10-QSB
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
|_| QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended September 29, 2006
|X| 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.
(Exact name of small business issuer as specified in its charter)
Washington 91-2079472
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
3773 West Fifth Avenue, Post Falls, Idaho 83854
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(Address of principal executive offices)
(208) 773-7450
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(Issuer's telephone number)
N.A.
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(Former name, former address and former fiscal year, if changed since
last report)
Indicate by check mark whether the registrant: (1) has filed all documents and
reports required to be filed by Section 13, or 15(d) of the Securities Exchange
Act of 1934 during the preceding twelve months (or for such shorter period as
the Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past ninety days.
Yes |X| No |_|
The number of shares of common stock outstanding on November 14, 2006
was: 23,493,648
Transitional Small Business Disclosure Format. Yes |_| No |X|
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12(b)-2 of the Exchange Act).
Yes |_| No |X|
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12(b)-2 of the Exchange Act). Yes |_| No |X|
10-QSB Page 1
Command Center, Inc. (Formerly Command Staffing, LLC)
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Contents
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FORM 10-QSB
PART I FINANCIAL INFORMATION
Page
----
Item 1. Financial Statements (unaudited)
Management Statement 10-QSB Page 3
Balance Sheet at September 29, 2006 10-QSB Page 4
Statements of Operations for the thirty-nine week and
thirteen week periods ended September 29, 2006 and
the three and nine month periods ended
September 30, 2005 10-QSB Page 5
Statements of Cash Flows for the thirty-nine week
period ended September 29, 2006 and the nine month
period ended September 30, 2005 10-QSB Page 6
Notes to Financial Statements 10-QSB Page 7
Item 2. Management's Discussion and Analysis of
Financial Condition And Results of Operations 10-QSB Page 15
Item 3. Controls and Procedures 10-QSB Page 18
Part II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 10-QSB Page 18
Signatures 10-QSB Page 19
Certifications 10-QSB Page 20
10-QSB Page 2
PART I
Item 1. Financial Statements.
MANAGEMENT STATEMENT
The accompanying balance sheet of Command Center, Inc. as of September 29,
2006 (unaudited) and the related statements of operations for the thirteen and
thirty nine week periods ended September 29, 2006, and the three and nine month
periods ended September 30, 2005, and the related statements of cash flows for
the thirty-nine week period ended September 29, 2006 and the nine month period
ended September 30, 2005 were prepared by Management of the Company.
The accompanying financial statements should be read in conjunction with
the audited financial statements of Command Center, Inc. (the "Company") as of
and for the year ended December 31, 2005, and the notes thereto contained in the
Company's annual report on Form 10-KSB for the year ended December 31, 2005,
filed with the Securities and Exchange Commission.
Management
Command Center, Inc.
November 19, 2006
10-QSB Page 3
Command Center, Inc. (formerly Command Staffing LLC)
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Balance Sheet (Unaudited)
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September 29,
Assets 2006
------------
CURRENT ASSETS:
Acquisition accounts receivable - affiliates $ 552,683
Accounts receivable - trade, net of allowance for
bad debts of $1,402,719 10,989,725
Notes receivable 137,919
Prepaid expenses, deposits, and other 574,003
Investment in securities --
------------
Total current assets 12,254,330
------------
PROPERTY AND EQUIPMENT, NET: 1,152,761
------------
GOODWILL: 32,908,887
------------
$ 46,315,978
============
Liabilities and Stockholders' Equity
CURRENT LIABILITIES:
Accounts payable - trade 1,262,650
Checks issued and outstanding 515,729
Acquisition accounts payable - affiliates 515,080
Accrued payroll, benefits and taxes 1,056,410
Current portion of long term liabilities 8,320
Receivable factoring payable 5,962,946
Advances payable 1,025,440
Accrued new store surcharge fees - affiliate 175,000
------------
Total liabilities 10,521,575
------------
LONG TERM LIABILITIES: 96,781
------------
STOCKHOLDERS' EQUITY:
Preferred stock - 5,000,000 shares, $0.001 par value,
authorized; no shares issued and outstanding --
Common stock - 100,000,000 shares, $0.001 par value,
authorized; 23,336,648 shares issued and outstanding 23,337
Additional paid-in capital 36,910,341
Accumulated deficit (1,236,056)
------------
Total stockholders' equity 35,697,622
------------
$ 46,315,978
============
See accompanying notes to unaudited financial statements.
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10-QSB Page 4
Command Center, Inc. (formerly Command Staffing LLC)
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Statements of Operations (Unaudited)
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Thirteen Three Thirty-Nine Nine
Weeks Months Weeks Months
Ended Ended Ended Ended
September 29, September 30, September 30, September 30,
------------- ------------- ------------- -------------
2006 2005 2006 2005
------------- ------------- ------------- -------------
REVENUE:
Staffing services revenue $ 27,822,681 $ -- $ 45,500,310 $ --
Franchise fee revenues -- 521,247 535,745 1,320,203
Other income 15,667 336,723 30,343 336,723
------------- ------------- ------------- -------------
Total revenue 27,838,348 857,970 46,066,398 1,656,926
COST OF STAFFING SERVICES 20,227,219 -- 33,224,331 --
------------- ------------- ------------- -------------
GROSS PROFIT 7,611,129 857,970 12,842,067 1,656,926
OPERATING EXPENSES: 7,008,769 435,635 14,130,190 1,093,781
------------- ------------- ------------- -------------
INCOME (LOSS) FROM
OPERATIONS 602,360 422,335 (1,288,123) 563,145
OTHER INCOME
Interest and dividend income 9,098 -- 44,430 --
------------- ------------- ------------- -------------
NET INCOME (LOSS) $ 611,458 $ 422,335 $ (1,243,693) $ 563,145
============= ============= ============= =============
BASIC INCOME (LOSS) PER SHARE $ 0.03 $ 0.11 $ (0.08) $ 0.15
============= ============= ============= =============
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 23,048,555 3,745,493 16,541,304 3,745,493
============= ============= ============= =============
See accompanying notes to unaudited financial statements.
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10-QSB Page 5
Command Center, Inc. (formerly Command Staffing LLC)
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Statements of Cash Flows (Unaudited)
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Thirty-Nine Weeks Nine Months
Ended September 30, Ended September 30,
Increase (Decrease) in Cash 2006 2005
------------------- -----------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (1,243,693) $ 563,145
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation and amortization 123,280 38,677
Amortization of note receivable discount 14,002 --
Stock issued for rent 90,000 --
Changes in assets and liabilities
Accounts receivable - affiliates 676,101 (120,783)
Acquisition accounts receivable - affiliates (552,683) --
Accounts receivable - trade, net (4,440,156) 83,392
Notes receivable -- (353,214)
Prepaid expenses (526,789) --
Accounts payable - trade 1,126,974 70,489
Acquisition accounts payable - affiliates (713,120) --
Accounts payable - affiliates -- 8,750
Accrued expenses 1,126,410 --
------------------- -----------------------
Total adjustments (3,075,981) (272,689)
------------------- -----------------------
Net cash provided by (used in) operating activities (4,319,674) 290,456
------------------- -----------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (208,604) (125,000)
Advances to affiliates -- (291,565)
Collections on note receivable 131,586 --
Sale of investments 404,000 --
------------------- -----------------------
Net cash provided by (used in) investing activities 326,982 (416,565)
------------------- -----------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Financing from factoring accounts receivable 1,026,679 --
Checks issued and outstanding 515,729 --
Advances payable 1,025,440 --
Sales of preferred stock 470,000 --
Sales of common stock 585,000 --
Proceeds from long-term debt - affiliates -- 85,000
------------------- -----------------------
Net cash provided by financing activities 3,622,848 85,000
------------------- -----------------------
NET DECREASE IN CASH (369,844) (41,109)
CASH, BEGINNING OF PERIOD 369,844 41,268
------------------- -----------------------
CASH, END OF PERIOD $ -- $ 159
=================== =======================
------------------- -----------------------
NON-CASH INVESTING AND FINANCING ACTIVITIES
Common stock issued on conversion of preferred stock $ 470,000 --
=================== =======================
Common stock issued for acquisition of:
Accounts receivable, net $ 6,193,202 $ --
Property, plant and equipment 603,184 --
Financing liability assumed (4,936,266) --
Due to affiliates (876,675)
Goodwill 31,365,315 --
------------------- -----------------------
Total $ 32,348,760 $ --
=================== =======================
See accompanying notes to unaudited financial statements.
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10-QSB Page 6
NOTES TO THE UNAUDITED FINANCIAL STATEMENTS OF COMMAND CENTER, INC.
(Formerly Command Staffing, LLC)
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NOTE 1 -- BASIS OF PRESENTATION:
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The accompanying unaudited financial statements have been prepared in conformity
with generally accepted accounting principles and reflect all normal recurring
adjustments which, in the opinion of Management of the Company, are necessary to
a fair presentation of the results for the periods presented. The results of
operations for such periods are not necessarily indicative of the results
expected for the full fiscal year or any future period. 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 at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting periods. Actual results could differ significantly
from these estimates.
The accompanying unaudited financial statements should be read in conjunction
with the audited financial statements of the Company as of and for the year
ended December 31, 2005, and the notes thereto contained in the Company's annual
report on Form 10-KSB for the year ended December 31, 2005, filed with the
Securities and Exchange Commission. In 2005 we changed our business from that of
a financing company to a franchisor of temporary labor businesses (See Part I,
Item 2). In May, 2006, we changed our business from a franchisor of temporary
labor businesses to operator of temporary labor businesses. Accordingly,
information presented for the period ended September 30, 2005 is not relevant to
our current business activities. Certain items previously reported in specific
financial statement captions have been reclassified to conform to the 2006
presentation.
Restatements
In the Company's Form 10-KSB for the year ended December 31, 2005, the Company
presented comparative statements of operations and cash flows for 2004
reflecting operations of the predecessor public company Temporary Financial
Services, Inc. ("TFS"). In addition, the statement of operations and cash flows
for 2005 included a full year of operations of TFS combined with the operations
of the acquired companies, Command Staffing LLC ("Command Staffing") and
Harborview Software, Inc. ("Harborview") from November 9, 2005 through December
31, 2005. November 9, 2005 was the date on which the acquisitions of Command
Staffing and Harborview were closed. In the third quarter of 2005 management
consulted with its independent auditor and the Securities and Exchange
Commission's Office of Chief Accountant (OCA), and determined that Command
Staffing should have been disclosed as the accounting acquirer, and its historic
(2004) financial statements presented instead of TFS. Since Command Staffing is
determined the accounting acquirer, the combined statements of operations and
cash flows of Command Staffing for the year ended December 31, 2005 along with
TFS and Harborview from November 9, 2005 through December 31, 2005, should have
been presented. The OCA advised us that the acquisition of the portion of
Harborview not owned by Glenn Welstad, the President of Command Center, Inc.,
must be "stepped up" using the purchase accounting method as of November 9,
2005, the date of acquisition. This adjustment results in an increase to
goodwill and paid-in-capital of $1,543,572. We plan to restate our financial
statements in our previously filed Form 10KSB for the year ended December 31,
2005 and in the Forms 10-QSB for the periods ended March 31, 2006 and June 30,
2006. The affect of the restatement on the Company's total assets at December
31, 2005 and statements operations for the years ended December 31, 2005 and
2004, is expected to be as follows:
10-QSB Page 7
NOTES TO THE UNAUDITED FINANCIAL STATEMENTS OF COMMAND CENTER, INC.
(Formerly Command Staffing, LLC)
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--------------------------------------- ------------------- ---------------
As originally
stated As restated
--------------------------------------- ------------------- ---------------
Total assets at December 31, 2005 $ 2,601,286 $ 4,144,858
--------------------------------------- ------------------- ---------------
Net Income (loss) for the year ended
December 31, 2005 $ (200,122) $ 354,758
--------------------------------------- ------------------- ---------------
Net Income (loss) for the year ended
December 31, 2004 $ 123,867 (TFS) $ (137,663) (CS)
--------------------------------------- ------------------- ---------------
The restatements have no affect on the presentation included in these financial
statements as of September 29, 2006 and for the thirteen and thirty-nine week
periods ended September 29, 2006 and as of September 30, 2005 and for the three
and nine month periods ended September 30, 2005. As noted above, due to a change
in the character of the business between 2005 and 2006, prior period information
is not comparable to the current period.
NOTE 2 --ACQUISITIONS:
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Commencing with the acquisition of the operating assets of 48 temporary staffing
stores and intangible rights to eight additional temporary staffing stores on
May 12, 2006, the Company has elected to report its financial results of
operations on a 52/53 week fiscal year ending on the last Friday in December.
Our 2006 fiscal year will end on December 29, 2006. Prior to May 12, 2006, we
reported our financial results on a calendar year basis with our year ending on
December 31 of each year. The acquisition of temporary staffing stores on May
12, 2006 and the conversion of the business from the finance industry to the
temporary labor industry on November 9, 2005, affect the comparability of our
financial results for the thirteen and thirty-nine week periods ended September
29, 2006 versus the three and nine month periods ended September 30, 2005. The
effect of the change to a 52/53 week fiscal year is insignificant in the periods
reported.
In the thirty-nine weeks ended September 29, 2006, the Company acquired the
operating assets of a number of temporary staffing stores located throughout the
United States. These store acquisitions were undertaken pursuant to an Asset
Purchase Agreement dated November 9, 2005 (the "APA") between the Company,
Command Staffing, Harborview, and 45 companies (the "Operations Entities")
collectively owning approximately 70 temporary staffing stores. The transactions
contemplated by the APA are referred to as the "Command Transaction." The
Command Transaction was undertaken in two phases. Phase I involved the
acquisition of Command Staffing and Harborview and was completed on November 9,
2005. The shareholders of Command Staffing and Harborview after the Phase I
Closing controlled the Company following the acquisition. This Phase was
accounted for by reflecting Command Staffing as the accounting acquirer and was
accounted for as a recapitalization. Harborview was 50% owned by Glenn Welstad,
the controlling shareholder of the accounting acquirer, Command Staffing. The
acquisition of Harborview was accounted for as if 50% of the company was
acquired in a recapitalization and 50% was accounted for using the purchase
method of accounting. The purchase method of accounting for 50% of the
Harborview acquisition resulted in recording of $1,543,572 of goodwill as of
November 9, 2005. As of the Closing dates of the acquisition, management
estimated that the fair value of the restricted stock given in the purchase at
$1.00 per share. This valuation was based on the quoted price of the shares on
the Over the Counter Bulletin Board (OTCBB) at that time, the estimated values
of the underlying assets acquired and the estimated value of the business
purchased. Management did not consider the quoted price of the Company's stock
on the OTCBB to be the best indicator of value due to the trading restrictions
on the shares issued in the transaction and fact that the common shares were
very thinly traded prior to and after the acquisition.
10-QSB Page 8
NOTES TO THE UNAUDITED FINANCIAL STATEMENTS OF COMMAND CENTER, INC.
(Formerly Command Staffing, LLC)
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On May 12, 2006 the Company acquired the operating assets and certain
liabilities of 48 temporary staffing stores and intangible rights to eight
additional temporary staffing stores from 35 operations entities. On June 30,
2006, we acquired the operating assets and certain liabilities of an additional
9 temporary staffing stores from 4 operations entities. The acquisitions were in
exchange for an aggregate of 12,897,463 shares of restricted common stock. All
of these acquisitions were accounted for using the purchase method of
accounting. Under the purchase method of accounting, the total estimated
purchase price is allocated to the net tangible and intangible assets of the
acquired entity based on their estimated fair values as of the completion of the
transaction. To the extent that the consideration given exceeded the fair value
of the assets acquired, the difference was recorded as goodwill. As of the
Closing dates of the acquisitions, management estimated that the fair value of
the restricted stock given in the purchases at $2.50 per share. This valuation
was based on the quoted price of the shares on the Over the Counter Bulletin
Board (OTCBB) at that time, the estimated values of the underlying assets
acquired and the estimated values of the businesses purchased. Management did
not consider the quoted price of the Company's stock on the OTCBB to be the best
indicator of value due to the trading restrictions on the shares issued in the
transaction and fact that the common shares were very thinly traded prior to and
after the acquisition. After deducting the fair value of the tangible assets
acquired, management has estimated that the goodwill in the acquisitions
amounted to $31,365,315. The acquisitions were principally between and among
related parties with pre-existing relationships (see Note 6). Taking the
acquisitions of Command Staffing and Harborview and the temporary staffing store
assets together, the Company recorded $32,908,887 of goodwill.
The operations for 2006 reflected in these financial statements include the
franchise business revenues for the first quarter, a combination of temporary
staffing store operations and franchise operations for the second quarter, and
exclusively temporary staffing store operations for the current quarter ended
September 29, 2006. Information provided for the prior year includes only
Command Staffing's franchise operations in the three and nine month periods
ended September 30, 2005. Consequently, the results of operations for the
thirteen and thirty-nine week periods ended September 29, 2006 are not
comparable to the results of operations for the three and nine month periods
ended September 30, 2005.
As of September 29, 2006 the Company currently operates 76 temporary staffing
stores located in 21 states.
NOTE 3 --STOCK BASED COMPENSATION:
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10-QSB Page 9
NOTES TO THE UNAUDITED FINANCIAL STATEMENTS OF COMMAND CENTER, INC.
(Formerly Command Staffing, LLC)
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On January 1, 2006, the Company adopted the fair value recognition provisions of
Statement of Financial Accounting Standards No. 123(R), "Share-Based Payments"
("SFAS 123R"), using the modified prospective transition method. In accordance
with the modified prospective transition method, the Company will recognize
compensation expense for all share-based awards granted after January 1, 2006,
plus unvested awards granted prior to January 1, 2006. Under this method of
implementation, no restatement of prior periods has been made. The cumulative
effect of adopting SFAS 123R does not affect the Company.
NOTE 4 --EARNINGS PER SHARE:
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Statement of Financial Accounting Standards No. 128, "Earnings per Share,"
requires dual presentation of basic earnings per share ("EPS") and diluted EPS
on the face of all income statements issued after December 15, 1997, for all
entities with complex capital structures. Basic EPS is computed as net income
divided by the weighted average number of common shares outstanding for the
period. Diluted EPS reflects the potential dilution that could occur from common
shares issuable through stock options, warrants, and other convertible
securities. At September 29, 2006, the Company had no common stock equivalents
outstanding only common stock outstanding. Accordingly, only basic EPS is
presented.
For the three and nine month periods ended September 30, 2005, total shares
outstanding for purposes of computing earnings per share are based on the shares
issued to Command Staffing by TFS in the acquisition. As Command Staffing is
deemed the accounting acquirer in the acquisition, the Company has presented
historical financial information for Command Staffing, as though the number of
shares issued to Command Staffing were outstanding as of January 1, 2005.
Consequently, the weighted average shares outstanding is calculated as such.
NOTE 5 - FINANCING ARRANGEMENTS:
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On May 12, 2006, the Company entered into an agreement with its principal lender
for the factoring of eligible accounts receivable. Eligible accounts receivable
are generally defined to include accounts that are not more than sixty days past
due. The loan agreement includes limitations on customer concentrations,
accounts receivable with affiliated parties, accounts receivable from
governmental agencies in excess of 5% of the Company's accounts receivable
balance, and where a customer's aggregate past due accounts exceed 50% of that
customer's aggregate balance due. The lender will advance 85% of the invoiced
amount for eligible recievables. The credit facility includes a 1% facility fee
payable annually, and a $1,500 monthly administrative fee. The financing bears
interest at the greater of the prime rate plus three percent (prime +3%) or
6.25% per annum. Prime is defined by the Wall Street Journal, Money Rates
Section, and the rate is adjusted to the rate applicable on the last day of each
month. The loan agreement further provides that interest is due at the
applicable rate on the greater of the outstanding balance or $2,000,000. The
credit facility expires on April 7, 2008. The Company has negotiated an increase
in the maximum credit facility and expects to finalize the increase to
$12,000,000 from $8,000,000 on or before December 1, 2006. When finalized, the
increased credit facility will expire on April 7, 2009.
10-QSB Page 10
NOTES TO THE UNAUDITED FINANCIAL STATEMENTS OF COMMAND CENTER, INC.
(Formerly Command Staffing, LLC)
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NOTE 6 -- RELATED-PARTY TRANSACTIONS:
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New store surcharge fee. As part of the acquisition of the franchise operations
of Command Staffing and Harborview, the Board agreed to assume an obligation of
Command Staffing pay Glenn Welstad, the CEO and Chairman, $5,000 for each
additional temporary staffing store opened on behalf of the Company. Included in
the Company's accounts at September 29, 2006 is $175,000 payable to Mr. Welstad
in new store surcharge fees. This amount includes $70,000 from opening 14 new
stores in the thirteen weeks ended September 29, 2006.
Acquisition accounts receivable and acquisition accounts payable. During the
period ended September 29, 2006 the Company paid $160,000 to Viken Management,
Inc. as an offset of acquisition payables properly owed to Viken in connection
with the acquisition of the group of stores previously owned or managed by
Viken. The Company is continuing to settle the acquisition accounts payable and
acquisition accounts receivable and expects to have these amounts collected or
paid prior to the March 31, 2007.
Lease obligations. The Company has leased a building in Post Falls, Idaho to
serve as its corporate headquarters. The building is owned by John Coghlan, a
director and significant shareholder of the Company. The Company makes rental
payments of $10,000 per month, triple net. 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 is 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. For the
three and nine month periods ended September 29, 2006, the Company accrued
$90,000 in rent expense due to Mr. Coghlan. This amount was paid through
issuance of 21,504 shares of restricted common stock. 11,195 shares of common
stock were issued in July, 2006 and an additional 10,309 shares were issued in
September. At September 29, 2006, no amounts were due for rent to Mr. Coghlan.
Concentrations. In the nine months ended September 29, 2006, 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
were owned in whole or in part by various officers and directors of the Company.
As a result, the Company's franchise business was concentrated among a small
number of affiliated parties and was subject to business concentration risks. On
May 12, 2006, the Company acquired a substantial majority of the franchisees'
operations, and on June 30, 2006, acquired the remaining franchisee operations.
In future periods, the Company does not expect to generate any revenues from
royalty income. Instead, future revenues will be derived from temporary staffing
store operations and franchisee concentration risk will be substantially
eliminated.
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10-QSB Page 11
NOTES TO THE UNAUDITED FINANCIAL STATEMENTS OF COMMAND CENTER, INC.
(Formerly Command Staffing, LLC)
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NOTE 8 - SEGMENT REPORTING:
During the thirty-nine weeks ended September 29, 2006, the Company operated a
franchise business and also acquired and operated a number of temporary staffing
stores. Financial information on each segment is summarized below. On June 30,
2006, the Company completed acquisition of the remaining franchised temporary
staffing stores and is no longer operating as a franchisor. All revenues
generated in the thirteen weeks ended September 29, 2006 were generated from
temporary staffing store operations. The Company expects that new stores will be
operated as company owned, although the Company will continue to evaluate
qualified franchisees on a case by case basis as opportunities are presented.
Franchise Store
Business Operations Combined
Revenue $ 535,745 $ 45,530,653 $ 46,066,398
Cost of sales -- 33,224,331 33,224,331
------------ ------------ ------------
Gross profit 535,745 12,306,322 12,842,067
Operating expenses 205,032 13,925,158 14,130,190
------------ ------------ ------------
Income (Loss) from operations $ 330,713 $ (1,618,836) (1,288,123)
Other income -- 44,430 44,430
------------ ------------ ------------
Net income (loss) $ 330,713 $ (1,574,406) $ (1,243,693)
============ ============ ============
Net assets of $32,348,760 were added during the thirty-nine months ended
September 29, 2006 in connection with the acquisition of temporary staffing
stores.
NOTE 9 - STOCK TRANSACTIONS:
--------------------------------------------------------------------------------
On July 5, 2006, the Company commenced a private offering of 2,000,000 shares of
common stock at $3.00 per share. As part of this offering, the Company also
offered each holder of Series A Preferred Stock, holding in the aggregate 4,700
shares, an opportunity to exchange their Series A shares for Common Stock at an
exchange ratio equivalent to $3.00 per common share. In the thirteen weeks ended
September 29, 2006, all of the holders of Series A Preferred Shares exchanged
their shares for common stock under this program and all Series A Preferred
Stock has been retired. In addition to the common shares issued in exchange of
the Series A Preferred Stock, the Company has issued 195,001 shares of common
stock in the private placement for an aggregate of $585,000.
NOTE 9 - SUBSEQUENT EVENTS:
--------------------------------------------------------------------------------
In October, 2006, the Company sold 157,000 additional shares of Common Stock in
the offering dated July 5, 2006, for an aggregate of $471,000. The offering was
terminated on October 31, 2006.
10-QSB Page 12
FORM 10-QSB
Part I, Item 2. Management's Discussion and Analysis or Plan of Operations.
The Company
We were 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. As a result, we considered other lending operations, provided financing
to an affiliated financial services firm, and also began looking for other
business opportunities.
On October 6, 2005, TFS entered into a letter of intent to acquire the
assets of Command Staffing, Harborview, and 45 companies (collectively, the
"Operations Entities") that collectively owned approximately 70 temporary
staffing stores then operating as either Command Staffing franchisees or
independently owned businesses located throughout the United States. The
acquisitions of Command Staffing, Harborview, and the Operations Entities
pursuant to the APA by and among TFS, Command Staffing, Harborview, and the
Operations Entities are collectively referred to herein as the "Command
Transaction." The Command Transaction has now been completed.
Current Operations
At September 29, 2006, we own and operate 76 temporary staffing stores
located in 21 states. We plan to open a small number of new company owned stores
in 2006 and we are pursuing additional expansion through acquisitions from
unaffiliated operators. We intend to operate our temporary staffing stores as
company owned although we will evaluate franchising opportunities on a case by
case basis should we be approached by a qualified franchisee.
Our principal offices are located at 3773 West Fifth Avenue, Post Falls,
Idaho, 83854 and our telephone number is (208) 773-7450. Our web site is located
at www.commandonline.com.
Results of Operations.
Thirteen and Thirty-Nine Weeks ended September 29, 2006.
Revenues. As described above, the Company acquired a number of temporary
staffing stores in the thirty-nine weeks ended September 29, 2006. For the
thirteen and thirty-nine week periods ended September 29, 2006 revenues were
$27,838,348 and $46,066,398, respectively. For the comparable periods in 2005,
the Company was involved in franchising operations and the results of operations
are not comparable. Franchising revenues in the three and nine month periods
ended September 30, 2005 amounted to $857,970 and $1,656,926, respectively.
10-QSB Page 13
Staffing services revenues for the third quarter 2006 are not indicative
of the revenues the Company expects to generate in future periods. The Company
acquired the operating assets of 48 stores and intangible rights to eight
additional stores on May 12, 2006, nine additional stores on June 30, and we
have opened 19 new company owned stores (including eight stores opened after
acquiring intangible rights from the prior franchisees) since November 9, 2005.
As of Spetember 29, 2006, we are operating 76 temporary staffing stores located
in 21 states.
Revenues for the third quarter 2006 are consistent with expectations of
management taking into account the acquisitions that occurred in the prior
periods. Now that the acquisitions have been completed, the Company will report
aggregated results from all 76 stores in future periods. In coming periods,
management intends to focus on store operations and growth and anticipates that
the rate of acquisitions will slow considerably.
Our business is cyclical. As we head into the colder winter months, we
expect to see a moderate decline in revenues that will continue through the
fourth quarter and into the first quarter of 2007. Operations will also be
affected by business closures resulting from the Thanksgiving, Christmas and New
Years holidays.
Cost of Staffing Services. In thirteen and thirty-nine week periods ended
September 29, 2006, the company incurred staffing services costs of $20,227,219
and $33,224,331, respectively. The amounts represent 72.7% and 72.9% of revenues
for the three and nine month periods respectively, resulting gross margins of
27.3% and 27.1% respectively. With the completion of the acquisitions in the
second quarter, management will focus on the operations side of the business and
expects that cost of staffing services as a percentage of revenues will decrease
in the coming periods. The Company is also focused on bringing in higher margin
business which will also increase gross profit margins in future periods if
successful.
In the three and nine month periods ended September 29, 2005, the Company
operated as a franchisor of temporary staffing businesses and did not incur any
costs of staffing services.
Operating Expenses. Operating expenses in the thirteen and thirty-nine
week periods ending September 29, 2006 were $7,008,769 and $14,130,190,
respectively. Acquisition of the operations and/or intangible rights of 65
temporary staffing stores in the second quarter required significant investment
in personnel, facilities, and infrastructure. The Company entered into the
agreement for acquisition of the temporary staffing stores on November 9, 2006
and since that date management has been focused on establishing the corporate
administrative functions that would be needed when the store acquisitions were
completed. The corporate infrastructure now in place is considered adequate for
current operational levels. Management will continue to monitor operating
expenses as a percentage of revenues with the continuing objective of profitable
operations as a guiding principle.
Operating expenses in the three and nine month periods ended September 29,
2005 were $435,635 and $1,093,781, respectively. These amounts reflect
operations as a franchisor of temporary staffing stores and are not comparable
to the current periods.
10-QSB Page 14
Income (Loss) from Operations. The Company generated income from
operations of $611,458 in the thirteen week period ended September 29, 2006. For
the thirty-nine weeks ended September 29, 2006, the Company incurred a loss of
$1,243,693 from operations. Income from operations in the current quarter is
consistent with management expectations. During prior periods, the Company
acquired and/or opened a total of 74 temporary staffing stores. In the current
quarter, the combined temporary staffing store operations were sufficient to
support the corporate infrastructure that the Company had been building for the
prior eight months.
For the thirty-nine weeks ended September 29, 2006, the losses are largely
attributable to the Company's efforts to build corporate infrastructure in
anticipation of the temporary staffing store acquisitions, and the expenses of
acquisition, including professional and accounting fees. In future periods,
management expects that operating expenses will normalize and operating margins
will yield profitable results in the near term.
Income in the three and nine months ended September 30, 2005 amounted to
$422,335 and $563,145, respectively. As noted above, 2005 operations consisted
of franchising activities and are not comparable to current operations.
Liquidity and Capital Resources
At September 29, 2006, we had no cash and approximately $2,000,000
available for accounts receivable funding under the Company's primary credit
facility. The temporary staffing business is capital intensive. Management must
proactively manage cash flows, particularly in periods when seasonal business is
peaking and accounts receivable balances are rising. Late summer and early fall
are peak business periods, with the level of temporary staffing placements
tapering off as the weather cools in the winter months, particularly in the
Northern United States. The Company is not currently borrowing to the fullest
extent allowed under its credit facility, but capital is expected to be tight
through the winter. In anticipation of operating cash requirements, the Company
commenced a private offering of common stock at $3.00 per share and through
September 29, 2006, had received $585,000 in new investment funding. The
offering has been continued into the fourth quarter. In addition, we increased
our credit facility to $8,000,000 from $7,000,000 in the quarter ended September
29, 2006 and we are currently finalizing an increase in our credit facility to
$12,000,000 from $8,000,000. These steps will help our liquidity in 2007, but
with our expected cash requirements to open approximately forty new stores in
2007, and our intended staffing requirements for the year, we are likely to
continue to experience limited liquidity for the foreseeable future.
In order to improve liquidity and reduce the risk of unexpected cash
requirements, the Company is considering several alternative funding sources for
back-up financing availability. In the meantime, management will maintain a
close watch on available resources and cash requirements. As the Company moves
from periods of peak activity to slower periods in the late fall and winter,
accounts receivable collections are expected to outpace the requirement for
payments to temporary personnel and other operating expenses. This source of
cash will be offset by expected requirements for further infrastructure
enhancements including the need to create and equip a sales force during the
fourth quarter of 2006 and the first quarter of 2007.
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In future periods, management intends to pursue other sources of liquidity
to assure that growth prospects are not hampered by availability of funds.
No assurances can be given at this time that adequate funding sources will
be available as needed or that the terms of any funding arrangements will be
acceptable to the Company. To the extent that funding sources are not available
to meet our needs, we may be forced to scale back operations.
Item 3. Controls and Procedures.
An evaluation was performed by the Company's president and principal
financial officer of the effectiveness of the design and operation of disclosure
controls and procedures. On the basis of that evaluation, the Company's
president and principal financial officer concluded that disclosure controls and
procedures were effective as of September 29, 2006, ensuring that all material
information required to be filed in this quarterly report was made known to them
in a timely fashion.
As referenced elsewhere in this report, our financial statement
presentation in connection with business combinations occurring in November,
2005 required restatement. This occurrence evidenced an internal control
weakness in the way complex business transactions are reported. In the future,
we will consult outside experts on complex transactions to address this
weakness.
Critical Accounting Policies.
Management's Discussion and Analysis of Financial Condition and Results of
Operations provides a review of our financial statements which have been
prepared in conformity with accounting principles generally accepted in the
United States of America. The preparation of these financial statements requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and the disclosure of contingent assets and liabilities,
and the reported amounts of revenues and expenses during the reporting periods.
On an ongoing basis, management evaluates its estimates and judgments, including
those related to workers compensation claims, bad debts, goodwill, and
contingencies. Management bases its estimates and judgments on historical
experience and on various other factors which we believe are reasonable under
the circumstances. Actual results may differ from these estimates under
different assumptions or conditions.
Management believes the following critical accounting policies, among
others, reflect the more significant judgments and estimates used in the
preparation of our financial statements.
Workers' Compensation. We insure our workers' compensation liabilities
through state insurance programs when such coverage is mandatory and in all
other instances, we insure our potential workers' compensation liabilities
through AIG. Our premium payments to AIG are based on estimates of the future
cost of claims and related expenses. The relatively short time that we have been
operating as a combined entity limits the amount of information from which
workers' compensation cost estimates can be made. We believe that our payments
to AIG are adequate to cover expected costs. We evaluate our workers'
compensation insurance and expected cost experience throughout the year and make
adjustments as necessary. If actual costs incurred for workers' compensation
claims exceed our current coverages, additional premiums may be owed.
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Allowance for Doubtful Accounts. We establish an allowance for doubtful
accounts to cover instances where customers fail to pay amounts properly due for
staffing services rendered. We evaluate this allowance regularly throughout the
year and adjust it to reflect expected bad debts based on accounts receivable
aging, customer evaluations, and general economic conditions. If our actual bad
debt experience exceeds amounts reserved, additional allowances could be
required.
Goodwill. As a result of our recent acquisitions, we have recorded
goodwill at estimated value. Goodwill is the amount of the purchase price in
excess of the fair value of the tangible assets acquired. We test for impairment
of goodwill on an annual basis in conjunction with the preparation of our Form
10-KSB. Goodwill impairment is tested at the reporting unit level. For this
purpose, we consider the Company to currently have only one reporting unit
engaged in providing temporary staffing services. Our impairment analysis is
based on discounted cash flows, market multiples, appraisals if appropriate, and
other facts and circumstances that bear on value at the time the impairment
analysis is made.
PART II
Item 6. Exhibits and Reports on Form 8-K.
During the quarter ended September 29, 2006, the Company filed the following
Current Reports on Form 8-K.
o Current report on Form 8-K dated June 30, 2006 reporting acquisitions of
temporary staffing stores, including: Item 1.01 - Entry into a Material
Definitive Agreement, and Item 2.01 - Completion of Acquisition or
Disposition of Assets.
o Current report on Form 8-K dated July 5, 2006 reporting Item 3.02 -
Unregistered Sale of Equity Securities.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
COMMAND CENTER, INC.
/s/Glenn Welstad President and CEO Glenn Welstad November 20, 2006
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Signature Title Printed Name Date
/s/C. Eugene Olsen CFO, Principal Financial Officer C. Eugene Olsen November 20, 2006
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Signature Title Printed Name Date
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