UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
|X| ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2005
|_|TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from _____________ to ___________.
Commission File Number: 333-60326
COMMAND CENTER, INC.
(Name of small business issuer in its charter)
Washington 91-2079472
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3773 West Fifth Avenue, Post Falls, Idaho 83854
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(Address of principal executive offices)
(480) 609-1250
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(Issuer's telephone number)
Temporary Financial Services, Inc.
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(Former name, former address and former
fiscal year, if changed since last report)
Securities registered under Section 12(b) of the Exchange Act: None
Securities Registered under Section 12(g) of the Exchange Act: None
Check whether the issuer is not required to file reports pursuant to Section 13
or 15(d) of the Exchange Act. Yes|X| No|_|
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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.
Yes |X| No |_|
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained herein, and no disclosure will be contained, to the
best of registrant's knowledge, in definitive proxy or other information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10 KSB. Yes |X| No |_|
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes |_| No |X|
The issuer had revenues for the fiscal year ended
December 31, 2005 of: $372,211
The aggregate market value of the voting and non-voting common
equity held by non-affiliates as of March 7, 2005 was: $17,332,706
The number of shares of common stock outstanding as of
March 15, 2005 was: 10,066,013
Documents incorporated by reference: None
Transitional Small Business Disclosure Format. Yes|_| No |X|
1
FORM 10-KSB
PART I
This Form 10-KSB may contain forward-looking statements. These statements
relate to our expectations for future events and future financial performance.
Generally, the words "intend", "expect", "anticipate", "estimate", or
"continue", and similar expressions identify forward-looking statements.
Forward-looking statements involve risks and uncertainties, and future events
and circumstances could differ significantly from those anticipated in the
forward-looking statements. These statements are only predictions. Factors which
could affect our financial results are described in Item 6 of Part II of this
Form 10-KSB. Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date hereof. Although we
believe that the expectations reflected in the forward-looking statements are
reasonable, we cannot guarantee future results, levels of activity, performance
or achievements. We do not, nor have we authorized any other person to, assume
responsibility for the accuracy and completeness of the forward-looking
statements. We undertake no duty to update any of the forward-looking statements
after the date of this report.
"CCNI," the "Company," "we," "us," "our," and similar references refer to
Command Center, Inc. and/or our predecessor, Temporary Financial Services,
Inc.
Item 1. Description of Business.
Introduction and General Background
Command Center, Inc. ("CCNI") was incorporated on October 11, 2000 as
Temporary Financial Services, Inc. ("TFS"), under the laws of the State of
Washington. We were originally organized to provide accounts receivable
financing to temporary labor businesses. We commenced our lending activities in
2001 and continued providing accounts receivable financing to temporary labor
businesses through 2004. In 2004 we reassessed our lending activities and
elected to change our business focus. In 2004, the Company considered other
lending operations, provided financing to an affiliated financial services firm,
and also began looking for other business opportunities.
On October 6, 2005, we entered into a letter of intent to acquire the
assets of Command Staffing, LLC ("Command Staffing"), Harborview Software, Inc.
("Harborview"), and approximately 69 temporary staffing stores currently
operating as Command Staffing franchisees or independently owned businesses. The
acquisitions of Command Staffing, Harborview and the temporary staffing stores
are collectively referred to as the "Command Transaction". The Command
Transaction involved two phases. The acquisition of Command Staffing and
Harborview was completed in Phase I of the Command Transaction and the
acquisition of approximately 69 temporary staffing stores is intended to be
completed in Phase II of the Command Transaction.
Phase I, involving the acquisitions of Command Staffing and Harborview was
completed on November 9, 2005. At that time, we also filed Articles of Amendment
to the Articles of Incorporation to change our name to Command Center, Inc. from
Temporary Financial Services, Inc. The name change was accepted and filed by the
State of Washington on November 14, 2005.
2
We are now conducting our Phase II due diligence investigations of the
temporary staffing store operations and the stores are undergoing financial
statement audits. Upon satisfactory completion of the due diligence
investigations and the audits, we will acquire the net assets of the temporary
staffing stores in exchange for up to 13,198,152 shares of our Common Stock.
Prior to November 9, 2005, Command Staffing operated as a franchisor
offering temporary staffing store franchises. Harborview was an affiliated
company that developed software used by the franchisees in the operations of the
temporary staffing stores. As a result of the acquisition of the operating
assets of Command Staffing and Harborview (completed on November 9, 2005), the
franchise operations and the software operations of Command Staffing and
Harborview have been consolidated into CCNI and we are currently continuing the
operations of the franchise business with approximately 52 temporary staffing
stores under franchise. In addition, we are allowing an additional 17 temporary
staffing stores to operate temporarily under the Command Center name pending
anticipated acquisitions in the Phase II closings. At the time of the letter of
intent between TFS and Command and Harborview, the 17 licensees were in
negotiations to become franchisees. With the imminent recapitalization in the
works, Command Staffing allowed the 17 licensees to operate under the Command
Center name with the intention that each licensee would also be acquired in the
Phase II closings. We will continue to collect franchise fees and software
licensing fees until Phase II of the Command Transaction is completed. It is
anticipated that the Phase II closing will occur sometime during the second
quarter of 2006. Once the Phase II closing occurs, our business focus will shift
from franchisor to operator of temporary staffing stores and the
franchisor/franchisee relationships with the acquired franchisee temporary
staffing stores will be extinguished.
At completion of the Command Transaction, we will own approximately 79
company-operated temporary staffing stores located in eighteen states and the
District of Columbia, consisting of the 69 stores acquired and an additional 10
stores opened as company owned since November 9, 2005. We plan to open a small
number of additional new company owned stores in 2006 and we are pursuing
additional expansion through acquisitions from unaffiliated operators. We intend
to operate all of our temporary staffing stores as company owned and we do not
anticipate in the near future that we will continue to offer opportunities to
franchisees following completion of Phase II of the Command Transaction.
Our internet address is http://www.commandlabor.com. Copies of our annual
reports on Form 10-KSB, quarterly reports on Form 10-QSB, current reports on
Form 8-K, and amendments to those reports filed or furnished pursuant to Section
13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), are available to the public as soon as reasonably practicable after we
electronically file such material with, or furnish it to, the Securities and
Exchange Commission ("SEC"). You may read and copy any materials we file with
the SEC at the SEC's Public Reference Room at 450 Fifth Street, N.W.,
Washington, D.C. 20549. You may obtain information on the operation of the
Public Reference Room by calling the SEC at 1-800-SEC-0330. In addition, the SEC
maintains an Internet site (http://www.sec.gov) that contains our reports and
other information that we file electronically with the SEC.
The Temporary Staffing Industry
The temporary staffing industry grew out of a desire on the part of
businesses to improve earnings by reducing fixed personnel costs. Many
businesses operate in a cyclical environment and staffing for peak production
periods meant overstaffing in slower times. Companies also sought a way to
temporarily replace full-time employees when absent due to illness, vacation, or
abrupt termination. Temporary staffing offers a way for businesses to staff up
when needed without the ongoing cost of maintaining employees in slower times.
Personnel administration costs may also be reduced by shifting these activities,
in whole or in part, to the temporary staffing provider.
3
The temporary staffing industry consists of a number of markets
categorized by the needs of the businesses utilizing the temporary staffing
providers. These needs vary widely in duration of assignment and level of
technical specialization of the temporary personnel. We will operate primarily
within the short-term, unskilled and semi-skilled area of the temporary staffing
industry. Management believes this sector is highly fragmented and presents
opportunities for consolidation. Operating multiple locations within the
framework of a single corporate infrastructure may improve efficiencies and
economies of scale by offering common management, systems, procedures and
capitalization.
Business
Our vision is to be the preferred partner of choice for all staffing and
employment solutions by placing the right people in the right jobs every time.
Currently, we are operating as a franchisor of temporary staffing stores. In
order to further our vision, we will complete the acquisition of approximately
69 temporary staffing stores currently being operated as franchises or
licensees. Upon completion of the acquisition of the temporary staffing stores,
we will consolidate operations, establish and implement corporate operating
policies and procedures, and pursue a unified branding strategy for all of our
offices. The store acquisitions, when completed, will change the business focus
of our business and our business strategy will change. In order to properly
reflect this change in operations and strategy, the discussion of our business
is broken down into the period during which we will operate as franchisor and
the period after the Phase II acquisitions when we will be a temporary staffing
store operator.
Franchisor Operations. From November 9, 2005 through December 31, 2005,
and continuing into the first quarter of 2006, we have operated as a franchisor
and as a licensor of computer software systems and services. We receive
franchise fees from our franchisees and provide services to our franchisees in
the form of advertising, bookkeeping services, software support services, and
business advice concerning the operation of a successful temporary staffing
store. Upon completion of the Phase II closing, the operations of the
franchisees will be consolidated within the corporate framework of CCNI and the
character of the operations will change from franchisor to temporary staffing
store operator.
Pending completion of the closing and acquisition of the operating stores,
we will collect franchise fees and software licensing and support fees from our
franchisees. During this period we will maintain and support the software used
by our franchisees and will continue to support franchisee operations. In
addition, we will concentrate on building the corporate infrastructure necessary
to support the temporary staffing stores that are expected to be acquired early
in the second quarter of 2006.
Acquisition of the operating temporary staffing stores cannot be assured
until the due diligence process, the store audits, and the acquisition process
are actually completed. While we have every intention of acquiring approximately
69 temporary staffing stores, it is possible that we will acquire a smaller
number or none at all. If fewer than all of the existing franchisee operations
are acquired, we will continue to operate as a franchisor for the franchised
stores not acquired. The number of stores actually acquired will affect our
business strategy after the Phase II closing. If fewer stores are acquired, we
may pursue a more aggressive new store opening strategy, and we may attempt to
acquire more independent temporary staffing businesses in order to increase our
geographic presence and the Command Center brand. If substantially all of the
approximately 69 temporary staffing stores are acquired in the Phase II closing,
we will focus on consolidating the operations and growing organically.
4
In anticipation of the consolidated operations, we have developed a
unified compensation plan designed to attract and retain quality managers for
our operating locations. We are also refining our capitalization plans and
organizational structure to facilitate anticipated growth. These efforts are
directed at operations of our business following the Phase II closing.
As a franchisor, our needs for workers compensation insurance, facilities,
and personnel are less than those of a temporary staffing store operator with
approximately 69 store locations. In order to prepare for the change in our
business focus following the Phase II closing, we are increasing our staff and
creating the systems and procedures that will be needed immediately following
the closing date. The temporary staffing stores that are to be acquired are
currently our franchisees and licensees and are familiar with many of the
operating systems and procedures that will be applicable to those stores
following the acquisition. Additionally, the franchisees and licensees are, in
many cases, owned or controlled by our officers, directors, and affiliates. As a
result, management anticipates a relatively smooth transition from franchisor to
store operator.
In anticipation of the acquisitions, we are not currently actively
soliciting for new franchisees and we intend to open future temporary staffing
stores as company-owned. Until the acquisitions are completed, the Company will
continue to serve our customer base of approximately 69 franchised and licensed
locations.
Temporary Staffing Store Operator. Once the temporary staffing stores are
acquired, we will transition from a franchisor/operator with approximately 69
franchisee customers and 10 company owned stores, to a store operator with 79
stores, thousands of customers and thousands of temporary employees. The first
order of business after the acquisition will focus on continuity of operations,
reporting, and record keeping. The volume of the new consolidated business will
be dramatically larger as a store operator and significant management attention
will be devoted to assuring that the stores are seamlessly integrated into the
CCNI corporate environment and culture. It is anticipated that the Company will
not open a large number of new stores in the year following the acquisitions to
assure that an orderly transition has occurred and the business is being run
efficiently.
In 2007, we intend to redirect our focus to growth through the opening of
new company owned stores and, where attractive acquisition opportunities exist,
through acquisition of existing locations from third party operators.
Capital Requirements. Once we become an operator of temporary staffing
stores, we will require additional working capital. In our intended area of
focus as an operator, temporary personnel are typically paid on the same day
that the services are performed and customers are generally billed on a weekly
or monthly basis. As a result, we must maintain sufficient working capital,
through borrowing arrangements or other sources of funding, to cover the payment
obligations to our temporary workers from the date the services are performed to
the date the invoiced amounts are collected.
5
Workers Compensation. We are required to maintain workers compensation
insurance on our temporary staff, in addition to our permanent staff. Some of
our workers compensation policies may require deposits. We will initially
address workers compensation insurance needs through a combination of state
plans and private insurers. In the longer term, the Company will assess the
feasibility of a national insurance carrier, a self funded plan, a captive
insurance carrier, or other forms of self-insurance.
Management. We will manage our operations using customer service
representatives, store managers, area managers, and corporate management
personnel. The compensation plan for store managers and area managers has been
designed to aid in attracting and retaining the qualified personnel needed to
meet our business, financial and growth objectives. We are currently refining
our human resources practices to support the need for qualified management
personnel.
Temporary Staff. Following the acquisition of the temporary staffing
stores, we will have an identified and qualified pool of temporary staff to fill
the jobs requested by our customers. The database of temporary staff is already
in existence and temporary staff personnel are familiar with our operations.
Additional temporary staff will be sought through newspaper advertisements,
printed flyers, store displays, and word of mouth. We will locate our stores in
places convenient to our temporary work force and, when available, on or near
public transportation routes.
Marketing Activities. As a store operator, we intend to grow the business
at our stores through in-person solicitation of new and existing customers,
direct mail campaigns, radio and billboard advertising, yellow-page advertising,
and word of mouth. As the geographic reach of the business grows, we will also
develop national accounts with large corporate customers.
Safety Program. In order to protect our workforce and help control workers
compensation insurance rates, we will implement a company wide safety program
aimed at increasing awareness of safety issues. Safety training will be
accomplished through bulletin boards, newsletters, training meetings, videos,
and employee manuals. Managers will conduct site visits to assure that customers
employing our temporary staff are doing so in a safe environment, and we will
encourage workers to report unsafe working conditions.
Software and Information Technology. As a critical element of our
franchise operations, we developed a comprehensive set of software tools and
information technology systems that meet the needs of franchisee store
operators. The needs of franchisees parallel our needs for company owned stores
following the Phase II closing. As a result, we are well positioned to meet the
consolidated needs of our business after the temporary staffing stores are
acquired. The software systems already in place provide internal controls over
store operations. The systems also provide internal management reports necessary
to track the financial performance of individual store operations, including
dispatch activities, invoicing, accounts receivable, accounts payable, and
payroll.
Economics of Temporary Staffing Stores. Our desire to acquire the
franchisees' and licensees' temporary staffing stores and consolidate the
businesses under a unified corporate structure was derived principally by the
opportunity to achieve economic efficiencies. Within the corporate framework, we
can combine multiple accounts receivable, accounts payable, supplies purchasing,
and marketing activities into single departments, thereby improving efficiency
and gaining economies of scale. As the size of our business grows and brand
recognition builds, we also hope to attain additional efficiencies in
advertising, printing, safety equipment, and facilities costs. Once the acquired
stores are fully assimilated into the CCNI organization, we will develop a
standardized store operations model that will be used for future new store
openings. New stores will be opened in locations with attractive demographics,
and in areas where the demand for temporary staffing personnel is sufficient to
justify the process. In general, we will focus on larger metropolitan areas that
are able to support multiple locations as the initial growth targets. Multiple
openings in a metropolitan area will allow us to minimize opening costs and
maximize customer exposure within the target metropolitan market.
6
Seasonality
The short-term manual labor sector of the temporary staffing business is
subject to seasonal fluctuation. Many of the jobs being filled by the
franchisees and licensees that we will acquire are outdoors jobs that are
generally performed during the warmer months of the year. As a result, activity
increases in the spring and continues at higher levels through the summer and
then begins to taper off during the fall and through the winter. Seasonality may
be more limited in the southern United States where many of the franchisees and
licensees to be acquired are located. The fluctuations in seasonal business will
impact financial performance from period to period.
Competition
The short-term manual labor sector of the temporary staffing industry is
highly competitive with low barriers to entry. Many of the companies operating
in this sector are small local or regional operations with five or fewer
locations. Within their markets, these small local or regional firms will
compete with us for the available business. Primary means of competition among
providers include price, service and the ability to provide the requested
workers when needed. While barriers to entry are low in this sector, businesses
operating in this sector of the temporary staffing industry do require access to
significant working capital, particularly in the spring and summer as activity
levels are increasing. Lack of working capital can be a significant impediment
to growth for small local and regional temporary staffing providers.
In addition to the small providers, the Company will also see competition
from a small number of larger, better capitalized operators. The presence of
these larger competitors in our markets may provide significant pricing pressure
and could impact our ability to price our temporary staffing services at
profitable levels.
Government Regulations
We are in the business of employing personnel and placing them in
temporary jobs with other businesses. This subjects us to a number of government
regulations, including: wage and hours laws; regulations concerning equal
opportunity; regulations concerning workplace safety; and regulations regarding
maintenance of workers compensation coverage for employees.
7
Trademarks and Trade Names
The Company has registered "Command", "Command Center," "Command
Staffing", "Command Labor", "Apply Today, Daily Pay," "A Different Kind of Labor
Place" and "Labor Commander" as service marks with the U.S. Patent and Trademark
Office. Other applications for registration are pending. Several registrations
have also been granted in Australia, Canada, and the European Economic
Community.
Employees
We currently employ 45 personnel at our headquarters office in Post Falls,
Idaho. The number of employees at the corporate headquarters is expected to
increase as we continue to gear up for the Phase II closing and the change in
focus from franchisor to temporary staffing store operator.
Our employment roles will further increase after the Phase II closing with
the addition of all of the franchisees' and licensees' employees. Following the
Phase II closing, we anticipate total employment of approximately 300 personnel,
approximately 250 located in the various temporary staffing stores, and
approximately fifty in the corporate headquarters office.
Item 2. Description of Property.
We operate out of an 18,500 square foot office building located in Post
Falls, Idaho. We also maintain several network servers in a co-location server
facility in Coeur d'Alene, Idaho. Management believes that the office building
includes more space than is needed for the near term and is currently evaluating
opportunities to sublease a portion of the space. If part of the building is
leased, the lease terms will allow management the flexibility to grow back into
the space as the business expands and more space is required.
The Post Falls building is owned by John Coghlan, a director and
significant shareholder of the Company. The lease agreement calls for rental
payments of $10,000 per month triple net.
We are also leasing office space located at 8687 Via de Ventura, Suite
101, Scottsdale, AZ 85262. The lease expires on July 31, 2006 with a monthly
rental of $6,209.50. This space was utilized by Command Staffing LLC and
Harborview Software, Inc. for their corporate offices prior to the acquisition
by Command Center. The lease will not be renewed when it expires.
Item 3. Legal Proceedings.
We are not a party to any legal proceedings at this time and is not aware
of any threatened litigation.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to the shareholders for vote in the year ended
December 31, 2005. We intend to hold our next annual shareholder meeting in late
may or early June of 2006.
8
FORM 10-KSB
PART II
Item 5. Market for Common Equity and Related Stockholder Matters.
Market Information
Our securities trade in the over-the-counter market operated by NASDAQ
(OTCBB) under the symbol "CCNI". The following table sets out the range of high
and low bid prices for the common stock for the periods presented.
Bid Information*
Quarter Ended High Low
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March 31, 2004 $ 1.06 $ 0.85
June 30, 2004 $ 0.90 $ 0.45
September 30, 2004 $ 0.53 $ 0.45
December 31, 2004 $ 0.75 $ 0.45
March 31, 2005 $ 1.00 $ 0.60
June 30, 2005 $ 0.95 $ 0.85
September 30, 2005 $ 1.10 $ 0.65
December 31, 2005 $ 8.85 $ 1.10
* The pricing information set forth has been adjusted to reflect a five for one
forward stock split that was distributed in August 2005.
The above quotations are from the over-the-counter market and reflect
inter-dealer prices without retail mark-up, mark-down, or commissions, and may
not represent actual transactions.
Holders of the Corporation's Capital Stock
At December 31, 2005, we had 45 stockholders of record.
Dividends
No cash dividends have been declared on our common stock to date and we do
not anticipate paying a cash dividend on our common stock in the foreseeable
future. The business of CCNI is capital intensive and we expect to retain
available working capital for operations and growth.
Recent Sales of Unregistered Securities
During 2005, the Company issued 2,809,120 shares of common stock in a
forward stock split (five shares for each one share held). Following the forward
split which was distributed in August, 2005, the Company had 3,511,400 shares
issued and outstanding. The forward split shares did not constitute a sale and
no registration or exemption from registration was required for the
distribution. In addition, we issued 6,554,613 shares in the acquisition of
Command Staffing LLC and Harborview Software, Inc. Following the acquisitions of
Command and Harborview, we have 10,066,013 shares issued and outstanding. The
acquisition shares were issued pursuant to Regulation D, Rule 506 adopted under
the United States Securities Act of 1933 (the "Act").
We did not sell any additional shares in 2004, but did issue 15,000 shares
at the end of 2004 in compensation for $38,250 in director's fees and consulting
fees for services rendered during 2004. The director fee shares were exempt
under Section 4(2) of the Act. No shares were sold by the Company in 2003.
9
Issuer Purchases of Equity Securities
During 2004, we redeemed 50,000 shares held by Genesis Financial, Inc., an
affiliated company, for cash in the amount of $112,500.
Item 6. Management's Discussion and Analysis.
On November 9, 2005, we acquired the operations of Command Staffing LLC
and Harborview Software, Inc. These acquisitions changed the character of the
Company's business from a financial services focus to franchisor. For the last
52 days of 2005, the Company generated revenues primarily from franchise fees
and software licensing revenues. In 2006, the Company anticipates that it will
acquire the operations of most or all of our franchisees and licensees and 2006
operations will again change focus from that of franchisor to temporary staffing
store operator. These changes impact the comparability of the results of
operations between periods.
Results of Operations
Year Ended December 31, 2005
Revenues. In 2005, we generated revenues of $372,211, an increase of
$79,712 or 27% from the year ended December 31, 2004. Interest and investment
income, loan fees from affiliates, and other income decreased to $107,574 in
2005 from $280,249 in 2004. This decrease was a direct result of management's
decision in late 2004 to seek other business opportunities.
In anticipation of finding other opportunities, we converted our
investment assets to cash and reduced our activity levels in order to conserve
available resources. As noted previously, we acquired Command Staffing and
Harborview on November 9, 2005. Command Staffing was a franchisor of temporary
staffing stores and Harborview was an affiliated software development company.
Concurrently with the acquisition of Command Staffing and Harborview, we also
entered into an agreement to acquire the operations of the franchisees and a
small number of independently operated temporary staffing stores.
At the acquisition date (November 9, 2005) Command Staffing had 52
franchisees and 17 licensees and Harborview provided each franchisee and
licensee with temporary staffing store software to facilitate store operations.
With the acquisitions, CCNI became the franchisor and software owner and the
franchise fees and software licensing fees accrued to the benefit of CCNI from
November 9, 2005 forward. These revenue items are recorded as royalty income. As
a result, royalty income increased to $264,637 in 2005 compared to $-0- in 2004.
All royalty income was derived from November 9, 2005 through December 31, 2005.
We will derive future revenues from the temporary staffing industry,
initially as a franchisor/operator, and later as an operator of 79 (and growing)
temporary staffing stores. We expect to complete acquisition of the franchisees
and licensees in the second quarter of 2006, at which time the franchise
business operations will be significantly reduced or eliminated and thereafter,
we will generate revenues primarily or exclusively from placement of temporary
workers at customer job sites.
10
The business of CCNI as franchisor and, upon closing the temporary
staffing store acquisitions, as store operator, is capital intensive. As a
result, we are actively moving to convert our remaining investment assets into
cash to fund ongoing operations of the temporary staffing business. As noted in
Item 1, above, we are now preparing to assume the operations of the franchisees
and licensees and are devoting considerable resources to those preparations. We
will require additional capital to fund the business following acquisition of
the temporary staffing stores above and beyond the capital available from our
current liquidity. As a result, management anticipates that it will not have
funds available for investment for some time and investment income in future
periods will be nonexistent.
Likewise, with the acquisition of the temporary staffing stores, we will
become an operator of temporary staffing stores and will no longer focus on
generating royalty income. It is likely that royalty income in the second
quarter of 2006 and beyond will also fade to zero.
Operating Expenses. Operating expenses increased to $572,333 in 2005
compared to $291,218 in 2004. This represents nearly a 100% increase and is the
direct result of the acquisition of the franchise operations of Command Staffing
and Harborview.
For the full year and without the franchise operations taken into account,
the Company's operating expenses from investing activities amounted to $94,286,
and of that amount, $70,000 related to legal and professional expenses most of
which were generated from the legal and accounting fees to complete the
acquisitions of Command Staffing and Harborview. Overall, for the year ended
December 31, 2005, the operating expenses associated with lending and investing
activities decreased. The decrease is a consistent with our decision to seek
other business opportunities in 2005, and with the acquisition of Command
Staffing and Harborview in November, 2005. As noted in describing revenues, our
investing activities and the expenses associated with investment operations will
be minimized in future periods as we initially focus on the franchisor
operations and in the second quarter of 2006, on operating the temporary
staffing stores.
Operating expenses for the franchise business amounted to $478,047 for the
period from November 9, 2005 through December 31, 2005. Franchise operations
represent a new business segment in 2005 so the results are not comparable to
2004. We will continue to incur operating expenses from franchise operations
until the franchisees are acquired in the second quarter of 2006. Management
anticipates that the level of expenses will increase as we add personnel and
infrastructure in preparation for the acquisition of approximately 69 temporary
staffing stores that are currently being operated as franchisees or licensees.
Loss from Operations. For the year ending December 31, 2005, we generated
a $200,122 loss from operations compared to $1,281 income from operations in
2004. The loss is consistent with the change in focus of our business operations
and with the development of the corporate infrastructure necessary to operate as
many as 69 staffing offices, as discussed elsewhere in this annual report.
Without the franchise operations taken into account, our lending and
investing business generated a net loss of $8,314 for the year, compared to net
income from operations of $1,281 in 2004. This loss on lending and investing
activities was expected from our decision to look for new opportunities and the
related refocusing that occurred. As we transition, first to a franchisor and
then to a store operator, management expects the loss on lending and investing
activities to be eliminated.
11
For the period from November 9, 2005 through December 31, 2005, the
franchise operations incurred a net operating loss of $191,808. This loss is in
part, related to costs to complete the acquisition. Command Staffing and
Harborview incurred $127,450 in legal and accounting costs to complete their
parts of acquisition due diligence, financial statements, and legal
documentation. Depreciation and amortization amounted to $13,468, computer
software support and communications expense totaled $56,241, compensation
expenses were $94,025, and other expenses amounted to $186,863 in the 52 days
from acquisition to the end of the year.
Management expects the loss from franchise operations to accelerate
through the first quarter, 2006 as we continue to prepare for acquisition of
approximately 69 temporary staffing stores. Once the acquisition of the
temporary staffing stores is completed, we will move to consolidate, solidify,
and standardize the operating entities. Until the various operating stores are
consolidated under the CCNI organizational structure, and the operations have
had a chance to be fully assimilated into the new framework, management
anticipates that we will continue to operate at a loss.
Year Ended December 31, 2004
Revenues. We generated gross revenues of $292,499 in 2004. Primary sources
of income included investment and interest income and loan fees. At the end of
2004, we began seeking other business opportunities and changed its focus away
from lending and investing.
Operating Expenses. Operating expenses were reduced in 2004 by $112,220 to
$291,218, consistent with the reduction in activity in contemplation of an
acquisition transaction. Compensation and related taxes of $67,571 were incurred
in the first six months of the year. After June, we eliminated all employees and
elected to meet our continuing needs through contract services from an officer,
director and stockholder of the Company. The Company also incurred $58,187 in
legal services and settlement costs in connection with outstanding litigation
that was resolved early in 2004. While management believed that the litigation
was without merit, settlement was in the best interests of the stockholders.
In connection with the intention to seek a viable acquisition candidate,
we elected to convert our financial assets to cash in an orderly fashion. During
the last half of the year, we sold securities to Mr. Coghlan, an officer,
director and stockholder of the Company, for an aggregate of $396,765. The
securities held for resale had a carrying basis on our books of $274,179
generating gains on sale of $122,586. These were one time sales and will not
recur. In each case, the security was valued at fair market value determined by
the then current trading price of the security on the Over the Counter Bulletin
Board (OTCBB) market. The sales were also evaluated by the disinterested
directors of the Company and were considered fair on the terms proposed.
In addition to the securities that were sold to an officer/director, we
also converted our loans receivable and investments in contracts receivable to
cash. These loans and investments were sold at the face amount due plus any
accrued interest owing through the date of sale.
12
Income from Operations. In the aggregate, we reported net income of
$123,867 in 2004 after taking into account the gain from sale of investment
securities held for resale. Without the gain on sale, we posted net operating
income of $1,281. Net operating loss carryforwards from prior years offset the
net income and no income tax is owed on the net income for the year.
Liquidity and Capital Resources
At December 31, 2005, we had cash of $369,844, trade accounts receivable
of $356,367 and accounts receivable from affiliates of $676,101. We were also
holding $404,000 in investments at year end. Although we had financial assets in
the aggregate amount of $2,089,819, assuming all accounts and notes receivable
are collected in the current year, we will still require additional capital to
fund operations. Timing of our cash flow requirements will depend in part on the
date that we close the acquisitions of the franchised temporary staffing stores.
Once the store acquisitions are completed, we will require sufficient sources of
capital to fund continuing operations and finance the operating store accounts
receivable. We are now considering our options to generate debt and/or equity
capital to relieve the expected negative cash flow following the Phase II
closing, but no firm sources have yet been identified and no assurances can be
given that we will be able to find additional capital on acceptable terms. If
additional capital is not available, we may be forced to scale back operations
and slow planned growth initiatives, all of which will impact our profitability
and long term viability.
At December 31, 2005, we were owed $676,101 by affiliates. If these
amounts are not collected in a timely fashion, our cash flow needs will be
increased accordingly. This occurrence would also impact the Company's ability
to move forward with its plan of operations.
Risk Factors
The following risk factors address issues applicable to our current
operations as a franchisor of temporary staffing businesses and our anticipated
operations following acquisition of approximately 69 temporary staffing stores
which is expected to be completed in the second quarter of 2006. If we do not
complete acquisition of the temporary staffing stores, risk factors relating to
operations of temporary staffing stores will not apply directly to the Company
but will still impact franchisor operations indirectly through the franchisees
and licensees.
Changes in the character of Company may be difficult to manage. We have
historically operated as a franchisor. Upon completion of the acquisition of 69
temporary staffing stores, we will shift our operating focus from franchisor to
store operator. This shift in focus will require additional personnel, software
capabilities, and infrastructure. If management is unable to successfully
negotiate the changeover, our business, financial condition and results of
operations could be negatively impacted.
The rapid addition of company owned stores could overwhelm the corporate
infrastructure. Our ambitious growth plans are subject to numerous and
substantial risks. Currently, we operate as a franchisor/operator with
approximately 69 franchised and licensed locations, and 10 company owned
locations. Upon completion of this acquisition we will be the operator of as
many as 79 temporary staffing stores, with plans to open a small number of
additional stores in 2006. If management is unable to implement adequate
internal controls and monitoring methods for 79 or more temporary staffing
stores in 2006, results of operations could suffer.
13
Loss of key personnel could negatively impact the business. Our success
depends to a significant extent upon the continued services of Glenn A. Welstad,
president, chief executive officer, and director, and other members of the
Company's executive management. The loss of any key executive could have a
material adverse effect on our business, financial condition, and results of
operations. Our future performance also depends on its ability to identify
recruit motivate and retain key management personnel including branch managers,
area vice presidents, and other personnel. The failure to attract and retain key
management personnel could have a material adverse effect on our business,
financial condition, and results of operations.
An inability to attract, develop, and retain qualified temporary staffing
store managers will negatively impact our business. We rely significantly on the
performance and productivity of our temporary staffing store managers. Each
store manager has primary responsibility for managing the operations of the
individual temporary staffing store, including recruiting workers, daily
dispatch of personnel, and collection of accounts receivable. In addition each
store manager has primary responsibility for customer service and sales efforts,
including identifying and soliciting area businesses likely to have a need for
temporary personnel. The available pool of qualified candidates for positions
with new temporary staffing stores is limited. To combat a typically high
turnover ratio in the temporary staffing industry in this position, we are
developing training and compensation plans directed at employee retention. There
can be no assurances that our training and compensation plans will reduce
turnover in this position.
Increased employee costs and workers compensation expenses could
negatively impact our operations. We are required to comply with all applicable
federal and state laws and regulations relating to employment, including
occupational safety and health provisions, wage and hour requirements, and
workers compensation and employment insurance. Costs and expenses related to
these requirements will become one of our largest operating expenses and may
increase as a result of, among other things, changes in federal or state laws or
regulations requiring employers to provide specified benefits to employees (such
as medical insurance), or increases in the minimum wage or the level of existing
benefits increased levels of employment, or the lengthening of periods for which
unemployment benefits are available. Furthermore, workers compensation expenses
and the related liability accrual are based on our actual claims experience in
each respective state. Our management training and safety programs attempt to
minimize workers compensation claims but significant claims could require
payment of substantial benefits there can be no assurance that we will be able
to increase fees charged to its customers to offset any increased costs and
expenses, which could have a material adverse effect on our business, financial
condition, and results of operations.
If we do not manage our workers compensation claims history well, high
experience ratings and increased premiums could negatively impact operating
results. We maintain workers compensation insurance as required by state laws.
We are required to pay premiums or contributions based on our business
classification, specific job classifications, and actual workers compensation
claims experience over time. In those states where private insurance is not
allowed or not available, we will purchase our insurance through state workers
compensation funds. In all other states we may provide coverage through private
insurance companies licensed to do business in those states. Use of state
workers compensation funds and private insurance carriers subjects us to third
party control over insurance rates. There can be no assurance that our premiums
will not increase substantially.
14
Competition will adversely affect our ability to price our services. The
temporary services industry is highly fragmented and highly competitive, with
limited barriers to entry. A large percentage of temporary staffing companies
are local operations with fewer than five offices. Within local or regional
markets, these firms actively compete with us for business and temporary
personnel. There are also several very large full-service and specialized
temporary labor companies competing in national, regional and local markets.
Many of these competitors have substantially greater financial and marketing
resources than we have. Price competition in the staffing industry is intense,
and pricing pressure is increasing. We expect that the level of competition will
remain high and increase in the future. Competition, particularly from companies
with greater financial and marketing resources than ours, could have a material
adverse effect on our business, financial condition, and results of operations.
Failure to adequately back-up, store and protect electronic information
systems will negatively impact future operations. Our business depends on the
ability to store, retrieve, process, and manage significant amounts of
information. Interruption, impairment of data integrity, loss of stored data,
breakdown or malfunction of our information processing systems, or other events
could have a material adverse effect on our business, financial condition, and
results of operations. Breakdowns of information systems may be caused by
telecommunications failures, data conversion difficulties, undetected data input
and transfer errors, unauthorized access, viruses, natural disasters, electrical
power disruptions, and other similar occurrences which may be beyond our
control. Failure to establish adequate internal controls and disaster recovery
plans could negatively impact operations.
Customer losses caused by temporary personnel may result in losses to the
Company. Temporary staffing companies employ and place people in the workplaces
of their customers. Attendant risks of the industry include possible claims of
discrimination and harassment, employment of illegal aliens, violations of the
occupational, health and safety, or wage and hour laws and regulations, errors
and omissions of its temporary employees, misappropriation of funds or property,
other criminal activity or reports and other similar claims.
Our customers, temporary personnel and/or business costs may be
significantly impacted by factors beyond our control. Temporary staffing
companies are affected by interruptions in the business of their customers. Such
interruptions could have a material adverse effect on our business, financial
condition and results of operations. The temporary staffing industry may be
adversely affected if Congress or state legislatures mandate specified benefits
for temporary personnel or otherwise impose costs and expenses on employers that
increase the cost or lessen the attraction of using temporary personnel.
We may be held responsible for the actions of our temporary personnel. We
may be held responsible for the actions at a job site of workers not under our
direct control. If we are found liable for the actions or omissions of our
temporary personnel and adequate insurance coverage is not available, our
business, financial condition and results of operations could be materially and
adversely affected.
An economic slowdown could cause customers to stop using temporary
personnel causing a corresponding reduction in our business opportunities.
Demand for our services may be significantly affected by the general level of
economic activity and unemployment in the United States. As economic activity
increases, temporary employees are often added to the workforce before regular
employees are hired. As economic activity slows, many companies reduce their use
of temporary employees before laying off regular employees. Worldwide economic
conditions and U.S. trade policies also impact demand for our services. No
assurances can be given that we will benefit from increases in general economic
activity in the U.S. or that our planned expansion will occur.
15
If we are unable to find a reliable pool of temporary personnel, we may be
unable to meet customer demand and our business may be adversely affected. A
company must continually attract reliable temporary workers in order to meet
customer needs. We compete for such workers with other temporary personnel
companies, as well as actual and potential customers, some of which seek to fill
positions with either regular or temporary employees. In addition our temporary
workers sometimes become regular the employees of our customers. From time to
time, during peak periods, we experience shortages of available temporary
workers. Unavailability of reliable temporary workers will have a negative
impact on our results of operations.
Non-management shareholders may have little impact on the manner in which
the Company is run. Our officers, directors, and their affiliates, in the
aggregate, control 78.1% of the common stock. As a result, our officers,
directors, and their affiliates, acting together, may be able to determine
matters requiring approval of our shareholders, including the election of the
Company's directors.
Our Common Stock is thinly traded and subject to significant price
fluctuations. The price of our common stock has been, and is likely to continue
to be, highly volatile. The market price of the common stock has fluctuated
substantially in recent periods. Future announcements concerning the Company or
its competitors, quarterly variations in operating results, introduction or
changes in pricing policies by us or our competitors, changes in market demand,
or changes in sales growth or earnings estimates by us or analysts, could cause
the market price of the common stock to fluctuate substantially. These price
fluctuations may impact our ability to raise capital through the public equity
markets and could have a material adverse effect on our business, financial
condition, and results of operations.
We are not likely to pay any cash dividends in the foreseeable future. We
have never paid cash dividends on our common stock. We anticipate that for the
foreseeable future, we will continue to retain our earnings for the operation
and expansion of our business, and that we will not pay cash dividends on our
Common Stock in the foreseeable future.
The market price for our Common Stock may be affected by significant
selling pressure from current shareholders. Sales of substantial amounts of
shares of common stock in the public market could have a material adverse impact
on the market price of the common stock. Upon completion of the Phase II closing
we will have outstanding approximately 23.5 million shares of Common Stock. A
substantial number of these shares are currently restricted securities and may
not be resold unless registered or an exempt from registration. Pursuant to rule
144 adopted under the securities act of 1933, as amended, restricted securities
held by non-affiliates generally may be resold after satisfying a one-year
holding period. A significant number of restricted securities will satisfy the
one-year holding period in the fourth quarter of 2006 and the first quarter of
2007. If large numbers of shareholders holding these restricted securities
choose to sell after satisfying the one-year holding period, the price of our
Common Stock could be negatively affected.
16
Sales of additional shares of Common Stock in the future without
shareholder approval could depress the value of the Common Stock. Following the
Phase II closing, we will have approximately 23.5 million shares issued and
outstanding. We are authorized to issue up to 100,000,000 shares of Common Stock
and up to 5,000,000 shares of blank check preferred stock. Issuance of
significant numbers of additional shares of Common Stock, or preferred stock
convertible into Common Stock could have a dilutive affect on the value of the
shares currently outstanding.
Failure to comply with the provisions of Sarbanes-Oxley Legislation could
have a material adverse impact on our results of operations and financial
condition. Legislation commonly referred to as the Sarbanes-Oxley Act of 2002
(Sarbanes-Oxley") requires public companies to develop internal control policies
and procedures and to undergo an audit of those internal control policies and
procedures on an annual basis. This legislation is relatively new and the United
Sates Securities and Exchange Commission (the "Commission") is still developing
rules and guidance for public companies concerning the manner in which
compliance with Sarbanes-Oxley will be determined. At this time, we are a small
business and do not meet the accelerated filer requirements of Sarbanes-Oxley.
Recently, the Commission extended the date for compliance with the internal
control audit requirements of Sarbanes-Oxley for small businesses not meeting
the accelerated filer requirements, and as a result, we do not expect that we
will be required to undergo an audit of internal controls until early 2007 for
our calendar year ending 2006. No assurances can be given that this extension of
time will continue or that we will not cease to be a small business or will not
become an accelerated filer prior to 2007. If we become subject to the internal
control audit requirement before we are in a position to comply, the affect on
our operations and financial condition could be significant.
Failure to complete the acquisition of approximately 69 temporary staffing
stores could materially impact our plan of operations and our financial
performance. Our business plan calls for acquisition of approximately 69
temporary staffing stores in the Phase II closing. Many of these stores are
currently operating as franchisees. If we are unable to complete the
acquisitions as expected, we will be forced to scale back our initial operating
plans and we may be forced to continue our franchising operations despite our
desire to operate only company owned stores. Our capital requirements and our
plans for meeting those capital requirements are based on a business model that
includes approximately 79 operating temporary staffing stores (69 from the
acquisitions and 10 currently operating as company owned stores). If we have
significantly fewer company owned stores, we may be unable to pursue our
capitalization plan and other elements of our plan of operations. No assurances
can be given that we will be able to acquire all or any of the temporary
staffing stores currently expected in the Phase II closing.
17
Item 7. Financial Statements.
COMMAND CENTER, INC.
--------------------------------------------------------------------------------
Financial Statements and
Report of Independent Registered
Public Accounting Firm
December 31, 2005 and 2004
18
Command Center, Inc.
--------------------------------------------------------------------------------
Contents
--------------------------------------------------------------------------------
Page
----
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM Form 10-KSB - 20
FINANCIAL STATEMENTS
Balance sheets Form 10-KSB - 21
Statements of operations Form 10-KSB - 22
Statements of stockholders' equity Form 10-KSB - 23
Statements of cash flows Form 10-KSB - 24
Notes to financial statements Form 10-KSB - 25 through 33
19
[DM-T LOGO]
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of Command Center, Inc.
We have audited the accompanying balance sheets of Command Center, Inc. ("the
Company") as of December 31, 2005 and 2004, and the related statements of
operations, stockholders' equity and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Command Center, Inc. as of
December 31, 2005 and 2004, and the results of its operations and its cash flows
for the years then ended in conformity with accounting principles generally
accepted in the United States of America.
/s/ DeCoria, Maichel and Teague, P.S.
February 23, 2006
Spokane, Washington
20
COMMAND CENTER, INC.
--------------------------------------------------------------------------------
Balance Sheets
--------------------------------------------------------------------------------
December 31,
-----------------------------
Assets 2005 2004
------------ ------------
CURRENT ASSETS:
Cash $ 369,844 $ 1,653,276
Accounts receivable trade, net of
allowance for bad debts of $37,000 356,367 --
Accounts receivable - affiliates 676,101 --
Note receivable - current 191,847 --
Prepaid expenses 47,214 --
Investment in securities 404,000 --
------------ ------------
Total current assets 2,045,373 1,653,276
------------ ------------
PROPERTY AND EQUIPMENT - NET 464,253 --
------------ ------------
OTHER ASSETS:
Note receivable - non-current 91,660 --
------------ ------------
$ 2,601,286 $ 1,653,276
============ ============
Liabilities and Stockholders' Equity
CURRENT LIABILITIES:
Accounts payable - trade 135,676 --
Accounts payable - affiliates 351,525 --
Accrued new store surcharge fees -
affiliate 105,000 --
------------ ------------
Total current liabilities 592,201 --
------------ ------------
COMMITMENTS (see Note 8)
STOCKHOLDERS' EQUITY:
Preferred stock - 5,000,000 shares,
$0.001 par value, authorized;
none issued -- --
Common stock - 100,000,000 shares,
$0.001 par value, authorized;
10,066,013 and 702,280 issued and
outstanding, respectively 10,066 702
Additional paid-in capital 2,603,125 1,687,817
Accumulated deficit (604,106) (35,243)
------------ ------------
Total stockholders' equity 2,009,085 1,653,276
------------ ------------
$ 2,601,286 $ 1,653,276
============ ============
See accompanying notes to financial statements.
--------------------------------------------------------------------------------
21
COMMAND CENTER, INC.
--------------------------------------------------------------------------------
Statements of Operations
--------------------------------------------------------------------------------
Year Ended December 31,
----------------------------
REVENUE: 2005 2004
------------ ------------
Loan and related fees - affiliates $ -- $ 83,992
Interest and investment income 107,324 196,257
Royalty income - affiliates 264,637 --
Other income 250 12,250
------------ ------------
372,211 292,499
------------ ------------
OPERATING EXPENSES:
Compensation and related taxes 94,025 67,571
Employee relocation 33,500 --
Travel and entertainment 24,500 --
Rent and office expense 35,884 16,938
Business development 45,323 --
Software support and
communications expenses 58,995 --
Legal, professional and consulting 228,645 95,174
Interest expense - affiliate 3,650 89,528
Depreciation and amortization 13,468 --
Other expense 34,343 22,007
------------ ------------
572,333 291,218
------------ ------------
INCOME (LOSS) FROM OPERATIONS (200,122) 1,281
OTHER INCOME
Gain on sale of securities to
officer/stockholder -- 122,586
------------ ------------
-- 122,586
INCOME (LOSS) BEFORE INCOME TAXES (200,122) 123,867
INCOME TAX PROVISION -- --
------------ ------------
NET INCOME (LOSS) $ (200,122) $ 123,867
============ ============
BASIC INCOME (LOSS) PER SHARE $ (0.05) $ 0.04
============ ============
BASIC WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 4,445,208 3,515,715
============ ============
See accompanying notes to financial statements.
--------------------------------------------------------------------------------
22
COMMAND CENTER, INC.
------------------------------------------------------------------------------------------------------------------------------
Statements of Stockholders' Equity
------------------------------------------------------------------------------------------------------------------------------
Additional
Common Stock Paid-in Accumulated
Shares Par Value Capital Deficit Total
-------------- -------------- -------------- -------------- --------------
BALANCES, DECEMBER 31, 2003 737,280 $ 737 $ 1,762,032 $ (159,110) $ 1,603,659
Redemption (50,000) (50) (112,450) -- (112,500)
Shares issued for consulting and
directors' fees 15,000 15 38,235 -- 38,250
Net income for the year -- -- -- 123,867 123,867
-------------- -------------- -------------- -------------- --------------
BALANCES, DECEMBER 31, 2004 702,280 702 1,687,817 (35,243) 1,653,276
-------------- -------------- -------------- -------------- --------------
Forward stock split 2,809,120 2,809 (2,809) -- --
Stock issued in connection
with recapitalization 6,554,613 6,555 918,117 (368,741) 555,931
Net loss for the year -- -- -- (200,122) (200,122)
-------------- -------------- -------------- -------------- --------------
BALANCES, DECEMBER 31, 2005 10,066,013 $ 10,066 $ 2,603,125 $ (604,106) $ 2,009,085
============== ============== ============== ============== ==============
See accompanying notes to financial statements.
------------------------------------------------------------------------------------------------------------------------------
23
COMMAND CENTER, INC.
------------------------------------------------------------------------------------------------------
Statements of Cash Flows
------------------------------------------------------------------------------------------------------
Year Ended December 31,
------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES: 2005 2004
---- ----
Net income (loss) $ (200,122) $ 123,867
Adjustments to reconcile net income (loss) to net cash provided
(used) by operating activities:
Depreciation and amortization 13,468 --
Allowance for bad debts 26,000 --
Directors' fees paid in stock -- 12,750
Consulting fees paid in stock -- 25,500
Amortization of note receivable discount 4,187 --
Gain on sale of securities - officer/stockholder -- (122,586)
Other 6,706 --
(Increase) decrease in accounts receivable (74,942) 9,628
Increase in accounts receivable - affiliates (151,101) --
Increase in prepaid expenses (44,964) --
Decrease in prepaid expenses -- 1,877
Increase (decrease) in accounts payable and accrued expenses 132,156 (14,061)
Increase in accrued new store surcharge fees - affilates 20,000 --
------------- -------------
Total adjustments (68,490) (86,892)
------------- -------------
Net cash provided (used) by operating activities (268,612) 36,975
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash used to acquire property and equipment (1,254) --
Payments received on note receivable 48,767 --
Decrease in loans receivable, net -- 2,044,606
Decrease in investments in real estate contracts -- 1,055,915
Proceeds from sale of securities to officer/stockholder -- 396,765
Purchase of securities (505,000) (274,179)
Proceeds from sale of securities 101,000 --
Proceeds from building purchase financing (525,000)
------------- -------------
Net cash provided (used) by investing activities (881,487) 3,223,107
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on note payable (133,333)
Decrease in borrowings, net -- (1,558,404)
Redemption of stock for cash -- (112,500)
------------- -------------
Net cash used by financing activities (133,333) (1,670,904)
------------- -------------
NET INCREASE (DECREASE) IN CASH (1,283,432) 1,589,178
CASH, BEGINNING OF YEAR 1,653,276 64,098
------------- -------------
CASH, END OF YEAR $ 369,844 $ 1,653,276
============= =============
------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION:
Cash payments of interest $ 3,650 $ 97,931
============= =============
Stock issued in connection with recapitalization $ 555,931 $ --
============= =============
Related party advance used to aquire real property $ 600,000 $ --
============= =============
Related party advance extinguished in sale of real property $ (600,000) $ --
============= =============
See accompanying notes to financial statements.
------------------------------------------------------------------------------------------------------
24
NOTE 1 -- ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
--------------------------------------------------------------------------------
Organization:
The accompanying financial statements are those of Command Center, Inc. ("CCNI"
or the "Company," formerly known as Temporary Financial Services, Inc.),
incorporated in Washington State on October 4, 2000. During 2004 and most of
2005, the Company's operations consisted of financing the purchase of real
estate contracts receivable through an affiliated business. On November 9, 2005,
the Company acquired the operations of Command Staffing LLC ("Command Staffing")
and Harborview Software, Inc. ("Harborview"), two related businesses that offer
temporary staffing business services to franchised temporary labor centers. As a
result of the acquisition, the Company ceased its financing activities and
assumed the franchisor and software operations of the acquired companies and
changed its name to Command Center, Inc.
Summary of Significant Accounting Policies:
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.
Note Receivable. At December 31, 2005 the Company had a non-interest bearing
note receivable due in connection with litigation settled by Command Staffing in
July of 2005. The note calls for payments due from the gross sales of temporary
labor centers owned by former franchisees. In accordance with the requirements
of Accounting Principles Board Opinion No. 21, the Company discounted the note
receivable by an effective interest rate of 9%, and recognized the discount as a
deduction from face value of the note. The Company is amortizing the discount
ratably over the life of the note in its interest income. At December 31, 2005,
the face amount of the note was $303,493 and an unamortized discount of $19,966
was recognized as a direct deduction from face value. During the year ended
December 31, 2005, the Company recognized $4,187 of amortization of the discount
in interest income.
Cash. Cash consists of demand deposits, including interest-bearing accounts with
maturities of three months or less, held in banking institutions. Approximately
$300,000 was held in a single bank at December 31, 2005, an amount which exceeds
the depositor protections afforded by the Federal Deposit Insurance Corporation.
Property and equipment. The Company capitalizes equipment purchases in excess of
$2,500 and depreciates the capitalized costs over the useful lives of the
equipment, usually 3 to 5 years. Maintenance and repairs are charged to
operations. Betterments of a major nature are capitalized. When assets are sold
or retired, cost and accumulated depreciation are eliminated from the balance
sheet and gain or loss is reflected in operations.
25
Software development costs. Software development costs are accounted for in
accordance with Statement of Financial Accounting Standard No. 86 "Accounting
for the Costs of Computer Software to Be Sold, Leased or Otherwise Marketed"
("SFAS 86"). Costs of producing software are capitalized and amortized by the
straight-line method over the estimated useful life (seven years) of the
developed software.
Fair value of financial instruments. The Company carries financial instruments
on the balance sheet at the fair value of the instruments as of the balance
sheet date. At the end of each period, management assesses the fair value of
each instrument and adjusts the carrying value to reflect their assessment. At
December 31, 2005 and 2004 the carrying values of accounts receivable and
accounts payable approximated their fair values. The carrying values of
investments and notes receivable at December 31, 2005 and 2004 also approximated
their fair values based on the nature and terms of those instruments.
Revenue recognition. - In 2005 and 2004, the Company generated revenues from
loan fees, interest and investment income, and franchise royalty fees.
Loan fees are recognized as income when earned. Interest and investment income
was derived from investments in real estate receivable contracts. Historically,
the real estate contracts were purchased for the interest rate yield. The
Company recognized interest on investments in interest bearing real estate
receivable contracts as revenue on the accrual basis using the interest method.
The Company amortized any premiums or discounts as a revenue adjustment using
the interest method. The Company stops accruing interest revenue when the
collection of interest becomes uncertain.
Near the end of 2005, the Company acquired the franchise operations of Command
Staffing and the software operations of Harborview. As a result, the Company's
operating focus changed from financing operations to that of a franchisor, and
in November and December, 2005, the Company generated franchise royalty revenues
from its franchisees. The Company recognizes franchise royalty income on the
accrual basis as it becomes payable in accordance with the franchise agreements.
The royalties are calculated as a percentage of gross sales of the franchisee's
weekly operations. The percentage ranges from 1% to 2% based upon the individual
franchisee's gross profit and the terms of the franchise agreement.
At December 31, 2005, the Company had no obligations to franchises that would
represent significant commitments or contingencies outstanding under the
franchise agreement.
Investments. Prior to November, 2005, real estate contracts receivable were
purchased and held for interest rate yield. The Company reported income on real
estate contracts receivable in accordance with the revenue recognition policy
stated above. During 2005, the Company acquired investment securities
available-for-sale from a related party and recorded the investment at fair
value. At December 31, 2005, the fair value of investments approximated the face
value of the instruments.
Allowance for doubtful accounts. - The Company has established an allowance for
doubtful accounts to estimate the collectibility of franchise revenues.
Management believes the amount is sufficient to cover expected uncollectible
accounts receivable. Management reviews the balance in the allowance for
doubtful accounts at the end of each period and increases or decreases the
amount of the allowance based on payment history, accounts receivable aging, and
other relevant factors.
26
Income tax. - Deferred taxes are provided, when material, by the 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. - The Company accounts for its income (loss) per common
share according to Statement of Financial Standard No. 128, "Earnings Per Share"
("SFAS 128"). Under the provisions of SFAS 128, primary and fully diluted
earnings per share are replaced with basic and diluted earnings per share. Basic
earnings per share is calculated by dividing net income or loss available to
common stockholders by the weighted average number of common shares outstanding,
and does not include the impact of any potentially dilutive common stock
equivalents. The Company had no common stock equivalents during the years ended
December 31, 2005 and 2004, and only basic earnings per share are presented. For
the year ended December 31, 2004, earnings per share was calculated as if the
forward stock split, which was distributed in August, 2005, had occurred on
January 1, 2004.
Reclassifications. - Certain reclassifications have been made to the 2004
financial statements in order to conform to the 2005 presentation. These
reclassifications have no effect on net income, total assets or stockholders'
equity as previously reported.
Recent Accounting Pronouncements.
On December 16, 2004, the Financial Accounting Standards Board (the "FASB")
issued Statement of Financial Accounting Standard No. 123(R), "Share-Based
Payment" ("SFAS 123(R)") which is a revision of Statement of Financial
Accounting Standard No. 123, "Accounting for Stock-Based Compensation" ("SFAS
123"). Statement 123(R) supersedes Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("ABP 25"), and amends Statement of
Financial Accounting Standard No. 95, "Statement of Cash Flows" ("SFAS 95").
Generally, the approach in Statement 123(R) is similar to the approach described
in Statement 123. Statement 123(R) requires that all share-based payments to
employees, including grants of employee stock options, be recognized in the
income statement based on their fair values. Pro forma disclosure is no longer
an option. Statement 123(R) is effective for small business issuers at the
beginning of the first interim or annual period beginning after December 15,
2005.
In June 2005, the FASB issued Statement of Accounting Standard No. 154,
"Accounting Changes and Error Corrections" ("SFAS 154"). SFAS 154 replaces APB
No. 20 and Statement of Financial Accounting Standard No. 3 "Reporting
Accounting Changes in Interim Financial Statements," and applies to all
voluntary changes in accounting principle, and changes in the requirements for
accounting for and reporting of a change in accounting principle. APB 20
previously required that most voluntary changes in accounting principle be
recognized by including in net income in the period of change a cumulative
effect of changing to the new accounting principle, whereas SFAS 154 requires
retrospective application to prior periods' financial statements of a voluntary
change in accounting principle, unless it is impracticable. SFAS 154 enhances
the consistency of financial information between periods. SFAS 154 will be
effective beginning with the Company's first quarter of 2006. Management does
not expect that SFAS 154 will have a material impact on the Company's results of
operations and financial condition.
27
NOTE 2 -- RELATED-PARTY TRANSACTIONS:
--------------------------------------------------------------------------------
In addition to the related party transactions described in notes 3, 5, 6, 8, and
10 the Company has had the following transactions with related parties:
Sale and leaseback. During 2005, the Company purchased a building in Post Falls,
Idaho to serve as the corporate headquarters for CCNI. The purchase price of the
building was $1,125,000 and the amount was paid in $525,000 of the Company's
funds plus $600,000 advanced from John Coghlan, a director and major
shareholder. Subsequently, the Company's Board of Directors received an offer
from Mr. Coghlan to purchase the building from the Company subject to a
leaseback arrangement described in Note 8. The Board accepted Mr. Coghlan's
offer and sold the building to him at the original purchase price and
immediately leased the building back on terms that the Board considered to be in
the Company's best interests. In connection with the sale to Mr. Coghlan, the
$600,000 advance was extinguished and at December 31, 2005, the Company had
recognized a receivable from Mr. Coghlan of $523,849 relating to his purchase.
The receivable was paid in full in February, 2006.
New store surcharge fee. As part of the acquisition of the franchise operations
of Command Staffing and Harborview, the Board agreed to pay Glenn Welstad, the
new CEO and Chairman, $5,000 per each additional temporary staffing store opened
on behalf of the Company. As of December 31, 2005, the Company had accrued
$105,000 payable to Mr. Welstad in new store surcharge fees. The Company is
obligated to pay these funds to Mr. Welstad in 2006. The amounts are classified
as "Accrued new store surcharge fees - affiliate." The obligation to pay the new
store surcharge fee accrues at the time each new store is opened and will
terminate at the earlier of the date Mr. Welstad has received $1,700,000 (340
new stores), or December 31, 2010. If fewer than 340 stores are opened by the
Company (including its predecessor) by December 31, 2010, Mr. Welstad's payments
under this arrangement will be limited to the amounts paid or accrued to that
date.
Investment in Genesis Holdings. In January, 2005, the Company invested $505,000
in Genesis Holdings, Inc. ("Genesis Holdings"). Genesis Holdings is related to
the Company through common control of Genesis Financial, Inc. ("Genesis") by
John Coghlan, a director and major shareholder.
The investment consisted of $500,000 in notes bearing interest at 8% per annum,
and $5,000 in common stock. By agreement with Genesis Holdings, the Company may
liquidate its interest in Genesis Holdings at any time. Genesis Holdings is
thereafter obligated to return the investment plus interest to the Company
within a reasonable time. As a result of the acquisition of the operations of
Command Staffing and Harborview the Company has requested that its interests in
Genesis be liquidated and the proceeds returned in cash. During the year ended
December 31, 2005, Genesis Holdings had liquidated and returned $101,000.
Genesis Holding's management has indicated that the remaining $404,000 will be
liquidated in the first quarter of 2006 and all funds will be returned to the
Company with interest. The Company earned $27,778 on its investment in Genesis
Holdings in 2005. The Company's other investment income was derived from
unrelated third parties.
28
2004 Conversion of assets to cash. In connection with the Company's plan to
locate an acquisition candidate the Company converted its assets to cash and
paid off all remaining liabilities during 2004. In the course of conversion, the
Company sold its investment assets to Mr. Coghlan and an entity affiliated with
Mr. Coghlan. The transactions were all priced at the face value of debt
instruments plus accrued interest or other independently verifiable indicator of
fair value such as the Over-The-Counter Bulletin Board operated by NASDAQ. In
connection with the sales, the Company recognized $122,586 of gain.
Investment in Genesis. Prior to 2004, the Company acquired an interest in
Genesis a company formed to engage in the business of purchasing and reselling
seller financed real estate contracts. At January 1, 2004, the Company retained
145,720 of the Genesis shares originally acquired. During 2004, the remaining
shares of Genesis were sold to Mr. Coghlan for $109,290 based on a current
market price for the shares of $0.75 per share. Mr. Coghlan is a director and
controlling stockholder of Genesis and is also a member of the Board of
Directors of the Company.
NOTE 3 --AMOUNTS DUE FROM AFFILIATES:
--------------------------------------------------------------------------------
Accounts receivable-trade. Included in the Company's trade accounts receivable
at December 31, 2005 is $351,498 due from affiliates. These amounts are due from
temporary staffing businesses that are owned or controlled by the Company's
officers, directors, controlling shareholders, or their affiliates. The amounts
relate to franchise royalties and other franchise service revenues due to
Command Staffing and Harborview.
Accounts receivable-affiliates. The Company was also owed $152,252 by Viken
Management ("Viken"), an entity controlled by Glenn Welstad for advances to
Viken to meet working capital requirements. The Company was also owed $523,849
by John Coghlan for the balance due on the sale of the building pursuant to the
Sale and Leaseback transaction. See note 8. During 2005, the Company earned
$264,637 in franchise royalty income from affiliates.
NOTE 4 -- PROPERTY AND EQUIPMENT:
--------------------------------------------------------------------------------
The Company acquired property and equipment in its acquisition of Command
Staffing and Harborview. The following table sets forth the book value of the
assets and accumulated depreciation and amortization acquired from Command
Staffing and Harborview at December 31, 2005:
Furniture & fixtures $ 19,591
Equipment 251,515
Accumulated depreciation (94,853)
-----------
Furniture, fixtures & equipment, net 176,253
-----------
Software development costs 400,000
Accumulated amortization (112,000)
-----------
Software development costs, net 288,000
-----------
Total property and equipment, net $ 464,253
===========
During the year ended December 31, 2005, the Company recognized $6,668 of
depreciation expense on its furniture, fixtures and equipment, and $6,800 of
amortization on its software development costs.
29
NOTE 5 -- AMOUNTS DUE TO AFFILIATES:
--------------------------------------------------------------------------------
At December 31, 2005, accounts payable to affiliates amounted to $351,525.
Accounts payable to affiliates was primarily composed of prior periods' payroll
services, and other items purchased or provided to Command Staffing and
Harborview by entities owned or controlled by Glenn Welstad, the Company's
president and chairman. In addition, the Company owed Glenn Welstad $105,000 in
accrued new store surcharge fees. See note 2.
--------------------------------------------------------------------------------
NOTE 6 -- CAPITAL STOCK:
Five for one forward stock split. At December 31, 2004, the Company had 702,280
shares issued and outstanding. On August 9, 2005, the Company distributed
2,809,120 shares of common stock in a stock dividend pursuant to a five for one
forward split. The forward split increased the number of shares outstanding on
August 9, 2005 to 3,511,400.
Acquisition and recapitalization. On November 9, 2005, the Company entered into
an Asset Purchase Agreement and acquired the operations of Command Staffing LLC
and Harborview Software, Inc. for 6,554,613 shares of common stock (see Note 1).
The transaction was accounted for as a recapitalization as the shareholders of
the acquired entities now have majority ownership of CCNI. Accordingly, the
Company recorded the issuance of its shares in exchange for the net book value
(of approximately $556,000), of the acquired companies at the date of the
transaction. At December 31, 2005, the Company has 10,066,013 shares issued and
outstanding.
Redemption of common stock. During 2004, the Company redeemed 50,000 shares of
its common stock for $112,500, or $2.25 per share, which approximated the fair
value of the common stock at the date of redemption. The shares were returned to
the Company's treasury and canceled.
Stock issued to directors and consultants. Also in 2004, the Company issued
15,000 shares valued at $38,250 in the aggregate ($2.55 per share). This
issuance consisted of 5,000 shares to outside directors for directors' fees and
10,000 shares to an unrelated consultant for consulting services during 2004.
The shares were valued at management's estimate of their fair value at the time
of issuance.
NOTE 7 - INCOME TAX:
--------------------------------------------------------------------------------
The Company generated a tax-basis net operating loss of approximately $200,000
for the year ended December 31, 2005. Approximately $192,000 of this loss was
attributable to the temporary staffing business begun in November, 2005. The
remaining $8,000 related to the financing business the Company operated from
January 1, 2005 through October, 2005. The Tax Reform Act of 1986 substantially
changed the rules relating to the use of net operating losses as a result of a
change in business or ownership of a corporation. As a result of these rule
changes, it is more likely than not that the Company's net operating losses
resulting from its preceding operations will not result in an income tax benefit
for future periods.
At December 31, 2005, the Company had a deferred tax asset relating to current
year operating loss carryovers of approximately $192,000 available to offset
taxable income up to and until 2025. The corresponding amount of the deferred
tax asset relating to the operating loss carryover was approximately $46,000,
based upon a future statutory income tax rate of 34%. The deferred tax asset was
fully offset by a valuation allowance because of uncertainties if the Company
will generate sufficient future taxable income to generate the tax benefit. At
December 31, 2005 no other material temporary differences existed between the
tax and book basis of liabilities and assets that would affect the net deferred
asset.
30
At December 31, 2004, the Company had an $8,750 deferred tax asset relating to
operating loss carryovers. The deferred tax asset was fully offset by a
valuation allowance because of uncertainties if the Company will generate
sufficient future taxable income to generate the tax benefit. For the year ended
December 31, 2004, the income tax benefit differed from the $8,750 expected
amount because of the impact of recognizing the deferred tax asset valuation
allowance. As a result of the recapitalization, it is doubtful that the deferred
tax asset at December 31, 2004 will ever be utilized.
The above estimates are based on management's decisions that are made annually
and could cause these estimates to vary significantly.
NOTE 8 - LEASE OBLIGATIONS:
--------------------------------------------------------------------------------
In November, 2005, the Company purchased a building for $1,125,000 in Post
Falls, Idaho to serve as its corporate headquarters. (See Note 2). In December,
2005, the Company entered into a sale and lease back transaction in which it
sold the building to a related party for $1,125,000 and leased the property back
for a period of three years with an option to renew for an additional two year
term. The lease is being accounted for as an operating lease.
Under the lease the Company will make rental payments of $10,000 per month,
triple net, commencing on January 1, 2006. The lease rate is fixed for the term
of the lease. The Company may pay the rent, at its option, in cash or by
issuance of shares of common stock. If rent is paid in common stock, the price
per share shall be adjusted monthly to 80% of the bid price as quoted in the
Over-The-Counter Bulletin Board market operated by NASDAQ, or such other
securities market on which the Company's common stock is traded. The Company
also has an option to repurchase the building for $1,125,000 at any time after
January 1, 2008, provided the lease is still in effect and the Company is in
good standing under the lease.
In addition to the lease on the building in Post Falls, Idaho, the Company is
also obligated for the remaining seven month term of a lease on office space in
Scottsdale, Arizona at a monthly lease cost of $6,209. This lease expires on
July 31, 2006 and will not be renewed. The Scottsdale property served as the
offices of Command Staffing LLC and Harborview Software, Inc. prior to the
recapitalization involving acquisition of Command Staffing and Harborview by the
Company.
The following schedule reflects the combined future minimum payments under the
operating lease as of December 31, 2005.
2006..........................................$163,463
2007...........................................120,000
2008...........................................120,000
31
NOTE 9 - SEGMENT REPORTING:
During 2005, the Company operated in two distinct segments, the financial
services industry and the temporary staffing industry. Substantially all of the
Company's revenue and expenses following acquisition of Command Staffing and
Harborview on November 9, 2005, were derived from the temporary staffing
industry. All revenues from January 1, 2005 through November 9, 2005 were
derived from the financial services sector. The following information details
the revenues and expenses from each segment:
--------------------------------------------------------------------------------
2005 STATEMENT OF OPERATIONS BY SEGMENT
FINANCIAL SERVICES TEMPORARY
INDUSTRY STAFFING COMBINED
-------------------- ----------- -----------
REVENUE
Interest and investment income $ 85,972 $ 21,352 $ 107,324
Other income 250 250
Royalty income 264,637 264,637
-------------------- ----------- -----------
Total Income 85,972 286,239 372,211
-------------------- ----------- -----------
OPERATING EXPENSES
Compensation and related taxes -- 94,025 94,025
Employee relocation -- 33,500 33,500
Travel and entertainment 1,875 22,625 24,500
Rent and office expense -- 35,884 35,884
Business development 10,847 46,587 57,434
Software support & communications expense 2,754 56,241 58,995
Legal, professional and consulting 74,986 141,548 216,534
Interest expense - affiliate 3,042 608 3,650
Depreciation and amortization -- 13,468 13,468
Other expense 782 33,561 34,343
-------------------- ----------- -----------
Total Operating Expenses 94,286 478,047 572,333
-------------------- ----------- -----------
Net Loss $ (8,314) $ (191,808) $ (200,122)
==================== =========== ===========
IDENTIFIABLE ASSETS
Furniture, fixtures and Equipment -- $ 271,106 $ 271,106
Accumulated depreciation -- (94,853) (94,853)
-------------------- ----------- -----------
Total -- $ 176,253 $ 176,253
==================== =========== ===========
Software development cost -- $ 400,000 $ 400,000
Accumulated amortization -- (112,000) (112,000)
-------------------- ----------- -----------
Total -- $ 288,000 $ 288,000
-------------------- ----------- -----------
[continued on next page]
32
NOTE 10 - BUSINESS CONCENTRATION:
--------------------------------------------------------------------------------
In the year ended December 31, 2005, substantially all of the Company's royalty
income was earned from affiliates. Royalty income consists of franchise fees and
software license and support fees derived from temporary staffing stores owned
by the Company's franchisees. The franchisees are owned in whole or in part by
various officers and directors of the Company. As a result, the Company's
business is concentrated among a small number of affiliated parties and is
subject to business concentration risks.
NOTE 11 - SUBSEQUENT EVENTS:
-------------------------------------------------------------------------------
Pursuant to the acquisition agreement described in Note 1, the Company has also
agreed, subject to continuing due diligence and other conditions, to acquire the
operations of up to seventy two franchisees. The acquisition agreement provides
that the Company will issue up to 13,198,152 shares of common stock in the
acquisitions. The franchisees are undergoing audits and the Company is
completing its due diligence review of the individual store operations, and
currently expects the store acquisitions to close early in the second quarter of
2006. Many of the franchisee operations are owned by related parties. The
Company retains the right to decide not to complete the acquisition of stores
that do not pass the due diligence review, and no assurances can be given that
the temporary staffing stores will be acquired.
33
Item 8. Changes In and Disagreements With Accountants on Accounting and
Financial Disclosure.
There have been no disagreements between us and our accountants on
accounting and financial disclosure, and no changes in the financial statement
presentation were required by the accountants.
Item 8A. Controls and Procedures.
(a) Evaluation of disclosure controls and procedures. The principal
executive officer and the principal financial officer have evaluated
our disclosure controls and procedures as of December 31, 2005. Based
on this evaluation, they conclude that the disclosure controls and
procedures effectively insure that the information required to be
disclosed in our filings and submissions under the Exchange Act is
recorded, processed, summarized and reported within the time periods
specified in the Securities Exchange Commissions rules and forms.
(b) Changes in internal controls. There have been no changes during the
quarter ended December 31, 2005 in the Company's internal controls over
financial reporting that have materially affected, or are reasonably
likely to materially affect, internal control over financial reporting.
Item 8B. Other Information.
None.
34
FORM 10-KSB
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act.
Directors and Executive Officers
The names and ages and positions of the directors and executive officers
of the Company are listed below along with their business experience during the
past five years. The business address of all executive officers of the Company
is 3773 West Fifth Avenue, Post Falls, Idaho 83854. All of these individuals are
citizens of the United States. Our Board of Directors currently consists of nine
directors. Directors are elected at the annual meeting of shareholders to serve
until they resign or are removed, or are otherwise disqualified to serve, or
until their successors are elected and qualified. Executive officers are
appointed at the board's first meeting after each annual meeting of the
shareholders. No family relationships exist among any of the directors or
executive officers of the Company, except that Todd Welstad is the son of Glenn
Welstad.
John R. Coghlan.......................................................Director
Dwight Enget..........................................................Director
Tom Gilbert...............................Director and Chief Operating Officer
Tommy R. Hancock......................................................Director
Brad Herr...............................................Director and Secretary
Ronald L. Junck.......................................................Director
C. Eugene Olsen........................................Chief Financial Officer
Kevin Semerad.........................................................Director
Glenn Welstad...........................................Chairman of the Board,
Chief Executive Officer, and President
Todd Welstad................................Director, Executive Vice President
and Chief Information Officer
John R. Coghlan, age 62, is a Director. Mr. Coghlan graduated from the
University of Montana with a degree in Business Administration and has held the
designation of Certified Public Accountant since 1966. Mr. Coghlan was a founder
of Labor Ready, Inc., a New York Stock Exchange traded company, and served as
the Chief Financial Officer and as a Director of Labor Ready from 1987 through
1996, when he retired. Since his retirement, Mr. Coghlan has been employed by
Coghlan Family Corporation, a privately held family business that manages family
investment accounts. Coghlan Family Corporation is 100% owned by the Coghlan
Family LLC. John and Wendy Coghlan, husband and wife, own minority interests in
Coghlan Family LLC and control both the LLC and the Corporation through the LLC
management agreement. The remaining interests in the Coghlan Family LLC are
owned by Mr. Coghlan's children and grandchildren. Mr. Coghlan is also a
director and principal stockholder of Genesis Financial, Inc. Prior to the
Closing Date, Mr. Coghlan served as President, Director and Chairman of the
Board of CCNI.
Dwight Enget, age 55, is a Director. Beginning in January 1999 and
continuing to the present time, Dwight Enget has invested in and is a
self-employed developer of temporary labor offices. Along with other investors,
he presently owns an interest in several temporary employment offices in various
locations throughout the United States. From 1998 - 2000, Mr. Enget was involved
as an investor and self-employed business developer in ventures such as hotel
and land development, home construction and medical research and products. He
worked for Labor Ready, Inc. in various positions including Western U.S.
Director of Operations, National Accounts Manager and District Manager from 1989
through May 1998. It is expected that CCNI will acquire the temporary labor
offices in which Mr. Enget has an interest at the time of the second closing.
35
Tom Gilbert, age 50, is Chief Operating Officer and a Director. Thomas
Gilbert is presently the owner and operator of Anytime Labor in Colorado.
Founded in June 2002, the Company has locations in the Denver, Colorado area. It
is expected that CCNI will acquire the Anytime Labor offices at the time of the
second closing.
From July 1998 through December 2001, Mr. Gilbert, as Regional Vice
President for Labor Ready, Inc. was responsible for the management of up to 400
temporary labor offices located in 23 states and 5 Canadian provinces. Beginning
in July 1996 and continuing until his promotion to Regional Vice President,
Thomas Gilbert was Area Director of Operations at Labor Ready, managing and
directing the activities of 87 branch offices. Prior to his employment with
Labor Ready, Mr. Gilbert gained extensive franchise experience as Division
Operations Manager with Taco John's International (8/91 - 7/95), Director of
Franchise Operations at Taco Time International (7/94 - 12/90) and Regional
Manager for Perkins Restaurants (3/81 - 7/84).
Tommy R. Hancock, age 61, is a Director. Mr. Hancock was regional director
of the Los Angeles, California Metro District for Labor Ready in 1998 and 1999
and from 1999 through 2001 he worked for Skillmaster Staffing, Inc. in Los
Angeles. In 2001, Mr. Hancock founded Temp Services of Arkansas, LLC in Little
Rock Arkansas and since that time has been an owner/operator of temporary
staffing stores in the Little Rock area. It is expected that CCNI will acquire
the temporary labor offices in which Mr. Hancock has an interest at the time of
the second closing.
Brad E. Herr, age 51, is Secretary and a Director. Mr. Herr graduated from
the University of Montana with a Bachelor of Science Degree in Business
Accounting in 1977 and a Juris Doctorate in 1983. In May 2005, Mr. Herr received
a Masters Degree in Business Administration from Gonzaga University.
From 1993 through 1996, Mr. Herr practiced law in the firm of Brad E.
Herr, P.S. From June 1996 through June 2001, Mr. Herr was employed at AC Data
Systems, Inc. (AC Data) in Post Falls, Idaho. During this period at AC Data, Mr.
Herr held the position of Director of Finance (1996 through 1998) and
Vice-President - Business Development (1998 through June 2001). AC Data is a
privately held manufacturing business engaged in the design, manufacture and
sale of surge suppression products marketed primarily to the telecommunications
industry.
In June 2001, Mr. Herr left employment at AC Data to pursue other business
opportunities. From June 2001 through March 2002, Mr. Herr was employed by Brad
E. Herr, P.S., a professional services corporation that he owns. During this
period, Brad E. Herr, P.S., provided professional services to CCNI and other
business clients. In April 2002, Mr. Herr was hired by the CCNI as Chief
Operating Officer, and from April 2002 through December 31, 2003, was employed
full time by CCNI. On January 2, 2004, Mr. Herr rejoined AC Data as President.
Since rejoining AC Data, Mr. Herr has continued to consult with CCNI as needed,
and up to the Closing Date served as Secretary and Principal Financial Officer.
Mr. Herr is licensed to practice law in the states of Washington and
Montana. Mr. Herr also maintains inactive status as a Certified Public
Accountant in the State of Montana. Mr. Herr serves as a Director of Genesis
Financial, Inc., a publicly traded financial services business located in
Spokane, Washington.
36
Ron Junck, age 57, is a Director. From 1974 until 1998, Mr. Junck
practiced law in Phoenix, Arizona, specializing in business law and commercial
transactions. As an attorney, he has extensive trial experience in a variety of
commercial cases and has lectured widely at a number of colleges and
universities. From 1998 through 2001, Mr. Junck served as Executive Vice
President and General Counsel of Labor Ready, Inc. and for several years served
as a director of that company. In 2001, Mr. Junck returned to the private
practice of law. Mr. Junck has also been working with Command since inception
and is a co-founder of Harborview.
C. Eugene Olsen, age 63, is Chief Financial Officer. Mr. Olsen has over
fifteen years experience in public accounting, with seven years as a partner in
the Spokane, Washington office of an international CPA firm. From 1995 through
2002, Mr. Olsen has served as Chief Financial Officer for Dellen Wood Products,
Inc. in Spokane Washington. From 2002 through 2003, Mr. Olsen was employed as
President of AC Data Systems, Inc. Mr. Olsen also participates in other business
ventures for his own account from time-to-time.
Mr. Olsen received a Bachelor of Science Degree in Business from the
University of Idaho, and holds Certified Public Accountant certificates in
Washington and Montana. He has been active in the Washington and Montana
Societies of CPAs, and has served as chairman and is a past president of the
Spokane Chapter of Washington Society of CPAs.
Kevin Semerad, age 39, is a Director. From 1989 through 2002, Mr. Semerad
managed a number of temporary staffing stores that were franchised through Labor
Ready, Inc. In 2002, after the Labor Ready franchise was terminated, Mr. Semerad
continued to operate the temporary staffing stores and grew the business from 5
to 18 locations. Mr. Semerad holds Bachelor of Science degrees in Management and
Marketing from the University of North Dakota in Grand Forks, North Dakota, and
has sixteen years experience in the temporary labor business.
Glenn Welstad, age 62, is President, Chief Executive Officer and a
Director. In 1989, Glenn Welstad, along with two partners, founded Labor Ready,
Inc. As CEO and President, Mr. Welstad developed the company from a single
office in Kent, Washington to 860 offices in three countries and one U.S.
possession. At the time of his retirement from Labor Ready in June 2000, Labor
Ready had grown to annual revenues of nearly $1 Billion. Prior to founding Labor
Ready, Glenn Welstad was a successful restaurateur and owned a number of Hardees
and Village Inn franchises. In 2003, Mr. Welstad co-founded Command Staffing,
LLC and Harborview Software, Inc. and owns interests in a number of temporary
labor businesses. It is expected that CCNI will acquire the temporary labor
businesses in which Mr. Welstad has an interest at the time of the second
closing. Glenn Welstad is the father of Todd Welstad.
Todd Welstad, age 36, is Executive Vice President, Chief Information
Officer, and a Director. Mr. Welstad served as Chief Information Officer of
Labor Ready, Inc. from August 1993 through 2001. Since 2001, Mr. Welstad has
worked in the temporary labor industry as owner/operator and has worked with
Harborview in the development of the software used in temporary labor store
operations. Todd Welstad is the son of Glenn Welstad.
37
Committees of the Board of Directors
The Board of Directors has not yet established a Compensation Committee,
an Audit Committee, a Disclosure Committee, or an Ethics Committee. Currently,
these functions are accomplished by the full board of directors acting as a
group. We anticipate that Board Committees will be created in 2006 and these
functions will thereafter be performed at the committee level.
Indemnification of Directors
The Washington Business Corporation Act provides that a company may
indemnify its directors and officers as to certain liabilities. Our Articles of
Incorporation and Bylaws provide for the indemnification of our directors and
officers to the fullest extent permitted by law. The effect of such provisions
is to indemnify the directors and officers of the Company against all costs,
expenses and liabilities incurred by them in connection with any action, suit or
proceeding in which they are involved by reason of their affiliation with the
Company, to the fullest extent permitted by law.
Compliance with Section 16(a ) of the Exchange Act.
We are not currently subject to the reporting requirements of Section
12(b) or 12(g) of the Exchange Act. As a result, compliance with Section 16(a)
of the Exchange Act is not required of the executive officers and directors of
the Company.
Transactions with Affiliates and Conflicts of Interest.
In all transactions between the Company and an affiliated party, the
transaction will be presented to the Board of Directors and may only be approved
if (1) if the transaction is on terms that are no less favorable to us than
those that can be obtained from unaffiliated third parties and, (2) a majority
of the independent directors who do not have an interest in the transaction
approve of the action. We will pay for legal counsel to the independent
directors if they want to consult with counsel on the matter. We believe that
the requirement for approval of affiliated transactions by disinterested
independent directors assures that all activities of the Company are in our best
interests and the best interests of our stockholders.
We will establish an audit committee and adopt a code of ethics for its
executive officers prior to December 31, 2006.
Item 10. Executive Compensation.
None of our executive officers earned more than $100,000 during the years
ended December 31, 2005 and 2004. Prior to November 9, 2005, the Company had no
employees and provided no employment benefits or other employment compensation,
payroll tax benefits, or health insurance for any individual. In the years ended
December 31, 2005 and 2004, we had no stock compensation plans and had no stock
options outstanding.
38
Item 11. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters.
The following tables set forth information regarding the number and
percentage of our Shares of Common Stock held by each director, each of the
named executive officers and directors and officers as a group. The table also
sets forth the ownership of any non-management person known to us to own more
than five percent of any class of our voting Shares.
Security Ownership of Non-Management Owners
The Company has no non-management shareholders that own 5% or more of the
total outstanding shares of common stock. Percentages of ownership have been
calculated based upon 10,066,013 shares of common stock issued and outstanding.
Security Ownership of Management
Number of % at
Name Shares 12/31/2005
-------------------------------------------------------------------------------
John R. Coghlan 1,700,983 16.90%
Dwight Enget 347,483 3.45%
Tom Gilbert 167,424 1.66%
Brad E. Herr 243,900 2.42%
Ronald L. Junck 1,821,804 18.10%
C. Eugene Olsen 12,500 0.12%
Kevin Semerad 111,335 1.11%
Glenn Welstad 3,462,596 34.40%
All Officers and Directors as a Group 7,858,025 78.06%
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
In connection with the Company's plan to locate an acquisition candidate
the Company converted its assets to cash and paid off all remaining liabilities
during 2004. In each of the transactions described below, assets were purchased
by Mr. Coghlan, a director, and controlling stockholder of the Company. Pricing
of the transactions was all based on the face value of debt instruments plus
accrued interest or other independently verifiable indicator of value such as
the over the counter bulletin board market quotation service. The terms of each
transaction were at comparable to the terms available to the Company from an
unrelated third party.
Description Book Value Amount Paid Gain/Loss
-------------------------------------------------------------------------------------------------
PowerCold Stock $ 24,179 $ 15,600 $ (8,579)
PCS Edventures Stock 250,000 271,875 21,875
Genesis Financial Stock -0- 109,290 109,290
Real Estate Contract #1 809,957 809,957 -0-
Real Estate Contract #2 190,000 190,000 -0-
Real Estate Contract #3 50,000 50,000 -0-
Genesis Line of Credit Receivable 528,268 528,268 -0-
Everyday Staffing Line of Credit Receivable 481,341 481,341 -0-
Total $ 122,586
39
In 2005, the Company purchased $505,000 of debt and equity securities from
Genesis Holdings, Inc., a company managed by Genesis Financial, Inc. Genesis
Financial, Inc. is affiliated with the Company. The Genesis Holdings investment
consisted of $500,000 in debentures bearing interest at the rate of 8% per annum
and $5,000 of common stock. The Company liquidated $101,000 of the investment
November, 2005 and intends to liquidate the balance in 2006. The investment is
carried at fair value and is considered fully collectible at December 31, 2005.
In November, 2005, the Company purchased a building from an unrelated third
party for $1,125,000 in Post Falls, Idaho to serve as the corporate
headquarters. The purchase was funded with $525,000 of our cash and $600,000 in
advances from Mr. Coghlan, a director and major shareholder of the Company. In
December, 2005, the Company entered into a sale and lease back transaction
pursuant to which it sold the building to John Coghlan for $1,125,000 and leased
the property back for a period of three years with an option to renew for an
additional two year term. In connection with the sale, Mr. Coghlan extinguished
the $600,000 advance due him from the Company.The lease is being accounted for
as an operating lease. At December 31, 2005, Mr. Coghlan owed us $523,849 in
connection with his purchase of the building. This amount was paid in 2006.
Under the lease the Company will make rental payments of $10,000 per
month triple net commencing on January 1, 2006. The lease rate is fixed for the
term of the lease. The Company may pay the rent, at its option, in cash or by
issuance of shares of common stock. If rent is paid in common stock, the price
per share shall be adjusted monthly to 80% of the bid price as quoted in the
Over-The-Counter Bulletin Board market operated by NASDAQ, or such other
securities market on which the Company's common stock is traded. The Company
also has an option to repurchase the building for $1,125,000 at any time after
January 1, 2008, provided the lease is still in effect and the Company is in
good standing under the lease.
In December, 2005, the Company advanced $152,252 to Viken Management,
Inc. ("Viken"), a company controlled by Glenn Welstad, the President and
Chairman of CCNI. The advance was used to fund the start-up costs of several new
temporary staffing stores in the southwestern United States. The new temporary
staffing stores will be acquired by the Company at the time the other operating
entities are acquired in the Phase II closing as described in Item I of this
Form 10-KSB. Upon acquisition, the advance will be extinguished as an
intra-company payable/receivable.
In the negotiations to acquire Command Staffing and Harborview, the
Company agreed to pay Glenn Welstad a $5,000 new store surcharge fee for each
new temporary staffing store opened by the Company. The new store surcharge fee
accrues at the time each new store is opened and will terminate at the earlier
of December 31, 2010 or the date that Mr. Welstad has received $1,700,000 under
the arrangement. If fewer than 340 stores are opened by the Company (including
its predecessor) by December 31, 2010, payments to Mr. Welstad under this
arrangement will be limited to the amounts paid or accrued to that date. At
December 31, 2005, we owed Mr. Welstad $105,000 in new store surcharge fees.
40
Item 13. Exhibits and Reports on Form 8-K.
a. Exhibit Index
Exhibit Number Description
Exhibit 31.1 Certification of Principal Executive Officer
Exhibit 31.2 Certification of Principal Financial and
Accounting Officer
Exhibit 32.1 Certification of Chief Executive Officer
Exhibit 32.2 Certification of Principal Financial and
Accounting Officer
b. Reports on Form 8-K
During the quarter ended December 31, 2005, the Company filed the following
reports on Form 8-K:
Report on Form 8-k dated October 6, 2005 reporting information under Items
7.01 - Regulation FD Disclosure, Item 8.01 - Other Events, and Item 9.01 -
Financial Statements and Exhibits. This Form 8-K described the entry into
a letter of intent to acquire Command Staffing LLC and Harborview
Software, Inc.
Report on Form 8-k dated October 17, 2005 reporting information under
Items 1.01 - Entry into a Material Definitive Agreement, Item 7.01 -
Regulation FD Disclosure, and Item 9.01 - Financial Statements and
Exhibits. This Form 8-K described the entry into a definitive agreement to
acquire an office building in Post Falls, Idaho.
Report on Form 8-k dated November 9, 2005 reporting information under
Items: 1.01 - Entry into a material definitive agreement; 2.01 -
completion of acquisition or disposition of assets; 3.02 - unregistered
sales of equity securities; 5.01 - changes in control of registrant; 5.02
- departure of directors or principal officers, election of directors,
appointment of principal officers; 5.03 - amendments to articles of
incorporation or bylaws, change in fiscal year; 7.01 - Regulation FD
Disclosure; and 9.01 - financial statements and exhibits. This Form 8-K
described the entry into a definitive agreement to acquire Command
Staffing LLC and Harborview Software, Inc., and related activities.
Report on Form 8-k dated November 22, 2005 reporting information under
Items 2.01 - completion of acquisition or disposition of assets and Item
2.03 - creation of a direct financial obligation or an obligation under an
off balance sheet arrangement of registrant. This Form 8-K described the
completion of the acquisition of the office building in Post Falls, Idaho,
and creation of an obligation to an affiliate for a portion of the
purchase price.
Report on Form 8-k dated December 29, 2005 reporting information under
Items: 1.01 - Entry into a material definitive agreement; 2.01 -
completion of acquisition or disposition of assets; Item 2.03 - creation
of a direct financial obligation or an obligation under an off balance
sheet arrangement of registrant; 3.02 - unregistered sales of equity
securities; and 9.01 - financial statements and exhibits. This Form 8-K
described the entry into a definitive agreement to sell and leaseback the
building in Post Falls, Idaho and related activities.
41
Item 14. Principal Accountant Fees and Services.
The Board of Directors reviews and approves audit and permissible non-audit
services performed by its independent auditors, as well as the fees charged for
such services. In its review of non-audit service fees and the appointment of
its independent auditors as the Company's independent accountants, the Board of
Directors considered whether the provision of such services is compatible with
maintaining its auditors' independence. All of the services provided and fees
charged by its independent auditors in 2005 and 2004 were pre-approved by the
Board of Directors.
Audit Fees
The aggregate fees billed by DeCoria, Maichel & Teague P.S. for professional
services for the audit of the annual financial statements of the Company and the
reviews of the financial statements included in the Company's quarterly reports
on Form 10-QSB for 2005 and 2004 were $50,450 and $12,000, respectively.
Audit-Related Fees
Other fees billed by DeCoria, Maichel & Teague P.S. for assurance and related
services that were reasonably related to the performance of the audit or review
of the Company's financial statements and not reported under "Audit Fees", above
for 2005 and 2004 were $3,683 and $0, respectively.
Tax Fees
The aggregate fees billed by DeCoria, Maichel & Teague P.S. for professional
services for tax compliance for 2005 and 2004 were $0 and $1,500, respectively.
All Other Fees
There were no fees billed by DeCoria, Maichel & Teague P.S. during 2005 and 2004
for any other products or services provided.
42
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
COMMAND CENTER, INC.
/s/Glenn Welstad President Glenn Welstad March 29, 2006
--------------------------------------------------------------------------------
Signature Title Printed Name Date
/s/ Brad E. Herr Secretary Brad E. Herr March 29, 2006
--------------------------------------------------------------------------------
Signature Title Printed Name Date
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on
the dates indicated.
Principal Executive
/s/ Glenn Welstad Officer and Director Glenn Welstad March 29, 2006
--------------------------------------------------------------------------------
Signature Title Printed Name Date
Principal Financial and
/s/ C. Eugene Olsen Accounting Officer C. Eugene Olsen March 29, 2006
--------------------------------------------------------------------------------
Signature Title Printed Name Date
/s/ John R. Coghlan Director John R. Coghlan March 29, 2006
--------------------------------------------------------------------------------
Signature Title Printed Name Date
/s/ Dwight Enget Director Dwight Enget March 29, 2006
--------------------------------------------------------------------------------
Signature Title Printed Name Date
/s/ Tom Gilbert Director Tom Gilbert March 29, 2006
--------------------------------------------------------------------------------
Signature Title Printed Name Date
/s/ Tom Hancock Director Tom Hancock March 29, 2006
------------------------------------------------------------------------------
Signature Title Printed Name Date
/s/ Brad E. Herr Director Brad E. Herr March 29, 2006
--------------------------------------------------------------------------------
Signature Title Printed Name Date
43
/s/ Ronald L. Junck Director Ronald L. Junck March 29, 2006
--------------------------------------------------------------------------------
Signature Title Printed Name Date
/s/ Kevin Semerad Director Kevin Semerad March 29, 2006
--------------------------------------------------------------------------------
Signature Title Printed Name Date
/s/ Glenn Welstad Director Glenn Welstad March 29, 2006
--------------------------------------------------------------------------------
Signature Title Printed Name Date
/s/ Todd Welstad Director Todd Welstad March 29, 2006
--------------------------------------------------------------------------------
Signature Title Printed Name Date
44