
Service. The Company's management believes that only the years ended
December 31, 2008, 2007, and 2006 are subject to audit.
5. Capital
Structure:
Shares of
common stock represent voting shares, and dividends are paid at the discretion
of the Board of Directors.
6. Concentrations:
Operating
revenues for two customers accounted for approximately 58% of the Company's
revenue for the nine-month period ended September 30, 2009.
7. Sale of Assets:
The sole
stockholder of the Company sold all of the Company's fixed assets as well as the
Company's client list and executed contracts in force to an unrelated party
on October 1, 2009.