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 September 30, 2005
|_| 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.
(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
October 25, 2005 was: 3,511,400
Transitional Small Business Disclosure Format. Yes |_| No |X|
Indicate by check mark whether the registrant is an
accelerated filer (as defined by Rule 12b-2 of the
Exchange Act). Yes |_| No |X|
Indicate by check mark whether the registrant is a shell
company (as defined by Rule 12b-2 of the Exchange Act). Yes |_| No |X|
10-QSB Page 1
Temporary Financial Services, Inc.
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Contents
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FORM 10-QSB
PART I Page
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Item 1. Financial statements (unaudited)
Management statement 10-QSB Page 3
Balance sheet at September 30, 2005 10-QSB Page 4
Statements of operations for the three month and nine
month periods ended September 30, 2005 and 2004 10-QSB Page 5
Statements of cash flows for the nine month periods
ended September 30, 2005 and 2004 10-QSB Page 6
Notes to financial statements 10-QSB Page 7
Item 2. Management's discussion and analysis of financial
condition and results of operations 10-QSB Page 10
Item 3. Controls and procedures 10-QSB Page 13
Part II
Item 1. Legal proceedings 10-QSB Page 13
Item 2. Changes in securities 10-QSB Page 13
Item 3. Defaults upon senior securities 10-QSB Page 13
Item 4. Submission of matters to a vote of security holders 10-QSB Page 13
Item 5. Other information 10-QSB Page 13
Item 6. Exhibits and Reports on Form 8-K 10-QSB Page 13
Signatures 10-QSB Page 14
Certifications 10-QSB Page 15
10-QSB Page 2
FORM 10-QSB
PART I
Item 1. Financial Statements.
MANAGEMENT STATEMENT
The accompanying (unaudited) balance sheet of Temporary Financial
Services, Inc. as of September 30, 2005, and the related unaudited statements of
income for the three month and nine month periods ended September 30, 2005 and
2004, and unaudited statements of cash flows for the nine months ended September
30, 2005 and 2004 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, 2004, and the notes thereto
contained in the Company's annual report on Form 10-KSB for the year ended
December 31, 2004, filed with the Securities and Exchange Commission.
Management
Temporary Financial Services, Inc.
October 31, 2005
10-QSB Page 3
Temporary Financial Services, Inc.
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Balance Sheet (Unaudited)
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September 30,
Assets 2005
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CURRENT ASSETS:
Cash and cash equivalents $ 714,826
Accrued interest receivable 10,000
Contracts receivable, current portion 409,586
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Total current assets 1,134,412
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LONG TERM ASSETS:
Contracts receivable, non-current 117,500
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Total long term assets 117,500
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OTHER ASSETS:
Investments 404,000
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$1,655,912
==============
Liabilities and Stockholders' Equity
CURRENT LIABILITIES:
Accounts payable $ 352
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Total liabilities 352
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STOCKHOLDERS' EQUITY:
Common stock - 100,000,000 shares, $0.001 par value,
authorized; 3,511,400 shares issued and outstanding 3,511
Preferred stock - 5,000,000 shares, $0.001 par value,
authorized; none issued -
Additional paid-in capital 1,685,009
Accumulated deficit (32,960)
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Total stockholders' equity 1,655,560
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$1,655,912
==============
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 Operations (Unaudited)
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Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------------- ---------------------------------
2005 2004 2005 2004
-------------- -------------- --------------- ---------------
REVENUE:
Loan and related fees $ - $ 31,896 $ $ 66,066
Consulting and joint venture fees - 950 - 5,750
Interest and investment income 23,488 33,592 51,985 174,966
Accounting fees and other income - 500 - 6,500
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23,488 66,938 51,985 253,282
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OPERATING EXPENSES:
Advertising - 262 - 2,703
Compensation and related expenses - - - 27,190
Rent - - - 8,010
Legal and professional 9,139 9,180 38,435 27,642
Interest expense - related party - 18,049 - 89,528
Office expense - 1,581 - 8,177
Other expense 3,625 2,750 11,266 19,744
Litigation expenses - - - 58,187
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12,764 31,822 49,701 241,181
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INCOME FROM OPERATIONS 10,724 35,116 2,284 12,101
OTHER INCOME (EXPENSE):
Gain (loss) on sale of securities,
officer/stockholder - (8,579) - 122,586
-------------- -------------- --------------- ---------------
- (8,579) - 122,586
-------------- -------------- --------------- ---------------
INCOME BEFORE INCOME TAXES 10,724 26,537 2,284 134,687
INCOME TAX BENEFIT/PROVISION - - - -
-------------- -------------- --------------- ---------------
NET INCOME $ 10,724 $ 26,537 $ 2,284 $ 134,687
============== ============== =============== ===============
BASIC INCOME PER SHARE $ nil $ 0.01 $ nil $ 0.04
============== ============== =============== ===============
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 3,511,400 3,436,400 3,511,400 3,519,735
============== ============== =============== ===============
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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Nine Months Ended
September 30,
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Increase (Decrease) in Cash 2005 2004
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,284 $ 134,687
Adjustments to reconcile net income to net cash
used in operating activities:
Gain on sale of securities, officer/stockholder - (122,586)
(Increase) decrease in accounts receivable (10,000) 9,178
Decrease in prepaid expenses - 1,877
Increase (decrease) in accounts payable 352 (5,224)
Decrease in accrued expenses - (7,825)
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Total adjustments (9,648) (124,580)
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Net cash provided by (used in) operating activities (7,364) 10,107
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CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of securities to officer/stockholder - 396,765
Purchase of securities available for sale - (274,179)
(Increase) decrease in contracts receivable, net (527,086) 1,600,507
(Increase) decrease in investments, net (404,000) 4,944
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Net cash provided by (used in) investing activities (931,086) 1,728,037
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CASH FLOWS FROM FINANCING ACTIVITIES:
Redemption - (112,500)
Decrease in line of credit, net - (1,558,404)
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Net cash used in financing activities - (1,670,904)
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NET INCREASE (DECREASE) IN CASH (938,450) 67,240
CASH, BEGINNING OF PERIOD 1,653,276 64,098
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CASH, END OF PERIOD $ 714,826 $ 131,338
================= =================
See accompanying notes to unaudited financial statements.
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10-QSB Page 6
NOTE 1 -- ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Organization:
The accompanying financial statements are those of Temporary Financial Services,
Inc. ("TFS"), incorporated in Washington State on October 4, 2000. TFS has
established December 31 as its fiscal year end. In 2004, the Company's
operations consisted of three segments: 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. In anticipation of an
acquisition of a privately held company, near the end of 2004, the Company
converted all of its assets to cash and discontinued its lending business. The
anticipated acquisition was subsequently abandoned. In the quarter ended
September 30, 2005, the Company's revenue was generated from interest income on
its cash assets held in highly liquid interest-bearing accounts and interest
earned on secured notes receivable and contracts receivable. With the
abandonment of the acquisition, the company invested some of its liquid assets
in higher yielding instruments, secured notes, and contracts receivable.
Summary of Significant Accounting Policies:
Basis of Presentation - The accompanying unaudited financial statements have
been prepared in conformity with generally accepted accounting principles in the
United States 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, 2004, and the notes thereto contained in the Company's Annual
Report on Form 10-KSB for the year ended December 31, 2004, 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 one financial institution. These
amounts are potentially subject to concentration of credit risk. The accounts
are guaranteed by the Federal Deposit Insurance Corporation (FDIC) up to
$100,000. At September 30, 2005, uninsured cash balances totaled $614,826.
10-QSB Page 7
Investment in securities - Investments include held to maturity securities of an
affiliated entity (see Note 2), and are based on management's intent and ability
to hold the securities to maturity. Held to maturity securities are stated at
amortized cost which approximates fair value.
Revenue recognition - Revenue in the nine months ended September 30, 2005 was
derived solely from interest earned on cash held in highly liquid
interest-bearing accounts, and interest earned on contracts and secured notes
receivable.
In 2004, the Company generated revenues from interest earned on loans,
investment income from 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 contracts receivable were
recognized when earned based on the amount of the contract, the rate, and the
time outstanding.
Fee based accounting services were typically charged at a monthly fixed rate,
and were invoiced as income at the end of the month in which the services are
performed. Near the end of 2004, the Company discontinued its lending and
accounting operations in anticipation of a merger transaction.
Joint venture revenues resulted from the Company's participation in contracts
receivable purchases. After holding interests in joint venture contracts for
relatively short periods, contracts were sold and the Company's gain was
determined by the excess of the sale price over the cost basis of the contract.
Joint venture contract revenues were recognized when the related contract was
sold.
Consulting fees were recognized when billed for services provided to affiliated
companies. These operations were discontinued at the end of 2004.
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.
Earnings per share - Earnings per common share has been computed on the basis of
the weighted-average number of common shares outstanding during the period
presented. On August 9, 2005 the Board of Directors declared a five to one
forward stock split. The Company's disclosure of the weighted-average number of
common shares outstanding has been restated to reflect the effect of the stock
split for all periods presented. Only basic earning per share has been presented
as the Company has no outstanding common stock equivalents that would result in
dilution to earnings per share.
NOTE 2 -- RELATED-PARTY TRANSACTIONS:
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In January 2005, the Company purchased an investment consisting of $505,000 of
units in a unit offering composed of $500,000 in secured notes receivable and
$5,000 in equity securities from Genesis Holdings, Inc., a company controlled by
an affiliate, Genesis Financial, Inc. The secured notes bear interest at 8% per
annum and may be converted back into cash on demand. Genesis Financial, Inc.
receives a 1% management fee for management of Genesis Holdings, Inc. and a 1/2%
fee loan-servicing fee for servicing the loan accounts (1.5% in the aggregate).
In September, 2005 $100,000 of the secured notes and $1,000 of the equity
securities were redeemed.
10-QSB Page 8
In April, 2005, the Company purchased a contract receivable for $117,500 from
Genesis Financial, Inc. This investment is payable interest only for 31 months
with a balloon payment due at the end of the term.
A second contract receivable was purchased in June, 2005, for $409,586. This
contract calls for six monthly payments of $2,627 per month with a balloon of
$450,375 due on December 14, 2005, subject to a ninety day extension at the
option of the borrower.
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NOTE 3 - INCOME TAX:
The Company generated tax-basis net operating income of $10,724 and $2,284 for
the three and nine month periods ended September 30, 2005, respectively, and
aggregate losses since inception of approximately $33,000. These losses are
available for carryover to offset future taxable income through 2025.
At September 30, 2005, the Company had a deferred tax asset of approximately
$8,250. The deferred tax asset was fully offset by a valuation allowance because
of uncertainties if the Company will generate sufficient taxable income to
realize the tax benefit. For the three month periods ended September 30, 2005
and 2004, the income tax expense differed from the expected amounts of
approximately $2,700 and $6,700, respectively, primarily because of the impact
of recognizing the deferred tax asset valuation allowance. For the nine month
periods ended September 30, 2005 and 2004, the income tax expense differed from
the expected amounts of approximately $600 and $34,000, respectively, primarily
because of the impact of recognizing the deferred tax asset valuation allowance.
NOTE 4 - SUBSEQUENT EVENTS:
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On October 6, 2005, the Company entered into a non-binding letter of intent to
acquire Command Staffing LLC (Command Staffing) and certain affiliated entities.
Command Staffing is a temporary labor franchise company with franchised
locations in eighteen states and the District of Columbia. The Company will
issue up to 19,897,932 shares of common stock to acquire Command Staffing, an
affiliated software company, Harborview Software Solutions, Inc. ("Harborview")
and up to sixty-two franchise businesses (Command Centers).The companies are
currently engaged in due diligence evaluations and expect to close the
acquisition of Command Staffing and Harborview in the next thirty days.
Acquisition of the Command Centers will be completed as financial information
and due diligence reviews are completed during the fourth quarter of 2005 and
the first quarter of 2006. The transaction, if completed, will be accounted for
as a recapitalization.
10-QSB Page 9
FORM 10-QSB
Part I, Item 2. Management's 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, TFS' business has evolved.
Background. In late 2004, management elected to discontinue active loan
and investment operations in order to focus on locating a suitable acquisition
candidate. Management had determined that the existing business activities,
consisting of investing in contracts receivable, lending to an affiliate
involved in purchasing contracts receivable, and various other short-term
investment and lending activities, would not provide adequate returns to the
company and its shareholders to justify the operating business model. In order
to provide a better potential return to its shareholders, Management began
actively seeking a merger candidate. A letter of intent was reached with
Toolbuilders Laboratories, Inc. in December, 2004. Subsequently, the
Toolbuilders transaction was terminated in April 2005. In anticipation of the
merger transaction, the Company converted all of its assets to cash and paid off
all liabilities. As a result, operations in the first nine months of 2005 were
limited to investment of cash in highly liquid interest bearing accounts,
secured notes receivable, and contracts receivable, and performing the due
diligence associated with a planned reverse merger transaction. Following
termination of the Toolbuilders transaction, management began reviewing other
opportunities for a reverse acquisition, and pending another transaction, began
reinvesting company funds in higher yielding investments including contracts
receivable through an affiliated company.
Future Operations. On October 6, 2005, the Company entered into a
non-binding letter of intent to acquire the assets of Command Staffing LLC and
certain affiliated entities. Command Staffing is an emerging provider of
temporary labor with franchised locations in eighteen states and the District of
Columbia. The Company will issue up to 19,897,932 shares of common stock to
acquire the operations of the franchise company, an affiliated software company
and up to sixty-two Command Center locations. The companies are currently
engaged in due diligence evaluations and expect to close the acquisition of the
franchise company and the software company in the next thirty days. Acquisition
of the Command Center locations will be completed as financial information and
due diligence reviews are completed during the fourth quarter of 2005 and the
first quarter of 2006. The transaction will remain non-binding unless the
parties are able to successfully negotiate and sign a definitive agreement. As a
result, there are no assurances that a closing will occur.
At this time, the Company has no active operations beyond its efforts
to complete the acquisition of Command Staffing. Consequently, operating results
for the three and nine month periods ended September 30, 2005 are not
operationally comparable to the three and nine month periods ended September 30,
2004. The results of operations for the periods reported on are presented below.
10-QSB Page 10
Results of Operations.
Three and Nine Month Periods ended September 30, 2005.
Revenues. In the three months ended September 30, 2005, the company
generated $23,488 in interest and investment income from investing cash assets
in interest-bearing accounts, secured notes receivable and contracts receivable.
In January, 2005, the Company purchased an investment consisting of $505,000 of
units in a unit offering composed of $500,000 in secured notes and $5,000 in
equity securities from Genesis Holdings, Inc., a company controlled by an
affiliate, Genesis Financial, Inc. The secured notes bear interest at 8% per
annum and may be converted back into cash on demand. Genesis Holdings, Inc.
redeemed $100,000 of the secured notes and $1,000 of the equity securities in
September, 2005.
In April, 2005, the Company purchased a contract receivable from
Genesis Financial, Inc. for $117,500. This investment is payable interest only
for 31 months with a balloon payment due at the end of the term. A second
contract receivable was purchased from Genesis Financial, Inc. in June, 2005,
for $409,586. The second contract calls for six monthly payments of $2,627 per
month with a balloon of $450,375 due on December 14, 2005, subject to a ninety
day extension at the option of the borrower.
For the nine months ended September 30, 2005, the Company generated
$51,985 in interest and investment income from the investments described above.
Operating Expenses. Expenses in the three months ended September 30,
2005, amounting to $12,764, were limited to professional fees and costs incurred
in connection with the company's status as a public company. Pending completion
of an acquisition, the Company's expenses are expected to primarily consist of
the costs of being public and due diligence expenses incurred in connection with
evaluating the Command Staffing transaction.
For the nine months ended September 30, 2005, the Company incurred
operating expenses of $49,701. Operating expenses were limited to professional
fees and costs incurred in connection with the company's status as a public
company, and the due diligence costs associated with the Toolbuilders
transaction that was subsequently abandoned.
Income from Operations. In the quarter ended September 30, 2005, the
Company generated income from operations of $10,724. In the nine months ended
September 30, 2005, the Company generated income from operations of $2,284.
Pending the successful completion of the Command Staffing transaction,
management anticipates that it will operate at breakeven income/loss levels by
investing cash assets in interest-bearing accounts, secured notes, and contracts
receivable with higher yields and limiting operating expenses to professional
fees, public company costs, and due diligence costs associated with the Command
Staffing transaction. If the Command Staffing transaction is not completed,
management will reassess the Company's options.
10-QSB Page 11
Three Month and Nine Month Periods Ended September 30, 2004
Revenues. In the three months ended September 30, 2004, the Company
generated total revenues of $66,938 from all sources. Loan and related fees from
temporary staffing businesses were $31,896, interest and investment income were
$33,592, and accounting fees and other income were $1,450 in the quarter ended
September 30, 2004.
For the nine months ended September 30, 2004, the Company generated
aggregate revenues of $253,282. Loan and related fees from temporary staffing
businesses were $66,066, interest and investment income were $174,966, and
accounting fees and other income were $12,250 for the nine months ended
September 30, 2004.
The Company discontinued its lending and accounting services
operations in 2004.
Operating Expenses. Operating expenses totaled $31,822 in the
quarter ended September 30, 2004. Legal and professional expenses were $9,180
and interest expense was $18,049 in the quarter ended September 30, 2004. Total
other expenses were $4,593 for the period.
For the nine months ended September 30, 2004, operating expenses
totaled $241,181. Compensation and related expenses were $27,190, legal and
professional expenses were $27,642, and interest expense was $89,528 for the
nine months ended September 30, 2004. Total other expenses for the nine month
period ended September 30, 2004 were $96,821, including $58,187 in litigation
expenses incurred in settling previously reported claims by Labor Ready, Inc.
Income From Operations. The Company generated income from operations
of $35,116 in the three months ended September 30, 2004 and income from
operations of $12,101 for the nine months ended September 30, 2004.
Other Income. During the three month period ended September 30,
2004, the Company sold securities to an officer/stockholder at a loss of $8,579,
and in the aggregate during the nine month period ended September 30, 2004, the
Company sold securities to an officer/stockholder at a gain of $122,586.
Liquidity and Capital Resources.
At September 30, 2005, cash and cash equivalents amounted to $714,826,
and investments and loans receivable amounted to an additional $951,086. At this
time, the existing cash position is believed to be sufficient to support
anticipated business operations. Management anticipates that TFS has sufficient
cash to meet its needs for at least the next twelve months.
Pending use of available cash for an acquisition, funds will be held in
accessible interest or dividend bearing accounts or other relatively short term
and liquid investments and the Company will manage surplus working capital to
provide current earnings.
10-QSB Page 12
Part I, Item 3. Controls and Procedures
An evaluation was performed by the Company's president and principal
financial officer of the effectiveness of the design and operation of disclosure
controls and procedures. On the basis of that evaluation, the Company's
president and principal financial officer concluded that disclosure controls and
procedures were effective as of September 30, 2005, ensuring that all material
information required to be filed in this quarterly report was made known to them
in a timely fashion.
There has been no change in internal controls over financial reporting
during the quarter ended September 30, 2005 that has materially affected or is
likely to materially affect internal controls over financial reporting.
FORM 10-QSB
PART II
Item 1. Legal Proceedings: None.
Item 2. Changes in Securities: None.
Item 3. Defaults Upon Senior Securities: None.
Item 4. Submission of Matters to a Vote of Security Holders:
On July 12, 2005, the Company attempted to hold its annual shareholder
meeting. As a result of deficiencies in the mailing of the meeting notice and
proxy materials, on August 9, 2005 the Board of Directors of the Company
declared the meeting to be void. This information was contained in a Form 8-K
filing submitted on August 12, 2005.
Item 5. Other Information: None.
Item 6. Exhibits and Reports on Form 8-K:
(a) Exhibits. None
(b) Reports on Form 8-K. On August 12, 2005, the Company submitted
a Form 8-K filing referencing a forward stock split and the
voiding of an improperly noticed annual shareholders meeting.
10-QSB Page 13
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 October 31, 2005
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Signature Title Printed Name Date
Secretary, Principal
/s/Brad E. Herr Financial Officer Brad E. Herr October 31, 2005
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Signature Title Printed Name Date
10-QSB Page 14