Great Spirits Inc - FORM 8-K - EX-99.1 - EXHIBIT 99.1

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8-K - REPORT 8-K - Great Spirits Inc	greatspirits8k_862010.htm
EX-99.2 - EXHIBIT 99.2 - Great Spirits Inc	greatspirits8kex992_862010.htm

Exhibit 99.1

HALLMARK HUMAN RESOURCES, INC.

AND SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS

AND INDEPENDENT ACCOUNTANTS’ REPORT

FOR THE THREE MONTHS ENDED

MARCH 31, 2010 AND 2009

HALLMARK HUMAN RESOURCES, INC.

AND SUBSIDIARIES

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

	Page


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM	1

CONSOLIDATED FINANCIAL STATEMENTS:

Consolidated Balance Sheets as of March 31, 2010 and December 31, 2009	2

Consolidated Statements of Operations for the three months ended March 31, 2010 and 2009	3

Consolidated Statements of Changes in Stockholders’ Equity for the three months ended
March 31, 2010	4

Consolidated Statements of Cash Flows for the three months ended March 31, 2010 and 2009	5

Notes to Consolidated Financial Statements	6

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

ON CONSOLIDATED FINANCIAL STATEMENTS

The Audit Committee of the Board of Directors

and the Stockholders of Hallmark Human Resources, Inc.

We have reviewed the accompanying interim consolidated balance sheet of Hallmark Human Resources, Inc. and subsidiaries as of March 31, 2010, and the related interim consolidated statements of operations for the three-month periods ended March 31, 2010 and 2009, the interim consolidated statement of stockholders’ equity for the three months ended March 31, 2010, and interim statements of cash flows for the three month periods then ended. These interim consolidated financial statements are the responsibility of the Company’s management.

We conducted our review in accordance with the standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with auditing standards generally accepted in the United States, the objective of which is the expression of an opinion regarding the financial information 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 interim consolidated financial statements referred to above for them to be in conformity with accounting principles generally accepted in the United States of America.

We have previously audited, in accordance with auditing standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of Hallmark Human Resources, Inc. and subsidiaries as of December 31, 2009, and the related consolidated statements of operations, stockholders’ equity, and cash flows for the year then end (not presented herein); and in our report dated July 23, 2010, we expressed an unqualified opinion, with an explanatory paragraph due to the Company’s ability to continue as a going concern, on those consolidated financial statements.

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As shown in the consolidated financial statements, the Company incurred a net loss of $(117,273) during the three months ended March 31, 2010, and, as of that date, had a working capital deficiency of $(629,616) and negative net worth of $(582,593). As described more fully in Note 9 to the consolidated financial statements, the Company is in default on its related party loan agreements, which, among other things, cause the balances to become due on demand. Those conditions raise substantial doubt about the Company’s ability to continue as a going concern. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/s/ SANFORD, BAUMEISTER & FRAZIER

SANFORD, BAUMEISTER & FRAZIER, PLL

August 2, 2010

- 1 -

HALLMARK HUMAN RESOURCES, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
____________________

ASSETS
	March 31,			December 31,
	2010			2009
CURRENT ASSETS	(Unaudited)
Cash and cash equivalents	$	26,825		$	66,631
Accounts receivable, net		3,722			-
Prepaid expenses		46,816			46,816
Other current assets		3,277			3,277

Total Current Assets		80,640			116,724

PROPERTY AND EQUIPMENT - At Cost
Office furniture and equipment		57,237			57,237
Less: Accumulated depreciation		(55,406	)		(54,851	)

Net Property and Equipment		1,831			2,386

OTHER ASSETS
Deposits		17,692			17,692
Non-compete agreement, net of accumulated amortization		27,500			30,000

Total Other Assets		45,192			47,692

TOTAL ASSETS	$	127,663		$	166,802

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

CURRENT LIABILITIES
Accounts payable	$	121,476		$	148,303
Accrued interest expense		11,958			-
Workers' compensation insurance payable		53,199			50,710
Payroll taxes payable		6,607			3,113
Line of credit		46,515			41,515
Due to shareholder		7,682			-
Other current liabilities		2,077			2,239
Current portion of long-term debt - related parties		427,200			402,450
Current portion of long-term debt		33,542			33,542

Total Current Liabilities		710,256			681,872

STOCKHOLDERS' EQUITY (DEFICIT)
Common stock, no par value, 50,000,000 shares authorized,
15,350,768 (2010) and 15,204,568 (2009) shares issued, and
15,338,768 (2010) and 15,192,568 (2009) shares outstanding		1,034,230			984,480
Accumulated deficit		(1,601,823	)		(1,484,550	)
Less: Common stock held in treasury - at cost - 12,000 shares		(15,000	)		(15,000	)

Total Stockholders' Equity (Deficit)		(582,593	)		(515,070	)

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)	$	127,663		$	166,802

The accompanying notes to consolidated financial statements

.are an integral part of these statements.

- 2 -

HALLMARK HUMAN RESOURCES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
____________________
	Three Months Ended March 31,
	2010			2009
REVENUES
Gross billings	$	990,301		$	2,035,651
Less: Worksite employee payroll costs		(764,507	)		(1,630,325	)
Employee leasing income		225,794			405,326
Less: Direct costs (payroll taxes, benefits
and workers' compensation costs)		(198,099	)		(312,253	)
Net Revenues		27,695			93,073

OPERATING EXPENSES
Salaries, payroll taxes and benefits		23,972			80,830
Travel and entertainment		2,730			7,341
Other		430			50
Rent		2,576			2,541
Professional fees		46,500			11,030
License fees		195			2,476
Supplies and data processing		6,103			6,374
Dues and subscriptions		2,966			3,090
Office expense, including telephone and utilities		4,127			4,962
Insurance		1,100			2,124
Commissions		25,250			-
Bank charges		1,741			3,808
Depreciation and amortization		3,055			-
Total Operating Expenses		120,745			124,626

OPERATING LOSS		(93,050	)		(31,553	)

OTHER INCOME (EXPENSES)
Other income		5,927			-
Interest expense		(25,051	)		(14,987	)
Other expense		(5,099	)		(408	)
Total Other Income (Expenses)		(24,223	)		(15,395	)

LOSS BEFORE INCOME TAXES		(117,273	)		(46,948	)

INCOME TAX EXPENSE (BENEFIT) - Deferred		-			(7,042	)

LOSS FROM CONTINUING OPERATIONS		(117,273	)		(39,906	)
Income (loss) from operations of discontinued component		-			(12,550	)
Provision for income tax (expense) benefit		-			1,883

NET LOSS	$	(117,273	)	$	(50,573	)

Earnings per Share from Operations	$	(0.01	)	$	(0.00	)

Earnings per Share from Discontinued Operations	$	-		$	(0.00	)

Earnings per Share - Net Loss	$	(0.01	)	$	(0.00	)

Weighted-Average Common Shares Outstanding		15,297,941			15,010,968

The accompanying notes to consolidated financial statements

.are an integral part of these statements.

- 3 -

HALLMARK HUMAN RESOURCES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE THREE MONTHS ENDED MARCH 31, 2010
(UNAUDITED)
____________________

											Total
	Common Stock				Accumulated			Treasury			Stockholders'
	Shares		Amount		Deficit			Stock			Equity (Deficit)

BALANCES - December 31, 2009		15,142,568	$	984,480	$	(1,484,550	)	$	(15,000	)	$	(515,070	)

Correction to stock ledger		50,000										-

Common stock issued for cash		120,000		20,000								20,000

Common stock issued as
compensation		20,200		25,250								25,250

Common stock issued as
payment for interest on note		6,000		4,500								4,500

Net loss						(117,273	)					(117,273	)

BALANCES - March 31, 2010		15,338,768	$	1,034,230	$	(1,601,823	)	$	(15,000	)	$	(582,593	)

The accompanying notes to consolidated financial statements

.are an integral part of these statements.

- 4 -

HALLMARK HUMAN RESOURCES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
____________________

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

	Three Months Ended March 31,
	2010			2009
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$	(117,273	)	$	(50,573	)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization		3,055			-
Common stock issued as compensation		25,250			-
Common stock issued as payment for interest on note		4,500			-
Change in deferred taxes		-			(8,925	)
(Increase) decrease in operating assets:
Accounts and other receivables		(3,722	)		27,304
Increase (decrease) in operating liabilities:
Accounts payable		(26,827	)		38,245
Other current liabilities		25,461			(55,634	)

Net Cash Used in Operating Activities		(89,556	)		(49,583	)

CASH FLOWS FROM INVESTING ACTIVITIES		-			-

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock		20,000			-
Escrow deposit for future financing		-			(150,000	)
Proceeds from notes payable		29,750			214,550
Payments on notes payable		-			(54,774	)

Net Cash Provided by Financing Activities		49,750			9,776

NET DECREASE IN CASH AND CASH EQUIVALENTS		(39,806	)		(39,807	)

CASH AND CASH EQUIVALENTS - Beginning of Period		66,631			240,065

CASH AND CASH EQUIVALENTS - End of Period	$	26,825		$	200,258


SUPPLEMENTAL DISCLOSURE
Cash paid for interest	$	8,593		$	14,987

The accompanying notes to consolidated financial statements

.are an integral part of these statements.

- 5 -

HALLMARK HUMAN RESOURCES, INC

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

MARCH 31, 2010

____________

NOTE 1 – DESCRIPTION OF BUSINESS ORGANIZATION AND OPERATIONS

Hallmark Human Resources, Inc. (the “Company”) is a professional employer organization (“PEO”). As a PEO, the Company provides a bundled comprehensive service for its clients in the area of personnel management. The Company provides its comprehensive service through a broad range of human resource functions, including payroll and benefits administration, health and workers’ compensation insurance programs, personnel records management, employer liability management, employee performance management, and employee training and development.

The Company provides its comprehensive service by entering into a co-employment relationship with its clients, under which the Company and its clients each take responsibility for certain portions of the employer-employee relationship. The Company and its clients designate each party’s responsibilities through its Clients Services Agreement (“CSA”), under which the Company becomes the employer of its worksite employees for most administrative and regulatory purposes.

As a co-employer of its worksite employees, the Company assumes most of the rights and obligations associated with being an employer. The Company enters into an employment agreement with each worksite employee, thereby maintaining a variety of employer rights, including the right to hire or terminate employees, the right to evaluate employee qualifications or performance, and the right to establish employee compensation levels. Typically, the Company only exercises these rights in consultation with its clients or when necessary to ensure regulatory compliance. The responsibilities associated with the Company’s role as employer include the following obligations with regard to its worksite employees: (i) to compensate its worksite employees through wages and salaries; (ii) to pay the employer portion of payroll-related taxes; (iii) to withhold and remit (where applicable) the employee portion of payroll-related taxes; (iv) to provide employee benefit programs; and (v) to provide workers’ compensation insurance coverage.

In addition to its assumption of employer status for its worksite employees, the Company’s comprehensive service also includes other human resource functions for its clients to support the effective and efficient use of personnel in their business operations. To provide these functions, the Company maintains a staff of professionals trained in a wide variety of human resource functions, including employee training, employee performance management, employee compensation, and employer liability management. These professionals interact and consult with clients on an ongoing basis to help identify each client’s service requirements and to ensure that the Company is providing appropriate and timely personnel management services.

The Company provides its comprehensive service to small and medium-sized businesses in strategically selected markets throughout the United States. During 2008, the revenues from the Company’s California market represented 25% of the Company’s total revenues. During 2009, the California market continued to decline, and in September 2009, the company closed their California location and ceased operations in that division. Their investment in their California division was written off in 2009 and the related acquisition loan was modified and released.

For the three months ended March 31, 2010 and 2009, the revenues from the Company’s Alabama market represented 88% and 68%, while revenues from the Company’s Texas markets represented 12% and 32%, of the Company’s total revenues, respectively.

The accompanying consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements for the year ended December 31, 2009. The Company’s Consolidated Balance Sheet at March 31, 2010, and the Consolidated Statements of Operations, Cash Flows and Stockholders’ Equity for the periods ended March 31, 2010 and 2009, have been prepared by the Company without audit. In the opinion of management, all adjustments, consisting only of normal recurring adjustments necessary to present fairly the consolidated financial position, results of operations and cash flows, have been made. The Company has evaluated subsequent events through the time these financial statements were available to be issued.

The results of operations for the interim periods are not necessarily indicative of the operating results for a full year or of future operations.

- 6 -

HALLMARK HUMAN RESOURCES, INC

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

MARCH 31, 2010

____________

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

This summary of significant accounting policies of the Company is presented to assist in understanding the consolidated financial statements. The consolidated financial statements and notes are representations of the Company’s management who are responsible for their integrity and objectivity. These accounting policies conform to U.S. generally accepted accounting principles and have been consistently applied in the preparation of the consolidated financial statements.

PRINCIPLES OF CONSOLIDATION

The consolidated financials statements include the accounts of Hallmark Human Resources, Inc. and its wholly owned subsidiaries PAS Services, Inc., (PAS) Global Administrative Services, Inc., Global Administrative Services II, Inc., and Global ASO, Inc. (Global entities). All material intercompany accounts and transactions have been eliminated in consolidation.

USE OF ESTIMATES

The Company uses estimates and assumptions in preparing these consolidated financial statements in accordance with U.S. generally accepted accounting principles. Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses. Actual results could vary from those estimates.

REVENUE AND DIRECT COST RECOGNITION

The Company’s accounting for revenue is in accordance with Accounting Standards Codification (“ASC”) 605-45, Revenue Recognition, Principal Agent Considerations. The Company’s revenues are derived from its gross billings, which are based on (i) the payroll cost of its worksite employees; and (ii) a markup computed as a percentage of the payroll cost. The gross billings are invoiced concurrently with each periodic payroll of its worksite employees. Revenues, which exclude the payroll cost component of gross billings, and therefore, consist solely of markup, are recognized ratably over the payroll period as worksite employees perform their service at the client worksite. Revenues that have been recognized but not invoiced are included in unbilled accounts receivable on the Company’s consolidated balance sheets.

In determining the pricing of the markup component of the gross billings, the Company takes into consideration its estimates of the costs directly associated with its worksite employees, including payroll taxes, benefits and workers’ compensation costs, plus an acceptable gross profit margin. As a result, the Company’s operating results are significantly impacted by the Company’s ability to accurately estimate, control and manage its direct costs relative to the revenues derived from the markup component of the Company’s gross billings.

Consistent with its revenue recognition policy, the Company’s direct costs do not include the payroll cost of its worksite employees. The Company’s direct costs associated with its revenue generating activities are comprised of all other costs related to it its worksite employees, such as the employer portion of payroll-related taxes, employee benefit plan premiums and worker’s compensation insurance costs.

SEGMENT REPORTING

The Company operates in one reportable segment under ASC 280, Segment Reporting.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amounts of cash, cash equivalents, accounts receivable, accounts payable and other accrued liabilities approximate their fair values due to the short-term maturities of these instruments.

- 7 -

HALLMARK HUMAN RESOURCES, INC

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

MARCH 31, 2010

____________

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – Continued

CASH AND CASH EQUIVALENTS

For purposes of the statement of cash flows, cash represents cash on hand and in banks with maturities of less than ninety days. Amounts reported in the consolidated balance sheets approximate fair value.

ACCOUNTS RECEIVABLE, NET OF ALLOWANCE FOR DOUBTFUL ACCOUNTS

Accounts receivable is presented in the consolidated financial statements net of estimated uncollectible amounts. The Company records an allowance for estimated uncollectible accounts in an amount approximating anticipated losses. Individual uncollectible accounts are written off against the allowance when collection of the individual accounts appears doubtful. As of March 31, 2010 and December 31, 2009 the allowance for doubtful accounts was $-0-. The Company generally requires clients pay invoices for service fees no later than on day prior to the applicable payroll date. As such, the Company generally does not require collateral. Amounts reported in the consolidated balance sheets approximate fair value.

PROPERTY AND EQUIPMENT

Property and equipment are recorded at cost and are depreciated over the estimated useful lives of the related assets using the straight-line method (3 – 10 years). Property and equipment in excess of $500 that are purchased are recorded at cost and depreciated over their estimated useful lives. Maintenance and repairs are charged to expense as incurred. Renewals and betterments which extend the useful lives of the assets are capitalized. The cost and accumulated depreciation related to assets sold or retired are removed from the accounts, and any gain or loss is reflected in operations.

The Company periodically evaluates its long-lived assets for financial impairment in accordance with ASC 360-10, Property, Plant, and Equipment. ASC 360-10 requires that an impairment loss be recognized for assets to be disposed of or held-for-use when the carrying amount of an asset is deemed to not be recoverable. If events or circumstances were to indicate that any of the Company’s long lived assets might be impaired, the Company would assess recoverability based on the estimated undiscounted future cash flows to be generated from the applicable asset. In addition, the Company may record an impairment loss to the extent that the carrying value of the asset exceeded the fair value of the asset. Fair value is generally determined using an estimate of discounted future net cash flows from operating activities or upon disposal of the asset.

GOODWILL AND OTHER INTANGIBLE ASSETS

The Company’s goodwill and intangible assets are subject to the provisions of ASC 350-10, Intangibles – Goodwill and Other, which states that goodwill and intangible assets with indefinite useful lives should not be amortized, but instead tested for impairment at least annually at the reporting unit level. The Company performs this impairment test by first comparing the fair value of its reporting units to their carrying amount. If an indicator of impairment exists based upon comparing the fair value of its reporting units to their carrying amount, the Company would then compare the implied fair value of its goodwill to the carrying amount in order to determine the amount of impairment, if any. As of December 31, 2009, the Company determined that the remaining goodwill balance of $218,513 was impaired. Therefore, this amount was recorded as an impairment loss on the consolidated statements of operations for the year ended December 31, 2009. See NOTE 5 for additional details.

The July and December 2007 acquisitions of PAS Services, Inc., Global Administrative Services, Inc., Global Administrative Services II, Inc., and Global ASO, Inc. included goodwill in the purchase price. See NOTE 6 for additional details.

In relation to the purchase of the Global entities the Company entered into a non-compete agreement with the former owners for a period of five years. ASC 350-10 requires purchased intangible assets other than goodwill to be amortized over their useful lives. Therefore, this agreement is being amortized over a period of five years beginning in January 2008. Estimated amortization expense this agreement is expected to be $10,000 for each of the years ending December 31, 2010, 2011 and 2012. See NOTE 5 for additional details.

- 8 -

HALLMARK HUMAN RESOURCES, INC

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

MARCH 31, 2010

____________

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – Continued

WORKERS’ COMPENSATION COSTS

The Company’s workers’ compensation coverage is currently provided through Zurich and Texas Mutual Insurance Companies. Under these arrangements the Company bears no risk as all plans are fully insured with a zero dollar deductible. Zurich and Texas Mutual has the responsibility to pay all claims incurred under the policy.

Workers’ compensation coverage for the Alabama companies is billed to clients at the highest rate calculated, prior to any allowed discounts. As the money is collected, it is credited to a liability account and held in reserve until the audit of the account in the subsequent year. Any unused funds after the audit is completed are retained by the Company.

Because the Company bears no economic burden all insurance premiums collected are remitted to the respective insurance company on a monthly basis.

HEALTH INSURANCE COSTS

The Company provides group health insurance coverage to it worksite employees through Continental American Insurance Company.

STOCK-BASED COMPENSATION

The Company does not have any formal stock-based compensation plans. However, the Company has paid certain individuals (employees and board members) for services rendered with shares of common stock. The stock compensation was entirely paid in the year of service. The amount of shares issued was based upon an internal estimated fair value of those services, based upon market conditions for similar services rendered, and the estimated book value of the Company at the time the services were performed. These awarded shares of common stock are 100% vested.

ADVERTISING

The Company expenses all advertising costs as incurred.

INCOME TAXES

The Company’s accounting for income taxes is in accordance with ASC 740, Accounting for Income Taxes, which require the use of the “liability method” of accounting for income taxes. Accordingly, deferred tax liabilities and assets are determined based on the difference between the financial statement and tax bases of assets and liabilities, using enacted tax rates in effect for the year in which the differences are expected to reverse. Current income taxes are based on the year’s income taxable for income tax reporting purposes.

The Company recognizes and discloses its tax positions in accordance with ASC 740, which requires the disclosure of uncertain tax positions and related penalties and interest recognized in the financial statements. The Company has not maintained any tax positions which it believes would not be reasonably sustainable upon examination by a taxing authority. Accordingly, no related penalties or interest were recognized in the consolidated financial statements. Federal tax returns for the years ending December 31, 2007, 2008, and 2009 and State tax returns for the years ending December 31, 2006, 2007, 2008, and 2009 are still subject to examination.

- 9 -

HALLMARK HUMAN RESOURCES, INC

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

MARCH 31, 2010

____________

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – Continued

CONCENTRATIONS

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of trade accounts receivable.

EARNINGS PER SHARE

The Company’s accounting for earnings per share is in accordance with ASC 260-10, Earnings per Share. The Company only has basic earnings per share; as diluted earnings per share is not applicable to the Company due to losses from operations. Basic earnings per share is calculated by taking net income for the period and divided by the weighted average number of common share outstanding for the period.

RECENTLY ISSUED ACCOUNTING PRONOUCEMENTS

During the year ended December 31, 2009 the Company adopted the following Financial Accounting Standards Board (“FASB”) authoritative guidance, none of which had a material impact on its consolidated financial statements.

Revised guidance on business combinations that establishes principles and requirements for recognizing and measuring the identifiable assets acquired (including goodwill), liabilities assumed, and non-controlling interests, if any, acquired in a business combination. This guidance also requires that acquisition-related costs associated with restructuring or exiting activities of an acquired entity be expensed as incurred.

Guidance on subsequent events that establishes standards related to accounting for and disclosure of events that happen after the date of the balance sheet but before the release of the financial statements.

Guidance on determination of the useful life of intangible assets that amends the factors that should be considered in developing assumptions used to determine the useful life of a recognized intangible asset.

Updates to authoritative standards that provide additional application guidance and enhance disclosures regarding fair value measurements.

Guidance that establishes the FASB Accounting Standards Codification (the “Codification”). The Codification, released on July 1, 2009, became the single source of authoritative non-governmental U.S. GAAP and supersedes all previously existing accounting standards. This adoption changed certain disclosure references to U.S. GAAP.

Other recent authoritative guidance issued by the FASB (including technical corrections to the Codification), the American Institute of Certified Public Accountants, and the Securities and Exchange Commission did not, or are expected to have, a material effect on the Company’s consolidated financial statements.

- 10 -

HALLMARK HUMAN RESOURCES, INC

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

MARCH 31, 2010

____________

NOTE 3 – LONG-TERM DEBT AND LINE OF CREDIT

As of March 31, 2010 and December 31, 2009 long-term debt consisted of the following:

Description	2010			2009

Note payable to an organization, owned by a company board member related to funding for future acquisitions. Originally a 30 day note, the loan has not yet been repaid, and is being carried forward month to month. Interest of 1% per month or $1,500 per month is being paid, and a bonus of 4,000 shares of Hallmark Human Resources stock is to be issued at the time this note is paid in full.	$	150,000		$	150,000

Secured, convertible debenture, payable to an LLC, owned by a company board member, related to funding for future acquisitions. Repayment is set to begin at an amount of $10,417 once the funding of $500,000 is obtained. As of March 31, 2010, full funding had not been obtained and only interest had been paid. Interest rate is 10%. There is an option to redeem stock in an amount equal to the principal amount plus any unpaid interest with three business days notice. The conversion price is $2.00 per share of common stock if exercised.		277,200			252,450

Subtotal – Related Party Notes Payable		427,200			402,450

Two notes payable to two individuals related to the purchase of the Global entities, payable in monthly installments of $4,000 and $2,515, including interest at 9.6% and 8.1%, respectively, through April 1, 2010, unsecured.		33,542			33,542

Total Long-Term Debt		460,742			435,992
Less: Current portion of long-term debt		(460,742	)		(435,992	)

Long-Term Debt, net of current portion	$	-0-		$	-0-

All of the long-term debt is current as of March 31, 2010 and December 31, 2009 due to the Company subsequently defaulting on the related party debt. See NOTE 9 for additional details.

The Company has a line of credit in the amount of $50,000 bearing interest at 6.25%. The Company had borrowings of $46,515 and $41,515 on this line of credit at March 31, 2010 and December 31, 2009, respectively.

- 11 -

HALLMARK HUMAN RESOURCES, INC

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

MARCH 31, 2010

____________

NOTE 4 - FEDERAL INCOME TAXES

Deferred taxes at March 31, 2010 were computed as follows:

	Current Asset			Noncurrent Asset

Excess book accumulated depreciation over tax accumulated depreciation	$	-0-		$	(1,946	)
Net operating loss carryforward					1,536,154
Temporary Differences		-0-			1,534,208
Expected tax rate to be used		15.00	%		15.00	%
Deferred Tax Asset		-0-			230,131
Less: Valuation allowance		-0-			(230,131	)
Deferred Tax Asset	$	-0-		$	-0-

Deferred taxes at December 31, 2009 were computed as follows:

	Current Asset			Noncurrent Asset

Excess book accumulated depreciation over tax accumulated depreciation	$	-0-		$	(1,946	)
Net operating loss carryforward					1,418,881
Temporary Differences		-0-			1,416,935
Expected tax rate to be used		15.00	%		15.00	%
Deferred Tax Asset		-0-			212,540
Less: Valuation allowance		-0-			(212,540	)
Deferred Tax Asset	$	-0-		$	-0-

At March 31, 2010 and December 31, 2009 the Company has an operating loss carry forward for tax purposes of approximately $1,536,154 and $1,418,881 respectively, which expires through 2027. A valuation allowance was established during the year ended December 31, 2009 for the entire deferred asset as it is uncertain the Company will be able to utilize the operating loss carry forwards due to its going concern uncertainty. The valuation allowance was increased by $17,591 during the three months ended March 31, 2010.

Income tax at the lowest federal statutory rate (15%) is reconciled to the Company’s actual income tax benefit for the three months ended March 31, 2010 and 2009 as follows:

	2010						2009
	Amount			Percent			Amount			Percent

Tax at federal estimated rate	$	(17,591	)		(15.0	)%	$	(7,042	)		(15.0	)%
Deferred tax valuation allowance		17,591			15.0			-0-			0.0

Income Tax Expense (Benefit)	$	-0-			0.0	%	$	(7,042	)		(15.0	)%

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HALLMARK HUMAN RESOURCES, INC

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

MARCH 31, 2010

____________

NOTE 5 – GOODWILL AND OTHER INTANGIBLE ASSETS

The following table provides the gross carrying amount and accumulated amortization as of March 31, 2010 and December 31, 2009, for the intangible asset and goodwill.

	2010					2009
	Gross Carrying		Accumulated			Gross Carrying		Accumulated
	Amount		Amortization			Amount		Amortization
Amortizable Intangible Asset:
Non-compete agreement	$	50,000	$	(22,500	)	$	50,000	$	(20,000	)
Goodwill		-0-		-0-			-0-		-0-

Total Goodwill and Intangible Asset	$	50,000	$	(22,500	)	$	50,000	$	(20,000	)

Estimated amortization expense for the non-compete agreement is expected to be $10,000 for each of the years ending December 31, 2010, 2011 and 2012.

Following is a progression of goodwill for the three months ended March 31, 2010 and from the year ended December 31, 2008 is as follows:


Balance at December 31, 2008	$	1,055,541
Elimination of goodwill of discontinued business component		(837,028	)
Impairment of goodwill		(218,513	)

Balance at March 31, 2010 and December 31, 2009	$	-0-

As of December 31, 2009, the Company determined that the remaining goodwill balance of $218,513 was impaired. This was based upon the continued operating losses of the Company since inception of the purchase of the goodwill.

NOTE 6 – PAST ACQUISITIONS

On July 1, 2007, the Company acquired 100% of the assets of PAS, a California-based PEO. The purchase price consisted of $200,000 in cash and issuance of a $900,000 note payable, plus the assumption of certain liabilities. The estimated fair values of the net assets of this company approximated book value at the time purchase and did not result in any identified other intangible assets. At December 31, 2007, goodwill (deductible for tax purposes) from this transaction was $837,028 and net equity acquired was $119,921. In September, 2009, PAS ceased operations. Therefore, the related goodwill and equity was written off at that time.

On December 1, 2007, the Company acquired 100% of the assets of the Global Entities, an Alabama-based PEO. The purchase price consisted of $100,000 in cash and issuance of two $100,000 notes payable. The estimated fair values of the net assets of this company approximated book value at the time purchase and did not result in any identified other intangible assets. At December 31, 2007, goodwill (deductible for tax purposes) from this transaction was $218,513 and net equity acquired was $51,487. The related goodwill of $218,513 was considered impaired and was written off as of December 31, 2009.

- 13 -

HALLMARK HUMAN RESOURCES, INC

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

MARCH 31, 2010

____________

NOTE 7 - OPERATING LEASES

The Company leased its facilities under a non-cancelable operating lease, which terminated December 31, 2009. They are currently in the same facilities on a month to month lease, paying monthly rent of $780.

NOTE 8 – EMPLOYEE BENEFIT PLAN

The Company has a 401(k) Profit Sharing Plan, whereby the employees may elect to make contributions pursuant to a salary reduction agreement upon meeting length of service requirements. Employees can elect to defer the maximum allowable by law under I.R.C. Section 402(g) to the Plan. The Company may make discretionary matching contributions. The Company’s discretionary matching contributions were less than $1,000 for each of the three months ended March 31, 2010 and 2009.

NOTE 9 – MAJOR CUSTOMERS

For the three months ended March 31, 2010 and 2009, the Company had three major customers, services to which approximated 75% and 73%, respectively, of the Company’s total gross billings.

NOTE 10 – DISCONTINUED COMPONENT OF BUSINESS

In September 2009, PAS, a California-based PEO ceased operations. Following is a summary of its operations for the three months ended March 31, 2010 and 2009.

	2010		2009

Revenues, net	$	-0-	$	7,830
Expenses, excluding intercompany management fees		-0-		(20,380	)

Income (Loss) from Operations	$	-0-	$	(12,550	)

NOTE 11 – CONTINGENCIES

During 2009, the Company signed an Escrow Agreement with a third party and transferred $150,000 into an escrow account with an agent for the purpose of obtaining additional funding. This third party subsequently absconded with $147,000 of the remaining funds. On November 12, 2009, a law suit was filed in a New York court against this third party in an effort to have those monies refunded. The Company has been notified in a decision dated June 30, 2010, that they have been awarded damages in the amount of $465,000 and legal fees in the amount of $29,137. The Company has expressed doubt of the collectability of the judgment and therefore this $147,000 has been written off as a financing fee in other expenses within the consolidated statements of operations during the fourth quarter of year 2009.

NOTE 12 – SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES

PERIOD ENDED MARCH 31, 2010

The Company issued 20,200 shares of common stock with a book value of $25,250 in exchange for services rendered.

The Company issued 6,000 shares of common stock with a book value of $4,500 in exchange for interest expense on a note payable.

- 14 -

HALLMARK HUMAN RESOURCES, INC

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

MARCH 31, 2010

____________

NOTE 13 – SUBSEQUENT EVENTS AND GOING CONCERN ISSUES

DATE OF MANAGEMENT EVALUATION

Management has evaluated subsequent events through August 2, 2010, the date on which the financial statements were available to be issued.

COMMON STOCK SALES

The Company has issued 225,000 shares of common stock for $150,000 since March 31, 2010.

FUTURE ANTICIPATED MERGER

On January 7, 2010, the Company entered into an agreement with New World Merchant Partners, LLC (NWMP), as a non-exclusive financial and strategic advisor. It is the intent of the Company to merge with a publicly held “shell” corporation in 2010 in a stock for stock exchange in order to take the Company public. An estimate of the financial effect of this merger cannot be made at this time.

RELATED PARTY LOAN DEFAULTS

The Company has not been making the required principal and interest payments on the two related party loans discussed in NOTE 3. The related party has the ability to call these loans in the immediate future.

GOING CONCERN ISSUES

As shown in the March 31, 2010 consolidated financial statements, the Company had a working capital deficiency of $(629,616) and negative net worth of $(582,593). The Company is in default on its related party loan agreements, which, among other things, cause the balances to become due on demand and the related party has the ability to call these loans in the immediate future. Those conditions raise substantial doubt about the Company’s ability to continue as a going concern. The only anticipated occurrence which will allow the Company to continue operating is the future anticipated merger discussed above.

- 15 -

Great Spirits Inc - FORM 8-K - EX-99.1 - EXHIBIT 99.1 - August 9, 2010

Attached files

Great Spirits Inc Reports