SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q



(Mark One)

xQUARTERLY
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



For the quarterly period ended June 30,
2015



OR



 ̈TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



For the transition period from         to



Commission file number 000-54427



FIRST RATE STAFFING CORPORATION

(Exact name of registrant as specified in
its charter)



|Delaware                        | 46-0708635                          
|------------------------------- | ------------------------------------
|(State or other jurisdiction of | (I.R.S. Employer Identification No.)
|incorporation or organization)  |                                     



2775 West Thomas Road

Suite 107

Phoenix, Arizona 85018

(Address of principal executive offices)
(zip code)



602-442-5277

(Registrant’s telephone number, including
area code)



Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
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.

xYes ̈No



Indicate by check mark whether the registrant
is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions
of “large accelerated filer”, “accelerated filer”, “non-accelerated filer”, and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.



|Large Accelerated filer ̈                    | Accelerated filer         |  ̈
|------------------------------------------- | ------------------------- | -
|Non-accelerated filer ̈                      | Smaller reporting company | x
|(do not check if smaller reporting company) |                           |  



Indicate by check mark whether the registrant
is a shell company (as defined in Rule 12b-2 of the Exchange Act).

 ̈YesxNo



Indicate the number of shares outstanding
of each of the registrant’s classes of common stock as of the latest practicable date.



|Class                           |  | Outstanding at August 14,
    2015
|------------------------------- |  | ----------------------------------
|Common Stock, par value $0.0001 |  | 7,500,000 shares                  










FIRST RATE STAFFING CORPORATION



|Table of Contents              | Page                                                                                                 
|------------------------------ | -----------------------------------------------------------------------------------------------------
|                               |                                                                                                      
|PART I — FINANCIAL INFORMATION | 3                                                                                                    
|                               |                                                                                                      
|Item 1.                        | Financial Statements                                                                                 
|                               |                                                                                                      
|                               | Consolidated Balance Sheets at June 30, 2015 (Unaudited) and December 31, 2014                       
|                               |                                                                                                      
|                               | Consolidated Statements of Operations (Unaudited) — Three and Six Months Ended June 30, 2015 and 2014
|                               |                                                                                                      
|                               | Consolidated Statements of Cash Flows (Unaudited) — Six Months Ended June 30, 2015 and 2014          
|                               |                                                                                                      
|                               | Notes to Consolidated Financial Statements (Unaudited)                                               
|                               |                                                                                                      
|Item 2.                        | Management’s Discussion and Analysis of Financial Condition and Results of Operations                
|                               |                                                                                                      
|Item 3.                        | Quantitative and Qualitative Disclosures About Market Risk                                           
|                               |                                                                                                      
|Item 4.                        | Controls and Procedures                                                                              
|                               |                                                                                                      
|PART II — OTHER INFORMATION    | 21                                                                                                   
|                               |                                                                                                      
|Item 1.                        | Legal Proceedings                                                                                    
|                               |                                                                                                      
|Item 2.                        | Unregistered Sales of Equity Securities and Use of Proceeds                                          
|                               |                                                                                                      
|Item 3.                        | Defaults upon Senior Securities                                                                      
|                               |                                                                                                      
|Item 4.                        | Mine Safety Disclosures                                                                              
|                               |                                                                                                      
|Item 5.                        | Other Information                                                                                    
|                               |                                                                                                      
|Item 6.                        | Exhibits                                                                                             
|                               |                                                                                                      
|Signatures                     | 23                                                                                                   
|                               |                                                                                                      
|Exhibit Index                  |                                                                                                      



2






PART I



ITEM 1. FINANCIAL STATEMENTS



FIRST RATE STAFFING CORPORATION

CONSOLIDATED BALANCE SHEETS



|                                                                                                                                                          |  | June 30,    |           |   | December 31, |  
|--------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------- | --------- | - | ------------ | -
|                                                                                                                                                          |  | 2015        |           |   | 2014         |  
|                                                                                                                                                          |  | (Unaudited) |           |   |              |  
|Assets                                                                                                                                                    |  |             |           |   |              |  
|                                                                                                                                                          |  |             |           |   |              |  
|Current assets                                                                                                                                            |  |             |           |   |              |  
|Cash                                                                                                                                                      |  | $           | 508,267   |   |              | $
|Accounts receivable, net                                                                                                                                  |  |             | 408,517   |   |              |  
|Notes receivable - related party, current portion                                                                                                         |  |             | -         |   |              |  
|Total current assets                                                                                                                                      |  |             | 916,784   |   |              |  
|                                                                                                                                                          |  |             |           |   |              |  
|Property and equipment, net                                                                                                                               |  |             | 9,440     |   |              |  
|Intangible assets, net                                                                                                                                    |  |             | 1,059,842 |   |              |  
|Notes receivable - related party, net of current portion                                                                                                  |  |             | 52,918    |   |              |  
|Deposit and other assets                                                                                                                                  |  |             | 10,640    |   |              |  
|Total assets                                                                                                                                              |  | $           | 2,049,624 |   |              | $
|                                                                                                                                                          |  |             |           |   |              |  
|Liabilities and Stockholders' Equity                                                                                                                      |  |             |           |   |              |  
|                                                                                                                                                          |  |             |           |   |              |  
|Current liabilities                                                                                                                                       |  |             |           |   |              |  
|Accounts payable                                                                                                                                          |  | $           | 200,936   |   |              | $
|Other current liabilities                                                                                                                                 |  |             | 757,098   |   |              |  
|Notes payable - current portion, net of discount                                                                                                          |  |             | 94,814    |   |              |  
|Notes payable - related parties                                                                                                                           |  |             | 8,003     |   |              |  
|Total current liabilities                                                                                                                                 |  |             | 1,060,851 |   |              |  
|Notes payable, net of current portion                                                                                                                     |  |             | 190,000   |   |              |  
|Total liabilities                                                                                                                                         |  |             | 1,250,851 |   |              |  
|                                                                                                                                                          |  |             |           |   |              |  
|Commitments and contingencies                                                                                                                             |  |             |           |   |              |  
|                                                                                                                                                          |  |             |           |   |              |  
|Stockholders' equity                                                                                                                                      |  |             |           |   |              |  
|Preferred stock, $0.0001 par value, 20,000,000 shares authorized, zero shares issued and outstanding                                                      |  |             | -         |   |              |  
|Common stock, $0.0001 par value, 100,000,000 shares authorized, 7,500,000 shares issued and authorized at June 30, 2015 (unaudited) and December 31, 2014 |  |             | 750       |   |              |  
|Additional paid-in capital                                                                                                                                |  |             | 1,089,802 |   |              |  
|Accumulated deficit                                                                                                                                       |  |             | (291,779  | ) |              |  
|Total stockholders' equity                                                                                                                                |  |             | 798,773   |   |              |  
|Total liabilities and stockholders' equity                                                                                                                |  | $           | 2,049,624 |   |              | $



The accompanying notes are an integral part
of these consolidated financial statements



3






FIRST RATE STAFFING CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)



|                                       |  | Three Months Ended |           |   | Six Months Ended |  
|-------------------------------------- |  | ------------------ | --------- | - | ---------------- | -
|                                       |  | June 30,           |           |   | June 30,         |  
|                                       |  | 2015               |           |   | 2014             |  
|                                       |  |                    |           |   |                  |  
|Revenues                               |  | $                  | 7,960,386 |   |                  | $
|Cost of revenues                       |  |                    | 7,315,513 |   |                  |  
|Gross profit                           |  |                    | 644,873   |   |                  |  
|Operating expenses                     |  |                    | 683,496   |   |                  |  
|Income (loss) from operations          |  |                    | (38,623   | ) |                  |  
|Gain on sale of property and equipment |  |                    | 5,292     |   |                  |  
|Gain on settlement agreement           |  |                    | 75,000    |   |                  |  
|Interest and other expense, net        |  |                    | (64,942   | ) |                  |  
|Income (loss) before income tax        |  |                    | (23,273   | ) |                  |  
|Income tax expense                     |  |                    | -         |   |                  |  
|Net income (loss)                      |  | $                  | (23,273   | ) |                  | $
|                                       |  |                    |           |   |                  |  
|Net income (loss) per share:           |  |                    |           |   |                  |  
|Basic and diluted                      |  | $                  | -         |   |                  | $
|                                       |  |                    |           |   |                  |  
|Weighted average shares outstanding:   |  |                    |           |   |                  |  
|Basic and diluted                      |  |                    | 7,500,000 |   |                  |  



The accompanying notes are an integral part
of these consolidated financial statements



4






FIRST RATE STAFFING CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)



|                                                                                          |  | Six Months Ended |         
|----------------------------------------------------------------------------------------- |  | ---------------- | --------
|                                                                                          |  | June 30,         |         
|                                                                                          |  | 2015             |         
|                                                                                          |  |                  |         
|Operating activities                                                                      |  |                  |         
|Net loss                                                                                  |  | $                | (160,191
|Adjustments to reconcile net loss to net cash provided by (used in) operating activities: |  |                  |         
|Depreciation and amortization expense                                                     |  |                  | 149,762 
|Provision for bad debt                                                                    |  |                  | 30,127  
|Amortization of discount on note payable                                                  |  |                  | 9,977   
|Gain on sale of property and equipment                                                    |  |                  | (5,292  
|Gain on settlement agreement                                                              |  |                  | (75,000 
|Changes in operating assets and liabilities:                                              |  |                  |         
|Accounts receivable                                                                       |  |                  | (108,106
|Prepaid expense and other current assets                                                  |  |                  | -       
|Deposits and other assets                                                                 |  |                  | (4,440  
|Accounts payable                                                                          |  |                  | (184,635
|Other current liabilities                                                                 |  |                  | 222,363 
|                                                                                          |  |                  |         
|Net cash provided by (used in) operating activities                                       |  |                  | (125,435
|                                                                                          |  |                  |         
|Investing activities                                                                      |  |                  |         
|Repayments for borrowing on notes receivable - related party                              |  |                  | (44,530 
|Proceeds from sale of property and equipment                                              |  |                  | 12,500  
|Net cash (used in) investing activities                                                   |  |                  | (32,030 
|                                                                                          |  |                  |         
|Financing activities                                                                      |  |                  |         
|Payments on note payable                                                                  |  |                  | (125,000
|Proceeds from note payable - related party                                                |  |                  | 3,494   
|Payments on note payable - related party                                                  |  |                  | -       
|                                                                                          |  |                  |         
|Net cash (used in) financing activities                                                   |  |                  | (121,506
|                                                                                          |  |                  |         
|Net change in cash                                                                        |  |                  | (278,971
|Cash, beginning of the year                                                               |  |                  | 787,238 
|Cash, end of the period                                                                   |  | $                | 508,267 
|                                                                                          |  |                  |         
|Supplemental disclosure of cash flow information:                                         |  |                  |         
|Interest paid                                                                             |  | $                | 1,155   
|Incone taxes paid                                                                         |  | $                | -       
|                                                                                          |  |                  |         
|Supplemental disclosures of non-cash investing and financing transactions:                |  |                  |         
|Issuance of common stock for acquisition of Loyalty Staffing Services, Inc.               |  | $                | -       
|Issuance of note payable for acquisition of Loyalty Staffing Services, Inc.               |  | $                | -       



The accompanying notes are an integral part
of these consolidated financial statements



5






FIRST RATE STAFFING CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)



1. ORGANIZATION AND BUSINESS



First Rate Staffing Corporation (“First
Rate” or “the Company”), formerly known as Moosewood Acquisition Corporation (“Moosewood”) was incorporated
on April 20, 2011 under the laws of the State of Delaware.



The Company provides recruiting and staffing
services for temporary positions in the light industrial, distribution center, assembly, and clerical areas to its clients in California
and Arizona, with an option for the clients and candidates to choose the most beneficial working arrangements.



2. BASIS OF PRESENTATION



The accompanying consolidated balance sheet
as of December 31, 2014, which has been derived from the Company’s audited financial statements as of that date, and the
unaudited consolidated financial information of the Company as of June 30, 2015 and for the three and six months ended June 30,
2015 and 2014, has been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S.
GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 8-03 of Regulation S-X. In the
opinion of management, such financial information includes all adjustments considered necessary for a fair presentation of the
Company’s financial position at such date and the operating results and cash flows for such periods. Operating results for
the interim period ended June 30, 2015 are not necessarily indicative of the results that may be expected for the entire year.



Certain information and footnote disclosure
normally included in financial statements in accordance with generally accepted accounting principles have been omitted pursuant
to the rules of the United States Securities and Exchange Commission (“SEC”). These unaudited consolidated financial
statements should be read in conjunction with our audited consolidated financial statements and accompanying notes included in
the Company’s Annual Report on Form 10-K for the year ended December 31, 2014 filed on March 31, 2015.



3. SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES



The summary of significant accounting policies
presented below is designed to assist in understanding the Company’s consolidated financial statements. Such consolidated
financial statements and accompanying notes are the representations of the Company’s management, who are responsible for
their integrity and objectivity. These accounting policies conform to accounting principles generally accepted in the United States
of America in all material respects, and have been consistently applied in preparing the accompanying consolidated financial statements.



Use of Estimates



In preparing these consolidated financial
statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities as of the date of the consolidated financial statements and the reported amount
of revenues and expenses during the reporting periods. Actual results could differ from those estimates.



Cash



The Company considers all highly-liquid
investments with original maturities of three months or less when purchased to be cash equivalents. There were no cash equivalents
at June 30, 2015 and December 31, 2014. The Company maintains its cash in bank deposit accounts which at times may exceed federally
insured limits. The Company has not experienced any losses related to this concentration of risk. As of June 30, 2015, the Company
had $258,267 of balances that exceeded the FDIC insurance limits.



6






Accounts Receivable and Factoring



Accounts receivable are carried at the
original amount less an estimate made for doubtful accounts based on a review of all outstanding amounts on a monthly basis. Management
determines the allowance for doubtful accounts by regularly evaluating individual customer receivables and considering each customer’s
financial condition and credit history, as well as current economic conditions. Accounts receivable are written off when deemed
uncollectible. Recoveries of accounts receivable previously written off are recorded when received. The allowance for doubtful
accounts was $30,127 and $0 as of June 30, 2015 (unaudited) and December 31, 2014, respectively.



The Company entered into an accounts receivable
factoring arrangement with a non-related third party financial institution (the “Factor”). Pursuant to the terms of
the arrangement, the Company, from time to time, shall sell to the Factor certain of its accounts receivable balances on a non-recourse
basis for credit approved accounts. The Factor remits 90% of the accounts receivable balance to the Company, with the remaining
balance, less fees, to be forwarded to the Company once the Factor collects the full accounts receivable balance from the customer.
An administrative fee of 0.015% per diem is charged on the gross amount of accounts receivables assigned to Factor, plus interest
to be calculated at 0.011806% per day. The total amount of accounts receivable factored was $2,030,466 (unaudited) and $1,824,376
at June 30, 2015 and December 31, 2014, respectively.



Fair Value of Financial Instruments



Fair value is defined as the price that
would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the
measurement date, based on the Company’s principal or, in the absence of a principal, most advantageous market for the specific
asset or liability.



GAAP provides for a three-level hierarchy
of inputs to valuation techniques used to measure fair value, defined as follows:



|• | Level 1 — Inputs that are quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity can access.                                                                                
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|• | Level 2 — Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability, including:



| | – | Quoted prices for similar assets or liabilities in active markets                                               
| | - | ----------------------------------------------------------------------------------------------------------------
| | – | Quoted prices for identical or similar assets or liabilities in markets that are not active                     
| | – | Inputs other than quoted prices that are observable for the asset or liability                                  
| | – | Inputs that are derived principally from or corroborated by observable market data by correlation or other means



|• | Level 3 — Inputs that are unobservable and reflect the Company’s own assumptions about the assumptions market participants would use in pricing the asset or liability based on the best information available in the circumstances (e.g., internally derived assumptions surrounding the timing and amount of expected cash flows). The Company did not measure any financial instruments presented on the Consolidated Balance Sheets at fair value on a recurring basis using significantly unobservable inputs (Level 3) as of June 30, 2015 and December 31, 2014.
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Concentration of Credit Risk



Financial instruments that potentially
subject the Company to concentrations of credit risk consist principally of cash and accounts receivable. The Company places its
cash with high quality banking institutions. From time to time, the Company may maintain cash balances at certain institutions
in excess of the Federal Deposit Insurance Corporation limit. Historically, the Company has not experienced any losses on deposits.



The Company’s policy is to maintain
an allowance for doubtful accounts, if any, for estimated losses resulting from the inability of its customer to pay. However,
if the financial condition of the Company’s customers were to deteriorate rapidly, resulting in nonpayment, the Company could
be required to provide for additional allowances, which would decrease operating income in the period that such determination was
made.



7






Property and Equipment



Property and equipment is presented at
cost less accumulated depreciation and amortization. Depreciation and amortization are provided using the straight-line method
over the estimated useful lives of the assets. Betterments, renewals, and extraordinary repairs that extend the life of the assets
are capitalized; other repairs and maintenance charges are expensed as incurred. The cost and related accumulated depreciation
and amortization applicable to retired assets are removed from the Company’s accounts, and the gain or loss on dispositions,
if any, is recognized in the consolidated statements of operations



Equipment are recorded at cost and depreciated
using the straight-line method over an estimated useful life of 5 years.



Intangible Assets



The Company has intangible assets recorded
as part of a business acquisition (see Note 6). Intangible assets with definite useful lives, representing customer relationships,
are amortized over their estimated useful lives of 5 years using the straight-line method, which represents the economic benefit
pattern of the intangible assets.



Impairment of Long-Lived Assets



Long-lived assets, including intangibles,
are evaluated for impairment whenever events or changes in circumstances have indicated that an asset may not be recoverable. The
evaluation requires that assets be grouped at the lowest level for which identifiable cash flows are largely independent of the
cash flows of other groups of assets and liabilities. If the sum of the projected undiscounted cash flows (excluding interest charges)
is less than the carrying value of the assets, the assets will be written down to their estimated fair value and such loss is recognized
in income from continuing operations in the period in which the determination is made. The Company’s management currently
believes there is no impairment of its long-lived assets as of June 30, 2015 and December 31, 2014. There can be no assurance,
however, that market conditions will not change or demand for the Company’s business model will continue. Either of these
could result in future impairment of long-lived assets.



Revenue Recognition



The Company’s revenue is derived
from providing temporary staffing services to its clients. The Company recognizes revenue in accordance with Financial Accounting
Standards Board (“FASB”) Accounting Standards Codification (“ASC”) No. 605, Revenue Recognition.
In all cases, revenue is recognized only when the price is fixed and determinable, persuasive evidence of an arrangement exists,
the service is performed and collectability of the resulting receivable is reasonably assured.



The Company recognizes its revenue from
temporary staffing services on a gross basis in accordance with the guidance in FASB ASC 605-45 which outlines various factors
or indicators that assist in determining whether revenue should be recognized on a gross or a net basis. In connection with this
guidance, the Company believes the gross basis is appropriate, as the Company is the primary obligor in its arrangements and is
responsible for fulfilling the services being provided to the individual customers and for compensating the individual service
providers, regardless of whether the customer accepts the work.



Cost of Revenue



Cost of revenue consists of wages, related
payroll taxes, workers compensation, and employee benefits of the Company’s employees while they work on contract assignment
as temporary staff of the Company’s customers.



8






Net Loss Per Share



Basic loss per share is computed by dividing
the net income available to common shareholders by the weighted-average number of common shares outstanding during the period.
Diluted loss per share reflect per share amounts that would have resulted if diluted potential common stock had been converted
to common stock.  There have been no common stock equivalents included in the diluted earnings per share computation
for the three or six months ended June 30, 2015 and 2014 as the amounts are anti-dilutive.



Income Taxes



Income taxes are accounted for under the
asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases
as well as operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.
The likelihood of realizing the tax benefits related to a potential deferred tax asset is evaluated, and a valuation allowance
is recognized to reduce that deferred tax asset if it is more likely than not that all or some portion of the deferred tax asset
will not be realized. Deferred tax assets and liabilities are calculated at the beginning and end of the year; the change in the
sum of the deferred tax asset, valuation allowance and deferred tax liability during the year generally is recognized as a deferred
tax expense or benefit. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in operations
in the period that includes the enactment date.



The Company evaluates the accounting for
uncertainty in income tax recognized in its financial statements and determines whether it is more likely than not that a tax position
will be sustained upon examination by the appropriate taxing authorities before any part of the benefit is recorded in its financial
statements. For those tax positions where it is “not more likely than not” that a tax benefit will be sustained, no
tax benefit is recognized. Where applicable, associated interest and penalties are also recorded. The Company has not accrued for
any such uncertain tax positions as of June 30, 2015 or December 31, 2014.



Recent Accounting Pronouncements



There are no recently issued accounting
pronouncements that the Company has yet to adopt that are expected to have a material effect on its financial position, results
of operations, or cash flows.



4. GOING CONCERN



The Company has an accumulated deficit
of $291,779 since inception. This accumulated deficit is primarily the result of increased operating expenses associated with professional
fees necessary to complete its merger transaction and continue as a public company, as well as revenues historically being at below
break-even levels. Going forward, the Company expects these annual expenses to be lower. On February 11, 2014, the Company also
acquired the customer list of Loyalty Staffing Services, Inc. (see Note 6), which is expected to increase cash flows from operations.
Management believes this will allow the Company to operate at profitable level in the future.



The Company anticipates that it will require
approximately $700,000 to $1.0 million to establish and fund its factoring facility. These amounts would be used to fund payroll
and taxes up to the point that these amounts are collect from the client. Factoring internally would mean self-financing, resulting
in a savings to the Company. No additional material or regulatory costs would be incurred at this point. Once the factoring entity
is successfully set-up, the Company expects to realize ongoing savings from the reduced factoring costs.



The Company’s continuation as a going
concern is dependent on management’s ability to develop profitable operations, and / or obtain additional financing from
its shareholders and / or other third parties. In order to address the need to satisfy its continuing obligations and realize its
long term strategy, management’s plans include continuing to fund operations with cash received from financing activities.



The accompanying consolidated financial
statements have been prepared assuming that the Company will continue as a going concern; however, the above conditions raise substantial
doubt about the Company’s ability to do so. The consolidated financial statements do not include any adjustments to reflect
the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities
that may result should the Company be unable to continue as a going concern.



9






5. PROPERTY AND EQUIPMENT



Property and equipment consisted of the
following as of June 30, 2015 and December 31, 2014.



|                               |  | June 30,    |        |  | December 31, |  
|------------------------------ |  | ----------- | ------ |  | ------------ | -
|                               |  | 2015        |        |  | 2014         |  
|                               |  | (Unaudited) |        |  |              |  
|                               |  |             |        |  |              |  
|Furniture and equipment        |  | $           | 5,658  |  |              | $
|Vehicles                       |  |             | 14,000 |  |              |  
|                               |  |             | 19,658 |  |              |  
|                               |  |             |        |  |              |  
|Less: accumulated depreciation |  |             | 10,218 |  |              |  
|                               |  |             |        |  |              |  
|                               |  | $           | 9,440  |  |              | $



Depreciation expense for the three months
ended June 30, 2015 and 2014 amounted to $1,510 and $1,665, respectively. Depreciation expense for the six months ended June 30,
2015 and 2014 amounted to $3,175 and $3,330, respectively.



6. ACQUISITION



On February 11, 2014, the Company entered
into an agreement to purchase the customer list of Loyalty Staffing Services, Inc. (“Loyalty”), a California corporation,
for an aggregate purchase price of $1,444,363 consisting of a cash payment of $100,000, along with a $400,000 note payable, net
of a discount of $55,637 for imputed interest, and 500,000 shares issued of the Company’s common stock, valued at the estimated
fair value of $2 per share. The total amount due of $500,000 was payable as follows; 1) $50,000 of the purchase price would be
paid within five days of the release of certain Uniform Commercial Code liens and personal guarantees, 2) an additional $50,000
would be paid sixty days from the date of such release, 3) the Company executed a promissory note to the seller for $400,000, payable
in four installments of $75,000 every six months after the closing date of the agreement, with a remaining and final payment of
$100,000 payable 30 months after the closing date.



The
Company was in dispute with the seller of Loyalty, Nancy Esteban, concerning the terms of the cash portion and note payable portion
of the payout in the original transaction described above. The Company reached a settlement with Ms. Esteban on June 24, 2015.
In connection with the settlement agreement, the parties agreed to reduce the total aggregate cash and note payable portion of
the purchase price from $500,000 to $425,000. The reduction in the total purchase has been recorded as gain on settlement agreement
in the accompanying statement of operations for the three and six months ended June 30, 2015. Per the terms of the settlement agreement,
the aggregate amount due of $425,000 is payable as follows; $125,000 is due upon signing of the agreement, and the remaining $300,000
is payable in 30 monthly installments of $10,000 starting in August 2015 through February 2018. The Company paid $125,000 in connection
with the agreement in June 2015. The remaining balance due of $300,000 as of June 30, 2015 is reflected as a note payable (see
Note 10).



Assets acquired and liabilities assumed
were recorded at their estimated fair values as of the acquisition date. The fair values of identifiable intangible assets were
based on valuations using the income approach.



10






The purchase price allocation was allocated as follows:



Recognized amounts of identifiable assets acquired and liabilities
assumed, at fair value



|Intangible assets |  | $ | 1,465,867 |  
|----------------- |  | - | --------- | -
|Accounts payable  |  |   | (21,504   | )
|                  |  | $ | 1,444,363 |  



Intangible assets acquired represented
customer relationships which have an estimated useful life of 5 years. The estimated useful life is based on the patterns in which
the economic benefits related to such assets are expected to be realized.



Amortization expense for intangible assets
for the three months ended June 30, 2015 and 2014 amounted to $73,293 and $73,093, respectively. Amortization expense for intangible
assets for the six months ended June 30, 2015 and 2014 amounted to $146,587 and $111,647, respectively. Estimated future amortization
of intangible assets is as follows.



|Year Ended   |  |   |          
|------------ |  | - | ---------
|December 31, |  |   |          
|2015         |  | $ | 146,588  
|2016         |  |   | 293,173  
|2017         |  |   | 293,173  
|2018         |  |   | 293,173  
|2019         |  |   | 33,735   
|             |  | $ | 1,059,842



7. OTHER CURRENT LIABILITIES



Other current liabilities consisted of
the following as of June 30, 2015 and December 31, 2014.



|                                 |  | June 30,    |         |  | December 31, |  
|-------------------------------- |  | ----------- | ------- |  | ------------ | -
|                                 |  | 2015        |         |  | 2014         |  
|                                 |  | (Unaudited) |         |  |              |  
|                                 |  |             |         |  |              |  
|Accrued payroll expenses         |  | $           | 650,122 |  |              | $
|Other accrued operating expenses |  |             | 101,580 |  |              |  
|Accrued interest                 |  |             | 5,396   |  |              |  
|                                 |  | $           | 757,098 |  |              | $



8. NOTES RECEIVABLE – RELATED
PARTY



The Company issued a series of unsecured
notes receivables to an officer of the Company totaling $52,918 (unaudited) and $8,388 as of June 30, 2015 and December 31, 2014,
respectively. The outstanding borrowings as of June 30, 2015 are non-interest bearing and due in one lump payment in March 2018.



9. NOTES PAYABLE - RELATED PARTIES



During 2012, the Company obtained unsecured
promissory notes payable from one of its shareholders on various dates between March 2012 and December 2012. The total aggregate
amounts outstanding amounted to $8,003 (unaudited) and $4,509 as of June 30, 2015 and December 31, 2014, respectively. The notes
bear interest at a rate of 6% per annum and are due in full in one lump payment in December 2015. During the reporting period,
there were no financial covenant requirements under the notes.



11






10. NOTES PAYABLE – ACQUISITION



Notes payable resulting from the acquisition
of Loyalty consisted of the following.



|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |  | June 30,    |         |   | December 31, |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------- | ------- | - | ------------ | -
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |  | 2015        |         |   | 2014         |  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |  | (Unaudited) |         |   |              |  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |  |             |         |   |              |  
|Cash payments due to the seller of Loyalty, $50,000 due within 5 days and $50,000 within 60 days of the UCC and personal guarantee releases.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |  | $           | -       |   |              | $
|Promissory Note due to seller - Payable in four payments of $75,000 every 6 months after the closing date, with a remaining and final payment of $100,000 made at 30 months from the closing date.  The note bears no interest and can be converted into shares of the company's common stock at any time at $2 per share.  The Company was in default under the terms of the note due to a dispute with the debt holder, and the terms were in the process of being renegotiated.  Until a settlement was reached, the outstanding balances on the note were presented as current liabilities.  The settment agreement was reached with the seller effective on June 24, 2015 (see below). |  |             | -       |   |              |  
|Settment Agreement Payable to seller - Payable in 30 monthly installments of $10,000 beginning August 15, 2015 through January 15, 2018.  The amounts are non-interest bearing and are no longer convertible into common stock.                                                                                                                                                                                                                                                                                                                                                                                                                                                             |  |             | 300,000 |   |              |  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |  | $           | 300,000 |   |              | $
|Discount on notes payable                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |  |             | (15,186 | ) |              |  
|Notes payable, net                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |  | $           | 284,814 |   |              | $
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |  |             |         |   |              |  
|Less: current portion of notes payable                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |  |             | 94,814  |   |              |  
|Notes payable, net of curent portion                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |  | $           | 190,000 |   |              | $



Expected future maturity of long-term debt is as follows for
each of the years ended December 31.



|Year Ended   |  |   |        
|------------ |  | - | -------
|December 31, |  |   |        
|             |  |   |        
|2015         |  | $ | 50,000 
|2016         |  |   | 120,000
|2017         |  |   | 120,000
|2018         |  |   | 10,000 
|             |  | $ | 300,000



12






As the note payable from the acquisition of Loyalty has no stated
interest, the Company has imputed total interest of $55,637 using a rate of 10% per annum, which represents the Company’s
incremental borrowing rate for similar transactions. The discount is being amortized into interest expense using the interest method.
During the three months ended June 30, 2015 and 2014, amortization of the discount amounted to $1,486 and $8,585, respectively.
During the six months ended June 30, 2015 and 2014, amortization of the discount amounted to $9,977 and $13,114, respectively.
As of June 30, 2015, the note payable is presented net of a discount of $15,186.



11.
COMMITMENTS



Leases



The Company leases its
office locations located in Torrance, California and Phoenix, Arizona under operating leases on a month-to-month basis at monthly
rates ranging from $737 to $3,211. The Company leases its offices located in Santa Fe Springs, California and Ontario, California
under a non-cancellable operating leases extending through March 2018.



The following summarizes
the amounts due in future periods under non-cancellable operating leases.



|      |  | Year Ended   |       
|----- |  | ------------ | ------
|      |  | December 31, |       
|      |  |              |       
|2015  |  | $            | 15,576
|2016  |  |              | 31,152
|2017  |  |              | 31,152
|2018  |  |              | 5,476 
|Total |  | $            | 83,356



ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS



The discussion and analysis of our financial condition and results
of operations are based on our financial statements, which we have prepared in accordance with accounting principles generally
accepted in the United States of America. The preparation of these consolidated financial statements requires us to make estimates
and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities
at the date of the consolidated financial statements, as well as the reported revenues and expenses during the reporting periods.
On an ongoing basis, we evaluate estimates and judgments, including those described in greater detail below. We base our estimates
on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which
form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other
sources. Actual results may differ from these estimates under different assumptions or conditions.



As used in this “Management’s Discussion and Analysis
of Financial Condition and Results of Operation,” except where the context otherwise requires, the term “we,”
“us,” “our” or “the Company” refers to the business of First Rate Staffing Corporation.



13






The following discussion should be read together with
the information contained in the unaudited consolidated financial statements and related notes included in Item 1, “Financial
Statements,” in this Form 10-Q.



Overview



First Rate Staffing Corporation (“First
Rate” or “the Company”), formerly known as Moosewood Acquisition Corporation (“Moosewood”) was incorporated
on April 20, 2011 under the laws of the State of Delaware.



The Company provides recruiting and staffing
services for temporary positions in the light industrial, distribution center, assembly, and clerical areas to its clients in California
and Arizona, with an option for the clients and candidates to choose the most beneficial working arrangements.



The Company’s independent auditors
have expressed substantial doubt as to the ability of the Company to continue as a going concern. Unless the Company is able to
generate sufficient cash flow from operations and/or obtain additional financing, there is a substantial doubt as to the ability
of the company to continue as a going concern.



On February 11, 2014, the Company entered
into an agreement to purchase the customer list of Loyalty Staffing Services (“Loyalty”), a California corporation.



Critical Accounting Policies



Use of Estimates



In preparing these consolidated financial
statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities as of the date of the consolidated financial statements and the reported amount
of revenues and expenses during the reporting periods. Actual results could differ from those estimates.



Cash



The Company considers all highly-liquid
investments with original maturities of three months or less when purchased to be cash equivalents. There were no cash equivalents
at June 30, 2015 and December 31, 2014. The Company maintains its cash in bank deposit accounts which at times may exceed federally
insured limits. The Company has not experienced any losses related to this concentration of risk. As of June 30, 2015, the Company
had $258,267 of balances that exceeded the FDIC insurance limits.



Accounts Receivable and Factoring



Accounts receivable are carried at the
original amount less an estimate made for doubtful accounts based on a review of all outstanding amounts on a monthly basis. Management
determines the allowance for doubtful accounts by regularly evaluating individual customer receivables and considering each customer’s
financial condition and credit history, as well as current economic conditions. Accounts receivable are written off when deemed
uncollectible. Recoveries of accounts receivable previously written off are recorded when received. The allowance for doubtful
accounts was $30,127 and $0 as of June 30, 2015 (unaudited) and December 31, 2014, respectively.



The Company entered into an accounts receivable
factoring arrangement with a non-related third party financial institution (the “Factor”). Pursuant to the terms of
the arrangement, the Company, from time to time, shall sell to the Factor certain of its accounts receivable balances on a non-recourse
basis for credit approved accounts. The Factor remits 90% of the accounts receivable balance to the Company, with the remaining
balance, less fees, to be forwarded to the Company once the Factor collects the full accounts receivable balance from the customer.
An administrative fee of 0.015% per diem is charged on the gross amount of accounts receivables assigned to Factor, plus interest
to be calculated at 0.011806% per day. The total amount of accounts receivable factored was $2,030,466 (unaudited) and $1,824,376
at June 30, 2015 and December 31, 2014, respectively.



Fair Value of Financial Instruments



Fair value is defined as the price that
would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the
measurement date, based on the Company’s principal or, in the absence of a principal, most advantageous market for the specific
asset or liability.



14






GAAP provides for a three-level hierarchy
of inputs to valuation techniques used to measure fair value, defined as follows:



|• | Level 1 — Inputs that are quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity can access.                                                                                
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|• | Level 2 — Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability, including:



| | – | Quoted prices for similar assets or liabilities in active markets                                               
| | - | ----------------------------------------------------------------------------------------------------------------
| | – | Quoted prices for identical or similar assets or liabilities in markets that are not active                     
| | – | Inputs other than quoted prices that are observable for the asset or liability                                  
| | – | Inputs that are derived principally from or corroborated by observable market data by correlation or other means



|• | Level 3 — Inputs that are unobservable and reflect the Company’s own assumptions about the assumptions market participants would use in pricing the asset or liability based on the best information available in the circumstances (e.g., internally derived assumptions surrounding the timing and amount of expected cash flows). The Company did not measure any financial instruments presented on the Consolidated Balance Sheets at fair value on a recurring basis using significantly unobservable inputs (Level 3) as of June 30, 2015 and December 31, 2014.
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Concentration of Credit Risk



Financial instruments that potentially
subject the Company to concentrations of credit risk consist principally of cash and accounts receivable. The Company places its
cash with high quality banking institutions. From time to time, the Company may maintain cash balances at certain institutions
in excess of the Federal Deposit Insurance Corporation limit. Historically, the Company has not experienced any losses on deposits.



The Company’s policy is to maintain
an allowance for doubtful accounts, if any, for estimated losses resulting from the inability of its customer to pay. However,
if the financial condition of the Company’s customers were to deteriorate rapidly, resulting in nonpayment, the Company could
be required to provide for additional allowances, which would decrease operating income in the period that such determination was
made.



Property and Equipment



Property and equipment is presented at
cost less accumulated depreciation and amortization. Depreciation and amortization are provided using the straight-line method
over the estimated useful lives of the assets. Betterments, renewals, and extraordinary repairs that extend the life of the assets
are capitalized; other repairs and maintenance charges are expensed as incurred. The cost and related accumulated depreciation
and amortization applicable to retired assets are removed from the Company’s accounts, and the gain or loss on dispositions,
if any, is recognized in the consolidated statements of operations



Equipment are recorded at cost and depreciated
using the straight-line method over an estimated useful life of 5 years.



Intangible Assets



The Company has intangible assets recorded
as part of a business acquisition (see Note 6). Intangible assets with definite useful lives, representing customer relationships,
are amortized over their estimated useful lives of 5 years using the straight-line method, which represents the economic benefit
pattern of the intangible assets.



Impairment of Long-Lived Assets



Long-lived assets, including intangibles,
are evaluated for impairment whenever events or changes in circumstances have indicated that an asset may not be recoverable. The
evaluation requires that assets be grouped at the lowest level for which identifiable cash flows are largely independent of the
cash flows of other groups of assets and liabilities. If the sum of the projected undiscounted cash flows (excluding interest charges)
is less than the carrying value of the assets, the assets will be written down to their estimated fair value and such loss is recognized
in income from continuing operations in the period in which the determination is made. The Company’s management currently
believes there is no impairment of its long-lived assets as of June 30, 2015 and December 31, 2014. There can be no assurance,
however, that market conditions will not change or demand for the Company’s business model will continue. Either of these
could result in future impairment of long-lived assets.



15






Revenue Recognition



The Company’s revenue is derived
from providing temporary staffing services to its clients. The Company recognizes revenue in accordance with Financial Accounting
Standards Board (“FASB”) Accounting Standards Codification (“ASC”) No. 605, Revenue Recognition.
In all cases, revenue is recognized only when the price is fixed and determinable, persuasive evidence of an arrangement exists,
the service is performed and collectability of the resulting receivable is reasonably assured.



The Company recognizes its revenue from
temporary staffing services on a gross basis in accordance with the guidance in FASB ASC 605-45 which outlines various factors
or indicators that assist in determining whether revenue should be recognized on a gross or a net basis. In connection with this
guidance, the Company believes the gross basis is appropriate, as the Company is the primary obligor in its arrangements and is
responsible for fulfilling the services being provided to the individual customers and for compensating the individual service
providers, regardless of whether the customer accepts the work.



Cost of Revenue



Cost of revenue consists of wages, related
payroll taxes, workers compensation, and employee benefits of the Company’s employees while they work on contract assignment
as temporary staff of the Company’s customers.



Net Loss Per Share



Basic loss per share is computed by dividing
the net income available to common shareholders by the weighted-average number of common shares outstanding during the period.
Diluted loss per share reflect per share amounts that would have resulted if diluted potential common stock had been converted
to common stock.  There have been no common stock equivalents included in the diluted earnings per share computation
for the three or six months ended June 30, 2015 and 2014 as the amounts are anti-dilutive.



Income Taxes



Income taxes are accounted for under the
asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases
as well as operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.
The likelihood of realizing the tax benefits related to a potential deferred tax asset is evaluated, and a valuation allowance
is recognized to reduce that deferred tax asset if it is more likely than not that all or some portion of the deferred tax asset
will not be realized. Deferred tax assets and liabilities are calculated at the beginning and end of the year; the change in the
sum of the deferred tax asset, valuation allowance and deferred tax liability during the year generally is recognized as a deferred
tax expense or benefit. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in operations
in the period that includes the enactment date.



The Company evaluates the accounting for
uncertainty in income tax recognized in its financial statements and determines whether it is more likely than not that a tax position
will be sustained upon examination by the appropriate taxing authorities before any part of the benefit is recorded in its financial
statements. For those tax positions where it is “not more likely than not” that a tax benefit will be sustained, no
tax benefit is recognized. Where applicable, associated interest and penalties are also recorded. The Company has not accrued for
any such uncertain tax positions as of June 30, 2015 or December 31, 2014.



16






Recent Accounting Pronouncements



There are no recently issued accounting
pronouncements that the Company has yet to adopt that are expected to have a material effect on its financial position, results
of operations, or cash flows.



Results of Operations for the Three Months Ended June 30,
2015 as Compared to the Three Months Ended June 30, 2014.



The following is a comparison of the consolidated results of
operations for the Company for the three months ended June 30, 2015 and 2014



|                                       |  | Three Months Ended |           |   |          |   |           |          | 
|-------------------------------------- |  | ------------------ | --------- | - | -------- | - | --------- | -------- | 
|                                       |  | June 30,           |           |   | June 30, |   |           |          | 
|                                       |  | 2015               |           |   | 2014     |   |           | $ Change | 
|                                       |  |                    |           |   |          |   |           |          | 
|Revenues                               |  | $                  | 7,960,386 |   |          | $ | 4,170,454 |          | 
|Cost of revenues                       |  |                    | 7,315,513 |   |          |   | 3,665,451 |          | 
|Gross profit                           |  |                    | 644,873   |   |          |   | 505,003   |          | 
|Operating expenses                     |  |                    | 683,496   |   |          |   | 436,286   |          | 
|Income (loss) from operations          |  |                    | (38,623   | ) |          |   | 68,717    |          | 
|Gain on sale of property and equipment |  |                    | 5,292     |   |          |   | -         |          | 
|Gain on settlement agreement           |  |                    | 75,000    |   |          |   | -         |          | 
|Interest and other expense, net        |  |                    | (64,942   | ) |          |   | (50,180   | )        | 
|Income (loss) before income tax        |  |                    | (23,273   | ) |          |   | 18,537    |          | 
|Income tax expense                     |  |                    | -         |   |          |   | -         |          | 
|Net income (loss)                      |  | $                  | (23,273   | ) |          | $ | 18,537    |          | 



Revenues



Our revenues increased by $3,789,932, or
90.9%, during the quarter ended June 30, 2015 as compared to the same period in 2014. The increase in revenues is due primarily
to additional clients picked up towards the end of the quarter ended March 31, 2015. These new clients provided for additional
revenue during the quarter ended June 30, 2015 as compared to the same period in 2014.



Cost of revenues



Our cost of revenues, which represent primarily
staffing salaries and workers compensation insurance costs, increased by $3,650,062, or 99.6%, during the quarter ended June 30,
2015 as compared to the same period in 2014. The increase in cost of revenues is due to the increase in revenues for the period.
The cost of revenues increased at a higher rate than the percentage increase in revenues due to an increase in the state and federal
unemployment tax rates for our staffing employees as compared to the same period in 2014. We expect the cost of revenues to continue
to increase as our revenues increase, but at a decreasing rate as state and federal unemployment limits are met.



Operating expenses



Operating expenses increased by $247,210,
or 56.7%, during the quarter ended June 30, 2015 as compared to the same period in 2014. The increase in operating expenses in
2015 was due primarily to increased payroll costs associated with additional headcount added to manage the increase in our volume.
In addition, we incurred an increase in professional fees during the quarter ended June 30, 2015 as a result of increased legal
and accounting fees necessary to complete our registration statement as well as attorney fees associated with the Loyalty settlement
agreement.



17






Other income/expense



Other income/expense during the quarter
ended June 30, 2015 included a $5,292 gain on the sale of property and equipment during the period, as well as a $75,000 gain resulting
from the settlement agreement with the seller of Loyalty. These gains were offset by interest and other expense of $64,942, which
represents interest expense on our outstanding notes payable, as well as financing charges from our factoring arrangements. During
the quarter ended June 30, 2014, we had interest and other expenses of $50,180. Interest expense was higher during the quarter
ended June 30, 2015 primarily due to an increase in accounts receivables factored during the period.



Results of Operations for the Six Months Ended June 30, 2015
as Compared to the Six Months Ended June 30, 2014.



The following is a comparison of the consolidated results of
operations for the Company for the six months ended June 30, 2015 and 2014.



|                                       |  | Six Months Ended |            |   |          |   |           |          | 
|-------------------------------------- |  | ---------------- | ---------- | - | -------- | - | --------- | -------- | 
|                                       |  | June 30,         |            |   | June 30, |   |           |          | 
|                                       |  | 2015             |            |   | 2014     |   |           | $ Change | 
|                                       |  |                  |            |   |          |   |           |          | 
|Revenues                               |  | $                | 12,866,630 |   |          | $ | 7,067,581 |          | 
|Cost of revenues                       |  |                  | 11,839,326 |   |          |   | 6,316,096 |          | 
|Gross profit                           |  |                  | 1,027,304  |   |          |   | 751,485   |          | 
|Operating expenses                     |  |                  | 1,153,332  |   |          |   | 685,198   |          | 
|Income (loss) from operations          |  |                  | (126,028   | ) |          |   | 66,287    |          | 
|Gain on sale of property and equipment |  |                  | 5,292      |   |          |   | -         |          | 
|Gain on settlement agreement           |  |                  | 75,000     |   |          |   | -         |          | 
|Interest and other expense, net        |  |                  | (114,455   | ) |          |   | (81,698   | )        | 
|Loss before income tax                 |  |                  | (160,191   | ) |          |   | (15,411   | )        | 
|Income tax expense                     |  |                  | -          |   |          |   | -         |          | 
|Net loss                               |  | $                | (160,191   | ) |          | $ | (15,411   | )        | 



Revenues



Our revenues increased by $5,799,049, or
82.1%, during the six months ended June 30, 2015 as compared to the same period in 2014. The increase in revenues is due primarily
to additional clients picked up towards the end of the quarter ended March 31, 2015. These new clients provided for additional
revenue during the six months ended June 30, 2015 as compared to the same period in 2014. In addition, the increase in revenues
is also partially due to additional customers from the acquisition of Loyalty on February 11, 2014. As a result of the Loyalty
acquisition, the revenues during the six months ended June 30, 2015 reflect a full six months of additional revenue from the acquired
customers, whereas the revenues from the same period in 2014 only reflect additional revenues generated from the additional Loyalty
customers subsequent to the acquisition date of February 11, 2014.



Cost of revenues



Our cost of revenues, which represent primarily
staffing salaries and workers compensation insurance costs, increased by $5,523,230, or 87.4%, during the six months ended June
30, 2015 as compared to the same period in 2014. The increase in cost of revenues is due to the increase in revenues for the period.
The cost of revenues increased at a higher rate than the percentage increase in revenues due to an increase in the state and federal
unemployment tax rates for our staffing employees as compared to the same period in 2014. We expect the cost of revenues to continue
to increase as our revenues increase, but at a decreasing rate as state and federal unemployment limits are met.



18






Operating expenses



Operating expenses increased by $468,134,
or 68.3%, during the six months ended June 30, 2015 as compared to the same period in 2014. The increase in operating expenses
in 2015 was due primarily to increased payroll costs associated with additional headcount added to manage the increase in our volume.
In addition, we incurred an increase in professional fees during the six months ended June 30, 2015 as a result of increased legal
and accounting fees necessary to complete our registration statement as well as attorney fees associated with the Loyalty settlement
agreement. The increase in operating expenses in 2015 was also due to a full six months of higher expenses associated with increased
payroll and other costs from the acquisition of Loyalty, whereas the operating expenses from the same period in 2014 only reflect
additional operating expenses incurred subsequent to the purchase date of February 11, 2014.



Other income/expense



Other income/expense during the six months
ended June 30, 2015 included a $5,292 gain on the sale of property and equipment during the period, as well as a $75,000 gain resulting
from the settlement agreement with the seller of Loyalty. These gains were offset by interest and other expense of $114,455, which
represents interest expense on our outstanding notes payable, as well as financing charges from our factoring arrangements. During
the six months ended June 30, 2014, we had interest and other expenses of $81,698. Interest expense was higher during the six months
ended June 30, 2015 primarily due to an increase in accounts receivables factored during the period.



Promissory Notes



The Company has a promissory note outstanding
of $8,003. This note consists of monies advanced by Cliff Blake, an officer and director of the Company, which bear interest at
6% per annum. The promissory note is due in a single payment at the end of the term in December 2015.



The Company also owes an aggregate total
of $300,000 to the seller of Loyalty, which is non-interest bearing and due in 30 monthly payment installments of $10,000 commencing
August 2015 through January 2018.



Capital Resources



As of June 30, 2015, we had cash of $508,267
and accounts receivable of $408,517. Our current liabilities of $1,060,851 exceeded our current assets of $916,784 by $144,067.



The Company’s proposed expansion
plans and business process improvements over the next two years will necessitate additional capital and financing. Accordingly,
the Company plans to raise between $2 million and $4 million of outside funding in the next year, for the purposes of funding its
own accounts receivable factoring company, establishing and operating its own worker’s compensation captive unit, and acquiring
competitors and complementary service providers in its sector. Of this amount, the Company expects that it will need funding of
$1.0 million to $1.5 million to achieve its expanded growth and profit objectives in its existing core business over the next two
years.



The Company anticipates that it will require
approximately $700,000 to $1.0 million to establish and fund its factoring facility. These amounts would be used to fund payroll
and taxes up to the point that these amounts are collect from the client. Factoring internally would mean self-financing, resulting
in a savings to the Company. No additional material or regulatory costs would be incurred at this point. If the Company were to
offer factoring to other entities (i.e. outside of the Company) then Company would be subject to all the rules and regulations
surrounding the operations of a finance company. Once the factoring entity is successfully set-up, the Company expects to realize
ongoing savings from the reduced factoring costs.



19






The Company expects that establishing and
funding its workers’ compensation captive will separately require funding of approximately $500,000 to $1.0 million, which
will include a substantial deposit to establish the captive as a self-insured funding unit. The costs include a deposit needed
of $500,000 or more, set-up costs of $50,000 to $60,000, and administrative fees of approximately $15,000 to $20,000 per year.
Legal requirements for the formation of a captive vary by state. Currently, Hawaii and Nevada offer the most favorable requirements
for establishing a captive for the Company. Any captive would still require catastrophic coverage beyond the normal coverage provided
by the captive. There are numerous companies which provide direction and assistance for establishing a captive, and the Company
would plan to engage such an advisory company. These companies are primarily responsible for ensuring that the captive meets the
regulatory requirements initially and annually in the applicable state of formation. These advisors also assist in risk assessment,
legal deposit requirements and claims administration. An impact on the Company’s current business from the captive would
be the ability to retain the large deposit amounts required by insurance providers to remain in the control of the Company. As
with the factoring entity, once the workers’ compensation captive is successfully set-up, the Company expects to realize
ongoing savings from the reduced workers’ compensation costs.



There can be no assurance that the Company’s
activities will generate sufficient revenues to sustain its operations without additional capital, or if additional capital is
needed, that such funds, if available, will be obtainable on terms satisfactory to the Company. Accordingly, given the Company’s
limited cash and cash equivalents on hand, the Company will be unable to implement its contemplated business plans and operations
(including its goals of establishing a factoring entity and workers’ compensation captive) unless it obtains additional financing
or otherwise is able to generate sufficient revenues and profits. The Company may raise additional capital through sales of debt
or equity, obtain loan financing or develop and consummate other alternative financial plans.



The Company anticipates it will develop
a budget for marketing activities consisting of two levels of marketing: client marketing and acquisition marketing. Client marketing
costs are associated with sales staff with the single purpose to market to current and potential clients. Acquisition marketing
costs are those incurred for investor relations, traveling, expenses for client acquisitions, and case by case joint marketing
material for specific acquisitions as they occur.



Liquidity



To date, the Company has not suffered from
a significant liquidity issue. The main liquidity issue was addressed when the Company entered into new factoring agreements that
went into effect September 1, 2012 with TAB Bank, which provided for a $1,000,000 factor commitment. In addition, the Company may
borrow from time to time as available, sources of funds from its officers and/or directors as needed



As the Company grows in size, the savings
from this new factoring arrangement will continue to accrue and enhance the Company’s profitability and cash flow. Based
on this budget and the projected operations of the Company, there are no currently anticipated liquidity issues which would pose
a threat to the current business and operations of the Company.



Net cash used in operating activities was
($125,435) for the six months ended June 30, 2015 compared to net cash provided by operating activities of $249,953 for the same
period in 2014. The significant change between the periods was a result of a net loss of $160,191 for the six months ended June
30, 2015, along with an increase in accounts receivable of $108,106. During the same period in 2014, our net loss was only $15,411,
and we had increased cash provided from the reduction of accounts receivable of $23,099 and prepaid expenses and other current
assets of $67,484.



Net cash used in investing activities during
the six months ended June 30, 2015 amounted to $32,030 representing payments for borrowings on related party notes receivable of
$44,530, offset by proceeds from the sale of property and equipment of $12,500. We had no cash flows from investing activities
for the six months ended June 30, 2014.



We had net cash used in financing activities
of $121,506 during the six months ended June 30, 2015 resulting from the payment of $125,000 for the note payable due to the seller
of Loyalty, offset by proceeds from notes payable to related parties of $3,494. Cash used in financing activities during the six
months ended June 30, 2014 were $74,262, which represented payments on notes payables to related parties.



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ITEM 3. QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK.



Information not required to be filed by
Smaller Reporting Companies.



ITEM 4. CONTROLS AND PROCEDURES.



Evaluation of Disclosure Controls and
Procedures.



Pursuant to Rules adopted by the Securities
and Exchange Commission, the Company carried out an evaluation of the effectiveness of the design and operation of its disclosure
controls and procedures pursuant to Exchange Act Rules. This evaluation was done as of June 30, 2015, the end of the period covered
by this Quarterly Report on Form 10-Q under the supervision and with the participation of the Company’s principal executive
officer and principal financial and accounting officer. There have been no significant changes in internal controls or in other
factors that could significantly affect internal controls subsequent to the date of the evaluation. Based upon that evaluation,
they believe that the Company’s disclosure controls and procedures are effective in gathering, analyzing and disclosing information
needed to ensure that the information required to be disclosed by the Company in its periodic reports is recorded, summarized and
processed timely. Both officers are directly involved in the day-to-day operations of the Company.



The Company is responsible for establishing
and maintaining adequate internal control over financial reporting in accordance with the Rule 13a-15 of the Securities Exchange
Act of 1934. The Company’s president and its principal financial and accounting officer conducted an evaluation of the effectiveness
of the Company’s internal control over financial reporting as of June 30, 2015, based on the criteria establish in Internal
Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treaedway Commission. Based on this evaluation,
management concluded that the Company’s internal control over financial reporting was effective as of June 30, 2015, based
on those criteria. A control system can provide only reasonably, not absolute, assurance that the objectives of the control system
are met and no evaluation of controls can provide absolute assurance that all control issues have been detected.



Changes in Internal Control Over Financial
Reporting



The Company has not made any changes during
its fiscal quarter that materially affect, or are reasonably likely to materially affect, its internal control over financial reporting.





PART II



ITEM 1. LEGAL PROCEEDINGS



There are no pending, threatened or actual
legal proceedings in which the Company or any subsidiary is a party.



ITEM 2. UNREGISTERED SALES OF EQUITY
SECURITIES AND USE OF PROCEEDS



None.



ITEM 3. DEFAULTS UPON SENIOR SECURITIES



Not applicable.



ITEM 4. MINE SAFETY DISCLOSURES



Not applicable.



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ITEM 5. OTHER INFORMATION



(a) Not applicable.

(b) Item 407(c)(3) of Regulation S-K:



During the quarter covered by this Report,
there have not been any material changes to the procedures by which security holders may recommend nominees to the Board of Directors.



ITEM 6. EXHIBITS



|ExhibitNumber |  | Exhibit Title                                                                                                                                      
|------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------
|              |  |                                                                                                                                                    
|31            |  | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 *                                               
|32            |  | Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 *
|*             |  | Filed herewith                                                                                                                                     



22






SIGNATURES



Pursuant to the requirements
of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.



| | FIRST RATE STAFFING CORPORATION          
| | -----------------------------------------
| |                                          
| | By:                                      
| | President and Principal executive officer
| | Principal financial officer              



Dated: August 14, 2015



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