UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
|X| QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended MARCH 31, 2004
|_| TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHNAGE ACT
For the transition period from _____________ to ___________.
Commission File Number: 333-60326
TEMPORARY FINANCIAL SERVICES, INC.
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(Exact name of small business issuer as specified in its charter)
Washington 91-2079472
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
200 North Mullan Road, Suite 213, Spokane, Washington 99206
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(Address of principal executive offices)
(509) 340-0273
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(Issuer's telephone number)
N.A.
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(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant: (1) has filed all documents and
reports required to be filed by Section 13, or 15(d) of the Securities Exchange
Act of 1934 during the preceding twelve months (or for such shorter period as
the Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past ninety days.
Yes |X| No |_|
The number of shares of common stock outstanding on April 10, 2003 was: 737,280
Transitional Small Business Disclosure Format. Yes |_| No |X|
10-QSB Page 1
FORM 10-QSB
PART I
ITEM 1. FINANCIAL STATEMENTS.
TEMPORARY FINANCIAL SERVICES, INC.
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CONTENTS
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PAGE
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Management Statement 10-QSB Page 3
FINANCIAL STATEMENTS (Unaudited):
Balance sheet 10-QSB Page 4
Statements of income 10-QSB Page 5
Statements of cash flows 10-QSB Page 6
Notes to financial statements 10-QSB Pages 7 - 11
10-QSB Page 2
MANAGEMENT STATEMENT
The accompanying (unaudited) balance sheet of Temporary Financial
Services, Inc. as of March 31, 2004, and the related statements of income, and
cash flows for the three month periods ended March 31, 2004 and 2003, were
prepared by Management of the Company.
The accompanying financial statements should be read in conjunction with
the audited financial statements of Temporary Financial Services, Inc. (the
"Company") as of and for the year ended December 31, 2003, and the notes thereto
contained in the Company's annual report on Form 10-KSB for the year ended
December 31, 2003, filed with the Securities and Exchange Commission.
Management
Temporary Financial Services, Inc.
May 11, 2004
10-QSB Page 3
TEMPORARY FINANCIAL SERVICES, INC.
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Balance Sheet (Unaudited)
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March 31,
ASSETS 2004
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CURRENT ASSETS:
Cash and cash equivalents $ 204,421
Securities available for sale --
Accounts receivable 14,081
Federal income taxes --
Prepaid Expenses 1,876
Loans receivable:
Affiliates 2,043,052
Others 281,930
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Total current assets 2,545,360
OTHER ASSETS:
Investment in restricted securities 250,000
Investment in real estate contracts receivable 1,054,465
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Total Other Assets 1,304,465
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$ 3,849,825
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Line of credit, officer/stockholder $ 2,255,000
Accounts payable 13,532
Accrued expenses 3,096
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Total current liabilities 2,271,628
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STOCKHOLDERS' EQUITY
Common stock - 100,000,000 shares, $0.001 par value, authorized;
737,280 and 350,000 shares, respectively, issued and outstanding 737
Preferred stock - 5,000,000 shares, $0.001 par value, authorized;
none issued
Additional paid-in capital 1,762,032
Retained earnings (deficit) (184,572)
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Total stockholders' equity 1,578,197
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$ 3,849,825
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See accompanying notes to unaudited financial statements.
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10-QSB Page 4
TEMPORARY FINANCIAL SERVICES, INC.
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Statements of Income (Unaudited)
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Three Months Ended March 31,
--------------------------
2004 2003
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REVENUE:
Loan and related fees:
Affiliates $ -- $ --
Other 14,772 12,787
Consulting and joint venture fees 4,800 21,150
Interest and investment income 71,498 26,394
Accounting fees and other income 3,000 11,000
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94,070 71,331
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OPERATING EXPENSES:
Advertising $ 2,102 $ 397
Compensation and related expenses 14,936 37,279
Rent 5,522 5,433
Legal and professional 6,105 27,373
Interest expense - related party 23,632 12,702
Office expense 3,940 3,198
Other expense 5,503 10,027
Litigation & Settlement Expenses 57,791 --
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119,531 96,409
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LOSS FROM OPERATIONS (25,461) (25,078)
OTHER EXPENSE
Equity in losses of affiliates -- 8,230
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LOSS BEFORE INCOME TAXES (25,461) (16,848)
INCOME TAX BENEFIT -- --
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NET LOSS $ (25,461) $ (16,848)
========= =========
BASIC LOSS PER SHARE $ (0.03) $ (0.02)
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WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 737,280 737,280
========= =========
See accompanying notes to unaudited financial statements.
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10-QSB Page 5
TEMPORARY FINANCIAL SERVICES, INC.
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Statements of Cash Flows (Unaudited)
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Three Months Ended March 31,
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Increase (Decrease) in Cash 2004 2003
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (25,461) $ (16,849)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation -- 1,534
Decrease (increase) in accounts receivables (4,453) (149)
Increase (decrease) in accounts payable 8,308 1,613
Increase (decrease) in accrued expenses (5,741) 3,959
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Total adjustments (1,886) 6,957
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Net cash provided (used) in operating activities (27,347) (9,892)
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CASH FLOWS FROM INVESTING ACTIVITIES
Investment in restricted stock (250,000) --
Equity losses in affiliates -- (8,230)
Increase in loans receivable, net (280,376) (126,876)
Decrease (increase) in investments in real estate contracts receivable 1,450 (874,750)
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Net cash used in investing activities (528,926) (1,009,856)
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CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from line of credit, net 696,596 762,572
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NET INCREASE (DECREASE) IN CASH 140,323 (257,176)
CASH, BEGINNING OF PERIOD 64,098 547,210
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CASH, END OF PERIOD $ 204,421 $ 290,034
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SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION:
Cash payments of Interest $ 32,036 $ 10,854
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See accompanying notes to unaudited financial statements.
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10-QSB Page 6
TEMPORARY FINANCIAL SERVICES, INC.
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NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
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NOTE 1 -- ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
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Organization:
The accompanying financial statements are those of Temporary Financial Services,
Inc., incorporated in Washington State on October 4, 2000 (the "Company"). The
Company has established its fiscal year end to be December 31. The Company's
operations consist of the purchase of real estate contracts receivable for the
company's own account; financing the purchase of real estate contracts
receivable through an affiliated business; and financing and other services for
the temporary employment services industry.
Summary of Significant Accounting Policies:
Basis of Presentation - The accompanying unaudited financial statements have
been prepared in conformity with generally accepted accounting principles and
reflect all normal recurring adjustments which, in the opinion of Management of
the Company, are necessary for a fair presentation of the results for the
periods presented. The results of operations for such periods are not
necessarily indicative of the results expected for the full fiscal year or for
any future period.
The accompanying unaudited financial statements should be read in conjunction
with the audited financial statements of the Company as of and for the year
ended December 31, 2003, and the notes thereto contained in the Company's Annual
Report on Form 10-KSB for the year ended December 31, 2003, filed with the
Securities and Exchange Commission.
Use of estimates - The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenue and expenses during the reporting period. Actual results could differ
from those estimates and assumptions.
Cash and cash equivalents - Such assets consist of demand deposits, including
interest-bearing money market accounts, held in three financial institutions.
Securities available for sale - Investments in equity securities available for
sale are stated at cost, which approximates fair value.
Contracts receivable held for sale - Real estate contracts held for sale are
carried at the lower of cost (outstanding principal adjusted for net discounts
and capitalized acquisition costs) or aggregate market value. Gains or losses on
sales are recognized for financial reporting and income tax purposes at the time
of sale. Interest on these receivables is included in interest income during the
period held for resale.
10-QSB Page 7
TEMPORARY FINANCIAL SERVICES, INC.
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NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
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Revenue recognition - The Company generates revenues from interest earned on
loans, investment income from real estate contracts receivable, loan and related
fee income from loans to temporary staffing businesses, fee based accounting
services, and joint venture and consulting services.
Interest earned on loans and investment income from real estate contracts
receivable are recognized when earned based on the amount of the loan, the rate,
and the time outstanding. The Company recognizes loan and related fee income
from temporary staffing businesses at the time the loan amounts are advanced to
the borrowers. Loan advances are typically made on a weekly basis to temporary
staffing borrowers, and the amount of the advance is netted against the
applicable loan and related fee income. Fee based accounting services are
typically charged at a monthly fixed rate, and are invoiced as income at the end
of the month in which the services are performed.
Joint venture revenues result from the Company's participation in real estate
contract receivable purchases. After holding the interest in the joint venture
contract for a relatively short period, the contract is sold and the Company's
gain is determined by the excess of the sale price over the cost basis of the
contract. Joint venture contract revenues are recognized when the related
contract is sold. Consulting fees are recognized when billed for services
provided to affiliated companies.
Allowance for loan losses - The Company provides for estimated loan losses on
loans receivable at a level which, in management's opinion, is adequate to
absorb credit losses on such loans. The amount of the allowance is based on
management's evaluation of the collectibility of the loans receivable, including
the nature of the loans, adequacy of collateral, credit concentrations, trends
in loss experience, specific impaired loans, economic conditions, and other
risks inherent in the loans. At March 31, 2004 management determined that no
allowance for loan losses was necessary.
Investments in affiliates - The Company's investment in Genesis Financial, Inc.,
an affiliated company is reported using the equity method. The Company's share
of earnings and losses of the affiliate is reported as income or expense in the
period in which the earnings or losses are incurred. Genesis Financial, Inc. is
engaged in purchasing and selling real estate receivable contracts. At March 31,
2004, losses recorded under the equity method had fully offset the Company's
basis in the investment and the asset was reported for financial statement
purposes at a zero carrying value.
Income tax - Deferred taxes are provided, when material, on a liability method
whereby deferred tax assets are recognized for deductible temporary differences
and deferred tax liabilities are recognized for taxable temporary differences.
Temporary differences are the differences between the reported amounts of assets
and liabilities and their tax bases. There were no material temporary
differences for the periods presented. Deferred tax assets, subject to a
valuation allowance, are recognized for future benefits of net operating losses
being carried forward.
10-QSB Page 8
TEMPORARY FINANCIAL SERVICES, INC.
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NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
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Earnings per share - Earnings (loss) per common share has been computed on the
basis of the weighted-average number of common shares outstanding during the
years presented. Common shares issuable upon exercise of warrants (Note 6) have
not been included in the calculation because their inclusion would be
antidilutive.
NOTE 2 -- RELATED-PARTY TRANSACTIONS:
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As discussed in note 3, the Company had loans receivable from affiliates
totaling $2,043,052 at March 31, 2004.
At March 31, 2004, the Company had a $2,500,000 line of credit with an
officer/stockholder (see note 5) on which interest expense of $23,632 was
incurred in the quarter ended March 31, 2004 and 12,702 was incurred in the
quarter ended March 31, 2003.
NOTE 3 -- LOANS RECEIVABLE:
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The Company provides short-term financing for an affiliated business engaged in
purchasing and selling real estate receivable contracts, and for temporary
staffing businesses. The Company provides financing to its affiliated real
estate contract receivable borrower against a secured warehousing line of credit
agreement. The Company has established lending guidelines that limit loans to
80% of the borrowers cost of the contracts purchased, and the Company
periodically reviews the contract receivable agreements and appraisals to
maintain a comfort level regarding adequacy of the borrower's collateral base.
For the quarters ended March 31, 2004 and 2003, the Company incurred no loan
losses and there were no impaired loans outstanding at March 31, 2004 or 2003.
The temporary staffing business financing consists of notes receivable that are
generally collateralized by the borrower's accounts receivable, all assets of
the borrower, and the use of personal guarantees and pledges where appropriate.
Lending criteria established to minimize credit risk include, among other
things, assessment of the operator's capabilities, minimum business
capitalization requirements, maintenance of an adequate accounts receivable
borrowing base, and a requirement for timely reporting of financial information
to demonstrate ongoing compliance with loan covenants. For the quarters ended
March 31, 2004 and 2003, the Company incurred no loan losses and there were no
impaired loans to temporary staffing businesses outstanding at March 31, 2004 or
2003.
At March 31, 2004, the Company had no outstanding commitments for undisbursed
loans.
NOTE 4 -- INVESTMENTS IN AFFILIATES:
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In January, 2002, the Company acquired an interest in Genesis Financial, Inc., a
company formed to engage in the business of purchasing and reselling seller
financed real estate receivable contracts. In November, 2003, the Company
distributed 737,280 shares of Genesis common stock to its shareholders as a
dividend, leaving TFS with 250,720 shares (8.9%) of the total outstanding stock
of Genesis Financial, Inc. The investment in Genesis is reported on the equity
method of accounting,. At March 31, 2004, the basis of the remaining investment
in Genesis for financial statement purposes was $2,507. Under the equity method
of accounting, the Company's share of Genesis losses exceeded that amount and
the loss deductions were limited to $2,507. As a result, at March 31, 2004, the
value of the remaining investment in Genesis Financial, Inc. for financial
statement purposes is zero.
10-QSB Page 9
TEMPORARY FINANCIAL SERVICES, INC.
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NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
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NOTE 5 -- LINE OF CREDIT:
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THE COMPANY'S LINE OF CREDIT WITH A RELATED PARTY. At March 31, 2004 the Company
had an outstanding balance of $2,255,000 payable against a $2,500,000
line-of-credit with an officer/stockholder. The line-of-credit is unsecured and
bears interest at 8%. The line-of-credit agreement expires on December 31, 2004.
The Company incurred a renewal/commitment fee of $20,000 for the extension
agreement. The Company will pay this renewal/commitment fee to the
lender/officer/stockholder by assignment of the commitment/renewal fee to be
received by the Company from Genesis Financial, Inc. (see "The Genesis Line of
Credit," below). In the quarters ended March 31, 2004 and 2003, the Company
incurred related party interest expense of $23,632 and $12,702, respectively.
THE GENESIS LINE OF CREDIT. At March 31, 2004, the Company was owed $2,043,052
by Genesis Financial, Inc. against a $2,000,000 line of credit secured by all of
the assets of Genesis Financial, Inc. and personally guaranteed by two
principals of the borrower, and a short term note for the excess borrowings over
the line of credit limit. The line of credit bears interest at 8%. In the
quarters ended March 31, 2004 and 2003, the Company reported related party
interest income of $31,245 and $20,921, respectively. The line of credit expires
on December 31, 2004. TFS charged a commitment/renewal fee of 1% of the amount
of the line of credit. As of March 31, 2004, the Company has not established any
reserve for losses on its line of credit with Genesis as no loss is expected.
NOTE 6 -- CAPITAL STOCK:
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Exchange of Stock with Genesis.
In conjunction with the Company's investment in Genesis Financial, Inc. (see
Note 4), the Company exchanged 50,000 shares of its common stock valued at $5.00
per share, for 250,000 shares of Genesis common stock. The Genesis common shares
are restricted securities and were acquired for investment purposes.
NOTE 7 - DIVIDEND DISTRIBUTION:
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On November 28, 2003, TFS distributed the 737,280 shares of Genesis common stock
to shareholders of Temporary Financial Services, Inc. in a spin-off
distribution. Each shareholder of Temporary Financial Services, Inc. received
one share of Genesis common stock in the distribution for each one share of
Temporary Financial Services, Inc. common stock held at the record date for the
distribution. After the spin-off distribution, Temporary Financial Services,
Inc. continues to own 250,720 shares of Genesis common stock.
10-QSB Page 10
TEMPORARY FINANCIAL SERVICES, INC.
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NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
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NOTE 10 - LITIGATION:
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On October 17, 2002, Temporary Financial Services, Inc. (TFS) and Temps
Unlimited, Inc. were served with a lawsuit by Labor Ready, Inc. In February,
2004, the Company entered into a mediation of the Labor Ready claims, and
ultimately entered into a settlement of the litigation. TFS paid $33,334 to
obtain dismissal of the claims and the litigation is now concluded.
10-QSB Page 11
FORM 10-QSB
PART I, ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The Company was organized in October, 2000, and began operations in the
second quarter of 2001. Since commencing operations, our business has evolved.
BACKGROUND. We originally intended to focus our business on accounts
receivable financing for temporary staffing businesses. During the three months
ended March 31, 2002, over two-thirds of our loan business was concentrated in
this sector. On January 25, 2002, we invested in Genesis Financial, Inc.
(Genesis), a newly organized business engaged in the purchase and resale of
seller financed real estate receivable contracts. Since our investment in
Genesis, our business focus has gradually shifted away from lending to temporary
staffing businesses and toward providing loans to Genesis for the purchase of
seller financed real estate contracts. We have also started buying real estate
receivable contracts for our own account. At March 31, 2003, nearly 90% of our
loans receivable were concentrated in the real estate contract business and only
10% were to temporary staffing companies. At March 31, 2004 and 2003, 93% and
89%, respectively, of our total assets were focused on the real estate contracts
receivable sector. A table summarizing our involvement in the real estate
receivable and temporary staffing sectors at March 31, 2004 follows.
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SELLER FINANCED REAL ESTATE RECEIVABLES BUSINESSES
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Genesis - contract's financed $2,043,052
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Investments in real estate contract receivables $1,054,465
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TEMPORARY STAFFING BUSINESSES
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Affiliated through common ownership $ 281,930
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In November, 2003, we distributed approximately 75% of the shares we owned
in Genesis to our shareholders as a dividend. We account for our investment in
Genesis under the equity method of accounting. Under the equity method, we
recognize a pro rata portion of the income or loss that Genesis realizes in the
period under review. Through March 31, 2004, reported losses on our remaining
investment in Genesis (after the dividend) exceeded our carrying value of the
investment. At March 31, 2004, TFS holds 250,720 shares of Genesis common stock
valued at zero for financial statement reporting purposes.
At this time, we are not soliciting any new business in the temporary
staffing sector and we expect in future periods that our loans to temporary
staffing businesses will continue to decline as a percentage of total loans
outstanding.
At March 31, 2004, we held investments in real estate contracts receivable
of $1,054,465. These investments are secured by real estate and will generate
interest income of approximately $105,000 in 2004.
10-QSB Page 12
FUTURE PLANS. The Company intends to continue its focus on the real estate
financing sector. It is expected that real estate loans receivable and
investments in real estate contracts will generate sufficient cash flows in
coming periods for the Company to operate with a positive cash flow. Future
profits from operations will depend on the ability of the Company to generate a
positive interest spread between the contracts it acquires and the loans it
makes compared to the Company's cost of funds. Currently, the Company has a
$2,500,000 line of credit with an officer director at the rate of 8% per annum.
The company's line of credit to Genesis also bears an 8% interest rate. To the
extent the company borrows on its line of credit to fund Genesis borrowing, the
interest income and interest expense will wash. As a result, revenues to meet
operating expenses and profit (if any), will come from the Company's equity
funds available for investment. Management expects to generate a return of 10%
to 20% on these funds, and over the past six months has been taking steps to
reduce overhead to bring operating expenses in line with expected revenue.
In addition to real estate financing, the Company is now exploring other
business alternatives. In the three months ended March 31, 2004, the Company
invested $250,000 in PCS Edventures, Inc., a company engaged in the educational
software business. The investment in PCS Edventures, Inc. is recorded at the
lower of cost or market and at March 31, 2004, the financial statements reflect
this investment at cost. The Company has been and expects it will continue to be
contacted by other companies interested in being acquired by or acquiring TFS.
No such acquisition or reverse acquisition transactions are planned at this
time, but Management has indicated that it will be open to discussions should an
attractive opportunity arise.
RESULTS OF OPERATIONS.
THREE MONTHS ENDED MARCH 31, 2003 AND 2002.
REVENUES. In the three months ending March 31, 2004, the Company generated
total revenues of $94,070 from all sources, compared to $71,331 for the
comparable period in 2003. The increase in total revenues for the current
quarter reflects a higher level of activity brought about by the availability
from the line of credit increase, and investment of the company's equity funds.
Loan and related fees from the temporary staffing businesses increased to
$14,772 in the quarter ended March 31, 2004 compared to $12,787 in the
comparable period in 2003. This increase is due to increased activity levels at
our sole remaining temporary staffing borrower.
Interest and investment income increased to $71,498 in the quarter ended
March 31, 2004 compared to $26,394 in the quarter ended March 31, 2003. This
increase is due to the additional capital available for loans from equity funds
and increased line of credit limits, and the repositioning of our revenue base
in the real estate contracts receivable sector from lending to the temporary
staffing sector.
10-QSB Page 13
In the quarter ended March 31, 2004, we generated $3,000 in accounting fee
and other income compared to $11,000 in the comparable period in 2002. The
decrease is attributable to the reduction in our temporary staffing business.
Toward the end of 2002 and the first quarter of 2003 we saw a reduction in the
number of temporary staffing accounting services customers. At the same time, we
entered into an expanded agreement with Genesis for additional services, and the
Genesis revenue in this category more than offset the loss of temporary staffing
services accounting customers. We also expect that Genesis will continue to grow
in 2004 and will be in a position to retain in house accounting services in the
near term. When Genesis brings its accounting services in house, we expect that
our accounting services revenue will drop off significantly. We do not expect to
make accounting services a significant part of our ongoing business strategy in
the future.
OPERATING EXPENSES. Operating expenses totaled $119,531 in the quarter
ended March 31, 2004 compared to $96,409 for the comparable period in 2003.
Compensation and related expenses and legal and professional expenses decreased
substantially in the first quarter of 2004 when compared to the first quarter of
2003, but this decrease was more than offset by an increase in litigation and
settlement expenses incurred in the first quarter of 2004. The increase in
litigation and settlement expenses, consisting of legal fees and costs of
$24,000 and settlement costs of $33,000 resulted from a mediation proceeding and
the resulting settlement of the litigation. The action giving rise to these fees
has now been dismissed and the company is no longer a party to any outstanding
litigation. As a result, this category of expense will be eliminated in future
periods.
Advertising expense increased to $2,102 in the quarter ended March 31,
2004 from $397 in the quarter ended March 31, 2003. Included in the March 31,
2004 amount is the renewal for listing our securities in the Standard & Poors
Securities Manual. Other advertising expense consists of amounts spent for the
Company's yellow pages telephone book listing and a limited amount of product
literature.
The reduction in loans to temporary staffing businesses and the refocusing
of our business on real estate contract purchases and financing has eliminated
the need for much of the overhead we previously incurred in staffing for our
temp labor loan business. This reduction is reflected in a significant reduction
in operating costs (excluding Litigation and Settlement expenses) in the quarter
ended March 31, 2004.
LOSS FROM OPERATIONS. We incurred loss from operations of $25,461 in the
first quarter 2004, compared to loss from operations of $25,079 in same period
in 2003. Of the current period loss, $57,000 related to litigation and
settlement expenses incurred in defending the Company against the Labor Ready
lawsuit previously reported. Without the litigation costs and settlement
expenses, the Company would have reported a net profit of approximately $32,000
in the first quarter 2004.
In coming periods, we expect to eliminate the loss from operations through
ongoing reductions in overhead, and through increasing revenues from real estate
lending activities.
10-QSB Page 14
EQUITY IN GAINS (LOSSES) OF AFFILIATES. We currently own approximately
8.9% of Genesis Financial, Inc. We account for our investment under the equity
method of accounting and report our pro rata share of Genesis' net income or
loss in the period in which the income or loss is reported by Genesis. In
November, 2003, TFS distributed 737,280 shares of Genesis common stock as a
dividend to our shareholders. As a result, the cost basis of the investment in
Genesis was reduced to $2,507. Through the first quarter of 2004, the share of
Genesis losses reported on the books of the Company pursuant to the equity
method of accounting for the investment are limited to the remaining cost basis
of the investment on the books of TFS. Accordingly, TFS has recorded net losses
in equity of affiliates of $2,507 and the net value of the 250,720 shares of
Genesis common stock held by TFS is zero. The market price of the Genesis common
stock in the over the counter bulletin board (OTCBB) was $1.30 per share at
March 31, 2004.
LIQUIDITY AND CAPITAL RESOURCES.
At March 31, 2004, we have a secured warehousing line of credit commitment
to Genesis in the amount of $2,000,000, with an outstanding balance of
$2,000,000 and loans outstanding to temporary staffing businesses of $281,930.
At March 31, 2004, Genesis was also indebted to the OCmpany in the amount of
$43,052 on a short term note payable. We expect the amount of funds loaned to
Genesis to stay near the credit limit of the secured warehousing line of credit.
The Genesis secured warehousing line of credit bears interest at 8% per annum
and includes commitment and origination fees totaling 1% of the loan commitment.
The Genesis line expires December 31, 2004.
In addition to loans outstanding and lending commitments, the Company has
invested $1,054,465 in real estate contracts receivable. These contracts
generate cash flows of approximately $11,000 per month.
In order to provide additional funds to meet lending commitments and
funding necessary for investments in real estate contracts receivable, the
Company has also negotiated a $2,500,000 line of credit from an
officer/director. The related party line of credit agreement bears interest on
outstanding amounts at the rate of 8% per annum and includes origination and
commitment fees of $20,000. The Company has agreed to pass the commitment and
origination fee to be received from Genesis on its line of credit through to the
officer/director in payment of the Company's commitment and origination fee on
its line of credit. The Company considers the terms of the line of credit
available from the officer/director to be at least as favorable as the terms
available to the Company from other sources.
At March 31, 2004, cash and cash equivalents amounted to $204,421. We also
had funds available on our line of credit with an officer and director of
$245,000. We will continue to monitor our needs for capital to loan and will
attempt to match availability with demand. At this time, our existing cash
position and our availability under our line of credit are believed to be
sufficient to support our anticipated business operations foreseeable future.
Pending use of free cash for loans, investments, or operations, we will place
the funds in accessible interest or dividend bearing accounts and will manage
our surplus working capital position to provide current earnings.
The settlement of the Labor ready litigation free up operating cash flows
for future operations, and the company is in a position to operate profitably in
future periods with the existing asset base and cost structure.
10-QSB Page 15
FORM 10-QSB
PART II
PART II ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS.
Exhibit No. Description
10.1 Genesis Financial, Inc. Warehousing Line of Credit Extension
Agreement dated February 15, 2004.
10.2 Temporary Financial Services, Inc. Line of Credit Extension
Agreement dated February 15, 2004.
99.1 Certification of CEO underss.906 of Sarbanes-Oxley
99.2 Certification of CFO underss.906 of Sarbanes-Oxley
(B) REPORTS ON FORM 8-K. NONE
10-QSB Page 16
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.
TEMPORARY FINANCIAL SERVICES, INC.
/s/John R. Coghlan President John R. Coghlan May 12, 2004
----------------------------------------------------------------------------------------------------------------------
Signature Title Printed Name Date
/s/Brad E. Herr Secretary, Principal Financial Officer Brad E. Herr May 12, 2004
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Signature Title Printed Name Date
10-QSB Page 17
CERTIFICATIONS
I, John R. Coghlan, President, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Temporary Financial
Services, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: May 12, 2004
/S/ JOHN R. COGHLAN
--------------------------
John R. Coghlan, President
10-QSB Page 18
CERTIFICATIONS
I, Brad E. Herr, Chief Financial Officer, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Temporary Financial
Services, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: May 12, 2004
/S/ BRAD E. HERR
-------------------------------------
Brad E. Herr, Chief Financial Officer
10-QSB Page 19