sv1za
As
filed with the Securities and Exchange Commission on February 8, 2008
Registration
No. 333-148658
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Amendment
No. 1
to
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
COMMAND CENTER, INC.
(Name of registrant as specified in its charter)
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Washington
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7363
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91-2079472 |
(State or other jurisdiction of
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(Primary Standard Industrial
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(I.R.S. Employer |
incorporation or organization)
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Classification Code Number)
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Identification No.) |
Brad E. Herr
Chief Financial Officer
3773 West Fifth Avenue
Post Falls, ID 83854
208.773.7450
(Address, including zip code, and telephone number, including area code,
of registrants principal executive offices)
National Registered Agents
1780 Barnes Boulevard S.W., Building G
Tumwater, WA 98512-0410
(Name, address, including zip code, and telephone number, including
area code, of agent for service)
Copies to:
Michael Hool
Rogers & Hool LLP
2425 East Camelback Road
Phoenix, AZ 85016
Tel: 602.852.5550
Approximate date of proposed sale to the public:
As soon as practicable after the effective date of the registration statement
If any of the securities being registered on this Form are to be offered on a delayed or
continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box: þ
If this Form is filed to register additional securities for an offering pursuant to Rule
462(b) under the Securities Act, please check the following box and list the Securities Act
registration statement number of the earlier effective registration statement for the same
offering. o
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities
Act, check the following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering. o
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities
Act, check the following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering. o
The Registrant hereby amends this Registration Statement on such date or dates as may be
necessary to delay its effective date until the Registrant shall file a further amendment which
specifically states that this Registration Statement shall thereafter become effective in
accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement
shall become effective on such date as the Commission, acting pursuant to Section 8(a), may
determine.
The information in this prospectus is not complete and may be changed. The selling shareholders may
not sell these securities until the registration statement filed with the Securities and Exchange
Commission is effective. This prospectus is not an offer to sell these securities and is not
soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not
permitted.
SUBJECT
TO COMPLETION, DATED FEBRUARY 8, 2008
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PROSPECTUS
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16,609,688 Shares |
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COMMAND CENTER, INC.
Common Stock
This prospectus relates to the disposition from time to time of up to 16,609,688 shares of
common stock of Command Center, Inc., a Washington corporation (the Company), held by the selling
shareholders identified in this prospectus for their own account. The 16,609,688 shares consist of
10,296,885 shares of common stock issued to the selling shareholders, and 6,312,803 shares of our
common stock that may be issued on exercise of warrants held by the selling shareholders.
We will not receive any of the proceeds from the sale of shares by the selling shareholders.
We will receive proceeds if some or all of the warrants held by the selling shareholders are
exercised, unless some or all of such warrants are exercised on a cashless basis.
The shares may be offered and sold from time to time directly from the selling shareholders or
through underwriters, broker-dealers or agents. Each selling shareholder will determine the prices
at which it sells its shares. The shares may be sold at fixed prices, at prevailing market prices
at the time of sale, at prices related to the prevailing market price, at varying prices determined
at the time of sale or at negotiated prices. See Plan of Distribution.
Our common stock is listed on the Over-the-Counter Bulletin Board (the OTC Bulletin Board)
and traded under the symbol CCNI.OB. On February 6, 2008, the closing price of the common stock
quoted on the OTC Bulletin Board, was $1.02 per share.
We may amend or supplement this prospectus from time to time. You should read this entire
prospectus and any amendments or supplements carefully before you make your investment decision.
An investment in our common stock is speculative and involves a high degree of risk. See Risk
Factors beginning at page 7.
Neither the Securities and Exchange Commission nor any state securities commission has
approved or disapproved of these securities or passed upon the accuracy or adequacy of this
prospectus. Any representation to the contrary is a criminal offense.
The date of this prospectus is
, 2008
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TABLE OF CONTENTS
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We have not authorized any person to give you any supplemental information or to make any
representations for us. You should not rely upon any information about us that is not contained in
this prospectus or in one of our public reports filed with the Securities and Exchange Commission
(SEC) and incorporated into this prospectus. Information contained in this prospectus or in our
public reports may become stale. You should not assume that the information contained in this
prospectus, any prospectus supplement or the documents incorporated by reference are accurate as of
any date other than their respective dates, regardless of the time of delivery of this prospectus
or of any sale of the shares. Our business, financial condition, results of operations and
prospects may have changed since those dates. The selling shareholders are offering to sell, and
seeking offers to buy, shares of our common stock only in jurisdictions where offers and sales are
permitted.
In this prospectus the company, we, us, and our refer to Command Center, Inc., a
Washington corporation.
Page 4
PROSPECTUS SUMMARY
This summary highlights key aspects of our business and the Company that are described in more
detail elsewhere in this prospectus. This summary does not contain all of the information that you
should consider before making an investment decision with respect to our securities. You should
read this entire prospectus carefully, including the Risk Factors, the audited
financial statements and the notes thereto included elsewhere in this prospectus.
Our Business
We provide temporary workers to our customers primarily in the industrial sector of the
temporary staffing industry. We currently operate 79 temporary staffing stores in 22 states.
We were organized as Command Staffing LLC on December 26, 2002. We commenced operations in
2003 as a franchisor of temporary staffing businesses. On November 9, 2005, the assets of Command
Staffing LLC and Harborview Software, Inc. (Harborview), an affiliated company that owned the
software used in the operation of our temporary staffing stores, were acquired by Temporary
Financial Services, Inc., a public company (TFS) and our corporate predecessor. The transaction
was accounted for as if Command Staffing LLC was the accounting acquirer. On November 16, 2005, we changed
our name to Command Center, Inc. Prior to April 2006, we generated revenues primarily from
franchise fees. On May 12, 2006, we acquired 48 temporary staffing stores from certain former
franchisees, and shifted our business focus from franchisor to operator. We ceased our franchise
operations in the second quarter of 2006 and currently generate all of our revenue from temporary
staffing store operations and related activities. See Business.
On November 30, 2007, we raised $10,296,885 in gross proceeds through the private placement of
10,296,885 shares of common stock (at $1.00 per share), and warrants to purchase up to 6,312,803
shares. The warrants have an exercise price of $1.25 per share, and are exercisable commencing on
May 29, 2008, as to 6,031,943 shares and June 27, 2008, as to 280,860 shares, and for a period of
up to five years thereafter. See Description of Securities Warrants and Options.
We are using the proceeds from the private placement to expand our operations in 2008 and
beyond by opening new temporary staffing stores and to provide working capital.
Risk Factors
We are an early stage company with a limited operating history under our new business model
and no history of profitable operations. We operate in an extremely competitive environment. Our
business is dependent upon our ability to obtain workers compensation and other insurance on
commercially reasonable terms, which is subject to numerous uncertainties. Our operations expose us
to employment claims and other significant litigation risks. Any significant economic downturn
could adversely affect our business. The cost of compliance with laws and regulations affecting our
business is significant and we are continually subject to the risk of new regulation. We face a
formidable challenge in scaling up our corporate infrastructure to accommodate our growth. We
require significant working capital to operate and grow our business and our ability to grow is
dependent upon obtaining new and increased sources of working capital. The loss of any of our key
personnel could harm our business. Our common stock is thinly traded and subject to significant
price volatility. Sales of the 16,609,688 shares of common stock eligible for sale to the public by
the selling shareholders under this prospectus may depress the market price of our common stock as
such sales occur. See Risk Factors beginning at page 7.
Principal Executive Office
Our offices are located at 3773 West Fifth Avenue, Post Falls, ID 83854. Our telephone number
is 208.773.7450.
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Competitive Strength
A highly accomplished team of temporary labor industry professionals. Our management team
includes members who were instrumental in building Labor Ready. Glenn Welstad, our Chief Executive
Officer and Chairman, was a founder and chief executive officer of True Blue, Inc. (doing business as Labor Ready) from 1989 through
2000. Tom Gilbert, our Chief Operating Officer, was regional vice president of Labor Ready from 1998 through 2001, responsible
for managing 400 temporary staffing offices in 23 states and five Canadian provinces. Todd Welstad, our Chief Information Officer,
was chief information officer for Labor Ready from 1993 through 2003. Ronald L. Junck, our General Counsel, was executive
vice president and general counsel for Labor Ready from 1998 through 2001. Dwight Enget, our Vice President of Real Estate, worked for
Labor Ready from 1989 through 1998, rising to the position of Western U.S. director of operations.
Kevin Semerad, our Regional Vice President, managed a labor ready franchise from 1989 through 2002 and grew the franchised
operations from 5 to 18 temporary staffing offices.
The Offering
This offering relates to the offer and sale from time to time of up to 16,609,688 shares
(including up to 6,312,803 shares issuable on exercise of warrants) of our common stock by the
selling shareholders identified in this prospectus. The selling shareholders will sell up to
10,296,885 shares for their own account and we will not receive any proceeds from the sale of these
shares by the selling shareholders. The selling shareholders may also sell up to 6,312,803 shares
acquired from exercise of the warrants. We will receive proceeds if some or all of the warrants
are exercised unless some or all of the warrants are exercised on a cashless basis. The number of
shares of our common stock outstanding as of February 7, 2008, not including up to 6,312,803 shares
issuable upon exercise of warrants, was 35,665,053, of which 3,811,425 represented our public
float of shares, 11,120,986 are held or controlled by our
officers and directors, 10,435,757 are
other restricted securities, and 10,296,885 are eligible for public sale for the first time
pursuant to this prospectus.
Financial Information
See
Selected Financial Information, beginning on page 15.
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RISK FACTORS
An investment in our common stock is speculative and involves a high degree of risk. You
should carefully consider the risks described below and the other information in this prospectus
before purchasing any shares of our common stock. The risks and uncertainties described below are
not the only ones we face. Additional risks and uncertainties may also adversely impair our
business operations or affect the market price of our common stock. If any of the events described
in the risk factors below actually occur, our business, financial condition or results of
operations could suffer significantly. In such case, the value of your investment could decline and
you may lose all or part of the money you paid to buy our common stock.
Business Risks
We have a history of net losses, and we anticipate additional losses. We incurred net losses
in each fiscal year since our inception other than the fiscal year ended December 31, 2005. For
the fiscal year ended December 29, 2006, we incurred a net loss of approximately $2.4 million and
for the nine months ended September 30, 2007, we incurred a net loss of approximately $4 million.
Our losses have resulted primarily from the costs of consolidation of the franchisees, time needed
to change the culture of our former franchisees from independent operators to a centralized command
and control structure, and from the scale of our corporate infrastructure. We have focused our
efforts to date on building a support structure able to meet the needs of 100 or more stores. We
currently operate 79 stores in 22 states and the revenue flow from our existing base of operations
has not been sufficient to fully offset the corporate infrastructure costs. We may continue to
incur additional operating losses through fiscal 2008 as we continue to expand our sales and
marketing activities and open additional stores. We cannot assure you that our revenue will
increase or that we will be profitable in any future period.
Our historical financial information is of limited utility as a basis for your evaluation of
our business. We were incorporated in December 2002, began operations in 2003, and operated as a
franchisor until April 1, 2006, when we changed our business model to operator of temporary staffing
stores. Our financial statements for periods prior to April 1, 2006, are not comparable to our
financial statements for later periods. As a result, we have a limited operating history and
limited financial results that you can use to evaluate our business and prospects. Although we
have experienced significant growth in recent periods, the growth to date has not been profitable
and we may not be able to sustain this growth. Because we have limited historical financial data
upon which to base planned operating expenses and forecast operating results, we cannot be certain
that our revenue will grow at rates that will allow us to achieve or maintain profitability. You must consider our prospects in light of the risks, expenses and
difficulties we face as an early stage company with a limited operating history.
Changes in our business model and strategy may be difficult to manage. During 2006, we
changed our business model from franchisor to temporary staffing store operator, acquired 57
temporary staffing stores and opened an additional 20 stores. This shift in focus and rapid growth
required additional personnel, software capabilities, and infrastructure. We intend to continue to
increase the number of stores we operate. If management is unable to successfully manage these
significant changes, our business, financial condition and results of operations could be
negatively impacted.
We have a limited operating history under our new business model. We have been operating
under our new business model for less than two years. In light of our limited operating
experience, we have not proven the essential elements of stabilized long-term operations and we
cannot assure that we will be successful in achieving such operations. Moreover, we have not
demonstrated that our business can be operated on a profitable basis. Until we establish and
maintain profitable operations, we cannot assure you that we can make a profit on a long-term
basis.
We will require significant additional working capital to implement our current and future
business plans. We will require more working capital to fund customer accounts receivable to
continue to expand our operations. We may require more capital in 2008 to open new stores, expand
our sales force, and refine and improve the efficiency of our business systems and processes. In
future years, we will need more capital to increase our marketing efforts and expand our network of
stores through acquisition and opening of new stores. We cannot assure that such additional capital
will be available when we need it on terms acceptable to us, or at all. If capital
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needed in the future is unavailable or delayed, our ability to respond to competition or changes in
the marketplace or to exploit opportunities will be impaired. If we are unsuccessful in securing
needed capital in the future, our business may be materially and adversely affected. Furthermore,
the sale of additional equity or debt securities may result in dilution to existing shareholders,
and incurring debt may hinder our operational flexibility. If sufficient additional funds are not
available, we may be required to delay, reduce the scope of or eliminate material parts of our
business strategy.
We are operating under a waiver of certain financial covenants. We have obtained a credit
facility that is collateralized by eligible accounts receivable, which are generally defined to
include accounts that are not more than sixty days past due. Under this facility, our lender will
advance 85% of amounts invoiced for eligible receivables. This credit facility contains strict
financial covenants, which include, among other things, the following requirements: (i) that we
maintain a working capital ratio of 1:1; (ii) that we maintain positive cash flow; (iii) that we
maintain a tangible net worth of $3,500,000; and (iv) that we achieve operating results within a
range of projected earnings before interest, taxes, depreciation and amortization. As of September
28, 2007 (the last measurement date for which compliance was required to be reported to Capital pursuant to our agreement with Capital) we were not in compliance with
any of these covenants and, on November 13, 2007, our lender waived compliance with these covenants for the period ended September 28, 2007. We will not know if we are in compliance with the
financial statement covenants at December 28, 2007 until we have issued our financial statements as
of and for the fifty-two weeks then ended. The balance due to our lender at September 28, 2007,
was $6,718,579. In connection with this credit facility, our lender has placed a lien on all of
our assets. We cannot assure you that our lender will consent to future waivers or continue to
finance our activities if we cannot satisfy these covenants in the future. If we do not comply
with the covenants and the lender does not waive them, we will be in default of our credit
facility, which could subject us to termination of our credit facility. We are not in a position
to operate without a source of accounts receivable financing. In such circumstances, we could be
required to seek other or additional sources of capital to satisfy our liquidity needs. We cannot
assure that other sources of financing would be available at all or on terms that we consider to be
commercially reasonable.
Our goodwill may become impaired, which could result in a material non-cash charge to our
results of operations. We have a substantial amount of goodwill resulting from our acquisitions,
including the acquisitions of Harborview Software in 2005 and 57 temporary staffing stores in 2006.
When we divest a business, but at least annually, we evaluate this goodwill for impairment based on
the fair value of each reporting unit, as required by generally accepted accounting principles in
the United States (GAAP). This estimated fair value could change if there are future changes in our
capital structure, cost of debt, interest rates, capital expenditure levels, ability to perform at
levels that were forecasted or a permanent change to the market capitalization of our company.
These changes could result in an impairment that could require a material non-cash charge to our
results of operations. Such a charge would have the effect of reducing goodwill with a
corresponding impairment expense. The additional expense may reduce our reported profitability or
increase our reported losses in future periods and could negatively impact the market for our
securities, our ability to obtain other sources of capital, and may generally have a negative
effect on our future operations.
The rapid addition of company owned stores could overwhelm our corporate infrastructure. Our
growth plans are subject to numerous and substantial risks. We
currently operate 79 temporary
staffing stores and plan to acquire or open 20 or more new locations in 2008. If management is
unable to implement internal controls and monitoring methods adequate for 100 or more temporary
staffing stores, our results of operations could suffer. Our failure to manage growth effectively
could have a material adverse effect on our operating results and financial condition and on our
ability to execute our expansion plans.
Loss of key personnel could negatively impact our 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 Companys executive management, including Brad Herr
Chief Financial Officer, Tom Gilbert Chief Operating Officer, Todd Welstad Chief
Information Officer, and Ron Junck General Counsel. Should any of these persons or other key
employees be unable or unwilling to continue in our employ, our ability to execute our business
strategy may be adversely affected. 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 our ability to identify, recruit, motivate, and retain key management personnel
including store managers, area vice presidents, and
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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.
Our inability to attract, develop and retain qualified store managers may negatively impact
our business. We rely significantly on the performance and productivity of our 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 responsibility for customer service.
The available pool of qualified candidates for positions with new temporary staffing stores is
limited. To combat a typically high turnover rate for store managers in the temporary staffing
industry, we are developing training and compensation plans directed at employee retention. There
can be no assurance that our training and compensation plans will reduce turnover in this position.
Our inability to attract, develop and retain qualified business development specialists will
negatively impact our business. In 2008, we will be relying on our staff of business development
specialists to help drive new business to our growing number of stores. The available pool of
qualified candidates for these sales positions is limited. We are working with a sales training
company to develop sales programs that are expected to produce positive results and improve
employee retention, but the program is new so we have no results to measure the success of these
efforts. If our business development specialists are not successful, our operating results will
suffer.
Increased employee costs and workers compensation expenses could adversely 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 are 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), increases in the minimum wage or the
level of existing benefits, 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. We maintain a large deductible workers compensation insurance
policy with deductible limits of $250,000 per occurrence. As a result, we are substantially self
insured. Our management training and safety programs attempt to minimize workers compensation
claims but significant claims could require payment of substantial benefits. We cannot assure that
we will be able to increase fees charged to our customers to offset any increased costs and
expenses, and higher costs will 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
purchase our insurance through state workers compensation funds. In all other states we provide
coverage through a private insurance company licensed to do business in those states. In either
case, we do not control insurance rates, and we cannot assure that our premiums will not increase
substantially.
We face competition from companies that have greater resources than we do and we may not be
able to effectively compete against these companies. 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 stores. Within local or regional
markets, these companies actively compete with us for customers 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. There also is a risk that competitors, perceiving our lack of
capital resources, may undercut our prices or increase promotional expenditures in our strongest
markets in an effort to force us out of business.
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We may not be able to increase customer pricing to offset increased costs, and may lose volume
as a result of price increases we are able to implement. We expect to raise prices for our
services in amounts sufficient to offset increased costs of services, operating costs and cost
increases due to inflation and to improve our return on invested capital. However, competitive
factors may require us to absorb cost increases, which would have a negative impact on our
operating margins. Even if we are able to increase costs as desired, we may lose volume to
competitors willing to service customers at a lower price.
Failure to adequately back-up, store and protect electronic information systems could
negatively impact future operations. Our business depends on our 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 reputation as well as 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. Our failure to establish adequate internal
controls and disaster recovery plans could negatively impact operations.
We may be held responsible for the actions of our customers as well as for the actions of our
temporary personnel. Because we employ and place people in our customers workplaces, we are at
risk for actions taken by customers with respect to temporary personnel (such as claims of
discrimination and harassment, violations of occupational, health and safety, or wage and hour laws
and regulations), and for actions taken by temporary personnel (such as claims relating to
immigration status, misappropriation of funds or property, violation of environmental laws, or
criminal activity). Significant instances of these types of issues will impact customer
perception of our Company and may have a negative effect on our results of operations. The risk is
heightened because we do not have control over our customers workplace or direct supervision of
our temporary personnel. If we are found liable for the actions or omissions of our temporary
personnel or our customers, and adequate insurance coverage is not available, our business,
financial condition and results of operations could be materially and adversely affected.
We may face potential undisclosed liabilities associated with acquisitions. Although we
investigate companies that we acquire, we may fail or be unable to discover liabilities that arose
prior to our acquisition of the business for which we may be responsible. Such undisclosed
liabilities may include, among other things, uninsured workers compensation costs, uninsured
liabilities relating to the employment of temporary personnel and/or acts, errors or omissions of
temporary personnel (including liabilities arising from non-compliance with environmental laws),
unpaid payroll tax liabilities, and other liabilities. If we encounter any such undiscovered
liabilities, they could negatively impact our operating results.
The company may become obligated to pay tax liabilities of acquired entities. On May 12 and
June 30, 2006, the Company acquired the assets of a number of temporary staffing stores from its
franchisees at that time. The acquisitions were part of the Companys shift from franchisor to
operator of temporary staffing stores. We have determined that a number of the entities that owned
the acquired assets have outstanding tax obligations to various states and the internal revenue
service. Under theories of successor liability, the taxing authorities may claim that the Company
is obligated to pay amounts owed by the entities from whom we acquired the assets. We believe that
the responsible parties are working to resolve their obligations with the taxing authorities, but
if the taxes are not paid by the responsible parties, Command Center may be required to pay the
outstanding tax balances. Command Center has received representations, warranties, and
indemnification from each entity from whom we acquired assets and will pursue reimbursement if we
become obligated to pay any such tax balances. Payments, if made, will deplete our capital
earmarked for growth and could have a negative impact on our ability to execute the business plan
as described elsewhere in this Prospectus.
Economic slowdowns and other factors beyond our control could reduce demand for temporary
personnel which could result in lower revenues. Demand for our services is significantly affected
by the general level of economic activity and unemployment in the United States. As economic
activity slows, many companies reduce their use of temporary employees before laying off regular
employees. Use of temporary employees also is affected by other factors beyond our control that
may increase the cost of temporary personnel, such as increases in mandated levels of benefits and
wages payable to temporary employees. These economic and other factors could reduce demand for our
services and lead to lower revenues.
We may incur additional costs and regulatory risks relating to new laws regulating the hiring
of undocumented workers. We operate seven temporary staffing stores in Arizona. A new Arizona law
requires that employers check the legal status of every new hire using a system operated by the
Department of Homeland Security, and penalizes employers that hire undocumented workers. Penalties
include suspension or revocation of all business licenses held by the employer in Arizona necessary
to the conduct of its business. These laws became operative January 1, 2008. We have implemented
procedures intended to bring our operations into compliance. We have no practical experience with
the system and although we believe we will be able to implement appropriate procedures, we cannot
assure that implementation will not be flawed or delayed because of the large number of temporary
personnel that we employ. If we are not able to implement and maintain appropriate compliance
procedures, our operations would be materially and adversely affected. If other states adopt
similar laws, it could increase our operating costs and materially impact our operating results.
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We are exposed to substantial credit risk due to the delay between the time we pay our
temporary workers and the time we collect our receivables from our customers. Temporary personnel
are typically paid on the same day the services are performed, while customers are generally billed
on a weekly basis. This requires that we manage the resulting credit risk. The magnitude of the
risk varies with general economic conditions. We believe that write-offs for doubtful accounts can
be maintained at commercially acceptable levels without the need to resort to credit management
practices that are unduly intrusive for our customers and interfere with customer acquisition and
retention. Nevertheless, there can be no assurance that our ability to achieve and sustain
profitable operations will not be adversely affected by losses from doubtful accounts or customer
relations problems arising from our efforts to manage credit risk.
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. All temporary staffing companies must
continually attract reliable temporary workers to meet customer needs. We compete for such workers
with other temporary labor businesses, as well as actual and potential customers, some of which
seek to fill positions directly with either regular or temporary employees. In addition, our
temporary workers sometimes become regular 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.
Seasonal fluctuations in demand for the services of our temporary workers in certain markets
will adversely affect our revenue and financial performance in the fall and winter months.
Revenues generated from stores in markets subject to seasonal fluctuations will be less stable and
may be lower than in other markets. Locating stores in highly seasonal markets involves higher
risks. We intend to select store locations with a view to maximizing total long-term return on our
investment in stores, personnel, marketing and other fixed and sunk costs. However, there can be no
assurance that our profitability will not be adversely impacted by low returns on investment in
certain highly seasonal markets.
We depend on the construction industry for a significant portion of our business and reduced
demand from this industry would reduce our profitability. We derive a significant percentage of
our revenues from placement of temporary personnel in construction and other industrial segments.
These industries are cyclical, and construction in particular is subject to current recessionary
concerns. Downturns in demand from the building and construction industry, or any of the other
industries we serve, or a decrease in the prices that we can realize from sales of our services to
customers in any of these industries, would reduce our profitability and cash flows.
We likely will be a party, from time to time, to various legal proceedings, lawsuits and other
claims arising in the ordinary course of our business. We anticipate that, based upon our business
plan, disputes will arise in the future relating to contract, employment, labor relations, and
other matters that could result in litigation or require arbitration to resolve, which could divert
the attention of our management team and could result in costly or unfavorable outcomes for our
company. Any such litigation could result in substantial expense, and could reduce our profits,
and could harm our reputation. These expenses and diversion of managerial resources could have a
material adverse effect on our business, prospects, financial condition, and results of operations.
See Business Litigation at page 28.
We
have determined that there are material weaknesses affecting our
internal control over financial reporting. To the extent that
these material weaknesses continue and are not remedied, our
financial reporting systems and processes may be inadequate to
produce accurate and timely financial information. Lack of accurate
and timely financial information could impact our ability to manage
our business, our ability to obtain future operating capital, and
could have an adverse impact on financial condition or results of
operations.
Risks Related to Our Securities
Your investment may be substantially diluted and the market price of our common stock may be
affected if we issue additional shares of our capital stock. 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,
40,000 shares of which have been designated Series
Page 11
A Preferred Stock. We may in the future sell additional shares of our common stock or
preferred stock or other equity securities to raise additional capital. We may also issue
securities to employees under stock option or similar plans that we intend to implement. When we
issue or sell additional shares or equity securities, the relative equity ownership of our existing
investors will be diluted and our new investors could obtain terms more favorable than previous
investors.
If we do
not comply with our agreements with the selling shareholders, we may be subject to
significant penalties and other costs. Under the Stock Purchase and Registration Rights Agreement
dated November 30, 2007, between the Company and the selling shareholders, we are obligated to
register the stock covered by this prospectus for sale on a delayed or continuous basis and to
maintain that listing for a period of two years, or until all of the common stock covered by this
prospectus has been publicly sold by the selling shareholders.
Our
common stock is thinly traded and subject to significant price fluctuations. Our common
stock is traded on the OTC Bulletin Board. The price of our common stock has fluctuated
substantially in recent periods, and is likely to continue to be highly volatile. Future
announcements concerning us or our 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 our
common stock to fluctuate substantially. These price fluctuations may impact our ability to raise
capital through the public equity markets which could have a material adverse effect on our
business, financial condition, and results of operations. Limited trading volume also affects
liquidity for shareholders holding our shares and may impact their ability to sell their shares or
the price at which such sales may be made in the future.
Our directors, officers and current principal shareholders own a large percentage of our
common stock and could limit your influence over corporate decisions. After this offering, our
directors, officers and current shareholders holding more than 5% of our common stock collectively
will beneficially own, in the aggregate, approximately 46.2% of our outstanding common stock. As a
result, these shareholders, if they act together, would be able to control most matters requiring
shareholder approval, including the election of directors and approval of mergers or other
significant corporate transactions. This concentration of ownership may have the effect of delaying
or preventing a change in control. The interests of these shareholders may not always coincide with
our corporate interests or the interests of our other shareholders, and they may act in a manner
with which you may not agree or that may not be in the best interests of our other shareholders. The concentration of ownership
held by these shareholders may increase in the future in the event we adopt a stock option or other equity incentive plan and
grant options thereunder.
We are not likely to pay dividends for the foreseeable future. We have never paid 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 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, including the selling 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
our common stock. We have 35,665,053 shares of common stock
outstanding as of February 7, 2008,
of which 3,811,425 shares represented our public float of shares. Sales of the 16.6 million
shares of common stock eligible for sale to the public under this prospectus may depress the market
price of our stock as such sales occur. A substantial number of our outstanding shares are
currently restricted securities and may not be resold unless registered or 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 and satisfying certain volume limitations. Even with the volume limitations, if
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.
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 States
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.
We currently 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 our fiscal year ending 2008. We anticipate that we will continue to
prepare our internal control compliance manual and will undertake a preliminary review and
assessment of internal controls in early 2008 for our fiscal year ended December 28, 2007. 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 2009. If we become subject to the
internal control audit requirement before we are in a position to comply, the effect on our
operations and financial condition could be significant.
Page 12
We have made various assumptions regarding our future performance that may not prove to be
accurate. We have made certain assumptions about future events that we believe to be reasonable;
however, these assumptions relate to future economic, competitive and market conditions, and other
events that are impossible to predict. For example, we have assumed that we will be able to: (i)
obtain and maintain customer acceptance of our services, (ii) stabilize, refine and improve the
efficiency of our operations and business processes, (iii) develop and maintain an effective sales
network, (iv) expand our network of stores and effectively penetrate, establish and stabilize
operations in new markets, (v) increase demand for our services and correspondingly grow revenue,
(vi) establish a reputation for cost-effective, quality and efficient service and brand recognition
on a national basis, (vii) maintain pricing and profit margins,
and (viii) secure the capital required to execute our plans and grow the company. These assumptions are in turn based on assumptions
relating to overall economic conditions, including that: (a) economic conditions (including
financial, credit, monetary and labor markets) will remain relatively stable, (b) demand for
unskilled and semi-skilled temporary workers will continue in accordance with historic trends, and
(c) there will be no material adverse changes in governmental regulations, policies and
administrative practices (including immigration, employee wage and benefits laws, etc.) affecting
our business. Because they relate to future events, assumptions are inherently subject to
uncertainty. Our ability to implement our business plan would suffer materially if any of our
assumptions prove inaccurate.
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING INFORMATION
This prospectus contains forward-looking statements. In addition, from time to time, we or our
representatives may make forward-looking statements orally or in writing. We base these
forward-looking statements on our expectations and projections about future events, which we derive
from the information currently available to us. Such forward-looking statements relate to future
events or our future performance. You can identify forward-looking statements by those that are not
historical in nature, particularly those that use terminology such as may, will, should,
expects, anticipates, contemplates, estimates, believes, plans, projected,
predicts, potential or continue or the negative of these or similar terms. In evaluating
these forward-looking statements, you should consider various factors, including those described in
this prospectus under the heading Risk Factors beginning on page 7. These and other factors may
cause our actual results to differ materially from any forward-looking statement. Forward-looking
statements are only predictions. The forward-looking events discussed in this prospectus, the
documents to which we refer you and other statements made from time to time by us or our
representatives, may not occur, and actual events and results may differ materially and are subject
to risks, uncertainties and assumptions about us.
We believe the discussions of forward-looking information contained in this document are
useful because they provide a framework for you to assess the assumptions and related risks that
could affect our business and the value of our securities. However, you should not rely on any
forward-looking statement that we have made as any form of representation or guarantee that our
objectives or plans will be achieved.
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
caution you not to place undue reliance on these statements, which speak only as of the date of
this prospectus. We are under no duty to update any of the forward-looking statements after the
date of this prospectus to conform such statements to actual results.
USE OF PROCEEDS
We will not receive any proceeds from the sale by the selling shareholders of the shares of
common stock covered by this prospectus. To the extent that warrants covering warrant shares
included in this registration statement are exercised for cash, we will receive additional proceeds
that will be used for general corporate purposes and working capital. If all of the warrants are
exercised for cash by the selling shareholders, resulting in the purchase by the selling
shareholders of 6,312,803 shares of our common stock at $1.25 per share, the gross proceeds to us will be $7,891,000. To the extent selling shareholders exercise warrants on a cashless
exercise basis, both the number of shares issued upon exercise of the warrants and the resulting
cash proceeds to the Company will be reduced.
Page 13
DETERMINATION OF OFFERING PRICE
The selling shareholders will determine at what price they may sell the offered shares, and
such sales may be made at fixed prices, at prevailing market prices at the time of sale, at prices
related to the prevailing market price, at varying prices determined at the time of sale or at
negotiated prices.
DIVIDEND POLICY
We have not declared or paid any dividends on our common stock during our last five fiscal
years. The payment of dividends on our common stock in the future will depend on our earnings,
capital requirements, and operating and financial condition and on such other factors as our board
of directors may consider appropriate. We currently expect to use all available funds to finance
the future development and expansion of our business and for working capital and do not anticipate
paying dividends on our common stock in the foreseeable future.
MARKET FOR OUR COMMON STOCK
Our common stock trades on the OTC Bulletin Board under the symbol CCNI.OB.
The OTC Bulletin Board is an inter-dealer, over-the-counter market that provides significantly
less liquidity than NASDAQ and quotes for stocks included on the OTC Bulletin Board are not listed
in the financial sections of newspapers, as are those for the NASDAQ Stock Market.
Transactions in our common stock have been sporadic and do not constitute an active market. On
February 6, 2008, the closing price was $1.02 as reported on the OTC Bulletin Board.
Page 14
SELECTED FINANCIAL INFORMATION
Comment regarding our fiscal year end: Prior to April 1, 2006 we presented our financial statements on a calendar year basis. Effective April 1, 2006 and for fiscal 2006, we
changed our fiscal year from a calendar year basis to a 52/53-week fiscal year end basis, with the
fiscal year ending on the last Friday in December. Our financial statements will
continue to be presented on a 52/53-week fiscal year end basis. In fiscal years consisting of 53
weeks, the final quarter will consist of 14 weeks while in 52-week years all quarters will consist
of 13 weeks. Fiscal years 2007 and 2006 were 52-week years ending on December 28, 2007 and December
29, 2006, respectively. Fiscal 2008 began on December 29, 2007 and will end on December 26, 2008,
and fiscal 2009 will begin on December 27, 2008 and will end on December 27, 2009 (both consisting
of 52 weeks). Management believes that presentation of the financial statements on a
52/53-week fiscal year end basis improves comparability of fiscal years.
We were organized as Command Staffing LLC, on December 26, 2002, and commenced operations in
2003 as a franchisor of temporary staffing businesses. On November 9, 2005, TFS acquired the
assets of Command Staffing LLC and Harborview. The transaction was accounted for as if Command
Staffing LLC was the acquirer. On November 14, 2005, we changed our name to Command Center, Inc.
At that time, our business continued to be primarily focused on acting as a franchisor of temporary
staffing businesses across the United States. Under that business model, we generated revenues
primarily from franchise fees.
On May 12, 2006, we shifted our business focus from franchisor to operator of temporary
staffing stores by acquiring 48 temporary staffing stores from certain of our former franchisees.
An additional nine franchised stores were acquired on June 30, 2006. In the second quarter of 2006, we ceased our franchise operations and began generating virtually
all of our revenue from operating temporary staffing stores and related activities. Financial
results for periods since April 1, 2006, when we began operating under our current business model
(operating company-owned temporary staffing stores) are not comparable to periods prior to April 1,
2006, when we operated as a franchisor.
The following table presents our selected historical financial data. The statement of
operations data for the years ended December 31, 2003, 2004, 2005 and for the 52 weeks ended
December 29, 2006, and the balance sheet data as of December 31, 2003, 2004, 2005 and December 29,
2006, are derived from our audited financial statements included elsewhere in this
prospectus. The statement of operations data for the thirty-nine week periods ended September 28,
2007, and September 29, 2006, and the balance sheet data as of September 28, 2007, and September
29, 2006, are derived from our unaudited interim financial statements included
elsewhere in this prospectus. The results included below and elsewhere are not necessarily
indicative of our future performance. You should read this information together with
Managements Discussion and Analysis of Financial Condition and Results of Operations and our
financial statements and related notes included elsewhere in this prospectus.
[The rest of this page intentionally left blank]
Page 15
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited) |
|
(Unaudited) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fifty-two weeks |
|
Thirty-Nine Weeks |
|
Thirty-Nine Weeks |
|
|
Year Ended |
|
Year Ended |
|
Year Ended |
|
Ended |
|
Ended |
|
Ended |
Statements of Operations |
|
December 31, 2003 |
|
December 31, 2004 |
|
December 31, 2005 |
|
December 29, 2006 |
|
September 29, 2006 |
|
September 28, 2007 |
|
|
|
Revenue from services |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
70,622,505 |
|
|
|
45,431,317 |
|
|
|
74,158,370 |
|
Franchise revenues |
|
|
425,789 |
|
|
|
988,042 |
|
|
|
1,749,381 |
|
|
|
535,745 |
|
|
|
535,745 |
|
|
|
|
|
Other income |
|
|
5,792 |
|
|
|
58,993 |
|
|
|
440,878 |
|
|
|
113,376 |
|
|
|
30,343 |
|
|
|
262,684 |
|
|
|
|
Total revenues |
|
|
431,581 |
|
|
|
1,047,035 |
|
|
|
2,190,259 |
|
|
|
71,271,626 |
|
|
|
45,997,405 |
|
|
|
74,421,054 |
|
Cost of services |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
51,054,838 |
|
|
|
32,719,116 |
|
|
|
53,661,722 |
|
|
|
|
Gross profit |
|
|
431,581 |
|
|
|
1,047,035 |
|
|
|
2,190,259 |
|
|
|
20,216,788 |
|
|
|
13,278,289 |
|
|
|
20,759,332 |
|
Selling, general and administrative expenses |
|
|
629,251 |
|
|
|
1,184,698 |
|
|
|
1,833,280 |
|
|
|
22,020,314 |
|
|
|
13,866,027 |
|
|
|
23,606,467 |
|
|
|
|
Operating Income (loss) |
|
|
(197,670 |
) |
|
|
(137,663 |
) |
|
|
356,979 |
|
|
|
(1,803,526 |
) |
|
|
(587,738 |
) |
|
|
(2,847,135 |
) |
Interest |
|
|
(11,789 |
) |
|
|
|
|
|
|
(2,221 |
) |
|
|
(615,622 |
) |
|
|
(321,564 |
) |
|
|
(1,108,957 |
) |
|
|
|
Net income (loss) |
|
|
(209,459 |
) |
|
|
(137,663 |
) |
|
|
354,758 |
|
|
|
(2,419,148 |
) |
|
|
(909,302 |
) |
|
|
(3,956,092 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheets |
|
December 31, 2003 |
|
December 31, 2004 |
|
December 31, 2005 |
|
December 29, 2006 |
|
September 29, 2006 |
|
September 28, 2007 |
|
|
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets |
|
|
230,061 |
|
|
|
117,250 |
|
|
|
2,045,373 |
|
|
|
12,475,943 |
|
|
|
13,926,747 |
|
|
|
14,814,741 |
|
Property and equipment, net |
|
|
67,193 |
|
|
|
129,147 |
|
|
|
1,589,253 |
|
|
|
3,390,696 |
|
|
|
2,796,761 |
|
|
|
3,348,636 |
|
Other assets |
|
|
62,085 |
|
|
|
130,045 |
|
|
|
1,635,232 |
|
|
|
33,493,356 |
|
|
|
34,038,737 |
|
|
|
36,844,629 |
|
|
|
|
Total assets |
|
|
359,339 |
|
|
|
376,442 |
|
|
|
5,269,858 |
|
|
|
49,359,995 |
|
|
|
50,762,245 |
|
|
|
55,008,006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities |
|
|
128,608 |
|
|
|
110,564 |
|
|
|
592,201 |
|
|
|
12,303,901 |
|
|
|
13,014,825 |
|
|
|
18,291,495 |
|
Long-term liabilities |
|
|
106,190 |
|
|
|
|
|
|
|
1,125,000 |
|
|
|
2,062,928 |
|
|
|
1,715,407 |
|
|
|
2,507,791 |
|
|
|
|
Total liabilities |
|
|
234,798 |
|
|
|
110,564 |
|
|
|
1,717,201 |
|
|
|
14,366,829 |
|
|
|
14,730,232 |
|
|
|
20,799,286 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity |
|
|
124,541 |
|
|
|
265,878 |
|
|
|
3,552,657 |
|
|
|
34,993,166 |
|
|
|
36,032,013 |
|
|
|
34,208,720 |
|
|
|
|
Total liabilities and stockholders equity |
|
|
359,339 |
|
|
|
376,442 |
|
|
|
5,269,858 |
|
|
|
49,359,995 |
|
|
|
50,762,245 |
|
|
|
55,008,006 |
|
|
|
|
Page 16
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
You
should read the following discussion in conjunction with our financial
statements and the notes appearing elsewhere in this prospectus. The following discussion contains
forward-looking statements that involve risks and uncertainties. Our actual results could differ
materially from those anticipated in the forward-looking statements as a result of various factors,
including those discussed in Risk Factors and elsewhere in this prospectus. We maintain our
financial records and prepare our financial statements based upon a 52/53-week fiscal year. Prior
to 2006, we reported our financial results on a calendar year basis. We changed our business model
from financial services to franchisor on November 9, 2005, and from franchisor to operator of
company-owned temporary staffing stores on April 1, 2007. For these reasons, the results of
operations for 2005, 2006 and the nine months ended September 28, 2007, are not comparable. See
explanatory note under Selected Consolidated Financial Information.
Executive Overview.
We provide temporary unskilled and semi-skilled employees to the light industrial,
construction, warehousing, transportation and material-handling industries. Generally, we pay our
workers the same day they perform the job.
We were
organized as Command Staffing LLC on December 26, 2002. Command Staffing LLC is our
accounting predecessor. We commenced operations in 2003 as a franchisor of temporary staffing
businesses. On November 9, 2005, our corporate predecessor, Temporary Financial Services, Inc., a
public company, acquired the assets of Command Staffing LLC and Harborview Software, Inc., Command
Staffings affiliate that owned the software used in the operation of our temporary staffing
stores. The acquisition was accounted for as an asset purchase as if Command Staffing LLC were the
accounting acquirer. On November 16, 2005, we changed our name to Command Center, Inc.
Prior to April 2006, we generated revenues primarily from franchise fees. On May 12, 2006, we
acquired 48 temporary staffing stores from certain former franchisees, and shifted our business
focus from franchisor to operator. We ceased our franchise operations in the second quarter 2006
and currently generate all of our revenue from temporary staffing store operations and related
activities.
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. With the acquisition of the temporary
staffing stores, we have consolidated operations, established and implemented corporate operating
policies and procedures, and are currently pursuing a unified branding strategy for all of our
stores.
Temporary
Staffing Store Operations. We currently operate 79 temporary staffing stores
serving thousands of customers and employing tens of thousands of temporary employees. In the
months following the roll-up we focused on continuity of operations, reporting, and record keeping.
Significant management attention has been devoted to assuring that the stores are seamlessly
integrated into our corporate environment and culture. During 2007, we focused our
efforts on consolidating and refining our existing store operations, proving our business model,
and operating our business in an efficient manner.
During 2008, we will work for organic growth to increase our per-store revenue and
profitability through directed selling activities and system-wide initiatives to improve the
efficiency of our business processes. We may also seek growth from limited new store openings and
growth through acquisition of existing locations from third party operators when such opportunities
arise.
We manage our field operations using in-store personnel, store managers, area managers, and
corporate management personnel. We have established a sales team to assist in driving business to
our stores. Our compensation plans for store managers, area managers, and business development
specialists have been designed to aid in securing the qualified personnel needed to meet our
business, financial and growth objectives. Our human
Page 17
resources practices are designed to support the need for attracting, screening, hiring,
training, supporting and retaining qualified personnel at all levels of our business.
During the thirty-nine weeks ended September 28, 2007, we made additional changes in our
business model and strategy. We began the year with a newly established sales force and the
expectation that the sales force would drive increasing revenue to our existing stores. As we
progressed through the period, we reorganized our management structure to provide the direction and
supervision needed to implement our strategic plan. We have now consolidated field supervision in
the corporate office and we are beginning to see the results of these steps through rising activity
levels, improving margins and new customer generation. We have also reorganized our sales force to
tighten control and accountability for results.
As described below, the changes to our business in the first nine months of 2007 came at a
significant cost. We expect that our investment in infrastructure and personnel will result in
strong momentum heading into 2008.
Results of Operations
Thirty-nine Weeks Ended September 28, 2007 Compared to the Thirty-nine Weeks Ended September 29, 2006
The following table provides a side by side comparison of the thirty-nine week period results
for 2007, and 2006. The thirty-nine week period ended September 28, 2007, is not comparable to the
thirty-nine week period ended September 29, 2006. We operated as a franchisor in the first quarter
of 2006 and did not begin active temporary staffing store operations until April 1, 2006. We
terminated franchise operations at the end of the second quarter of 2006. The temporary staffing
store operations model generates significantly more revenue and expense than the franchisor
business model.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirty-nine Weeks Ended |
|
|
September 28, 2007 |
|
%
of Revenue |
|
September 29, 2006 |
|
%
of Revenue |
|
% Change |
Revenue |
|
$ |
74,421,054 |
|
|
|
|
|
|
$ |
45,997,405 |
|
|
|
|
|
|
|
62 |
% |
Cost of staffing services |
|
|
53,661,722 |
|
|
|
72.1 |
% |
|
|
32,719,116 |
|
|
|
71.1 |
% |
|
|
64 |
% |
Gross profit |
|
|
20,759,332 |
|
|
|
27.9 |
% |
|
|
13,278,289 |
|
|
|
28.9 |
% |
|
|
56 |
% |
Selling, general and administrative services |
|
|
22,984,458 |
|
|
|
30.9 |
% |
|
|
13,650,147 |
|
|
|
29.7 |
% |
|
|
68 |
% |
Depreciation and amortization |
|
|
622,009 |
|
|
|
0.8 |
% |
|
|
215,880 |
|
|
|
0.5 |
% |
|
|
188 |
% |
Interest expense |
|
|
1,108,957 |
|
|
|
1.5 |
% |
|
|
365,994 |
|
|
|
0.8 |
% |
|
|
203 |
% |
Interest and other income |
|
|
|
|
|
|
0.0 |
% |
|
|
(44,430 |
) |
|
|
-0.1 |
% |
|
|
|
|
Net loss |
|
$ |
(3,956,092 |
) |
|
|
-5.3 |
% |
|
$ |
(909,302 |
) |
|
|
-2.0 |
% |
|
|
335 |
% |
Revenues. Revenues increased to $74,421,054 for the thirty-nine weeks ended September 28,
2007, compared to $45,997,405 for the thirty-nine weeks ended September 29, 2006, primarily due to
the change in our business model. In 2007, we operated as a temporary staffing store business for
all thirty-nine weeks, compared to only twenty-six weeks in 2006.
Cost of Staffing Services. As a percentage of revenue, cost of staffing services increased to
72.1% in the thirty-nine weeks ended September 28, 2007, compared to 71.1% for the thirty-nine
weeks ended September 29, 2006. As noted, we generated revenue from franchise operations in the
first quarter of 2006 and franchise revenues did not include a cost of services component. This
had the effect of decreasing cost of staffing services as a
percentage of revenue. For the thirty-nine weeks ended September 28, 2007, our cost of
services was above expectations, partially as a result of higher than expected workers
compensation costs. During the first quarter 2007, we experienced an unusual increase in workers
compensation claims that caused a spike in our compensation claims paid. Our loss history
normalized in the second quarter and declined in the third quarter. Margins were also impacted in
the first half of 2007 by the hang over of lower margin business acquired with franchise locations.
Selling, General and Administrative Expenses. As a percentage of revenue, selling, general
and administrative expenses increased to 30.9% in the thirty-nine weeks ended September 28, 2007,
compared to 29.7% in the thirty-nine weeks ended September 29, 2006. During the first quarter of
2006, we operated as a franchisor.
Page 18
The cost structure for selling, general and administrative
expenses of a franchisor is lower than for an operator of temporary staffing stores. The first
quarter 2006 difference in cost structure had the effect of causing the selling, general and
administrative expenses for the thirty-nine weeks ended September 29, 2006, to appear lower when
compared to 2007.
Depreciation and Amortization Expenses. Depreciation and amortization expenses increased in
the thirty-nine weeks ended September 28, 2007, to 0.8% of revenue compared to 0.5% of revenue for
the thirty-nine weeks ended September 29, 2006. This increase is the result of acquisition of
additional assets and customer lists between periods.
Interest Expense. Interest expense increased to 1.5% of revenue in the thirty-nine weeks
ended September 28, 2007, compared to 0.8% of revenue in the comparable period in 2006. The
increase is a result of additional borrowing in thirty-nine weeks ended September 28, 2007, and the
amortization of discount on notes payable in connection with issuance of notes with warrants. The
increase in interest expense in 2007 over 2006 also reflects an increase in short-term borrowings
which contributed to an increase in average interest rates.
Net Loss. Our net loss increased to $3,956,092 (5.3% of revenue) in the thirty-nine weeks
ended September 28, 2007, compared to $909,302 (2.0% of revenue) in the thirty-nine weeks ended
September 29, 2006. The increase was driven by increases in selling general and administrative
costs, depreciation and interest and by a decline in gross margins as a percentage of revenues.
Subsequent Events
On November 30, 2007 and December 27, 2007, the Company entered into Securities Purchase
and Registration Rights Agreements (collectively the Purchase Agreement) and sold to investors an
aggregate of 10,296,885 units (the Offering). Each unit consisted of one share of common stock and a warrant to
purchase 0.50 share of common stock for an aggregate of 10,296,885 shares of common stock and
warrants to purchase an aggregate of up to 5,264,878 shares of common stock. The units were sold
for a per unit price of $1.00, and an aggregate purchase price of $10,296,885. The warrants issued
by the Company as part of the units entitle the investors to purchase shares of common stock at an
exercise price of $1.25 per share.
As a part of the Offering, MDB Capital Group, LLC (the Placement Agent), converted a
$500,000 note issued by the Company in connection with an August 2007 bridge loan from the
Placement Agent, into units at a conversion price of $1.00 per Unit. The Placement Agent also
accepted $593,885 out of the $611,289 cash portion of its placement agent fee in units at a price
of $1.00 per Unit. These amounts are included in the $10,296,885 aggregate purchase price.
Warrants to purchase an additional 1,047,925 shares of Common Stock at $1.25 per share were
issued to the Placement Agent and its assigns as additional placement agent compensation.
The Company expects to use the proceeds of the Offering for expansion and working capital.
The Company is obligated under the Purchase Agreement to prepare and file with the Commission,
within 45 days of the closing of the Offering, a registration statement covering the resale of the
common shares, the warrant shares, the Placement Agent shares and the Placement Agent warrant
shares. The Company is obligated to cause the registration statement to become effective within 120
days of the closing of the Offering. The registration statement will provide for an offering to be
made on a continuous basis pursuant to Rule 415 under the Securities Act. The Company must also use
its reasonable best efforts to keep the registration statement continuously effective under the
Securities Act until the earlier of the date that all common shares, warrant shares, Placement
Agent shares and Placement Agent warrant Shares issued or issuable under the Purchase Agreement
have been sold or can be sold publicly under Rule 144(k), or two years after the registration
statement becomes effective. The Company is obligated to pay the costs and expenses of such
registration.
After giving effect to this Offering, the Company has 35,665,053 Common Shares outstanding,
not including Common Shares (Warrant Shares) issuable upon exercise of the Warrants issued in the
Offering.
Following completion of the private placement described above, the Company paid off $2,500,000
in short term borrowings and paid all Company owed outstanding tax
obligations to various local and state taxing authorities.
52 Weeks Ended December 29, 2006
During the 52 weeks ended December 29, 2006, we made significant changes in our business model
and strategy. We began the year as a franchise company with our primary source of revenue
consisting of franchise and licensing fees. We ended the year having acquired the operations of
all of our franchisees and deriving all of our revenues from temporary staffing store operations.
In the course of this change, we added significant personnel and infrastructure to support the
increased transaction load. We also incurred significant professional fees and other non-recurring
costs to complete the roll-up of the franchisee operations.
As a result of the change in character of the business in 2006, our operating results are not
comparable to the results of operations in 2005. Year over year comparisons do not aid in
understanding our current business model and are not provided.
Revenues. Revenues were $71,271,626 in the 52 weeks ended December 29, 2006. Revenues
included $70,622,505 from the provision of temporary staffing services, $535,745 from franchise
revenues, and $113,376 from other income. First quarter revenues of
$428,025 were derived almost
entirely from franchise fees. On April 1, 2006, we began operating temporary staffing stores and
in the remainder of the year we generated $70,843,601 in revenues, almost all of which came from
providing staffing services. We discontinued our franchise operations in 2006 and will derive
future revenues solely from temporary staffing store operations.
At December 29, 2006, we operated 77 temporary staffing stores in 21 states. Pro forma
information reflecting the revenues and earnings of the acquired franchisee operations as if
acquired on January 1, 2005, are presented in Footnote 3 to the Financial Statements included
elsewhere in this Prospectus. Our temporary staffing store operations were new in 2006 and we
cannot provide meaningful comparative information on a store level basis with store operations from
prior periods. Information available on individual stores operated as franchisees prior to the
acquisitions were reported as stand alone businesses and are not indicative of the results of those
same stores operated under our new model as company owned stores.
Cost of Services. Total cost of services in the 52 weeks ended December 29, 2006, were
$51,054,838 or 72.3% of revenue from services. Cost of services is comprised of the costs of
providing temporary personnel, including wages, payroll taxes and employee benefits, workers
compensation costs, and other direct costs relating to our temporary workers, and transportation,
travel costs, safety equipment and other costs of services. Our temporary workers compensation
costs represent a significant expense of providing temporary staffing services. In May, 2006, we
negotiated a workers compensation plan through AIG that has streamlined our workers compensation
plan and allowed us to better control workers compensation costs. Aggregate workers compensation
Page 19
costs for the year totaled $3,773,246 or 5.3% of revenue from services. Other direct costs of
services amounted to $287,327.
Our gross margin of 28.4% was in line with expectations for 2006. When we rolled up the
franchisees, we obtained an existing book of business with a blended average gross margin below the
level of business we are currently pursuing.
Operating Expenses. Operating expenses totaled $22,020,314 in 2006. Personnel costs
accounted for $12,580,971. (As reflected on our Statement of Operations, Personnel costs, which
is part of our Selling, General and Administrative Expenses, represents costs relating to our
internal company employees as distinguished from similar employment costs relating to our temporary
workers, which appear under Cost of Services.) We also incurred selling and marketing expenses of
$1,260,426, transportation and travel costs of $1,064,174, office expenses of $1,398,727, rent and
lease costs of $1,468,039, and legal, professional and consulting services costs of $902,315.
Total selling, general and administrative costs amounted to 31% of total revenue resulting in a
loss for the year. These expenses reflect the significant costs incurred to add personnel and
build the infrastructure necessary to shift our business model from franchisor with approximately
75 franchised stores to an operating temporary staffing business with thousands of customers, hundreds of
internal staff and many thousands of temporary workers. We also incurred approximately $350,000 in
litigation costs in 2006 resulting from a lawsuit filed by a
competitor. See Business Litigation at page 28.
We may incur significant costs to establish a national sales force in the future. We expect
dedicated selling efforts to increase the revenue per store when compared to the store sales model
and will be monitoring this process closely.
Losses from Operations. We incurred losses from operations of $1,803,526 in the 52 weeks
ended December 29, 2006. The losses are primarily attributable to the costs of the roll up
transaction where we acquired the assets of our franchisees and the legal costs of defending the
litigation mentioned under operating costs above. We do not anticipate significant acquisition
related expenses in 2007 and expect the litigation costs to moderate in future periods. The costs
to establish a sales force are expected to generate losses in the first quarter of 2007 with the
losses moderating as sales increase from the directed selling activities. We are also focused on
increasing margins in 2007 and, if this is realized, it will have a positive effect on operating
results.
Net Loss. Interest expense amounting to $703,513 was partially offset by interest and other
income of $87,891 resulting in aggregate net losses of $2,419,148 or a loss of $0.13 per share.
Year Ended December 31, 2005
Revenues. In 2005, we generated revenues of $2,190,259, an increase of $1,143,224 or 109%
from the year ended December 31, 2004.
Franchise and license fee income grew to $1,749,381 in 2005 from $957,002 in 2004, an increase
of 83%. The increase was attributable to growth in the number of franchisees and growth in
franchisee revenues generated during the period. As noted elsewhere, we have acquired our
franchisees and converted our business from that of a franchisor to an operator of temporary
staffing stores. We no longer generate revenues from franchising or software licensing.
Page 20
Interest and investment income and other income increased to $440,878 in 2005 from $90,033 in
2004. The increase in other income was primarily due to the settlement of litigation with a
former franchise owner. The settlement of litigation was a one time event and is not expected to
recur in future periods.
Operating Expenses. Operating expenses increased to $1,833,280 in 2005 compared to $1,184,698
in 2004. This represents nearly a 55% increase and is the direct result of the growth in the
number of franchisees and the growth in infrastructure required by the anticipated acquisition of
the franchisees and conversion of the company to a temporary staffing store operator.
We continued to incur operating expenses from franchise operations until the franchisees were
acquired in the second quarter of 2006.
Income from Operations. For the year ended December 31, 2005, we generated net income of
$354,758 compared to a $137,663 loss from operations in 2004. The change is consistent with the
growth in the number of franchisees and the increasing revenue they generated in the period against
which our income is computed.
Year Ended December 31, 2004
Results in 2004 reflect our operations as a franchisor. We began offering franchises in 2003
and awarded our first franchise on August 19, 2003.
Revenues. We generated gross revenues of $1,047,035 in 2004. Franchise and license fee
income comprised the majority of our revenues for the year. Revenues were in line with our
expectations as a new franchisor of temporary staffing stores. We also generated $90,033 in other
income during the year.
Operating
Expenses. Operating expenses were $1,835,501 in 2004. This amount is consistent
with our operations and revenue levels as a start-up franchisor. Our business focus in 2004 was on
building the franchisor business model. We incurred $301,908 in compensation costs, $160,416 in
sub-contract fees to enhance the software offered to franchisees, $118,131 in software and
communications expenses, and $117,308 in legal fees relating to franchise offering compliance and
other legal matters. Other expenses of a normal and recurring nature amounted to $486,935.
Loss from Operations. In the aggregate, we reported a loss from operations of $137,663 in
2004. Net operating loss carryforwards from current and prior years may be used to offset future
net income.
Liquidity and Capital Resources
At September 28, 2007, we had cash of $251,095, total current assets of $14,814,741, and total
current liabilities of $18,291,495. Our trade accounts receivable
totaled $10,706,633 net of the
allowance for doubtful accounts of $430,000.
Weighted average aging of our trade accounts receivable was 37.35 days at September 28, 2007,
representing a slight improvement over the weighted average aging of 38 days at September 29, 2006.
Actual bad debt write-off expense as a percentage of total customer
invoices during the thirty-nine
weeks ended September 28, 2007 was 0.5%, which is consistent with our expectations. Our accounts
receivable are recorded at the invoiced amount. We regularly review our accounts receivable for
collectibility. The allowance for doubtful accounts is determined based on historical write-off
experience and current economic data and represents our best estimate of the amount of probable
losses on our accounts receivable. The allowance for doubtful accounts is reviewed
quarterly. We typically refer overdue balances to a collection agency at ninety days and the
collection agent pursues collection for another thirty days. Most balances over 120 days past due
are written off when it is probable the receivable will not be collected. As our business matures,
we will continue to monitor and seek to improve our historical collection ratio and aging
experience with respect to trade accounts receivable.
Page 21
On November 30,
2007, we raised approximately $10,000,000 in gross proceeds through the
private placement of approximately 10,000,000 shares of common stock (at $1.00 per share), and
warrants to purchase up to approximately 6.1 million shares. The warrants have an exercise price
of $1.25 per share.
We currently
operate under a $9,950,000 line of credit facility with our principal lender for
accounts receivable financing. The credit facility is collateralized with accounts receivable and
other assets and entitles us to borrow up to 85% of the value of eligible receivables. 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 our
total accounts receivable balance, and when a customers aggregate past due account exceeds 50% of
that customers aggregate balance due. 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 two and one half percent (prime +2.5%) or 6.25% per annum. Our line of credit
interest rate at September 28, 2007 was 10.75%. The loan agreement further provides that interest
is due at the applicable rate on the greater of the outstanding balance or $5,000,000. The credit
facility expires on April 7, 2009. The balance due our lender at September 28, 2007 was
$6,718,579.
The line of
credit facility agreement includes certain financial covenants including a
requirement that we maintain a working capital ratio of 1:1, that we maintain positive cash flow,
that we maintain a tangible net worth of $3,500,000, and that we achieve operating results within a
range of projected EBITDA. At September 28, 2007, we were not in compliance with these loan
covenants. Our lender has waived compliance with these loan covenants for the period ended
September 28, 2007. The next measurement period for determining compliance with the loan covenants
ended on December 28, 2007. We will recalculate our compliance with the loan covenants prior to
submission of our next Annual Report on Form 10-K, which is due on March 27, 2008. We expect to be
in compliance with our loan covenants as of December 28, 2007.
See Risk Factors We are operating under a waiver of
certain financial covenants, on Page 8.
As we grow,
we will require significant new sources of working capital to fund continuing
operations and finance the growth of operating store accounts receivable. We are now pursuing
several alternatives to generate growth capital, either through debt or equity, to relieve
continued negative cash flow.
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, lay off
personnel, slow planned growth initiatives, and take other actions to reduce our capital
requirements, all of which will impact our profitability and long term viability.
Off-Balance Sheet Arrangements
We do not
have any off-balance sheet arrangements that have or are reasonably likely to have a
current or future effect on our financial condition, changes in financial condition, revenues or
expenses, results of operations, liquidity, capital expenditures or capital resources that would be
material to you.
Critical Accounting Policies and Estimates
Our consolidated
financial statements have been prepared in accordance with generally accepted
accounting principles in the United States, which requires us to make judgments, estimates and
assumptions that affect (1) the reported amounts of our assets and liabilities, (2) the disclosure
of our contingent assets and liabilities at the end of each fiscal period, (3) the amounts of expected
future liabilities from workers compensation claims,
(4) the allowance for doubtful accounts, and (5) the reported
amounts of revenues and expenses during each fiscal period. We continually evaluate these estimates
based on our own historical experience, knowledge and assessment of current business and other
conditions, our expectations regarding the future based on available information and reasonable
assumptions, which together form our basis for making judgments about matters that are not readily
apparent from other sources. Since the use of estimates is an integral component of the financial
reporting process,
our actual results could differ from those estimates. Some of our accounting policies require
a higher degree of judgment than others in their application.
When reviewing
our financial statements, you should consider (1) our selection of critical
accounting policies, (2) the judgment and other uncertainties affecting the application of those
policies, and (3) the sensitivity of reported results to changes in conditions and assumptions.
Page 22
Goodwill and Intangible Assets
Goodwill represents the excess of the purchase price over the fair value of identifiable
assets acquired and liabilities assumed in business combinations accounted for under the purchase
method. Purchase price is assigned to the acquired assets and liabilities based on their estimated
fair value as determined by management.
Intangible assets other than goodwill are carried at cost less accumulated amortization.
Intangible assets are generally amortized on a straight-line basis over the useful lives of the
respective assets, generally three to five years. Long-lived assets and certain identifiable
intangible assets to be held and used are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of such assets may not be recoverable.
We apply the provisions of the Financial Accounting Standards Boards, or FASB, SFAS No. 142,
Goodwill and Other Intangible Assets. Goodwill and intangible assets acquired in a
purchase business combination and determined to have an indefinite useful life are not amortized,
but instead are tested for impairment on a reporting unit basis in accordance with the provisions
of SFAS No. 142.
We perform impairment tests of goodwill assigned to reporting units on an annual basis or when
facts and circumstances indicate to management that impairment may exist. Impairment tests are
based on a comparison of the fair value of the reporting unit to the carrying value of the assets
assigned to that reporting unit. In instances where impairment exists, goodwill is written down to
fair value.
We review long-lived assets when facts and circumstances indicate to management that the
carrying value of those assets may not be fully realizable over the remainder of their useful
lives. If impairment exists, we compare the fair value of the asset, based on a discounted cash
flow projection or other method as deemed appropriate by management, to the carrying value. If fair
value is determined to be less than the carrying value, we record an impairment charge to reduce
the carrying value to fair value.
BUSINESS
Introduction and General Background
We were organized as Command Staffing LLC on December 26, 2002. We commenced operations in
2003 as a franchisor of temporary staffing businesses. On November 9, 2005, the assets of Command
Staffing, LLC and Harborview Software, Inc., an affiliated company that owned the software used in
the operation of our temporary staffing stores, were acquired by Temporary Financial Services,
Inc., a public company. The transaction was accounted for as if Command Staffing LLC was the
acquirer. On November 16, 2005, we changed our name to Command Center, Inc.
Prior to April 2006, we generated revenues primarily from franchise fees. On May 12, 2006, we
acquired 48 temporary staffing stores from certain former franchisees, and shifted our business
focus from franchisor to operator. On June 30, 2006, we acquired an additional 9 temporary
staffing stores from our franchisees. We also opened 20 additional stores during the year
(including 8 new stores opened to replace the franchised locations we bought out and closed in the
May 12 transaction). All of our former franchised stores have either been acquired or ceased
operation and we currently generate all of our revenue from temporary staffing store operations
and related activities. At February 6, 2008, we owned and
operated 79 temporary staffing stores
located in 22 states. We are in the process of preparing 8 additional stores for opening in
the first quarter of 2008 and anticipate that we will open approximately 20 new stores in 2008.
Our principal executive offices are located at 3733 West Fifth Avenue, Post Falls, Idaho
83854, and our telephone number is (208) 773-7450. We maintain an Internet website at
www.commandonline.com. The information contained on our website is not included as a part of, or
incorporated by reference into, this prospectus.
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
Page 23
employees when absent due to illness, vacation, or abrupt
termination. Temporary staffing offers a way for businesses to immediately increase staff 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 a temporary
staffing provider.
The temporary staffing industry consists of a number of markets segregated by the diverse
needs of the businesses utilizing the temporary staffing providers. These needs vary widely in the
duration of assignment as well as the level of technical specialization required of the temporary
personnel. We operate primarily within the short-term, unskilled and semi-skilled segments of the
temporary staffing industry. Management believes these sectors are highly fragmented and present
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 staffing and employment solutions by
placing the right people in the right jobs every time. With the acquisition of the temporary
staffing stores, we have consolidated operations, established and implemented corporate operating
policies and procedures, and are currently pursuing a unified branding strategy for all of our
stores. By acquiring stores formerly owned and operated by our franchisees we have transitioned
our business model from franchisor to owner-operator of temporary staffing stores.
We
intend to build a national network of temporary staffing stores under a unified corporate
structure to achieve economic efficiencies. Within a 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.
Temporary
Staffing Store Operations. We currently operate 79 temporary staffing stores
serving thousands of customers and employing thousands of temporary employees. Our stores are
located in 22 states, with approximately 63 stores located in urban
industrial locations and 15 stores located in suburban areas with proximity to concentrated commercial and industrial
areas. We are developing a standardized store operations model that will be used for future new
store openings, gradually refined and applied system wide. We are targeting new store openings in
locations with attractive demographics and in areas where the demand for temporary staffing
personnel is sufficient to justify the investment. In general, we will focus on larger metropolitan
areas that are able to support multiple locations as the initial growth targets. Multiple openings
in metropolitan areas allow us to minimize opening costs and maximize customer exposure within a
target metropolitan market. We prefer to locate our stores in reasonably close proximity to our
workforce and public transportation.
The transactional volume we experience as an operator of temporary staffing stores is
dramatically larger than we experienced as a franchisor. Therefore, in the months following the
acquisition of the stores, we devoted a significant amount of time to assure that the stores are
and remain seamlessly integrated into our corporate environment and culture. We developed a
comprehensive and integrated set of software tools and information technology systems.
We manage our field operations using in-store personnel, store managers, area managers, and
corporate management personnel. We are also currently building a sales team to help drive business
to our stores. Our compensation plans for store managers, area managers, and business development
specialists have been designed to
aid in securing the qualified personnel needed to meet our business, financial and growth
objectives. Our human resources practices are designed to support the need for attracting,
screening, hiring, training, supporting and retaining qualified personnel at all levels of our
business.
In 2008, by implementing the strategy outlined below we intend to open 20 or more new stores
and expect to end the year with at least 100 stores in operation.
Temporary Staff. Each store maintains an identified and pre-qualified pool of available
temporary staff personnel who are familiar with our operations and can perform the jobs requested
by our customers. We believe the
Page 24
pool is of sufficient size to meet customer requirements at our
current level of operations. As our business grows, we will seek additional temporary workers
through newspaper advertisements, printed flyers, store displays, and word of mouth. We locate our
stores in places convenient to our temporary work force and, when available, on or near public
transportation routes. To attract and retain qualified and competent workers, we have instituted
or are in the process of instituting a number of temporary worker benefit programs. These include
payment of a longevity bonus, a safety points awards program, availability of an employee paid
health insurance program, employer ratings of temporary employees, and creation of an advantage
team program. All of these programs are designed to keep our best workers by offering benefits not
widely available in our industry, and to reward our temporary workers for providing excellent
service to our customers.
Our Customers. Currently, we have approximately 1,700 customers operating in a wide range of
industries. The top five industries we service are construction, manufacturing, transportation,
warehousing and wholesale trades. Our customers tend to be small and medium sized businesses. Our
ten largest customers accounted for approximately 8% our revenue for the fifty-two weeks ended
December 28, 2007.
Marketing Strategy. To accomplish our growth objectives, we intend to undertake the following
activities during 2008:
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Increase the level of direct selling activities at each existing store; |
|
|
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Implement direct mail campaigns, radio and billboard advertising, limited
yellow-page advertising and word of mouth; and |
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Develop national accounts with large corporate customers. |
In implementing our growth strategy, we will face several challenges, including meeting our
rapidly growing requirement for working capital, managing credit risk
and workers compensation
insurance costs.
As a developer, owner and operator of temporary staffing stores, we require significant
working capital because we typically pay our temporary personnel on the same day they perform the
services, but bill our customers on a weekly or monthly basis. As a result, we must maintain
sufficient working capital through borrowing arrangements or other sources, to enable us to
continue paying our temporary workers until we invoice and collect from our customers.
The delay between payment of compensation to our temporary workers and collection of
receivables from our customers requires that we manage the related credit risk. This entails
screening of our potential customers. We maintain a database of pay rates and customer rates for
most job categories. Therefore, when we enter a new customer into our system, we already have
established temporary worker pay rates and customer billing rates for the job categories requested.
The customer information is entered into our system and forwarded to the credit department at our
corporate office for review of the workers compensation rate categories and approval of customer
credit levels if the customer has requested credit in excess of the store limit. The credit
department obtains credit reports and/or credit references on new customers and uses all available
information to establish a credit limit. We also monitor our existing customer base to keep our
credit risk within acceptable limits. Monitoring includes review of accounts receivable aging,
payment history, customer communications, and feedback from our field staff. Currently, our
average days outstanding on open invoices is approximately 37.9 days, and our bad debt experience
for 2007 was approximately 0.5% of sales.
We are required to provide our temporary and permanent workers with workers compensation
insurance. Currently, we maintain a large deductible workers compensation insurance policy through
American International Group, Inc. (AIG). The policy covers the premium year from May 13, 2007
through May 12, 2008. While we
have primary responsibility for all claims, our insurance coverage provides reimbursement for
covered losses and expenses in excess of our deductible. For workers compensation claims arising
in self-insured states, our workers compensation policy covers any claim in excess of $250,000 on
a per occurrence basis. This results in our being substantially self-insured.
Since the current policy inception, we have made payments to cover anticipated claims within
our self-insured layer. As of December 28, 2007, we had approximately $4.0 million on deposit with
AIG to cover our share of each loss up to $250,000. We believe that this amount will be adequate
to meet any expected losses that may be incurred or become due and payable for injuries during the
policy term.
Page 25
For workers compensation claims originating in Washington and North Dakota (our monopolistic
jurisdictions) we pay workers compensation insurance premiums and obtain full coverage under
government administered programs. We are not the primary obligor on claims in these jurisdictions.
Workers compensation expense is recorded as a component of our cost of services. Workers
compensation expense in 2007 was 5.4% of our revenue from services. As we grow in future periods,
we expect workers compensation costs to be a significant and growing cost. It will be critical in
future periods that we monitor and control such costs. Prior to 2006, we operated as a franchisor
of temporary staffing businesses and workers compensation costs were not a significant component
of operating costs.
Safety Program. To protect our workforce and help control workers compensation insurance
rates, we have also implemented a company-wide safety program aimed at increasing awareness of
safety issues. Safety training is accomplished through bulletin boards, newsletters, training
meetings, videos, and employee manuals. Managers conduct unannounced job site visits to assure
that customers utilizing our temporary staff are doing so in a safe environment. We also encourage
our workers to report unsafe working conditions.
Seasonality
The short-term manual labor sector of the temporary staffing business is subject to seasonal
fluctuation. Many of the jobs filled by our temporary staff are outdoor 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. Seasonal fluctuations may be less in the western and southwestern parts of the
United States where many of our stores are located. These 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 operators with five or fewer locations. Within their markets, these small local or
regional firms compete with us for the available business. The primary competitive factors in our
market segment include price, service and the ability to provide the requested workers when needed.
Secondary factors include worker quality and performance standards, efficiency, ability to meet
the business-to-business vendor requirements for national accounts, name recognition and
established reputation. While barriers to entry are low, businesses operating in this sector of the
temporary staffing industry do require access to significant working capital, particularly in the
spring and summer when seasonal staffing requirements are higher. Lack of working capital can be a
significant impediment to growth for small local and regional temporary staffing providers.
In addition, we face competition from a small number of larger, better capitalized operators.
Our larger competitors include True Blue, Inc. (doing business as Labor Ready), Adecco, Kelly
Services, Inc., Manpower, Inc., SOS Staffing Services, Inc., and Vedior, Inc. Labor Ready
operates primarily in our markets. The other large competitors have divisions that operate in the
light industrial or construction segments of our industry but are primarily focused more on skilled
trades and professional placements. 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.
Our largest competitor in the short-term manual labor sector of the temporary staffing
industry is Labor Ready with 912 branch offices in all 50 of the United States, Puerto Rico, Canada
and the United Kingdom. Labor Ready estimates the on-demand labor market at between $6 and $7
billion per annum giving Labor Ready a 19% to 22% market share. Our management team includes
members who were instrumental in building Labor Ready. We currently
hold approximately a 1% market
share.
In addition to the large competitors listed above, we also face competition from smaller
regional firms like Ablest, Inc. that are much like us in terms of size and market focus. As we
attempt to grow, we will face increasing competition from other regional firms that are already
established in the areas we have targeted for expansion. We are also likely to garner increasing
attention from Labor Ready as we attempt to increase our market share.
Page 26
Government Regulation
We are subject to a number of government regulations, including those pertaining to wage and
hours laws, equal opportunity, workplace safety, maintenance of workers compensation coverage for
employees, legal work authorization, and immigration laws. With national attention on
immigration and related security issues, we anticipate increased regulatory impact on our
operations. For example, Arizona recently adopted legislation requiring employers to check the
legal status of every new hire using a system operated by the Department of Homeland Security, and
penalizing employers that hire undocumented workers. Penalties include suspension or revocation of
all business licenses held by the employer in Arizona necessary to the conduct of its business.
These laws became effective January 1, 2008, and we have implemented procedures intended to bring
our operations into compliance. If other states adopt similar laws, it could increase our
operating costs and regulatory risks.
Trademarks and Trade Names; Intellectual Property
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.
We have in place software systems to handle most aspects of our operations, including
temporary staff dispatch activities, invoicing, accounts receivable, accounts payable and payroll.
Our software systems also provide internal control over our operations, as well as producing
internal management reports necessary to track the financial performance of individual stores. We
utilize a dashboard-type system to provide management with critical information, and we refine our
systems and processes by focusing on what actually works in the real world. We take best practices
information from our higher performing stores and propagate this information across all operating
groups to produce consistent execution and improvements in company-wide performance averages.
Real Property
We own a beneficial interest in one parcel of real estate located in Yuma, Arizona, that
houses one of our temporary staffing locations. We also assumed a mortgage on the Yuma property.
The balance due on the mortgage is approximately $95,000. Our monthly payment is $1,485, with a
remaining term of 80 months. The mortgage is secured by the real property, which is carried on our
books at $149,000.
We presently lease office space for our corporate headquarters in Post Falls, Idaho, and have
a three-year option to purchase the land and building for $1,125,000 pursuant to the terms of a
Sale and Leaseback Agreement. We currently pay $10,000 per month for
use of the building, which contains approximately 18,500 square feet
of space.
We also lease the facilities of all of our store locations (except for the Yuma location).
All of these facilities are leased at market rates that vary depending on location. Each store is
between 1,000 and 5,000 square feet, depending on location and market conditions and all current
facilities are considered adequate for their intended uses.
Employees
We currently employ 43 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 grow. We also
employ approximately 250 people on our field operations staff located in the various temporary
staffing stores, and area and regional operations centers. As we add more stores in 2008, this
number is expected to grow.
Page 27
Litigation
We are party to the following material litigation.
ProTrades v. Command Center, Inc., et al.: California Superior Court, Santa Clara County, Case
No. 105CV055572. On December 31, 2005, ProTrades Connection, Inc., a competitor, filed a lawsuit
against Command Staffing, LLC, and certain individuals. Command Center, Inc. was later added as an
additional defendant. The individual defendants are current employees of our company and were
formerly employed by ProTrades. In the lawsuit, ProTrades alleges that the individual defendants
breached written covenants against the solicitation of ProTrades employees. In September 2007, the
court granted our motion for summary judgment, dismissed all claims of ProTrades, and awarded to us
$53,651 for costs. ProTrades has appealed the ruling, and the appeal is pending. We incurred
approximately $350,000 in litigation costs in 2006 and approximately $400,000 in litigation costs
in 2007 resulting from this litigation.
Page 28
MANAGEMENT
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 five 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. The term of each of our directors expires in
2008. Executive officers are appointed at the Boards 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.
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Glenn Welstad, age 64
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Chairman of the Board, Chief Executive Officer, and President |
Brad E. Herr, age 53
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Director, Chief Financial Officer and Secretary |
Todd Welstad, age 39
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Director, Executive Vice President and Chief Information Officer |
Tom Gilbert, age 52
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Director and Chief Operating Officer |
Ralph E. Peterson, age 73
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Director |
Ronald L. Junck, age 59
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Executive Vice President and General Counsel |
Glenn Welstad, founded Command Staffing, LLC, and Harborview Software, Inc., and has been our
President, Chief Executive Officer and a director since 2003. Glenn Welstad was a founder of Labor
Ready and served as its Chief Executive Officer and President, until his retirement in 2000.
Prior to founding Labor Ready, Glenn Welstad was a successful restaurateur and owned a number of
Hardees and Village Inn franchises. Glenn Welstad is the father of Todd Welstad.
Brad
E. Herr, has served as our Chief Financial Officer, Secretary and a director since
December 1, 2006. From 1993 through 1996, and from June 2001 through March 2002, Mr. Herr
practiced law in the firm of Brad E. Herr, P.S. From June 1996 through June 2001, and from January
1, 2004 through December 1, 2006, Mr. Herr was employed at AC Data Systems, Inc. (AC Data) in Post
Falls, Idaho, where he was Director of Finance (1996 through 1998), Vice-President Business
Development (1998 through June 2001), and President (2004 through 2006). 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. 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.
Mr. Herr is licensed as a Certified Public Accountant in the State of Montana. Mr. Herr also
maintains inactive status as a lawyer in the states of Washington and Montana. Mr. Herr serves as
a Director of Genesis Financial, Inc., a publicly traded financial services business located in
Spokane, Washington.
Todd Welstad, is Executive Vice President, Chief Information Officer, and a director, and has
served in those capacities since 2003. Mr. Welstad served as Chief Information Officer of Labor
Ready, Inc. from August 1993 through 2001. Before joining us, Mr. Welstad worked in the temporary
labor industry as owner/operator and was employed by Harborview Software, Inc., as Vice President
in the development of the software used in temporary labor store operations. Todd Welstad is the
son of Glenn Welstad.
Tom Gilbert, has served as our Chief Operating Officer and a Director since November 9, 2005.
Before joining our Company, Mr. Gilbert owned and operated Anytime Labor, a Colorado corporation.
From July 1998 through December 2001, Mr. Gilbert, as Regional Vice President for Labor Ready was responsible for the management of up to 400 temporary labor offices located in 23 states
and 5 Canadian provinces.
Ralph E. Peterson, was appointed to the Board as an independent director in November 2007 ,
and will chair the boards Audit Committee. From 2002 until 2006, Mr. Peterson was a partner with
a mid-sized venture capital firm. Previously, Mr. Peterson held leadership roles with Labor Ready,
a publicly traded staffing company, where he was a member of its Board of Directors and
served as its Chief Financial Officer and Executive Vice President of
Corporate and Business Development. He also spent more than 20 years in the restaurant industry,
first as an officer
Page 29
of Hardees Food Systems, Inc., a $4 Billion diversified food company,
operating 1,000 Company owned and 3,000 franchised fast food restaurants, and subsequently as the
Chief Financial Officer of Rax Restaurants, Inc., a restaurant chain operating 100 Company owned
and 250 franchised restaurants. Mr. Peterson received his MBA from the University of North
Carolinas MBA Program, as well as a MS in Finance and Management and a BS in Accounting from
Northern Illinois University.
Ron Junck, has been our General Counsel since 2003. From 1974 until 1998, Mr. Junck practiced
law in Phoenix, Arizona, specializing in business law and commercial transactions. From 1998
through 2001, Mr. Junck served as Executive Vice President and General Counsel of Labor Ready,
and for several years served as a director of that company. In 2001, Mr. Junck returned to
the private practice of law.
Nominees for Election or Appointment to the Board of Directors
On February 6, 2007, our Board of Directors nominated John M. Schneller and Aaron A. Grunfeld for
election or appointment to the Board. We anticipate that the two nominee directors will be
appointed to fill vacancies that will occur upon the resignation of Todd Welstad and Tom Gilbert
from the Board in the near future. The new directors will serve the balance of the terms of the
directors they replace, or until their successors are duly elected and qualified.
John M. Schneller, age 42, is a nominee for election or appointment to the Board. Mr. Schneller is
Managing Partner of Icarus Group, LLC, a value discipline, long-short hedge fund with a focus on
intellectual property. Prior to founding Icarus Group, from 2002 to 2007 Mr. Schneller was an
investment analyst with Knott Partners, a multi-billion dollar New York hedge fund. From 2000 to
2001, Mr. Schneller was an Executive Director and Senior Research Analyst leading the IT and
business services research practices for CIBC. From 1997 to 2000, Mr. Schneller was a Vice
President and Senior Research Analyst at Stephens Inc. Mr. Schneller received a B.A. in History
from the University of Massachusetts at Amherst, a Masters degree in Public Administration from
Suffolk University in Boston and a Masters degree in Business Administration from the Johnson
Graduate School of Management at Cornell University.
Aaron A. Grunfeld, age 62, is a nominee for election or appointment to the Board. Mr. Grunfelds
nomination was approved as acceptable to MDB Capital Group, Inc., pursuant to an agreement between
the Company and MDB. Mr. Grunfeld has been engaged in the practice of law since 1971, with an
emphasis on securities and corporate matters. Since August 2006 he has practiced law as a principal
of Law Offices of Aaron A. Grunfeld and Associates, Los Angeles, California. Mr. Grunfeld is
currently the acting and interim President, CFO and Secretary of Longfoot Communications Corp., a
public company, and CEO of its sole subsidiary, Village Broadcasting Corp. He also serves as a
director of FastFunds Financial Corporation, a public company. In December 2005, Mr. Grunfeld was
appointed by Los Angeles, California Mayor Antonio R. Villaraigosa to the Metropolitan Water
District Board of Directors. The Metropolitan Water District serves approximately 18 million
residents in Southern California. Mr. Grunfeld received an A.B. in Political Science from UCLA in
1968 and a J.D. from Columbia University in 1971. He is a member of the California Bar Association.
Shareholders Meetings
We intend to hold a shareholders meeting during the second quarter of 2008, at which all of the
directors will stand for reelection. Our last shareholders meeting for the election of directors
was held July 12, 2005.
Committees of the Board of Directors
During the first quarter of 2008, we anticipate that our board of directors will establish an
audit committee, a compensation committee and a nominating and corporate governance committee. The
composition and function of each of our committees will comply with the rules of the SEC that will
be applicable to us, and we intend to comply with additional requirements to the extent that they
become applicable to us.
The committees are described below.
Executive Committee. The Executive Committee consists of Glenn Welstad Chief Executive
Officer; Thomas Gilbert Chief Operations Officer; and Todd Welstad Chief Information Officer,
and Brad E. Herr, Chief Financial Officer. Executive Committee meetings are also attended by
Ronald L. Junck, General Counsel, and such other officers as may be determined from time-to-time by
the Committee. The Executive Committee met at least once per week in 2007 to discuss operational
and financial matters.
Audit Committee. Ralph Peterson
currently serves on the audit committee. Until additional
directors are appointed (which is expected to occur during the first quarter of 2008), Mr. Peterson is
the sole member of our audit committee. The audit committees responsibilities include:
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appointing, approving the compensation of, and assessing the independence of our
independent registered public accounting firm; |
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reviewing and discussing with management and the independent registered public
accounting firm our annual and quarterly financial statements and related disclosures; |
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pre-approving auditing and permissible non-audit services, and the terms of such
services, to be provided by our independent registered public accounting firm; |
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coordinating the oversight and reviewing the adequacy of our internal control over
financial reporting; |
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establishing policies and procedures for the receipt and retention of accounting related
complaints and concerns; and |
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preparing the audit committee report required by Securities and Exchange Commission
rules to be included in our annual proxy statement. |
Our board
of directors has determined that Mr. Peterson qualifies as an audit committee
financial expert as defined under the Securities Exchange Act of 1934.
Compensation Committee.
We intend to appoint a compensation committee during the first
quarter of 2008. The compensation committees responsibilities include, but are not limited to:
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annually reviewing and approving corporate goals and objectives relevant to
compensation of our chief executive officer; |
Page 30
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evaluating the performance of our chief executive officer in light of such corporate
goals and objectives and determining the compensation of our chief executive officer; |
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reviewing and approving the compensation of our other executive officers; |
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overseeing and administering our compensation, welfare, benefit and pension plans and
similar plans; and |
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reviewing and making recommendations to the board with respect to director
compensation. |
Nominating and Corporate Governance Committee. We intend to appoint members of the nominating
and corporate governance committee during the first quarter of 2008. The nominating and corporate
governance committees responsibilities include, but are not limited to:
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developing and recommending to the board criteria for board and committee membership; |
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establishing procedures for identifying and evaluating director candidates including
nominees recommended by shareholders; |
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identifying individuals qualified to become board members; |
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recommending to the board the persons to be nominated for election as directors and to
each of the boards committees; |
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developing and recommending to the board a code of business conduct and ethics and a
set of corporate governance guidelines; and |
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overseeing the evaluation of the board and management. |
Executive Officers
Each of our executive officers has been elected by our board of directors and serves until his
or her successor is duly elected and qualified.
Indemnification of Directors and Officers
The Washington Business Corporation Act provides that a company may indemnify its directors
and officers as to certain liabilities. Our Articles of Incorporation (as amended) and Bylaws
authorize our company to indemnify our directors and officers to the fullest extent permitted by
law. The effect of such provisions is to authorize the company to indemnify the directors and
officers of our 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
our company, to the fullest extent permitted by law. Such indemnification provisions are expressed
in terms sufficiently broad to permit such indemnification under certain circumstances for
liabilities (including reimbursement expenses incurred) arising under the Securities Act of 1933.
Our Bylaws require us to indemnify each of our directors and officers, so long as such
director acted in good faith and, generally, believed that an action was in the best interests of
our company. Our directors and officers, however, are not entitled to such indemnification (i) if
such director or officer is adjudged liable to our company, or (ii) if such director or officer is
adjudged liable on the basis that personal benefit was improperly received by such officer or
director.
We presently maintain directors and officers liability insurance, which provides for an
aggregate limit of $5,000,000.
Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be
permitted to directors, officers or persons controlling the company pursuant to the foregoing
provisions, we have been informed that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as expressed in the Act and
is therefore unenforceable.
Page 31
Director Independence
We undertook a review of the independence of our directors and, using the definitions and
independence standards for directors provided in the rules of The NASDAQ Stock Market, considered
whether any director has a material relationship with us that could interfere with his ability to
exercise independent judgment in carrying out his responsibilities. As a result of this review, we
determined that Ralph Peterson is an independent director, and that Glenn Welstad, Brad Herr, Todd
Welstad, Ron Junck and Tom Gilbert are not independent directors.
Director Compensation
The Company historically has not paid compensation to directors for their services performed
as directors. We expect to compensate independent directors for their services beginning early in
2008. The amount of such compensation has not yet been determined. Our employee directors receive
no compensation for attendance at Board meetings or meetings of Board committees. Directors who are
not also executive officers of the company are reimbursed for usual and ordinary expenses of
meeting attendance.
EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
The Board of Directors responsibilities relating to the compensation of our companys CEO and
other executives and directors includes (a) reviewing and reporting on the continuity of executive
leadership for our company; (b) approving the compensation structure for our CEO; and (c) reviewing
the compensation structure for each of our other Named Executive Officers (NEOs) as listed under
Executive Compensation Summary Compensation Table.
Commencing in 2008, responsibility for discharging these responsibilities on behalf of the
Board, and for establishing, maintaining, overseeing, evaluating and reporting upon our executive
compensation plans and programs, will be undertaken by the Compensation Committee. The
Compensation Committee will also review and coordinate annually with the Executive Committee of our
Board of Directors with respect to compensation for any directors who are not also NEOs.
Objectives of Our Compensation Program
In general, our objectives in structuring compensation programs for our NEOs is to attract,
retain, incentivize, and reward talented executives who can contribute to our companys growth and
success and thereby build value for our shareholders over the long term. In the past, we have
focused on cash compensation in the form of base salary as the primary element of our compensation
program for NEOs.
In past years, we did not have any executive compensation policies in place and our board of
directors was responsible for annually evaluating individual executive performance. Historically,
our board of directors reviewed and approved all of our compensation packages, and determined the
appropriate level of each compensation component for each executive officer based upon compensation
data and information gleaned from other sources as to salary levels at comparable companies. Our
board of directors has also relied on its members business judgment and collective experience in
our industry. Although it did not benchmark our executive compensation program and practices, our
board of directors has historically aimed to set our executive compensation at levels it believes
are comparable with executives in other companies of similar size and stage of development in
similar industries and location while taking into account our relative performance and our own
strategic goals.
Page 32
During 2008, we intend to expand the elements of our executive compensation program to include
the following:
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Cash compensation in the form of base salary and incentive compensation
(performance-based bonuses); |
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Equity-based awards; |
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Deferred compensation plans; and |
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Other components of compensation. |
In addition, the employment agreements with each of our executive officers provide for certain
retirement benefits and potential payments upon termination of employment for a variety of reasons,
including a change in control of our company. See Summary of Employment Agreements, below.
Elements of Compensation
Base Salary
The compensation received by our executive officers consists of a base salary. Base salaries
for our executives are established based on the scope of their responsibilities and individual
experience. Subject to any applicable employment agreements, base salaries will be reviewed
annually, and adjusted from time to time to realign salaries with market levels after taking into
account individual responsibilities, performance and experience.
Discretionary Annual Bonus
In addition to base salaries, we have the ability to award discretionary annual bonuses to our
executive officers. We have not yet formulated the bases upon which we may grant discretionary
bonuses to our executive officers. We may increase the annual bonus paid to our executive officers
at our discretion.
Equity and Other Compensation
We
do not have any equity compensation plans or any outstanding options.
We intend to adopt one or more equity compensation plans in 2008. We offer $20,000 of
company paid life insurance to each employee, including officers and directors. We are also
currently evaluating other employee benefits programs including a 401(k) plan.
Compliance with Internal Revenue Code Section 162(m)
Section 162(m) of the Internal Revenue Code generally disallows a tax deduction to a public
company for compensation over $1 million paid to its chief executive officer and its four other
most highly compensated executive officers. However, if certain performance-based requirements are
met, qualifying compensation will not be subject to this deduction limit. Although the limitations
of Section 162(m) generally have not been of concern to us while we were a shell corporation, we
intend to consider the requirements of Section 162(m) in developing our compensation policies now
that we are an operating company.
Role of Executive Officers in Executive Compensation
During our most recently completed year, we did not have a compensation committee or another
committee of our board of directors performing equivalent functions. Instead, the entire board of
directors performed the function of a compensation committee and our board of directors will
continue to serve in such role. None of our executive officers currently serves, or in the past
year has served, as a member of the board of directors or compensation committee of any entity that
has one or more executive officers serving on the board of directors or compensation committee.
Page 33
Summary Compensation Table
The following table provides summary information about compensation expensed or accrued by our
company during the fiscal years ended December 28, 2007, and December 29, 2006, for (a) our Chief
Executive Officer, (b) our Chief Financial Officer, (c) the two other executive officers other than
our CEO and CFO serving at the end of the fiscal years; and (d) one additional individual for whom
disclosure would have been provided but for the fact that he was not serving as an executive
officer at the end of fiscal 2006 (collectively, the Named Executive Officers or NEOs. During
the fiscal year ended December 31, 2005, the Company did not have any executive officers that
received in excess of $100,000 in compensation and the Principal Executive Officer of the Company
received no compensation in that year.
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All Other |
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Name and Principal Position |
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Year |
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Salary |
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Compensation |
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Total |
Glenn Welstad |
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2007 |
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$ |
180,000 |
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$ |
180,000 |
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Director and Chief Executive Officer |
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2006 |
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$ |
180,000 |
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$ |
180,000 |
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Thomas Gilbert |
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2007 |
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$ |
120,000 |
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$ |
120,000 |
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Director and Chief Operating Officer |
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2006 |
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$ |
120,000 |
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$ |
120,000 |
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Todd Welstad |
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2007 |
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$ |
120,000 |
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$ |
120,000 |
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Director and Chief Information Officer |
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2006 |
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$ |
120,000 |
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$ |
120,000 |
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Brad E. Herr |
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2007 |
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$ |
120,000 |
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|
|
|
|
|
$ |
120,000 |
|
Director, Chief Financial Officer |
|
|
2006 |
|
|
$ |
27,692 |
|
|
$ |
20,770 |
|
|
$ |
48,462 |
|
C. Eugene Olsen |
|
|
2006 |
|
|
$ |
110,769 |
|
|
|
|
|
|
$ |
110,769 |
|
Former Chief Financial Officer (3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Glenn Welstad is employed by the company at an annual salary of $180,000. During the first
half of 2006, Mr. Welstad deferred $90,000 of his salary. This amount was subsequently
converted into $90,000 of common stock in the third quarter of 2007 (6,000 shares). |
|
(2) |
|
Brad E. Herr was employed by the Company part time on October 1, 2006, and full time on
December 1, 2006. Prior to that time, Mr. Herr performed consulting services for the company
at $3,000 per month. At September 28, 2007, Mr. Herr was owed $20,770 for consulting services
performed prior to his employment. |
|
(3) |
|
Mr. Olsen served as chief financial officer from January 1, 2006 through December 19, 2006. |
Equity Compensation Plans
The Company has no equity
compensation plans and had awarded no equity compensation to
executive officers or directors as of December 28, 2007. Management intends to adopt equity
compensation plans in 2008. These plans may include a flexible stock incentive plan and an employee stock purchase plan. It is
anticipated that the numbers of shares to be reserved for the two plans will represent, as a
percentage of the outstanding stock, up to 18% for the stock incentive plan and up to three percent
for the employee stock purchase plan.
Summary of Executive Employment Agreements
The terms of the executive employment agreements for Glenn Welstad, Chief Executive Officer,
Todd Welstad, Chief Information Officer, and Thomas Gilbert, Chief Operating Officer, are
substantially identical except for the differences noted below. Each agreement is for a three-year
initial term commencing January 1, 2006. At the end of the initial three-year term, each agreement
automatically renews for successive one-year terms, unless and until terminated by either party
giving written notice to the other not less than 30 days prior to the end of the current term, or
as otherwise set forth in such agreement. Employment may be terminated by the Company without
cause on sixty days notice. If termination is without cause and occurs within the initial three
year term of the agreement, the executive will receive his base salary for one year. If
termination without cause occurs after the initial three year term, the executive will receive base
salary for the remainder of the year in which termination occurs. The agreement may also be
terminated for cause on 15 days written notice, and in the events of death, disability or a change
in control. Upon termination due to a change in control, the executive will continue to receive his
or her base salary for twelve months. Change in control is defined to include instances where
there has been a significant turnover in the board of directors, upon a tender offer for more than
20% of the voting power of the companys outstanding securities, upon a merger or consolidation ,
or upon liquidation or sale of a substantial portion of the companys assets. The agreements
contain non-competition and confidentiality provisions.
Page 34
Mr. Glenn Welstad receives a base salary of $180,000 per year and is entitled to performance
based compensation in an amount set by the Companys Board of Directors. Mr. Glenn Welstads
agreement also provides for reimbursement of expenses for his spouse if she travels with him. No
such spousal travel reimbursements were made to Mr. Welstad in 2007 or 2006. The agreements for
Mr. Todd Welstad and Mr. Gilbert provide for base salaries of $120,000 per year and performance
based compensation as set by the Board. All three agreements provide for expense reimbursement for
business travel and participation in employee benefits programs made available to the executive
during the term of employment.
We presently do not compensate our directors. We anticipate that we will implement a policy
relating to the compensation of our directors in 2008.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In July and August 2007,
certain notes payable to affiliates of our company were cancelled
and converted into shares of our common stock. These conversions are described below:
|
|
|
|
|
Glenn Welstad(1) |
|
$ |
360,654 |
|
Dwight Enget(2) |
|
|
94,091 |
|
Tom Gilbert(2) |
|
|
60,306 |
|
Tom Hancock(2) |
|
|
27,659 |
|
Ronald L. Junck(2) |
|
|
2,714 |
|
Todd Welstad(2) |
|
|
814 |
|
Dave Wallace (3) |
|
|
31,909 |
|
|
|
|
|
|
|
$ |
578,147 |
|
|
|
|
|
|
|
|
(1) |
|
Mr. Welstad is our Chief Executive Officer and a director. The amount
due Mr. Welstad included balances owing for new store surcharge fees, accrued
salary owed from 2006, other assumed liabilities in connection with equipment
purchases, other expenses related to our acquisition of temporary staffing stores,
the Anytime Labor acquisitions, and additional advances for working capital. |
|
(2) |
|
Mr. Enget, Mr. Gilbert, Mr. Hancock, Mr. Junck, and Mr. Todd Welstad are
or were directors and officers of our company. The amounts due consist of
liabilities incurred in connection with the purchase of temporary staffing stores
owned or controlled by such individuals in 2006. |
|
(3) |
|
Mr. Wallace is a former franchisee and is currently employed as a manager
with the Company. |
These notes payable
were converted into shares of our common stock at a conversion price of
$1.50 per share. The market price of our common stock during the period the notes were converted ranged from a low of
$1.01 to a high of $2.35. An aggregate of 385,431 shares of our common stock were issued in
the note conversions.
New store surcharge fee. As part of the November 9, 2005 acquisition, we assumed an
obligation to pay Glenn Welstad, our Chief Executive Officer and a director, $5,000 for each new
temporary staffing store opened by us. Between November 2005 and September 2007, we opened 14
stores and would have required a payment to Mr. Welstad of $70,000. In lieu of a cash payment, we
satisfied this obligation by issuing 50,000 shares of our common stock to Mr. Welstad. To fulfill
all present and future obligations under this agreement, on November 14, 2007, we issued an
additional 550,000 shares of our common stock to Mr. Welstad under this agreement. With the issuance of these shares, we
have no further obligations under the new store surcharge agreement.
Mr. Welstad owns Alligator LLC (Alligator), an automobile leasing company.
Alligator provides approximately 16 vans and van drivers to us for use in transporting temporary
workers to job sites at various locations within our sphere of operations. We provide fuel for the
vehicles and pay Alligator a lease payment for use of the vans (average of $1,000 per van per
month), plus reimbursement for the cost of the drivers (approximately $2,500 per driver per
month). As of December 28, 2007, we are current on balances owed to Alligator for van
Page 35
leases and drivers. We are in the process of unwinding our relationship with Alligator and
expect to terminate the van leasing arrangement in the first quarter of 2008.
In 2005, we purchased a parcel of real estate in Post Falls, Idaho, which served as our
corporate headquarters. The purchase price for the real estate and the applicable building was
$1,125,000, which was paid $525,000 in cash and $600,000 advanced from John Coghlan, a former
director and one of our major shareholders. On December 29, 2005, we sold the real estate and the
building back to Mr. Coghlan at the original purchase price pursuant to a Sale and Leaseback
Agreement. Under this Agreement, we immediately leased the building back from Mr. Coghlan and
obtained a three year option to purchase the building for $1,125,000.
We have advanced funds to Viken Management, a company controlled by Glenn Welstad, to pay
obligations of Viken that were incurred prior to the roll-up of the franchisees. As of November 5,
2007, Mr. Welstad owed the Company $290,000. On November 14, 2007, the Company and Mr. Welstad
agreed to offset the balance due Alligator for van lease costs and services through December 28,
2007 against the balance owed by Viken to the Company. Under this arrangement, the payable and
receivable net to zero.
Additional related party transactions from prior years are disclosed in our annual report
filings with the Securities and Exchange Commission on Form 10-KSB for the year in question.
Our audit committee will review and report to our board of directors on any related party
transaction. From time to time, the independent members of our board of directors also may form an
ad hoc committee to consider transactions and agreements in which a director or executive officer
of our company has a material interest. In considering related party transactions, the members of
our audit committee are guided by their fiduciary duties to our shareholders. Our audit committee
does not have any written or oral policies or procedures regarding the review, approval and
ratification of transactions with related parties.
Compensation Committee Interlocks and Insider Participation
None of our executive officers serves as a member of the board of directors or compensation
committee, or other committee serving an equivalent function, of any other entity that has one or
more of its executive officers serving as a member of our board of directors or compensation
committee. None of the current members of our compensation committee, nor any of their family
members, has ever been one of our employees.
Promoters and Certain Control Persons
We did not have any promoters at any time during the past five fiscal years.
Page 36
PRINCIPAL SHAREHOLDERS
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The following tables set forth information regarding (a) the ownership of any non-management
person known to us to own more than five percent of any class of our voting Shares, and (b) 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. Percentages of ownership have been
calculated based upon 35,665,053 shares of Common Stock issued and
outstanding as of February 7, 2008.
Security Ownership of Non-Management Owners
The
Company has three non-management shareholders that own 5% or more of the total outstanding
shares of Common Stock.
|
|
|
|
|
|
|
|
|
Name and Address of Beneficial Owner |
|
Common Stock |
|
Percent of Class |
Myron Thompson (1)
P.O. Box 969
Minot, ND 58702 |
|
|
3,811,631 |
|
|
|
10.69 |
% |
Kevin Semerad (1)
8528 Carriage Hill Circle
Savage, MN 55378 |
|
|
3,588,961 |
|
|
|
10.06 |
% |
John R. Coghlan (2)
1307 N. King James Lane
Liberty Lake, WA 99019 |
|
|
2,036,168 |
|
|
|
5.71 |
% |
|
|
|
(1) |
|
Mr. Thompson and Mr. Semerad share beneficial ownership of 3,477,626 shares through
common ownership of the entities that legally own the referenced shares. Mr. Semerad is a
Regional Vice President with the company. |
|
(2) |
|
Mr. Coghlans ownership includes shares beneficially owned through the Coghlan Family
Corporation and Coghlan LLC. |
Security Ownership of Management
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
Individual |
|
Shared |
|
Beneficial |
|
Percent of |
Name of Beneficial Owner |
|
Ownership |
|
Ownership |
|
Ownership |
|
Class |
Tom Gilbert (3, 4) |
|
|
601,879 |
|
|
|
|
|
|
|
601,879 |
|
|
|
1.69 |
% |
Brad E. Herr (5) |
|
|
240,000 |
|
|
|
|
|
|
|
240,000 |
|
|
|
0.67 |
% |
Ronald L. Junck (3) |
|
|
419,054 |
|
|
|
2,553,311 |
|
|
|
2,972,365 |
|
|
|
8.33 |
% |
Glenn Welstad (3) |
|
|
5,523,453 |
|
|
|
4,316,646 |
|
|
|
9,840,099 |
|
|
|
27.59 |
% |
Todd Welstad (3) |
|
|
19,864 |
|
|
|
343,522 |
|
|
|
363,386 |
|
|
|
1.02 |
% |
All Officers and Directors as a Group |
|
|
6,804,250 |
|
|
|
7,213,479 |
|
|
|
14,017,729 |
|
|
|
39.30 |
% |
|
|
|
(3) |
|
The individuals listed acquired a portion or all of their shares at the time of the
acquisitions of assets from the franchisees in May and June, 2006. The number of shares
indicated includes shares held in the names of the legal entities whose assets were
acquired. The shares are considered beneficially owned by the individual if he has the
power to vote and the power to sell the shares owned by the LLC. Shares owned by an LLC in
which multiple officers or directors held an interest and over which such officers or
directors had shared voting and investment power over the shares are deemed beneficially
owned by each such officer or director and have been counted more than once for purposes of
this Table. Such shares are reflected in the Shared Ownership column. |
Page 37
|
|
|
(4) |
|
Mr. Gilberts shares include shares owned by Thomas E. and Bonita L. Gilbert. Trustees of
the Thomas E. Gilbert Revocable Trust Dated 6-29-1999. |
|
(5) |
|
Mr. Herrs ownership includes shares beneficially owned through his IRA account. |
Equity Compensation Plans
The Company has no equity compensation plans and has awarded no equity compensation to
executive officers or directors as of February 7, 2008. Management intends to adopt an equity
compensation plan in 2008.
SELLING SHAREHOLDERS
This prospectus relates to the offering and sale, from time to time, of up to 16,609,688
shares of our common stock held by the shareholders named in the table below. This amount includes
common shares issuable upon the exercise of warrants held by the selling shareholders. The selling
shareholders may exercise their warrants at any time after May 30, 2008 for investors that
purchased on November 30, 2007 (6,031,943 Warrants) and at any time after June 27, 2008 for
investors that purchased on December 27, 2007 (280,860 warrants) in their sole discretion subject to
certain limitations.
Set forth below is information, to the extent known to us, setting forth the name of each
selling shareholder and the amount and percentage of common stock owned by each (including shares
that can be acquired on the exercise of outstanding warrants) prior to the offering, the shares to
be sold in the offering, and the amount and percentage of common stock to be owned by each
(including shares that can be acquired on the exercise of outstanding warrants) after the offering
assuming all shares registered herein are sold.
Beneficial ownership is determined in accordance with Rule 13d-3 promulgated by the SEC, and
generally includes voting or investment power with respect to securities. Except as indicated in
the footnotes to the table, we believe, based on information by each selling shareholder, that each
selling shareholder possesses sole voting and investment power with respect to all of the shares of
common stock owned by that selling shareholder. In computing the number of shares beneficially
owned by a shareholder and the percentage ownership of that shareholder, shares of common stock
subject to options or warrants held by that shareholder that are currently exercisable or are
exercisable within 60 days after the date of the table are deemed outstanding. Those shares,
however, are not deemed to be outstanding for the purpose of computing the percentage ownership of
any other person or group.
The selling shareholders may sell all or some of the shares of common stock they are offering,
and may sell shares of our common stock otherwise than pursuant to this prospectus. The table below
assumes that each selling shareholder exercises all of its warrants and sells all of the shares
issued upon exercise thereof, and that each selling shareholder sells all of the shares offered by
it in offerings pursuant to this prospectus, and does not acquire any additional shares. We are
unable to determine the exact number of shares that will actually be sold or when or if these sales
will occur. See Plan of Distribution.
Page 38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ownership |
|
|
|
BENEFICIAL OWNERSHIP |
|
|
Percentage |
|
|
Number |
|
|
After |
|
Shareholder |
|
Shares |
|
|
Warrants |
|
|
Total |
|
|
of Total (1) |
|
|
Offered |
|
|
Offering |
|
Andrew Garret, Inc., Attention Guy G. Clemente,
Managing Director |
|
|
17,404 |
|
|
|
48,482 |
|
|
|
65,886 |
|
|
|
0.16 |
% |
|
|
65,866 |
|
|
|
|
|
BCWOD, JV |
|
|
75,000 |
|
|
|
37,500 |
|
|
|
112,500 |
|
|
|
0.27 |
% |
|
|
112,500 |
|
|
|
|
|
Edwin Bertolas Revocable Living Trust |
|
|
100,000 |
|
|
|
50,000 |
|
|
|
150,000 |
|
|
|
0.36 |
% |
|
|
150,000 |
|
|
|
|
|
Thomas Berton |
|
|
25,000 |
|
|
|
12,500 |
|
|
|
37,500 |
|
|
|
0.09 |
% |
|
|
37,500 |
|
|
|
|
|
Bleu Ridge Consultants, Inc. Profit Sharing Plan and
Trust |
|
|
25,000 |
|
|
|
12,500 |
|
|
|
37,500 |
|
|
|
0.09 |
% |
|
|
37,500 |
|
|
|
|
|
Susan A. Brasel |
|
|
10,000 |
|
|
|
5,000 |
|
|
|
15,000 |
|
|
|
0.04 |
% |
|
|
15,000 |
|
|
|
|
|
Charitable Remainder Trust of Tmothy J. Brasel |
|
|
30,000 |
|
|
|
15,000 |
|
|
|
45,000 |
|
|
|
0.11 |
% |
|
|
45,000 |
|
|
|
|
|
John Thomas Bridge and Opportunity Fund LP |
|
|
250,000 |
|
|
|
125,000 |
|
|
|
375,000 |
|
|
|
0.89 |
% |
|
|
375,000 |
|
|
|
|
|
Sam Buck |
|
|
200,000 |
|
|
|
100,000 |
|
|
|
300,000 |
|
|
|
0.71 |
% |
|
|
300,000 |
|
|
|
|
|
Chestnut Ridge Partners, LP |
|
|
400,000 |
|
|
|
200,000 |
|
|
|
600,000 |
|
|
|
1.43 |
% |
|
|
600,000 |
|
|
|
|
|
Richard Duane Clarkson |
|
|
100,000 |
|
|
|
50,000 |
|
|
|
150,000 |
|
|
|
0.36 |
% |
|
|
150,000 |
|
|
|
|
|
Lesa Ann Clarkson |
|
|
50,000 |
|
|
|
25,000 |
|
|
|
75,000 |
|
|
|
0.18 |
% |
|
|
75,000 |
|
|
|
|
|
Richard L. Clarkson, TTEE |
|
|
100,000 |
|
|
|
50,000 |
|
|
|
150,000 |
|
|
|
0.36 |
% |
|
|
150,000 |
|
|
|
|
|
David Clarkson |
|
|
40,000 |
|
|
|
20,000 |
|
|
|
60,000 |
|
|
|
0.14 |
% |
|
|
60,000 |
|
|
|
|
|
Lucille S. Ball IRRVOC TR Dated 9/10/1991, Richard L.
Clarkson, TTEE |
|
|
200,000 |
|
|
|
100,000 |
|
|
|
300,000 |
|
|
|
0.71 |
% |
|
|
300,000 |
|
|
|
|
|
John Coghlan |
|
|
100,000 |
|
|
|
50,000 |
|
|
|
150,000 |
|
|
|
0.36 |
% |
|
|
150,000 |
|
|
|
|
|
Michael
Cullen |
|
|
457 |
|
|
|
1,055 |
|
|
|
1,512 |
|
|
|
0.00 |
% |
|
|
1,512 |
|
|
|
|
|
Anthony DaCosta |
|
|
41,169 |
|
|
|
213,404 |
|
|
|
254,573 |
|
|
|
0.61 |
% |
|
|
254,573 |
|
|
|
|
|
Glen S. Davis |
|
|
30,000 |
|
|
|
15,000 |
|
|
|
45,000 |
|
|
|
0.11 |
% |
|
|
45,000 |
|
|
|
|
|
Del Rey
Management LP |
|
|
75,000 |
|
|
|
37,500 |
|
|
|
112,500 |
|
|
|
0.27 |
% |
|
|
112,500 |
|
|
|
|
|
Anthony Di Benedetto |
|
|
50,000 |
|
|
|
25,000 |
|
|
|
75,000 |
|
|
|
0.18 |
% |
|
|
75,000 |
|
|
|
|
|
Anthony DiGiandomenico |
|
|
511,169 |
|
|
|
447,614 |
|
|
|
958,783 |
|
|
|
2.28 |
% |
|
|
958,783 |
|
|
|
|
|
Jane DiGian |
|
|
50,000 |
|
|
|
25,000 |
|
|
|
75,000 |
|
|
|
0.18 |
% |
|
|
75,000 |
|
|
|
|
|
Warren Feldman |
|
|
50,000 |
|
|
|
25,000 |
|
|
|
75,000 |
|
|
|
0.18 |
% |
|
|
75,000 |
|
|
|
|
|
Firebird Global Master Fund, Ltd., c/o Trident Company
(Cayman) Limited |
|
|
1,500,000 |
|
|
|
750,000 |
|
|
|
2,250,000 |
|
|
|
5.36 |
% |
|
|
2,250,000 |
|
|
|
|
|
Genesis Financial, Inc. |
|
|
100,000 |
|
|
|
50,000 |
|
|
|
150,000 |
|
|
|
0.36 |
% |
|
|
150,000 |
|
|
|
|
|
Aaron A.
Grunfeld |
|
|
100,000 |
|
|
|
50,000 |
|
|
|
150,000 |
|
|
|
0.36 |
% |
|
|
150,000 |
|
|
|
|
|
Heller Capital |
|
|
750,000 |
|
|
|
375,000 |
|
|
|
1,125,000 |
|
|
|
2.68 |
% |
|
|
1,125,000 |
|
|
|
|
|
Iroquois Master Fund Ltd. |
|
|
100,000 |
|
|
|
50,000 |
|
|
|
150,000 |
|
|
|
0.36 |
% |
|
|
150,000 |
|
|
|
|
|
Raymond Kim |
|
|
25,152 |
|
|
|
12,851 |
|
|
|
38,003 |
|
|
|
0.09 |
% |
|
|
38,003 |
|
|
|
|
|
David Kincheloe |
|
|
30,000 |
|
|
|
15,000 |
|
|
|
45,000 |
|
|
|
0.11 |
% |
|
|
45,000 |
|
|
|
|
|
John G. Korman |
|
|
50,000 |
|
|
|
25,000 |
|
|
|
75,000 |
|
|
|
0.18 |
% |
|
|
75,000 |
|
|
|
|
|
Scott L. Landt |
|
|
5,000 |
|
|
|
2,500 |
|
|
|
7,500 |
|
|
|
0.02 |
% |
|
|
7,500 |
|
|
|
|
|
London Family Trust |
|
|
300,000 |
|
|
|
150,000 |
|
|
|
450,000 |
|
|
|
1.07 |
% |
|
|
450,000 |
|
|
|
|
|
David Carl Lustig, III |
|
|
50,000 |
|
|
|
25,000 |
|
|
|
75,000 |
|
|
|
0.18 |
% |
|
|
75,000 |
|
|
|
|
|
Chris Marlett |
|
|
10,427 |
|
|
|
24,077 |
|
|
|
34,504 |
|
|
|
0.08 |
% |
|
|
34,504 |
|
|
|
|
|
Raymond Marlett |
|
|
30,000 |
|
|
|
15,000 |
|
|
|
45,000 |
|
|
|
0.11 |
% |
|
|
45,000 |
|
|
|
|
|
MDB Capital Group, LLC, Attention Anthony
DiGiandomenico |
|
|
913,107 |
|
|
|
1,059,885 |
|
|
|
1,972,992 |
|
|
|
4.70 |
% |
|
|
1,972,992 |
|
|
|
|
|
RBC Dain Raucher CUST FBO Jonathan Meyers |
|
|
100,000 |
|
|
|
50,000 |
|
|
|
150,000 |
|
|
|
0.36 |
% |
|
|
150,000 |
|
|
|
|
|
Christine A. Mittman |
|
|
50,000 |
|
|
|
25,000 |
|
|
|
75,000 |
|
|
|
0.18 |
% |
|
|
75,000 |
|
|
|
|
|
Henri Nurminen |
|
|
8,000 |
|
|
|
4,000 |
|
|
|
12,000 |
|
|
|
0.03 |
% |
|
|
12,000 |
|
|
|
|
|
Michael Palin and Dean Palin, JTWROS |
|
|
100,000 |
|
|
|
50,000 |
|
|
|
150,000 |
|
|
|
0.36 |
% |
|
|
150,000 |
|
|
|
|
|
J. J. Peirce |
|
|
10,000 |
|
|
|
5,000 |
|
|
|
15,000 |
|
|
|
0.04 |
% |
|
|
15,000 |
|
|
|
|
|
Pleiades Investment Partners R, LP, c/o Potomac
Capital Management |
|
|
449,018 |
|
|
|
224,509 |
|
|
|
673,527 |
|
|
|
1.60 |
% |
|
|
673,527 |
|
|
|
|
|
Potomac Capital International Ltd., c/o Potomac Capital
Management |
|
|
411,613 |
|
|
|
208,806 |
|
|
|
617,419 |
|
|
|
1.47 |
% |
|
|
617,419 |
|
|
|
|
|
Potomac Capital Partners LP, c/o Potomac Capital
Management |
|
|
614,369 |
|
|
|
307,185 |
|
|
|
921,554 |
|
|
|
2.20 |
% |
|
|
921,554 |
|
|
|
|
|
Angela A. Rouse |
|
|
30,000 |
|
|
|
15,000 |
|
|
|
45,000 |
|
|
|
0.11 |
% |
|
|
45,000 |
|
|
|
|
|
Sachs Investing Company |
|
|
130,000 |
|
|
|
65,000 |
|
|
|
195,000 |
|
|
|
0.46 |
% |
|
|
195,000 |
|
|
|
|
|
Philip S. Sassower 1996 Charitable Remainder Annuity
Trust |
|
|
100,000 |
|
|
|
50,000 |
|
|
|
150,000 |
|
|
|
0.36 |
% |
|
|
150,000 |
|
|
|
|
|
John
Schneller |
|
|
|
|
|
|
116,435 |
|
|
|
116,435 |
|
|
|
0.28 |
% |
|
|
116,435 |
|
|
|
|
|
Sonoran Pacific Resources, LLP |
|
|
1,200,000 |
|
|
|
600,000 |
|
|
|
1,800,000 |
|
|
|
4.29 |
% |
|
|
1,800,000 |
|
|
|
|
|
James P. Tierney |
|
|
100,000 |
|
|
|
50,000 |
|
|
|
150,000 |
|
|
|
0.36 |
% |
|
|
150,000 |
|
|
|
|
|
M. Stephen Walker |
|
|
500,000 |
|
|
|
250,000 |
|
|
|
750,000 |
|
|
|
1.79 |
% |
|
|
750,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals |
|
|
10,296,885 |
|
|
|
6,312,803 |
|
|
|
16,609,688 |
|
|
|
39.58 |
% |
|
|
16,609,688 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Page 39
(1) |
|
The Total and Percentage of Total columns include shares issuable on exercise of
the Warrants. For purposes of this Table, all warrants are deemed exercised. |
|
(2) |
|
The Ownership After Offering column assumes that all selling shareholders sell 100%
of their ownership in this offering. |
PLAN OF DISTRIBUTION
The selling shareholders may, from time to time, sell any or all of their shares of common
stock on any stock exchange, market or trading facility on which the shares are traded or in
private transactions. These sales may be at fixed or negotiated prices. The selling shareholders
may use any one or more of the following methods when selling shares:
|
|
ordinary brokerage transactions and transactions in which the broker-dealer solicits
purchasers; |
|
|
|
block trades in which the broker-dealer will attempt to sell the shares as agent but may
position and resell a portion of the block as principal to facilitate the transaction; |
|
|
|
purchases by a broker-dealer as principal and resale by the broker-dealer for its account; |
|
|
|
an exchange distribution in accordance with the rules of the applicable exchange; |
|
|
|
privately negotiated transactions; |
|
|
|
short sales; |
|
|
|
broker-dealers may agree with the selling shareholders to
sell a specified number of such shares at a stipulated price per share; |
|
|
|
a combination of any such methods of sale; and |
|
|
|
any other method permitted pursuant to applicable law. |
The selling shareholders may also sell shares under Rule 144 under the Securities Act, if
available, rather than under this prospectus.
Broker-dealers engaged by the selling shareholders may arrange for other brokers-dealers to
participate in sales. Broker-dealers may receive commissions or discounts from the selling
shareholders (or, if any broker-dealer acts as agent for the purchaser of shares, from the
purchaser) in amounts to be negotiated. The selling shareholders do not expect these commissions
and discounts to exceed what is customary in the types of transactions involved. Any profits on
the resale of shares of common stock by a broker-dealer acting as principal might be deemed to be
underwriting discounts or commissions under the Securities Act. Discounts, concessions,
commissions and similar selling expenses, if any, attributable to the sale of shares will be borne
by a selling shareholder. The selling shareholders may agree to indemnify any agent, dealer or
broker-dealer that participates in transactions involving sales of the shares if liabilities are
imposed on that person under the Securities Act.
The selling shareholders may from time to time pledge or grant a security interest in some or
all of the shares of common stock owned by them and, if they default in the performance of their
secured obligations, the pledgees or secured parties may offer and sell the shares of common stock
from time to time under this prospectus after we have filed a supplement to this prospectus under
Rule 424(b)(3) or other applicable provision of the Securities Act of 1933 supplementing or
amending the list of selling shareholders to include the pledgee, transferee or other successors in
interest as selling shareholders under this prospectus.
The selling shareholders also may transfer the shares of common stock in other circumstances,
in which case the transferees, pledgees or other successors in interest will be the selling
beneficial owners for purposes of this
Page 40
prospectus and may sell the shares of common stock from time
to time under this prospectus after we have filed a supplement to this prospectus under Rule
424(b)(3) or other applicable provision of the Securities Act of 1933 supplementing or amending the
list of selling shareholders to include the pledgee, transferee or other successors in interest as
selling shareholders under this prospectus.
The selling shareholders and any broker-dealers or agents that are involved in selling the
shares of common stock may be deemed to be underwriters within the meaning of the Securities Act
in connection with such sales. In such event, any commissions received by such broker-dealers or
agents and any profit on the resale of the shares of common stock purchased by them may be deemed
to be underwriting commissions or discounts under the Securities Act.
We are required to pay all fees and expenses incident to the registration of the shares of
common stock. We have agreed to indemnify the selling shareholders against certain losses, claims,
damages and liabilities, including liabilities under the Securities Act.
The selling shareholders have advised us that they have not entered into any agreements,
understandings or arrangements with any underwriters or broker-dealers regarding the sale of their
shares of common stock, nor is there an underwriter or coordinating broker acting in connection
with a proposed sale of shares of common stock by any selling shareholder. If we are notified by
any selling shareholder that any material arrangement has been entered into with a broker-dealer
for the sale of shares of common stock, if required, we will file a supplement to this prospectus.
If the selling shareholders use this prospectus for any sale of the shares of common stock, they
will be subject to the prospectus delivery requirements of the Securities Act.
The anti-manipulation rules of Regulation M under the Securities Exchange Act of 1934 may
apply to sales of our common stock and activities of the selling shareholders
DESCRIPTION OF SECURITIES
Common Stock
We are presently authorized to issue 100,000,000 shares of common stock, par value of $0.001
per share. The holders of our common stock are entitled to equal dividends and distributions, per
share, with respect to the common stock when, as and if declared by our board of directors from
funds legally available therefor. No holder of any shares of our common stock has a preemptive
right to acquire additional shares issued by our company, or securities convertible into, or
evidencing any rights or options to purchase any shares. Upon our liquidation, dissolution or
winding up, and after payment of creditors and preferred shareholders, if any, the assets will be
divided pro-rata on a share-for-share basis among the holders of the shares of common stock. All
shares of common stock now outstanding are fully paid, validly issued and non-assessable. Each
share of common stock is entitled to one vote with respect to the election of any director or any
other matter upon which shareholders are required or permitted to vote. Holders of our common
stock do not have cumulative voting rights, so that the holders of more than 50% of the combined
shares voting for the election of directors may elect all of the directors, if they choose to do so
and, in that event, the holders of the remaining shares will not be able to elect any members to
our board of directors.
Preferred Stock
We are presently authorized to issue 5,000,000 shares of preferred stock, par value $0.001 per
share, of which 40,000 shares are designated Series A Preferred Stock. No shares of our preferred
stock are issued or outstanding.
Under our Articles of Incorporation, as amended, our board of directors has the power, without
further action by the holders of common stock, to designate the relative rights and preferences of
the preferred stock, and issue the preferred stock in one or more series as designated by our board
of directors. The designation of rights and preferences could include preferences as to
liquidation, redemption and conversion rights, voting rights, dividends or
other preferences, any of which may be dilutive of the interest of the holders of shares of
our common stock or the preferred stock of any other series. The issuance of preferred stock may
have the effect of delaying or preventing a
Page 41
change in control without further shareholder action
and may adversely affect the rights and powers, including voting rights, of the holders of shares
of our common stock. In certain circumstances, the issuance of preferred stock could depress the
market price of shares of our common stock. Our board of directors effects a designation of each
series of preferred stock by filing with the Washington Secretary of State articles of amendment to
our articles of incorporation defining the rights and preferences of each such series. Documents
so filed are matters of public record and may be examined in accordance with procedures of the
Washington Secretary of State, or copies thereof may be obtained from us.
Series A Preferred Stock
We are presently authorized to issue 40,000 shares of Series A Preferred Stock, par value
$0.001 per share. No shares of Series A Preferred Stock are issued or outstanding. Each share of
Series A Preferred Stock is convertible, at the option of the holder, at any time, into shares of
our common stock at a conversion ratio of 20 shares of common stock for each share of Series A
Preferred Stock for the first 12 months following the purchase date. Thereafter, the conversion
ratio will be reduced by 3.0% per year. Shares of our Series A Preferred Stock are entitled to one
vote per share and, in matters requiring class voting, shall vote together as a class. The Series
A Preferred Stock ranks senior to shares of our common stock with respect to any amounts payable
upon our liquidation, dissolution, or winding up. This liquidation preference will entitle the
holders of the Series A Preferred Stock to receive the price paid for the stock and all accrued,
but unpaid dividends on such shares. The Series A Preferred Stock rank junior to all debt of our
company. The conversion price of the Series A Preferred Stock will be adjusted for any subsequent
issuances of our common stock at a per-share issue price below $5.00 for the first year after
purchase. Thereafter, the conversion ratio of the Series A Preferred Stock will be adjusted for
subsequent issuances of our common stock at a per-share issue price below an amount equal to $5.00
plus a 3.0% increase each year. The anti-dilution protection will not apply to securities issued
(i) as a dividend or distribution on shares of our Series A Preferred Stock, (ii) to employees or
directors of, or consultants or advisors to, our Company or any of its subsidiaries pursuant to an
arrangement or plan approved by our Board of Directors, (iii) upon the exercise of options or the
conversion or exchange of our convertible securities, (iv) to banks, equipment lessors, or other
financial institutions, or to real property lessors, pursuant to debt financing, equipment leasing,
or real property leasing transactions approved by our Board of Directors, (v) pursuant to a sale by
our Company of shares of our common stock in an underwritten public offering under the Securities
Act with the public offering price being not less than $12,000,000 in the aggregate, or (vi)
pursuant to the exercise of warrants or rights granted to underwriters in connection with a public
offering referenced in (v). No adjustment to the conversion ratio of the Series A Preferred Stock
shall be made if we receive written notice from the holders of at least a majority of the then
outstanding shares of Series A Preferred Stock waiving such adjustment right. We may redeem the
Series A Preferred Stock at any time at the price paid per share plus accrued but unpaid dividends
thereon. Upon our call for redemption, each holder of Series A Preferred Stock has 30 days to
elect to convert such shares into shares of our common stock. From and after the date of issuance,
shares of our Series A Preferred Stock shall accrue a cumulative dividend of $5.00 per share per
annum, subject to adjustment in the event stock dividends, stock splits, combinations, or other
similar recapitalization transactions. Cumulative dividends on all outstanding shares of our
Series A Preferred Stock will accrue at a rate of $5.00 per share per annum (subject to adjustments
in the event of stock dividends, stock splits, combinations, or other similar recapitalization
transactions). However, we are under no obligation to pay such dividends. We cannot declare, set
aside, or pay any dividends on any of our shares unless the holders of the Series A Preferred Stock
receive a dividend per share equal to all accrued but unpaid dividends on each share of Series A
Preferred Stock and all other dividend amounts required under our Articles of Incorporation. The
Series A Preferred Stock have no registration rights.
Warrants and Options
The only outstanding warrants and/or options to purchase shares of our capital stock are as
follows:
|
|
|
Warrants to purchase up to 6,031,943 shares of our common stock, exercisable at $1.25
per share (subject to certain adjustments), with a five year term expiring on November 30,
2012. This warrant includes a full ratchet anti-dilution provision. See Adjustments and
Other Terms in the Warrants below. |
Page 42
|
|
|
Warrants to purchase up to 280,860 shares of our common stock, exercisable at $1.25 per
share (subject to certain adjustments), with a five year term expiring on December 27,
2012. This warrant includes a full ratchet anti-dilution provision. See Adjustments and
Other Terms in the Warrants below. |
|
|
|
|
Warrant to purchase up to 200,000 shares of our common stock, exercisable at $3.00 per
share (subject to adjustment to reflect stock dividends, stock splits, combinations or
exchanges of shares, or other capital changes), with a two year term expiring on March 31,
2009. This warrant includes a full ratchet anti-dilution provision for issuances of our
securities at a per share issue price below $3.00. |
|
|
|
|
Warrant to purchase up to 250,000 shares of our common stock, exercisable at $1.50 per
share, with a five year term expiring on August 14, 2012. This warrant includes certain
adjustments and other specific terms. See Adjustments and other Terms in the Warrants
below. |
Adjustments and Other Terms in the Warrants
With respect to all of the five year Warrants listed above, if certain changes occur to our
capitalization, such as a stock split, reverse stock split, stock dividend, consolidation, or
combination or reclassification of our common stock, then the number of shares issuable upon
exercise of the Warrants will be adjusted appropriately.
With respect to the five year Warrants listed above that have an exercise price of $1.25, in
the event that our Company merges, consolidates, or sells substantially all of its assets (a
Fundamental Transaction), the holder of each Warrant shall have the right to receive, in lieu of
the shares issuable upon exercise of their Warrants, stock, securities, or assets as would have
been issuable or payable with respect to or in exchange for a number of shares equal to the number
of shares immediately exercisable before such transaction took place. We cannot effect any
Fundamental Transaction unless the third party delivers to the holders of the Warrants a document
verifying its obligation to deliver to the holders of the Warrants the stock, securities, or assets
as discussed above. Further, if we declare or make any dividend or other distribution of our
assets to holders of our common stock, then the exercise price of the Warrants shall be reduced
according to certain calculations set forth in the Warrants.
With respect to the five year warrant listed above that has an exercise price of $1.50, in the
event that our Company effectuates a Fundamental Transaction, the holder of the Warrant shall have
the right to receive, shares issuable upon exercise of their Warrant, the right to receive (i) a
proportionate number of shares of common stock of the successor company, or (ii) cash equal to the
value of the Warrant if the sale is an all cash sale.
Dividends
We have never declared or paid dividends on any of our shares of capital stock. We intend to
retain earnings, if any, to support the development of our business and therefore do not anticipate
paying cash dividends for the foreseeable future. Payment of future dividends, if any, will be at
the discretion of our Board of Directors after taking into account various factors, including our
financial condition and results of operations, capital requirements, contractual restrictions,
business prospects, and other factors that the Board of Directors considers relevant.
Transfer Agent
The transfer agent for our common stock is Columbia Stock Transfer Company, 601 E. Seltice
Way, Suite 202, Post Falls, ID, 83854. Their telephone number is 208.664.3544.
LEGAL MATTERS
Certain legal matters with respect to the shares of common stock offered hereby will be passed
upon for us by Rogers & Hool LLP.
Page 43
EXPERTS
The financial statements as of December 29, 2006 and December 31, 2005 and for the fiscal
years ended December 29, 2006, December 31, 2005 and December 31, 2004 included in this prospectus
have been audited by DeCoria, Maichel and Teague, P.S., independent auditors, as stated in its
report appearing in this prospectus and elsewhere in the registration statement of which this
prospectus forms a part, and have been so included in reliance upon the reports of such firm given
upon its authority as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We are subject to the informational requirements of the Securities Exchange Act of 1934 and,
in accordance therewith, file reports and other information with the SEC. Our reports and other
information filed pursuant to the Securities Exchange Act of 1934 may be inspected and copied at
the public reference facilities maintained by the SEC at 100 F Street, N.E., Washington, D.C.
20549. Copies of such material can also be obtained from the Public Reference Room of the SEC at
J100 F Street, N.E., Washington, D.C. 20549, at prescribed rates. The public 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 a Web site that contains reports and other information regarding registrants that
file electronically with the SEC. The address of the SECs Web site is http://www.sec.gov.
We have filed with the SEC a registration statement on Form S-1 under the Securities Act of
1933 with respect to the common stock offered hereby. As permitted by the rules and regulations of
the SEC, this prospectus, which is part of the registration statement, omits certain information,
exhibits, schedules and undertakings set forth in the registration statement. Copies of the
registration statement and the exhibits are on file with the SEC and may be obtained from the SECs
Web site or upon payment of the fee prescribed by the SEC, or may be examined, without charge, at
the offices of the SEC set forth above. For further information, reference is made to the
registration statement and its exhibits.
Page 44
Command Center, Inc.
Index to Financial Statements
|
|
|
|
|
|
|
|
F-2 |
|
|
|
|
F -3 |
|
|
|
|
F -4 |
|
|
|
|
F -5 |
|
|
|
|
F-6 through F-14 |
|
|
|
|
|
|
|
|
|
F-15 |
|
|
|
|
F-16 |
|
|
|
|
F-17 |
|
|
|
|
F -18 |
|
|
|
|
F-19 |
|
|
|
|
F-20 |
|
|
|
|
F-21 through F-38 |
|
|
|
|
|
|
|
|
F-39 |
|
|
|
|
F-40 |
|
|
|
|
F-41 |
|
|
|
|
F -42 |
|
|
|
|
F -43 |
|
|
|
|
F- 44 |
|
|
|
|
F-45 through F-53 |
F-1
COMMAND CENTER, INC.
Unaudited Interim Financial Statements
September 28, 2007 and September 29, 2006
F-2
Command Center, Inc.
Balance Sheet (Unaudited)
|
|
|
|
|
|
|
September 28, 2007 |
|
Assets |
|
|
|
|
CURRENT ASSETS: |
|
|
|
|
Cash and cash equivalents |
|
$ |
251,095 |
|
Accounts receivable trade, net of allowance for bad debts of $430,000 |
|
|
10,706,633 |
|
Prepaid expenses, deposits, and other |
|
|
1,472,123 |
|
Prepaid workers compensation insurance |
|
|
1,320,890 |
|
Workers compensation risk pool deposits current |
|
|
1,064,000 |
|
|
|
|
|
Total current assets |
|
|
14,814,741 |
|
|
|
|
|
|
|
|
|
|
PROPERTY AND EQUIPMENT, NET |
|
|
3,348,636 |
|
|
|
|
|
|
|
|
|
|
OTHER ASSETS: |
|
|
|
|
Workers compensation risk pool deposits non-current |
|
|
3,581,000 |
|
Goodwill |
|
|
32,481,129 |
|
Amortizable intangibles net |
|
|
740,345 |
|
Other assets |
|
|
42,155 |
|
|
|
|
|
Total other assets |
|
|
36,844,629 |
|
|
|
|
|
|
|
$ |
55,008,006 |
|
|
|
|
|
Liabilities and Stockholders Equity |
|
|
|
|
CURRENT LIABILITIES: |
|
|
|
|
Accounts payable |
|
|
1,615,078 |
|
Checks issued and outstanding |
|
|
1,160,444 |
|
Accrued payroll, benefits and taxes |
|
|
3,052,465 |
|
Line of credit facility |
|
|
6,718,579 |
|
Notes payable |
|
|
2,664,219 |
|
Workers compensation insurance and reserves payable |
|
|
2,016,710 |
|
Workers compensation claims liability current |
|
|
1,064,000 |
|
|
|
|
|
Total current liabilities |
|
|
18,291,495 |
|
|
|
|
|
|
|
|
|
|
LONG-TERM LIABILITIES |
|
|
|
|
Notes payable net of current portion |
|
|
96,791 |
|
Finance obligation |
|
|
1,125,000 |
|
Workers compensation claims liability non-current |
|
|
1,286,000 |
|
|
|
|
|
Total long term liabilities |
|
|
2,507,791 |
|
|
|
|
|
Total liabilities |
|
|
20,799,286 |
|
|
|
|
|
|
|
|
|
|
COMMITMENTS AND CONTINGENCIES |
|
|
|
|
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
24,736,465 shares issued and outstanding |
|
|
24,735 |
|
Additional paid-in capital |
|
|
40,342,130 |
|
Accumulated deficit |
|
|
(6,158,145 |
) |
|
|
|
|
Total stockholders equity |
|
|
34,208,720 |
|
|
|
|
|
|
|
$ |
55,008,006 |
|
|
|
|
|
See accompanying notes to unaudited financial statements.
F-3
Command Center, Inc.
Statements of Operations (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen Weeks Ended |
|
|
Thirty-nine Weeks Ended |
|
|
|
September 28, 2007 |
|
|
September 29, 2006 |
|
|
September 28, 2007 |
|
|
September 29, 2006 |
|
REVENUE: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Staffing services revenue |
|
$ |
26,242,962 |
|
|
$ |
27,747,156 |
|
|
$ |
74,158,370 |
|
|
$ |
45,431,317 |
|
Franchise fee revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
535,745 |
|
Other income |
|
|
136,832 |
|
|
|
15,667 |
|
|
|
262,684 |
|
|
|
30,343 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue |
|
|
26,379,794 |
|
|
|
27,762,823 |
|
|
|
74,421,054 |
|
|
|
45,997,405 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COST OF STAFFING SERVICES |
|
|
18,473,276 |
|
|
|
19,624,124 |
|
|
|
53,661,722 |
|
|
|
32,719,116 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GROSS PROFIT |
|
|
7,906,518 |
|
|
|
8,138,699 |
|
|
|
20,759,332 |
|
|
|
13,278,289 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation and related expenses |
|
|
3,887,965 |
|
|
|
3,348,914 |
|
|
|
13,102,565 |
|
|
|
7,143,361 |
|
Selling and marketing expenses |
|
|
42,184 |
|
|
|
219,247 |
|
|
|
428,890 |
|
|
|
447,843 |
|
Professional expenses |
|
|
383,756 |
|
|
|
143,998 |
|
|
|
1,324,841 |
|
|
|
563,520 |
|
Depreciation and amortization |
|
|
214,600 |
|
|
|
111,848 |
|
|
|
622,009 |
|
|
|
215,880 |
|
Rents |
|
|
638,242 |
|
|
|
547,335 |
|
|
|
1,868,944 |
|
|
|
1,032,674 |
|
Travel and transportation |
|
|
480,361 |
|
|
|
98,398 |
|
|
|
1,886,071 |
|
|
|
348,796 |
|
Utilities and communications |
|
|
305,569 |
|
|
|
194,900 |
|
|
|
909,690 |
|
|
|
353,950 |
|
Insurance |
|
|
178,377 |
|
|
|
198,472 |
|
|
|
571,212 |
|
|
|
293,651 |
|
Bank fees |
|
|
159,106 |
|
|
|
93,142 |
|
|
|
528,120 |
|
|
|
124,504 |
|
Other expenses |
|
|
636,319 |
|
|
|
2,209,973 |
|
|
|
2,364,125 |
|
|
|
3,341,848 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,926,479 |
|
|
|
7,166,227 |
|
|
|
23,606,467 |
|
|
|
13,866,027 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME (LOSS) FROM OPERATIONS |
|
|
980,039 |
|
|
|
972,472 |
|
|
|
(2,847,135 |
) |
|
|
(587,738 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER INCOME (EXPENSE) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
(535,697 |
) |
|
|
(286,526 |
) |
|
|
(1,108,957 |
) |
|
|
(365,994 |
) |
Interest and dividend income |
|
|
|
|
|
|
9,098 |
|
|
|
|
|
|
|
44,430 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other
income/(expense) |
|
|
(535,697 |
) |
|
|
(277,428 |
) |
|
|
(1,108,957 |
) |
|
|
(321,564 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME (LOSS) |
|
$ |
444,342 |
|
|
$ |
695,044 |
|
|
$ |
(3,956,092 |
) |
|
$ |
(909,302 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME (LOSS) PER SHARE BASIC |
|
$ |
0.02 |
|
|
$ |
0.03 |
|
|
$ |
(0.16 |
) |
|
$ |
(0.05 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING |
|
|
24,612,054 |
|
|
|
23,048,555 |
|
|
|
24,019,256 |
|
|
|
16,541,304 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to unaudited financial statements.
F-4
Command Center, Inc.
Statements of Cash Flows (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Thirty-nine Weeks Ended |
|
Increase (Decrease) in Cash |
|
September 28, 2007 |
|
|
September 29, 2006 |
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(3,956,092 |
) |
|
$ |
(909,302 |
) |
Adjustments to reconcile net loss to net cash used by operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
622,009 |
|
|
|
275,883 |
|
Allowance for bad debts |
|
|
39,137 |
|
|
|
|
|
Stock issued for interest and compensation |
|
|
180,640 |
|
|
|
90,000 |
|
Amortization of note payable discount |
|
|
153,500 |
|
|
|
|
|
Changes in assets and liabilities |
|
|
|
|
|
|
|
|
Accounts receivable trade, net |
|
|
(1,417,622 |
) |
|
|
(4,472,497 |
) |
Due from affiliates |
|
|
|
|
|
|
123,418 |
|
Prepaid expenses |
|
|
(1,290,247 |
) |
|
|
(1,553,880 |
) |
Workers compensation risk pool deposits |
|
|
(2,592,290 |
) |
|
|
(2,305,000 |
) |
Accounts payable |
|
|
417,159 |
|
|
|
1,126,974 |
|
Amounts due to affiliates |
|
|
(782,184 |
) |
|
|
55,564 |
|
Accrued expenses |
|
|
1,494,601 |
|
|
|
1,216,410 |
|
Workers compensation insurance and risk pool deposits payable |
|
|
1,207,045 |
|
|
|
2,024,167 |
|
Workers compensation claims liability |
|
|
927,291 |
|
|
|
822,709 |
|
|
|
|
|
|
|
|
Total adjustments |
|
|
(1,040,961 |
) |
|
|
(2,596,252 |
) |
|
|
|
|
|
|
|
Net cash used by operating activities |
|
|
(4,997,053 |
) |
|
|
(3,505,554 |
) |
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
Purchases of property and equipment |
|
|
(439,294 |
) |
|
|
(820,204 |
) |
Purchase of Anytime Labor |
|
|
(247,500 |
) |
|
|
|
|
Collections on note receivable |
|
|
118,384 |
|
|
|
131,586 |
|
Proceeds from sale of investments |
|
|
|
|
|
|
404,000 |
|
|
|
|
|
|
|
|
Net cash provided by (used by) investing activities |
|
|
(568,410 |
) |
|
|
(284,618 |
) |
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
Net advances on line of credit facility |
|
|
993,433 |
|
|
|
1,195,684 |
|
Change in checks issued and outstanding |
|
|
311,048 |
|
|
|
495,729 |
|
Advances payable |
|
|
|
|
|
|
673,915 |
|
Sale of common stock |
|
|
730,000 |
|
|
|
585,000 |
|
Sale of preferred stock |
|
|
|
|
|
|
470,000 |
|
Proceeds received from notes payable |
|
|
2,111,210 |
|
|
|
|
|
Proceeds received from issue of warrants in connection with notes payable |
|
|
380,000 |
|
|
|
|
|
Payment made for note payable financing fee |
|
|
(100,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities |
|
|
4,425,691 |
|
|
|
3,420,328 |
|
|
|
|
|
|
|
|
NET INCREASE (DECREASE) IN CASH |
|
|
(1,139,772 |
) |
|
|
(369,844 |
) |
CASH, BEGINNING OF PERIOD |
|
|
1,390,867 |
|
|
|
369,844 |
|
|
|
|
|
|
|
|
CASH, END OF PERIOD |
|
$ |
251,095 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NON-CASH INVESTING AND FINANCING ACTIVITIES |
|
|
|
|
|
|
|
|
Common stock issued on conversion of preferred stock |
|
$ |
|
|
|
$ |
470,000 |
|
|
|
|
|
|
|
|
Common stock issued on conversion of amounts due affiliates |
|
$ |
578,147 |
|
|
$ |
|
|
|
|
|
|
|
|
|
Common stock issued for acquisition of: |
|
|
|
|
|
|
|
|
Accounts receivable, net |
|
$ |
|
|
|
$ |
6,477,104 |
|
Property, plant and equipment |
|
|
|
|
|
|
603,184 |
|
Prepaid expenses |
|
|
390,860 |
|
|
|
|
|
Financing liability assumed |
|
|
|
|
|
|
(4,767,262 |
) |
Amounts due to affiliates |
|
|
|
|
|
|
(529,516 |
) |
Payables assumed in acquisitons |
|
|
|
|
|
|
(105,101 |
) |
Goodwill and intangible assets |
|
|
|
|
|
|
30,565,248 |
|
Assets acquired in Anytime Labor purcahse |
|
|
912,000 |
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
1,302,860 |
|
|
$ |
32,243,657 |
|
|
|
|
|
|
|
|
Debt assumed in Anytime Labor purchase |
|
$ |
252,500 |
|
|
$ |
|
|
|
|
|
|
|
|
|
See accompanying notes to unaudited financial statements.
F-5
NOTE 1 BASIS OF PRESENTATION:
The accompanying unaudited financial statements have been prepared in conformity with generally
accepted accounting principles and reflect all normal recurring adjustments which, in the opinion
of Management of the Company, are necessary for a fair presentation of the results for the periods
presented. The results of operations for such periods are not necessarily indicative of the
results expected for the full fiscal year or 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 52 weeks ended December 29, 2006, and the
notes thereto contained in this Prospectus. Certain items previously reported in specific financial
statement captions have been reclassified to conform to the 2007 presentation.
NOTE 2 RECENT ACCOUNTING PRONOUNCEMENTS:
On January 1, 2007, we adopted Financial Accounting Standards Board Interpretation No. 48,
Accounting for Uncertainty in Tax Positions (FIN48). FIN48 prescribes a recognition threshold
and measurement attribute for the recognition and measurement of tax positions taken or expected to
be taken in income tax returns. FIN48 also provides guidance on de-recognition of income tax
assets and liabilities, classification of current and deferred income tax assets and liabilities,
and accounting for interest and penalties associated with tax positions.
In the course of our assessment, we determined that we were subject to examination of our income
tax filings in the United States and various state jurisdictions for the 2003 2006 tax years.
Within each of these jurisdictions we examined our material tax positions to determine whether we
believed they would be sustained under the more-likely-than-not guidance provided by FIN48. If
interest and penalties were to be assessed, we would charge interest to interest expense, and
penalties to other operating expense.
As a result of our assessment, we have concluded that the adoption of FIN48 had no significant
impact on the Companys results of operations or balance sheet for the thirty-nine weeks ended
September 28, 2007, and required no adjustment to opening balance sheet accounts as of December 30,
2006.
In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements, (SFAS 157), which
will become effective in our 2008 financial statements. SFAS 157 establishes a framework for
measuring fair value and expands disclosure about fair value measurements, but does not require any
new fair value measurements. We have not yet determined the effect that adoption of SFAS 157 may
have on our results of operations or financial position.
F-6
The FASB issued Statement No. 159, The Fair Value Option for Financial Assets and Financial
Liabilities including an amendment of FASB Statement No. 115, in the first quarter 2007. The
statement allows entities to value financial instruments and certain other items at fair value. The
statement provides guidance over the election of the fair value option, including the timing of the
election and specific items eligible for the fair value accounting. Changes in fair values would be
recorded in earnings. The statement is effective for fiscal years beginning after November 15,
2007. The Company is evaluating the impact the adoption of this statement will have, if any, on its
financial statements.
NOTE 3 EARNINGS PER SHARE:
Basic earnings (loss) per share (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 28, 2007, the Company had 450,000 warrants outstanding in two blocks.
One block of warrants entitles the holder to purchase 200,000 shares of common stock at $3.00 per
share expiring on April 1, 2009. The second block of warrants entitles the holder to purchase
250,000 shares of common stock at $1.50 per share, expiring on August 14, 2012. In
addition, the Company issued a convertible note in the amount of $500,000 to our investment banker
in a bridge funding transaction on August 14, 2007. The note is convertible into the securities
offered in the next equity funding undertaken by the Company. The type of securities and the
number of shares that may be issuable pursuant to the conversion feature cannot be determined at
this time. Diluted EPS is not presented for the thirteen and thirty-nine week periods ended
September 28, 2007. The dilutive effect of the warrants is not material.
NOTE 4 BUSINESS COMBINATIONS:
On January 1, 2007, we agreed to acquire certain assets and liabilities of Anytime Labor, Inc. for
$247,500 in cash and 200,000 shares of our common stock having an estimated value of $4.56 per
share. The acquired assets represent three temporary staffing stores. Two of the acquired stores
are in Oregon and one is in Washington. We closed the transaction on February 19, 2007. From
January 1, 2007 through the closing date of the transaction, we operated the stores under the
Command Center name pursuant to the acquisition agreement, and operations from these stores are
reflected in our financial statements for the thirteen and thirty-nine week periods ended September
28, 2007.
The following represents managements estimate of the fair value of the assets acquired and
liabilities assumed in the acquisitions.
|
|
|
|
|
Cash consideration |
|
$ |
247,500 |
|
Liabilities assumed |
|
|
252,500 |
|
Common stock |
|
|
912,000 |
|
|
|
|
|
Total consideration |
|
$ |
1,412,000 |
|
|
|
|
|
|
Accounts receivable |
|
$ |
0 |
|
Furniture and fixtures and equipment |
|
|
25,000 |
|
Intangible assets (customer relationships) |
|
|
125,000 |
|
Goodwill (estimated) |
|
|
1,262,000 |
|
|
|
|
|
Total assets acquired |
|
$ |
1,412,000 |
|
|
|
|
|
F-7
Prior to closing the acquisitions, Glenn Welstad, our CEO, loaned Anytime Labor $252,500 to allow
Anytime Labor to payoff an existing contractual obligation. Upon completion of the acquisitions,
the Company assumed the obligation due Mr. Welstad. This amount was repaid to Mr. Welstad in the
second quarter.
The Company also assumed certain obligations on existing operating leases and other contractual
rights in conjunction with the purchase. Management has estimated that the fair value of these
obligations and the contractual rights is immaterial and has not assigned any separately
identifiable value to these items. Management has estimated the fair value of Anytime Labors
customer list and recorded it as an intangible asset that will be amortized over a three year
period. Goodwill has been recorded based on the excess of the consideration paid over the net
identifiable assets and liabilities acquired.
The acquisitions were undertaken as an ongoing part of our growth strategy.
NOTE 5 RELATED-PARTY TRANSACTIONS:
The Company has had the following transactions with related parties:
New store surcharge fee. As part of the acquisition of the franchise operations of Command
Staffing and Harborview in November 2005, the Company assumed the obligation of Command Staffing to
pay Glenn Welstad, our CEO and Chairman, $5,000 for each new temporary staffing store opened by the
Company. Amounts owed to Mr. Welstad pursuant to the new store surcharge agreement were paid in
50,000 shares of common stock in the thirteen weeks ended September 28, 2007. In order to minimize
the cash flow impact of the new store surcharge agreement, any amounts due for future store
openings will be paid in stock at the rate of 2,200 shares per store at the time the new stores are
opened. This obligation will end at the earlier of December 31, 2001 of the opening of 250 new
stores.
Mr. Welstad also owns Alligator LLC (Alligator), an automobile leasing company. Alligator provides
approximately 20 vans and van drivers to the Company for use in transporting temoporary workers to
job sites at various locations within our sphere of operations. The Company provides fuel for the
vehicles and pays Alligator a lease payment for use of the vans plus reimbursement for the cost of
the drivers. As of September 28, 2007, the Company owed Alligator $159,755 under this arrangement.
The Company has also advanced funds to Viken Management, a company controlled by Mr. Welstad, to
pay obligations of Viken that were incurred prior to the roll-up of the franchisee operations. As
of September 28, 2007, Mr. Welstad owed the Company $229,000. With the agreement of Mr. Welstad,
this receivable balance will be offset against the balance due Alligator in the fourth quarter.
Any balance remaining after the offset will be repaid or subject to additional offsets prior to
year end.
F-8
NOTE 6 LINE OF CREDIT FACILITY:
On May 12, 2006, we entered into an agreement with our principal lender for a financing arrangement
collateralized by 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 Companys accounts receivable balance,
and when a customers aggregate past due account exceeds 50% of that customers aggregate balance
due. The lender will advance 85% of the invoiced amount for eligible receivables. 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 two and one half percent (prime
+2.5%) or 6.25% per annum. Our line of credit interest rate at September 28, 2007 was 10.75%. The
loan agreement further provides that interest is due at the applicable rate on the greater of the
outstanding balance or $5,000,000. The credit facility expires on April 7, 2009. In December
2006, the Company negotiated an increase in the maximum credit facility to $9,950,000. The loan
agreement includes certain financial covenants including a requirement that we maintain a working
capital ratio of 1:1, that we maintain positive cash flow, that we maintain a tangible net worth of
$3,500,000, and that we achieve operating results within a range of projected EBITDA. At September
28, 2007, we were not in compliance with these loan covenants. Our lender has waived compliance
with the covenants as of September 28, 2007. The balance due our lender at September 28, 2007 was
$6,718,579.
NOTE 7 NOTES PAYABLE TO AFFILIATES:
During the thirteen weeks ended September 28, 2007, the Company settled certain notes payable to
affiliates for stock. These conversions are described below:
|
|
|
|
|
Glenn Welstad(1) |
|
$ |
360,654 |
|
Dwight Enget(2) |
|
|
94,091 |
|
Tom Gilbert(2) |
|
|
60,306 |
|
Tom Hancock(2) |
|
|
27,659 |
|
Ronald L. Junck(2) |
|
|
2,714 |
|
Todd Welstad(2) |
|
|
814 |
|
Dave Wallace (3) |
|
|
31,909 |
|
|
|
|
|
|
|
$ |
578,147 |
|
|
|
|
|
|
|
|
(1) |
|
Mr. Welstad is our CEO and a director. The amount due Mr. Welstad includes
balances owing for new store surcharge fees, accrued salary owed from 2006, other assumed
liabilities in connection with equipment purchases and other expenses related to our
acquisition of temporary staffing stores, the Anytime Labor acquisitions, and additional
advances for working capital. |
|
(2) |
|
Mr. Enget, Mr. Gilbert, Mr. Hancock, Mr. Junck, and Mr. Todd Welstad are directors
and officers of the Company. The amounts due consist of liabilities incurred in connection
with the purchase of temporary staffing stores owned or controlled by them in 2006. |
F-9
|
|
|
(3) |
|
Mr. Wallace is a former franchisee and is currently employed as a manager with our
company. |
The notes were converted into common stock at a conversion price of $1.50 per share. An aggregate
of 385,431 shares of common stock were issued in the note conversions.
NOTE 8 NOTES PAYABLE
In the thirty-nine months ended September 28, 2007, we borrowed $2,000,000 on a short-term note
payable to an unrelated third party for supplemental working capital. We also borrowed $500,000
from our investment banker on a short-term bridge loan to be repaid or converted upon completion of
an equity funding.
The $2,000,000 loan funds were received in April and were used for working capital. The Note was
originally due on July 1, 2007 but has been extended through November 30, 2007. The Note
includes interest payable at 18% per annum through the original due date and 24% per annum from
July 1, 2007 until paid in full. The note holder was also granted warrants to purchase up to
200,000 shares of common stock at $3.00 per share at any time before April 1, 2009. The warrants
include a provision for adjustment of the warrant exercise price in the event of stock splits,
dividends, combinations or exchanges or other changes in capital structure. The warrants also
include a provision to adjust the exercise price if the Company sells other shares of common stock
for less than $3.00 per share. Interest on this note is accrued monthly.
In the Companys estimation, approximately $167,000 of the $2,000,000 note related to the value of
the warrants, resulting in a note discount of $167,000. In accordance with EITF 00-27, the note
discount is being amortized to interest expense over the life of the Note. In the thirteen weeks
ended September 28, 2007, $125,250 of the note discount was amortized to interest expense. The
balance of the note discount will be amortized to expense in the thirteen weeks ended December 28,
2007.
On August 14, 2007, the company also received $500,000 on a short-term Promissory Note from our
investment banker. The Note does not bear interest during the term and matures on the earlier of
the next equity funding or February 14, 2008. After maturity, the Note bears interest at the rate
of 12% per annum until paid. The Note is convertible into securities at the time of the next
equity funding undertaken by the Company. Terms of conversion will be the same as the terms of the
next equity funding, and are not yet defined. We also granted our investment banker warrants to
purchase up to 250,000 shares of our common stock at an exercise price of $1.50 per share. The
warrants are exercisable immediately and expire on August 14, 2012 (five years after issuance).
In the Companys estimation, approximately $213,000 of the $500,000 note related to the value of
the warrants, resulting in a note discount of $213,000. In accordance with APB 14, the note
discount is being amortized to interest expense over the life of the Note. In the thirteen weeks
ended September 28, 2007, $53,250 of the note discount was amortized to interest expense. In the
event the note is converted into common stock, the remaining balance of the note discount at
F-10
the time of conversion will immediately be recognized as interest expense. Upon conversion, the
conversion feature of the note will also be separately valued and may result in additional interest
expense at the date of conversion. The amount of additional interest expense will depend on the
terms of the next equity funding and the amount of additional interest cannot be determined as of
September 28, 2007.
The Company is pursuing an equity funding with the assistance of our investment banker. We expect
to utilize a portion of the funds from an equity funding, if successful, to repay the balances due
on these notes if not converted into securities in conjunction with the equity funding.
NOTE 9 WORKERS COMPENSATION INSURANCE AND RESERVES:
We provide our temporary and permanent workers with workers compensation insurance. Currently, we
maintain a large deductible workers compensation insurance policy through American International
Group, Inc. (AIG). The policy covers the premium year from May 13, 2007 through May 12, 2008.
While we have primary responsibility for all claims, our insurance coverage provides reimbursement
for covered losses and expenses in excess of our deductible. For workers compensation claims
arising in self-insured states, our workers compensation policy covers any claim in excess of the
$250,000 deductible on a per occurrence basis. This results in our being substantially
self-insured.
We obtained our current policy in May 2007 and since the policy inception, we have made payments
into a risk pool fund to cover claims within our self-insured layer. Our payments into the fund
for the premium year will total $3,920,000 based on estimates of expected losses calculated at
inception of the policy. If our payments into the fund exceed our actual losses over the life of
the claims, we may receive a refund of the excess risk pool payments. Correspondingly, if our
workers compensation reserve risk pool deposits are less than the expected losses for any given
policy period, we may be obligated to contribute additional funds to the risk pool fund. Our
maximum exposure under the policy is capped at the greater of $7,500,000 or 10.1% of payroll
expenses incurred during the premium year.
The workers compensation risk pool deposits totaled $4,645,000 as of September 28, 2007, and were
classified as current and non current assets based upon managements estimate of when the related
claims liabilities will be paid. The deposits have not been discounted to present value in the
accompanying financial statements.
We have discounted the expected liability for future losses to present value using a discount rate
of 4.5%, which approximates the risk free rate on US Treasury instruments. Our expected future
liabilities will be evaluated on a quarterly basis and adjustments to these calculations will be
made as warranted.
Expected losses will extend over the life of longest lived claim which may be outstanding for many
years. As a new temporary staffing company, we have limited experience with which to estimate the
average length of time during which claims will be open. As a result, our current actuarial
analysis is based largely on industry averages which may not be applicable to our
F-11
business. If our average claims period is longer than industry average, our actual claims losses could exceed our
current estimates. Conversely, if our average claims period is shorter than industry average, our
actual claims could be less than current reserves.
For workers compensation claims originating in Washington and North Dakota (our monopolistic
jurisdictions) we pay workers compensation insurance premiums and obtain full coverage under
government administered programs. We are not the primary obligor on claims in these jurisdictions.
Accordingly, our financial statements do not reflect liability for workers compensation claims in
these jurisdictions.
Workers compensation expense is recorded as a component of our cost of services and consists of
the following components: self-insurance reserves net of the discount, insurance premiums, and
premiums paid in monopolistic jurisdictions. Workers compensation expense for our temporary
workers totaled $4,071,003 in the thirty-nine weeks ended September 28, 2007. Prior to April 1,
2006, the Company operated as a franchisor of temporary staffing businesses and workers
compensation costs were not a materially significant component of operating costs.
NOTE 10 COMMITMENTS AND CONTINGENCIES:
Finance obligation. Our finance obligation consists of debt owed to a related party upon the
purchase of the Companys headquarters. The terms of the agreement call for lease payments of
$10,000 per month commencing on January 1, 2006 for a period of three years. The Company has the
option anytime after January 1, 2008 to purchase the building for $1,125,000 or continue to make
payments of $10,000 per month for another two years under the same terms. The Company accounts for
the lease payments as interest expense. The building is being depreciated over 30 years.
New store surcharge. The Company has an obligation to pay Glenn Welstad, our CEO, 2200 shares of
common stock for each new store opened. This obligation lasts until the earlier to occur of 250
new stores or December 31, 2011.
Contingent payroll and other tax liabilities. In May and June 2006, we acquired operating assets
for a number of temporary staffing stores. The entities that owned and operated these stores
received stock in consideration of the transaction. As operating businesses prior to our
acquisition, each entity incurred obligations for payroll withholding taxes, workers compensation
insurance fund taxes, and other liabilities. We structured the acquisition as an asset purchase
and agreed to assume only the liability for each entitys accounts receivable financing line of
credit. We also obtained representations that liabilities for payroll taxes and other liabilities
not assumed by the Company would be paid by the entities.
Since the acquisitions, it has come to our attention that certain tax obligations incurred on
operations prior to our acquisitions have not been paid. The entities that sold us the assets (the
selling entities) are primarily liable for these obligations. The owners of the entities may
also be liable. In most cases, the entities were owned or controlled by Glenn Welstad, our CEO.
F-12
Based on the information currently available, we estimate that the total state payroll and other
tax liabilities owed by the selling entities is between $300,000 and $500,000 and that total
payroll taxes due to the Internal Revenue Service is between $900,000 and $1,500,000. Our outside
legal counsel has advised us that the potential for successor liability on the IRS claims is
remote.
We have not accrued any amounts for these contingent payroll and other tax liabilities at September
28, 2007. We have obtained indemnification agreements from the selling entities and their
principal members for any liabilities or claims we incur as a result of these predecessor tax
liabilities. We have also secured the indemnification agreement with pledges of our common stock
legally or beneficially owned by the selling entities or their members. We believe the selling
entities and their principals have adequate resources to meet these obligations and have indicated
through their actions to date that they fully intend to pay the amounts due.
We understand that the responsible parties have entered into payment agreements on the substantial
majority of the tax obligations and expect to resolve these debts in full within the next twelve
months. To the best of our knowledge, no new payroll tax obligations of acquired entities have
been raised since December 29, 2006.
Operating leases. The Company leases store facilities, vehicles and equipment. Most of our store
leases have terms that extend over three to five years. Some of the leases have cancellation
provisions that allow us to cancel on ninety day notice, and some of the leases have been in
existence long enough that the term has expired and we are currently occupying the premises on
month-to-month tenancies. Lease obligations for the next five years as of June 29, 2006 are:
|
|
|
|
|
Remainder of 2007 |
|
$ |
328,000 |
|
2008 |
|
|
1,166,000 |
|
2009 |
|
|
918,000 |
|
2010 |
|
|
543,000 |
|
2011 |
|
|
155,000 |
|
Litigation. On December 31, 2005, ProTrades Connection, Inc. filed a lawsuit against Command
Staffing, LLC and seven individuals in the Superior Court for the State of California, Santa Clara
County. The individual defendants are employees of Command Center, Inc. and were formerly employed
by ProTrades. In the lawsuit, the plaintiff alleges that the individual defendants breached
written covenants against the solicitation of ProTrades employees. Subsequently, the plaintiff has
amended the Complaint to bring in as defendants other entities, including Command Center, Inc. and
other individuals. In September 2007, following briefing and argument of our motion for summary
judgment, the Judge granted our motion and dismissed all claims of ProTrades. ProTrades has now
appealed the granting of our motion and the appeal is pending.
Command Center and the remaining defendants intend to continue their vigorous defense of this case.
The Company has not established a contingent loss reserve as the outcome of the litigation is
uncertain at this point in time.
Payroll Tax Penalties and Interest. As of September 28, 2007, the Company was delinquent in the
payment of various payroll tax obligations totaling approximately $850,000. We have communicated
with each of the various taxing authorities and now have deferred payment
F-13
arrangements in place on substantially all of the delinquent balances. Accrued taxes recorded on the balance sheet as of
September 28, 2007 adequately reflect the delinquencies and the known penalties and interest. We
anticipate that additional penalties and interest may be incurred in connection with these
delinquencies, but do not expect the amounts to be significant. If substantial additional
penalties and interest are assessed, the companys financial condition could be adversely affected.
NOTE 11 STOCKHOLDERS EQUITY:
In the thirty-nine week period ended on September 28, 2007, the Company issued an aggregate of
1,244,603 shares of Common Stock. The shares of Common Stock were issued for asset acquisitions,
payment of consulting fees, as severance pay to terminated employees, for new investment in private
placements of 10,000 and 466,666 shares, and for conversion of notes payable to affiliates.
|
|
|
10,000 shares were sold in the first quarter at $3.00 per share. |
|
|
|
|
466,666 were sold in the second quarter at $1.50 per share. |
|
|
|
|
200,000 shares were issued as partial consideration for the acquisition of temporary
staffing store assets from Anytime Labor, Inc. Management estimated the value of the
shares issued in the Anytime Labor asset acquisition at $4.56 per share as provided in the
acquisition agreement (See Note 4). |
|
|
|
|
We issued 98,951 shares of common stock for prepaid sales force training services.
Management estimated the value of these shares at $3.96 per share in accordance with the
consulting services agreement. |
|
|
|
|
We issued 66,000 shares to terminated employees as severance pay. Management estimated
the value of the severance pay shares on the dates of issuance and recorded an aggregate of
$130,640 as compensation expense in the period. |
|
|
|
|
We issued 17,555 shares as payment of interest relating to the lease agreement on our
Post Falls corporate headquarters building. (See Notes 5 and 10). |
|
|
|
|
We issued 385,431 shares on conversion of $578,147 of notes payable to affiliates. (See
Note 7). |
F-14
COMMAND CENTER, INC.
Financial Statements and
Report of Independent Registered
Public Accounting Firm
December 29, 2006 and December 31, 2005
F-15
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, 2006 and 2005, and the related statements of operations, stockholders equity and cash
flows for the years then ended. These financial statements are the responsibility of the Companys
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, 2006 and 2005, 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.
As discussed in Note 1 to the financial statements the Company has restated its 2005 financial
statements.
March 20, 2007
Spokane, Washington
F-16
COMMAND CENTER, INC.
Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As Restated |
|
|
|
December 29, |
|
|
December 31, |
|
|
|
2006 |
|
|
2005 |
|
Assets |
|
|
|
|
|
|
|
|
CURRENT ASSETS: |
|
|
|
|
|
|
|
|
Cash |
|
$ |
1,390,867 |
|
|
$ |
369,844 |
|
Accounts receivable trade, net of allowance for bad debts of $390,863
and $37,000 at December 29, 2006 and December 31, 2005 |
|
|
9,328,148 |
|
|
|
356,367 |
|
Amounts due from affiliates |
|
|
|
|
|
|
676,101 |
|
Note receivable current |
|
|
65,609 |
|
|
|
191,847 |
|
Prepaid expenses and deposits |
|
|
1,111,906 |
|
|
|
47,214 |
|
Current portion of workers compensation risk pool deposits |
|
|
579,413 |
|
|
|
|
|
Investment in securities |
|
|
|
|
|
|
404,000 |
|
|
|
|
|
|
|
|
Total current assets |
|
|
12,475,943 |
|
|
|
2,045,373 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PROPERTY AND EQUIPMENT NET |
|
|
3,390,696 |
|
|
|
1,589,253 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER ASSETS: |
|
|
|
|
|
|
|
|
Note receivable non-current |
|
|
69,930 |
|
|
|
91,660 |
|
Workers compensation risk pool deposits |
|
|
1,473,297 |
|
|
|
|
|
Goodwill |
|
|
31,219,129 |
|
|
|
1,543,572 |
|
Intangible assets net |
|
|
731,000 |
|
|
|
|
|
|
|
|
|
|
|
|
Total other assets |
|
|
33,493,356 |
|
|
|
1,635,232 |
|
|
|
|
|
|
|
|
TOTAL ASSETS |
|
$ |
49,359,995 |
|
|
$ |
5,269,858 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders Equity |
|
|
|
|
|
|
|
|
CURRENT LIABILITIES: |
|
|
|
|
|
|
|
|
Accounts payable trade |
|
|
797,606 |
|
|
|
135,676 |
|
Checks issued and outstanding |
|
|
849,396 |
|
|
|
|
|
Line of credit facility |
|
|
5,725,146 |
|
|
|
|
|
Advances payable |
|
|
300,000 |
|
|
|
|
|
Amounts due to affiliates |
|
|
1,276,053 |
|
|
|
456,525 |
|
Accrued wages and benefits |
|
|
1,557,864 |
|
|
|
|
|
Other current liabilities |
|
|
400,313 |
|
|
|
|
|
Current portion of note payable |
|
|
8,445 |
|
|
|
|
|
Workers compensation insurance and risk pool deposits payable |
|
|
809,665 |
|
|
|
|
|
Current portion of workers compensation claims liability |
|
|
579,413 |
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
12,303,901 |
|
|
|
592,201 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LONG-TERM LIABILITIES |
|
|
|
|
|
|
|
|
Note payable, less current portion |
|
|
94,632 |
|
|
|
|
|
Workers compensation claims liability, less current portion |
|
|
843,296 |
|
|
|
|
|
Finance obligation |
|
|
1,125,000 |
|
|
|
1,125,000 |
|
|
|
|
|
|
|
|
Total long-term liabilities |
|
|
2,062,928 |
|
|
|
1,125,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COMMITMENTS AND CONTINGENCIES |
|
|
|
|
|
|
|
|
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;
23,491,862 and 10,066,013 issued and outstanding, respectively |
|
|
23,492 |
|
|
|
10,066 |
|
Additional paid-in capital |
|
|
37,171,727 |
|
|
|
3,325,496 |
|
Retained earnings (deficit) |
|
|
(2,202,053 |
) |
|
|
217,095 |
|
|
|
|
|
|
|
|
Total stockholders equity |
|
|
34,993,166 |
|
|
|
3,552,657 |
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND
STOCKHOLDERS EQUITY |
|
$ |
49,359,995 |
|
|
$ |
5,269,858 |
|
|
|
|
|
|
|
|
See accompanying notes to financial statements.
F-17
COMMAND CENTER, INC.
Statements of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As Restated |
|
|
|
52 Weeks Ended |
|
|
Year Ended |
|
|
|
December 29, |
|
|
December 31, |
|
|
|
2006 |
|
|
2005 |
|
REVENUE: |
|
|
|
|
|
|
|
|
Revenue from services |
|
$ |
70,622,505 |
|
|
$ |
|
|
Franchise revenues |
|
|
535,745 |
|
|
|
1,749,381 |
|
Other income |
|
|
113,376 |
|
|
|
440,878 |
|
|
|
|
|
|
|
|
|
|
|
71,271,626 |
|
|
|
2,190,259 |
|
|
|
|
|
|
|
|
COST OF SERVICES: |
|
|
|
|
|
|
|
|
Temporary worker costs |
|
|
46,994,265 |
|
|
|
|
|
Workers compensation costs |
|
|
3,773,246 |
|
|
|
|
|
Other direct costs of services |
|
|
287,327 |
|
|
|
|
|
|
|
|
51,054,838 |
|
|
|
|
|
|
|
|
|
|
|
|
GROSS PROFIT |
|
|
20,216,788 |
|
|
|
2,190,259 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES |
|
|
|
|
|
|
|
|
Personnel costs |
|
|
12,580,971 |
|
|
|
415,787 |
|
Selling and marketing expenses |
|
|
1,260,426 |
|
|
|
37,588 |
|
Transportation and travel |
|
|
1,064,174 |
|
|
|
85,549 |
|
Office expenses |
|
|
1,398,727 |
|
|
|
331,647 |
|
Legal, professional and consulting |
|
|
902,315 |
|
|
|
493,946 |
|
Depreciation and amortization |
|
|
336,516 |
|
|
|
58,104 |
|
Rents and leases |
|
|
1,468,039 |
|
|
|
28,380 |
|
Other expenses |
|
|
3,009,146 |
|
|
|
382,279 |
|
|
|
|
|
|
|
|
|
|
|
22,020,314 |
|
|
|
1,833,280 |
|
|
|
|
|
|
|
|
INCOME (LOSS) FROM OPERATIONS |
|
|
(1,803,526 |
) |
|
|
356,979 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
(703,513 |
) |
|
|
(2,221 |
) |
Interest and other |
|
|
87,891 |
|
|
|
|
|
|
|
|
|
|
|
|
Interest and other
income (expense),
net |
|
|
(615,622 |
) |
|
|
(2,221 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME (LOSS) |
|
$ |
(2,419,148 |
) |
|
$ |
354,758 |
|
|
|
|
|
|
|
|
BASIC AND DILUTED INCOME (LOSS) PER SHARE |
|
$ |
(0.13 |
) |
|
$ |
0.04 |
|
|
|
|
|
|
|
|
BASIC AND DILUTED WEIGHTED AVERAGE
COMMON SHARES OUTSTANDING |
|
|
18,247,364 |
|
|
|
9,563,835 |
|
|
|
|
|
|
|
|
See accompanying notes to financial statements.
F-18
COMMAND CENTER, INC. (Formerly Command Staffing LLC)
Statements of Stockholders Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional |
|
|
Retained |
|
|
|
|
|
|
Preferred Stock |
|
|
Common Stock |
|
|
Paid-in |
|
|
Earnings |
|
|
|
|
|
|
Shares |
|
|
Par Value |
|
|
Shares |
|
|
Par Value |
|
|
Capital |
|
|
(Deficit) |
|
|
Total |
|
BALANCES, DECEMBER 31, 2004 |
|
|
|
|
|
$ |
|
|
|
|
5,852,333 |
|
|
$ |
5,852 |
|
|
$ |
397,689 |
|
|
$ |
(137,663 |
) |
|
$ |
265,878 |
|
Forward stock split |
|
|
|
|
|
|
|
|
|
|
2,809,120 |
|
|
|
2,809 |
|
|
|
(2,809 |
) |
|
|
|
|
|
|
|
|
Stock issued for purchase of Harborview |
|
|
|
|
|
|
|
|
|
|
1,404,560 |
|
|
|
1,405 |
|
|
|
1,403,155 |
|
|
|
|
|
|
|
1,404,560 |
|
Recapitalization with Temporary Financial Services, Inc. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,527,461 |
|
|
|
|
|
|
|
1,527,461 |
|
Net income for the year |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
354,758 |
|
|
|
354,758 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCES, DECEMBER 31, 2005, as restated |
|
|
|
|
|
|
|
|
|
|
10,066,013 |
|
|
|
10,066 |
|
|
|
3,325,496 |
|
|
|
217,095 |
|
|
|
3,552,657 |
|
Common stock issued for purchase of temporary staffing
stores |
|
|
|
|
|
|
|
|
|
|
12,897,463 |
|
|
|
12,897 |
|
|
|
32,230,760 |
|
|
|
|
|
|
|
32,243,657 |
|
Preferred stock issued for cash |
|
|
4,700 |
|
|
|
5 |
|
|
|
|
|
|
|
|
|
|
|
469,995 |
|
|
|
|
|
|
|
470,000 |
|
Common stock issued on conversion of preferred stock |
|
|
(4,700 |
) |
|
|
(5 |
) |
|
|
156,667 |
|
|
|
157 |
|
|
|
(152 |
) |
|
|
|
|
|
|
|
|
Common stock issued for rent |
|
|
|
|
|
|
|
|
|
|
29,718 |
|
|
|
30 |
|
|
|
119,970 |
|
|
|
|
|
|
|
120,000 |
|
Common stock issued for cash |
|
|
|
|
|
|
|
|
|
|
342,001 |
|
|
|
342 |
|
|
|
1,025,658 |
|
|
|
|
|
|
|
1,026,000 |
|
Let loss for the year |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,419,148 |
) |
|
|
(2,419,148 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCES DECEMBER 29, 2006 |
|
|
|
|
|
$ |
|
|
|
|
23,491,862 |
|
|
$ |
23,492 |
|
|
$ |
37,171,727 |
|
|
$ |
(2,202,053 |
) |
|
$ |
34,993,166 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to financial statements.
F-19
COMMAND CENTER, INC.
Statements of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As Restated |
|
|
|
52 Weeks Ended |
|
|
Year Ended |
|
|
|
December 29, |
|
|
December 31, |
|
|
|
2006 |
|
|
2005 |
|
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(2,419,148 |
) |
|
$ |
354,758 |
|
|
|
|
|
|
|
|
Adjustments to reconcile net income (loss) to net cash
provided (used) by operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
336,516 |
|
|
|
53,917 |
|
Allowance for bad debts |
|
|
353,863 |
|
|
|
27,000 |
|
Amortization of note receivable discount |
|
|
11,136 |
|
|
|
4,187 |
|
Common Stock issued for interest on finance obligation |
|
|
120,000 |
|
|
|
|
|
Change in: |
|
|
|
|
|
|
|
|
Accounts receivable trade |
|
|
(2,765,256 |
) |
|
|
(279,683 |
) |
Amounts due from affiliates |
|
|
676,101 |
|
|
|
438,605 |
|
Prepaid expenses and deposits |
|
|
(1,064,692 |
) |
|
|
1,680 |
|
Workers compensation risk pool deposits |
|
|
(2,052,710 |
) |
|
|
|
|
Accounts payable trade |
|
|
661,930 |
|
|
|
(169,530 |
) |
Amounts due to affiliates |
|
|
290,012 |
|
|
|
105,000 |
|
Accrued wages, benefits and other |
|
|
1,958,177 |
|
|
|
|
|
Workers compensation insurance and risk pool deposits payable |
|
|
809,665 |
|
|
|
|
|
Workers compensation claims liability |
|
|
1,422,709 |
|
|
|
|
|
|
|
|
|
|
|
|
Total adjustments |
|
|
757,451 |
|
|
|
181,176 |
|
|
|
|
|
|
|
|
Net cash provided (used) by
operating activities |
|
|
(1,661,697 |
) |
|
|
535,934 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
Purchases of property and equipment |
|
|
(1,465,775 |
) |
|
|
(609,869 |
) |
Cash received in acquisitions |
|
|
|
|
|
|
335,009 |
|
Collections on note receivable |
|
|
136,832 |
|
|
|
200,835 |
|
Sale of investments |
|
|
404,000 |
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used by investing activities |
|
|
(924,943 |
) |
|
|
(74,025 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
Checks issued and outstanding |
|
|
849,396 |
|
|
|
|
|
Advances on line of credit facility |
|
|
964,291 |
|
|
|
|
|
Advances payable |
|
|
300,000 |
|
|
|
|
|
Principal payments on note payable |
|
|
(2,024 |
) |
|
|
(133,333 |
) |
Sales of preferred stock |
|
|
470,000 |
|
|
|
|
|
Sales of common stock |
|
|
1,026,000 |
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided (used) by
financing activities |
|
|
3,607,663 |
|
|
|
(133,333 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCREASE IN CASH |
|
|
1,021,023 |
|
|
|
328,576 |
|
CASH, BEGINNING OF YEAR |
|
|
369,844 |
|
|
|
41,268 |
|
|
|
|
|
|
|
|
CASH, END OF YEAR |
|
$ |
1,390,867 |
|
|
$ |
369,844 |
|
|
|
|
|
|
|
|
See accompanying notes to financial statements.
F-20
NOTE 1 BASIS OF PRESENTATION:
In 2005 we changed our business from that of a financing company to a franchisor of temporary
staffing businesses. In the second quarter of 2006, we changed our business from franchisor of
temporary staffing businesses to operator of temporary staffing businesses. Accordingly,
information presented for the year ended December 31, 2005 is not relevant to our current business
activities.
Restatements
The Companys financial statements have been restated from those previously reported. The
Restatement corrects an error in the Companys presentation of the recapitalization transaction
that took place November 9, 2005, and a real estate financing transaction.
Recapitalization transaction
For the year ended December 31, 2005, the Company presented comparative income statement
information for 2005 and 2004 reflecting operations of the predecessor company, Temporary Financial
Services, Inc. (TFS) through November 8, 2005, and the 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.
Upon managements review of the accounting guidance and consultation with other experts they
determined that Command Staffing was the accounting acquirer in the transaction. As a result, the
2005 statements of Command Center Inc. have been restated to include the purchase of the 50%
interest in Harborview not owned by Glenn Welstad, (the Companys CEO and a director) and the
operations and cash flows of TFS for the period beginning November 9, 2005 (the acquisition date)
and ending December 31, 2005.
Real estate financing transaction
In November 2005, the Company purchased a building for $1,125,000 in Post Falls, Idaho to serve as
its corporate headquarters. In December 2005, the Company entered into transaction in which it sold
the building to John Coghlan, a director and major shareholder 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 transaction was originally accounted for as a lease. Upon further review of the applicable
accounting guidance related to the sale, management concluded that the transaction should have been
properly accounted for as a financing transaction because of the Companys option to purchase the
building back from Mr. Coghlan. Accordingly, the Company has restated its 2005 financial statements
to reflect the building and a corresponding finance obligation. The restatement has no affect on
net income as previously reported.
F-21
The following is the summary of the effects of the above corrections:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As |
|
|
|
|
|
|
Originally |
|
As |
|
|
|
|
Filed |
|
Restated |
|
Change |
Financial position |
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
2,601,286 |
|
|
$ |
5,269,858 |
|
|
$ |
2,668,572 |
|
|
|
|
Finance obligation |
|
$ |
|
|
|
$ |
1,125,000 |
|
|
$ |
1,125,000 |
|
|
|
|
Total stockholders equity |
|
$ |
2,009,085 |
|
|
$ |
3,552,657 |
|
|
$ |
1,543,572 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Results of operations |
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
$ |
372,211 |
|
|
$ |
2,190,259 |
|
|
$ |
1,818,048 |
|
Operating and interest
expenses |
|
$ |
572,333 |
|
|
$ |
1,835,501 |
|
|
$ |
1,263,168 |
|
|
|
|
Net income (loss) |
|
$ |
(200,122 |
) |
|
$ |
354,758 |
|
|
$ |
554,880 |
|
|
|
|
Basic and diluted income
(loss) per share |
|
$ |
(0.05 |
) |
|
$ |
0.04 |
|
|
$ |
0.09 |
|
|
|
|
NOTE 2 ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Summary of Significant Accounting Policies
Organization. Command Center, Inc. (referred to as the Company, CCNI, us or we) is a
Washington corporation organized in 2000. We reorganized the company in 2005 and 2006 and now
provide temporary employees for manual labor, light industrial, and skilled trades applications.
Our customers are primarily small to mid-sized businesses in the construction, transportation,
warehousing, landscaping, light manufacturing, retail, wholesale, and facilities industries. We
have approximately 77 stores located in 22 states and the District of Columbia. None of our
customers currently make up a significant portion of our revenue by geographic region or as a
whole.
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.
Fiscal year end. The financial statements for the period ended December 29, 2006 are presented on
a 52/53-week fiscal year end basis, with the last day of the year ending on the last Friday of each
calendar year. In fiscal years consisting of 53 weeks, the final quarter will consist of 14 weeks.
In fiscal years with 52 weeks, all quarters will consist of thirteen weeks. 2006 was a 52
F-22
week year ending on December 29, 2006. We adopted the change to a 52/53 week year in April of 2006
when we converted our business model to a temporary staffing store operator from that of a
franchisor. We reported financial results in 2005 on the calendar year ending December 31, 2005.
Reclassifications. Certain amounts in the financial statements for 2005 have been reclassified to
conform to the 2006 presentation. These reclassifications have no effect on net income, total
assets or stockholders equity as previously reported.
Revenue recognition. In 2006 we generated revenues primarily from providing temporary staffing
services. Revenue from services is recognized at the time the service is performed and is net of
adjustments related to store credits. Revenues in 2005 were generated primarily from franchise
fees received from temporary staffing store franchisees. We acquired the franchisees in the second
quarter of 2006 and are no longer generating revenues from franchise fees.
At December 31, 2005, the Company had no obligations to franchisees that would represent
significant commitments or contingencies outstanding under our franchise agreements.
Cost of Services. Cost of services includes the wages of temporary employees, related payroll
taxes and workers compensation expenses.
Cash. Cash consists of demand deposits, including interest-bearing accounts with original
maturities of three months or less, held in banking institutions. At December 29, 2006,
approximately $766,000 was held in one bank and $220,000 in another bank. These amounts exceed the
depositor protections afforded by the Federal Deposit Insurance Corporation.
Accounts receivable and allowance for doubtful accounts. Accounts receivable are recorded at the
invoiced amount. We regularly review our accounts receivable for collectibility. The allowance
for doubtful accounts is determined based on historical write-off experience and current economic
data and represents our best estimate of the amount of probable losses on our accounts receivable.
The allowance for doubtful accounts is reviewed quarterly. We typically refer overdue balances to
a collection agency at ninety days and the collection agent pursues collection for another thirty
days. Most balances over 120 days past due are written off when it is probable the receivable will
not be collected.
Property and equipment. The Company capitalizes equipment purchases in excess of $1,500 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. Leasehold improvements are amortized over the
shorter of the non-cancelable lease term or their useful lives.
Capitalized software development costs. We expense costs incurred in the preliminary project stage
of developing or acquiring internal use software. Once the preliminary assessment is complete
management authorizes the project. When it is probable that: the project will be completed; will
result in new software or added functionality of existing software; and the
F-23
software will be used for the function intended, we capitalize the software development costs. For
the 52 weeks ended December 29, 2006 and the year ended December 31, 2005, capitalized software
costs, net of accumulated amortization, were $536,770 and $288,000 respectively. The capitalized
costs are amortized on a straight-line basis over the estimated useful life of the software which
ranges from three to seven years.
Workers compensation reserves. In accordance with the terms of our workers compensation
liability insurance policy, we maintain reserves for workers compensation claims to cover the cost
of claims up to the amount of our deductible. We use actuarial estimates of the future costs of
the claims and related expenses discounted by a present value interest rate to determine the amount
of the reserve. We evaluate the reserve regularly throughout the year and make adjustments as
needed. If the actual cost of the claims incurred and related expenses exceed the amounts
estimated, additional reserves may be required.
Goodwill and other intangible assets. Goodwill relates to the acquisition of a temporary staffing
software company in 2005 and 67 temporary staffing stores in 2006. In accordance with Statement of
Financial Accounting Standards (SFAS) No. 142, Goodwill and Other Intangible Assets, at least
annually as of the end of each fiscal year, goodwill is tested for impairment by applying a fair
value based test. In assessing the value of goodwill, assets and liabilities are assigned to the
reporting units and a discounted cash flow analysis is used to determine fair value. At December
29, 2006, we had not recorded any impairment losses related to goodwill. Intangible assets are
amortized using the straight-line method over their estimated useful lives which are estimated to
be 69 months. We expect to recognize amortization expense on our intangible assets of $160,000 per
year for the next four years and $81,000 during year five.
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 29, 2006 and December 31, 2005 the carrying values of
accounts receivable and accounts payable approximated their fair values. The carrying values of
investments and notes receivable at December 29, 2006 and December 31, 2005 also approximated their
fair values based on the nature and terms of those instruments. The carrying values of our
financing obligation, line of credit facility and amount due to affiliates, at December 29, 2006
and December 31, 2005 also approximated fair value based on their terms of settlement as compared
to the market value of similar instruments.
Investments. Investments are not a significant part of our business in 2006. Prior to November
2005, real estate contracts receivable were purchased and held for interest rate yield. At
December 31, 2005, our investments were held for sale with the sales proceeds intended to finance
our temporary labor business. The fair value of investments approximated their face value at
December 31, 2005.
Income tax. Deferred taxes are provided, when material, using 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
F-24
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. As required under SFAS No. 109, Accounting for Income Taxes, expected future tax
consequences are measured based on provisions of tax law as currently enacted; the effects of
future changes in tax laws are not anticipated. Future tax law changes, such as a change in a
corporate tax rate, could have a material impact on our financial condition or results of
operations. When warranted, we record a valuation allowance against deferred tax assets to offset
future tax benefits that may not be realized. In determining whether a valuation allowance is
appropriate, we consider whether it is more likely than not that all or some portion of our
deferred tax assets will not be realized, based in part on managements judgments regarding future
events. Based on our analysis, we have determined that a valuation allowance is appropriate for
net operating losses incurred in the year ended December 29, 2006.
Earnings per share. The Company accounts for its income (loss) per common share according to
Statement of Financial Accounting 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 52 weeks ended December 29, 2006 and the year ended December
31, 2005. Accordingly, no difference between basic and diluted earnings per share is reported at
December 29, 2006 and December 31, 2005.
Recent Accounting Pronouncements. In February 2006, the Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting Standards No. 155, Accounting for Certain Hybrid
Financial Instruments, and Amendment of FASB No. 133 and 140 (SFAS 155), which establishes the
accounting for certain derivatives embedded in other instruments. It simplifies accounting for
certain hybrid financial instruments by permitting fair value remeasurement for any hybrid
instrument that contains an embedded derivative, that otherwise would require bifurcation under
SFAS No. 133, as well as eliminating a restriction on the passive derivative instruments that a
qualifying special-purpose entity (SPE) may hold under SFAS No. 140. This statement allows a
public entity to irrevocably elect to initially, and subsequently, measure a hybrid instrument that
would be required to be separated into a host contract and derivative in its entirety at fair value
(with changes in fair value recognized in earnings) so long as that instrument is not designated as
a hedging instrument pursuant to the statement. SFAS No.140 previously prohibited a qualifying
special-purpose beneficial interest, other than another derivative financial instrument. The
statement is effective for fiscal years beginning after September 15, 2006, with early adoption
permitted as of the beginning of an entitys fiscal year. Management believes the adoption of this
statement will have no immediate impact on the Companys financial condition or results of
operations.
In June 2006, the FASB issued FASB interpretation No. 48 (FIN 48), Accounting for Uncertainty in
Income Taxes, an Interpretation of FASB Statement No. 109. Fin 48 clarifies the accounting for
uncertainty in income taxes recognized in a companys financial statements and prescribes a
recognition threshold and measurement attribute for the financial statement
F-25
recognition and measurement of a tax position taken or expected to be taken in an income tax
return. FIN 48 also provides guidance on derecognition, classification, interest and penalties,
accounting in interim periods, disclosure and transition. FIN 48 is effective beginning in fiscal
2008. The Company is currently evaluating the impact of adopting FIN 48.
In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (SFAS 157). SFAS 157
defines fair value, establishes a framework for measuring fair value, and expands disclosures about
fair-value measurements required under other accounting pronouncements, but does not change
existing guidance as to whether or not an instrument is carried at fair value. SFAS 157 is
effective for the Companys fiscal year 2008. The Company is currently evaluating the impact of
adopting SFAS 157.
NOTE 3 BUSINESS COMBINATIONS:
During 2006, we acquired the assets and/or rights to operate 67 temporary staffing stores formerly
operated by franchisees of the company. An aggregate of 12,897,463 shares were issued in the
acquisitions. We estimated the value of each share of stock issued in the acquisitions at $2.50
per share, resulting in a purchase price of $32,243,657, including $29,675,557 of goodwill, none of
which is expected to be deductible for tax purposes.
The following represents managements estimate of the fair value of the assets acquired and
liabilities assumed in the acquisitions.
|
|
|
|
|
Accounts receivable |
|
$ |
7,233,185 |
|
Reserve for uncollectible accounts |
|
|
(672,797 |
) |
Building |
|
|
149,000 |
|
Leasehold improvements |
|
|
147,644 |
|
Furniture and fixtures |
|
|
230,870 |
|
Computer equipment |
|
|
75,670 |
|
Intangible assets (customer relationships) |
|
|
800,000 |
|
Goodwill |
|
|
29,675,557 |
|
|
|
|
|
Total assets acquired |
|
|
37,639,129 |
|
|
|
|
|
|
Accounts receivable loans payable |
|
|
(4,760,855 |
) |
Mortgage payable |
|
|
(105,101 |
) |
Amounts payable to affiliates |
|
|
(529,516 |
) |
|
|
|
|
Total liabilities |
|
|
(5,395,472 |
) |
|
|
|
|
Total purchase price |
|
$ |
32,243,657 |
|
|
|
|
|
The acquisitions were undertaken as a key element in converting our business model from a
franchisor of temporary staffing stores to an operator of temporary staffing stores.
The following is an unaudited summary, prepared on a pro forma basis, combines the results of
operations of the Company with those of the acquired businesses for the 52 weeks ended December 29,
2006 and the year ended December 31, 2005, as if the acquisitions took place on January 1, 2005.
The pro forma results of operations include the impact of certain adjustments,
F-26
including elimination of inter company balances for franchise fees. Loss per share is derived
using pro forma weighted average shares calculated as if the shares issued in the acquisition were
issued and outstanding as of January 1, 2005.
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
|
2005 |
|
|
|
|
|
|
|
|
|
|
Gross revenues |
|
$ |
97,351,310 |
|
|
$ |
83,667,069 |
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(4,015,664 |
) |
|
$ |
(2,669,593 |
) |
|
|
|
|
|
|
|
|
|
Net loss per share-basic |
|
$ |
(0.17 |
) |
|
$ |
(0.12 |
) |
|
|
|
|
|
|
|
Net loss per share-diluted |
|
$ |
(0.17 |
) |
|
$ |
(0.12 |
) |
|
|
|
|
|
|
|
On November 9, 2005 and in connection with the recapitalization transaction described in Note 1,
the Company purchased the remaining 50% of Harborview from Ronald L. Junck, a director for
1,404,560 shares of the Companys unregistered common stock. The shares were valued at $1.00 per
share or $1,404,560 based on managements estimate of the fair value of the shares at the time of
the transaction. The estimated fair value of the assets and liabilities purchased are as follows:
|
|
|
|
|
Accounts receivable, net |
|
$ |
47,529 |
|
Property and equipment, net |
|
|
6,771 |
|
Software and development costs, net |
|
|
147,400 |
|
Goodwill |
|
|
1,543,572 |
|
|
|
|
|
Total assets acquired |
|
|
1,745,272 |
|
|
|
|
|
|
Accounts payable |
|
|
(69,447 |
) |
Accrued expenses |
|
|
(67,647 |
) |
Related party notes payable |
|
|
(203,620 |
) |
|
|
|
|
Total liabilities |
|
|
(340,714 |
) |
|
|
|
|
Total purchase price |
|
$ |
1,404,560 |
|
|
|
|
|
Assuming the Harborview had been acquired as of the beginning of the period and included in the
statements of operations, unaudited pro forma revenues, net income (loss) and net income (loss) per
share would have been as follows:
|
|
|
|
|
|
|
|
|
|
|
2005 |
|
|
2004 |
|
|
|
|
|
|
|
|
|
|
Gross revenues |
|
$ |
2,298,268 |
|
|
$ |
1,174,865 |
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
147,500 |
|
|
$ |
(123,425 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share-basic |
|
$ |
0.02 |
|
|
$ |
(0.02 |
) |
|
|
|
|
|
|
|
Net income per share-diluted |
|
$ |
0.02 |
|
|
|
|
|
|
|
|
|
|
|
|
|
F-27
NOTE 4 RELATED-PARTY TRANSACTIONS:
In addition to the related party transactions described in Notes 5, 10, and 13, the Company has had
the following transactions with related parties:
Finance Lease Transactions. During 2005, we purchased a building in Post Falls, Idaho to serve as
the corporate headquarters for the Company. The purchase price of the building was $1,125,000 and
the amount was paid in $525,000 of the Companys funds plus $600,000 advanced from John Coghlan, a
director and major shareholder. Subsequently, the Companys Board of Directors received an offer
from Mr. Coghlan to purchase the building from us subject to a finance lease arrangement described
in Note 15. The Board accepted Mr. Coghlans 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 Companys 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 of 2006.
New store surcharge fee. As part of the acquisition of the franchise operations of Command
Staffing and Harborview, the Company assumed the obligation of Command Staffing to pay Glenn
Welstad, our CEO and Chairman, $5,000 for each new temporary staffing store opened by the Company.
As of December 29, 2006 and December 31, 2005, the Company had accrued $175,000 and $105,000,
respectively, payable to Mr. Welstad in new store surcharge fees. In connection with the
acquisitions of the franchisee store operations in 2006, and to consolidate balances owing from and
to various individuals and entities, the accrued new store surcharge fee of $175,000 was converted
to a note payable to Mr. Welstad as of the end of the year. The note payable is described in Note
10.
In future periods, the obligation to pay the new store surcharge fee will accrue each time a new
store is opened. This obligation terminates at the earlier of the date Mr. Welstad has received
$1,700,000 (340 new stores), or December 31, 2010. If we open fewer than 340 stores by December
31, 2010, Mr. Welstads payments under this arrangement will be limited to the amounts actually
paid or accrued to that date.
NOTE 5 AMOUNTS DUE FROM AFFILIATES:
Accounts receivable-trade. Included in the Companys trade accounts receivable at December 29, 2006
and December 31, 2005 is $3,081 and $356,367, respectively, due from affiliates for franchise fees
owed prior to our reorganization as a provider of temporary staffing store services. These amounts
are due from temporary staffing businesses that are owned or controlled by the Companys officers,
directors, controlling shareholders, or their affiliates. In the year ended December 31, 2005,
substantially all of the companys franchise revenues were derived from franchisees affiliated with
the company through common control.
Accounts receivable-affiliates. At December 31, 2005, we were owed $676,101 by affiliates. This
amount included $523,849 due from John Coghlan for the balance due on the sale of the
F-28
building pursuant to the real estate finance transaction (see Note 15) and $152,252 due from Viken
Management (Viken) a company owned by Glenn Welstad, for advances made to Viken during the year.
During 2006, the balances due from Viken were combined with amounts we owed to Glenn Welstad for
his cash advances and other operating expenses paid on behalf of the Company (See Note 10).
Note receivable. At December 29, 2006, we were owed $65,609 on 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
that were controlled by affiliates. 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 29,
2006, the face amount of the note was $74,439 and an unamortized discount of $8,830 was recognized
as a direct deduction from face value. During the year ended December 29, 2006, the Company
recognized $11,136 of amortization of the discount in interest income. At December 29, 2005, the
face amount of the note was $303,493 and an unamortized discount of $4,187 was recognized as a
direct deduction from face value. We expect this note receivable to be paid in full in 2007 and
the entire remaining balance has been classified as current.
Net purchase receivable non-current. At December 29, 2006, various individuals owed us an
aggregate of $69,930 for amounts relating to the acquisitions of various temporary staffing stores
in 2006. Included in the net purchase receivables are notes from Myron Thompson ($38,083) and
Kevin Semerad ($11,584). Myron Thompson owns in excess of 10% of our Common Stock and Kevin
Semerad is a Director of the company. The net purchase receivable amount did not bear repayment
terms and was classified as non-current at December 29, 2006.
NOTE 6 PROPERTY AND EQUIPMENT:
The following table sets forth the book value of the assets and accumulated depreciation and
amortization at December 29, 2006 and December 31, 2005:
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
|
2005 |
|
|
|
|
|
|
|
|
|
|
Buildings and improvements |
|
$ |
1,274,000 |
|
|
$ |
1,125,000 |
|
Leasehold improvements |
|
|
750,364 |
|
|
|
|
|
Furniture & fixtures |
|
|
261,461 |
|
|
|
271,106 |
|
Computer hardware and licensed software |
|
|
864,327 |
|
|
|
|
|
Accumulated depreciation |
|
|
(296,226 |
) |
|
|
(94,583 |
) |
|
|
|
|
|
|
|
|
|
|
2,853,926 |
|
|
|
1,301,523 |
|
|
|
|
|
|
|
|
|
|
Software development costs |
|
|
714,913 |
|
|
|
400,000 |
|
Accumulated amortization |
|
|
(178,143 |
) |
|
|
(112,000 |
) |
|
|
|
|
|
|
|
|
|
|
536,770 |
|
|
|
288,000 |
|
|
|
|
|
|
|
|
Total property and equipment, net |
|
$ |
3,390,696 |
|
|
$ |
1,589,253 |
|
|
|
|
|
|
|
|
F-29
During the 52 weeks ended December 29, 2006 and the year ended December 31, 2005, the Company
recognized $267,516 and $58,104, respectively, of depreciation and amortization expense on its
property and equipment.
NOTE 7 INTANGIBLE ASSETS:
The following table presents the Companys purchased intangible assets other than goodwill, which
are included in other assets in the consolidated balance sheets:
|
|
|
|
|
|
|
2006 |
|
|
|
|
|
|
Customer relationships |
|
$ |
800,000 |
|
Less accumulated amortization |
|
|
(69,000 |
) |
|
|
|
|
Total amortizable intangible assets, net |
|
$ |
731,000 |
|
|
|
|
|
We obtained our amortizable intangible assets as a result of the acquisition of operating assets
and/or intangibles for 67 temporary staffing stores from various franchisees and store operators in
the second quarter of 2006. We evaluated the acquisitions in accordance with Statement of
Financial Accounting Standards No. 141. After considering all relevant factors, we concluded that
the only amortizable intangible asset acquired was the customer relationships of the entities whose
assets were purchased. Trademarks and trade names were not significant to the acquisitions since
either we already owned this class of intangibles and our franchisees were using the rights under
license, or we did not intend to carry forward the acquired businesses identity.
NOTE 8 LINE OF CREDIT FACILITY:
On May 12, 2006, we entered into an agreement with our principal lender for a financing arrangement
collateralized by 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 Companys accounts receivable balance,
and when a customers aggregate past due account exceed 50% of that customers aggregate balance
due. The lender will advance 85% of the invoiced amount for eligible receivables. 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 two and one half percent (prime
+2.5%) 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 which was 8.25% at
December 29, 2006. Our line of credit interest rate at December 29, 2006 was 10.75%. The loan
agreement further provides that interest is due at the applicable rate on the greater of the
outstanding balance or $5,000,000. The credit facility expires on April 7, 2008. In December,
2006, the Company negotiated an increase in the maximum credit facility to $9,950,000. The loan
agreement include certain financial covenants including a requirement that we maintain a working
capital ratio of 1:1, that we maintain positive cash flow, that we maintain a tangible net worth of
$2,000,000 through March 31, 2007 and $3,500,000 thereafter, and that we maintain a rolling average
of 75% of projected EBITDA. At December
F-30
29, 2006, we were not in compliance with the cash flow and tangible net worth covenants. Our
lender waived compliance at year end and the loan was in good standing at December 29, 2006. The
balance due our lender at December 29, 2006 was $5,725,146.
NOTE 9 ADVANCES DUE:
As of December 29, 2006, CCI had advances due unrelated parties of $300,000. The advances are
non-interest bearing, un-collateralized and expected to be paid within the current period. During,
2006 the Company used the funds received from advances to finance its operating activities.
NOTE 10 AMOUNTS DUE TO AFFILIATES:
As of December 29, 2006, amounts due to affiliates and related parties are as follows:
|
|
|
|
|
Glenn Welstad(1) |
|
$ |
719,407 |
|
Tom Gilbert(2) |
|
|
90,306 |
|
Dwight Enget(3) |
|
|
114,091 |
|
Ronald L. Junck(3) |
|
|
2,714 |
|
Other affiliated former owners of temporary
staffing stores(5) |
|
|
349,535 |
|
|
|
|
|
|
|
$ |
1,276,053 |
|
|
|
|
|
|
|
|
(1) |
|
Mr. Welstad is our CEO and a director, the amount due him includes: $175,000 in
new store surcharge fees (See Note 4), $70,000 of which was recognized in 2006; $90,000 of
accrued salary due during 2006, $351,525 of prior years amounts due, and $102,882 of other
assumed liabilities in connection with equipment purchases and other expenses related to our
acquisition of temporary staffing stores. |
|
(2) |
|
Mr. Gilbert is a director and an officer, the amount due him consists of
liabilities incurred in connection with the purchase of temporary staffing stores owned or
controlled by Mr. Gilbert in 2006. |
|
(3) |
|
Mr. Enget is a director and an officer, the amount due him consists of liabilities
incurred in connection with the purchase of temporary staffing stores owned or controlled by
Mr. Enget in 2006. |
|
(4) |
|
Mr. Junck is a director and the Companys chief counsel, the amount due him
consists of liabilities incurred in connection with the purchase of temporary staffing
stores owned or controlled by Mr. Junck in 2006. |
|
(5) |
|
These beneficial owners include the members of the various LLCs or the
shareholders of the incorporated entities. Many are current employees of the Company and
are not officers or directors, with the exception of the persons named in this paragraph.
Amounts due consist of liabilities incurred in connection with the purchase of temporary
staffing stores. |
F-31
At December 31, 2005, we owed Glenn Welstad or entities controlled by him $351,525 for equipment
purchases and other expenses incurred on behalf of the company at the time we acquired Command
Staffing and Harborview Software and for payroll management services provided to acquired entities
prior to acquisition that were assumed by the Company. We also owed Mr. Welstad $105,000 for new
store surcharge fees payable in accordance with our acquisition agreement (See Note 4).
During the first quarter of 2007, the outstanding amounts due to affiliates were converted to notes
payable. The notes are due on or before June 30, 2008, bear interest at 5%, and are the unsecured
general obligations of the company. The notes payable are subordinate to our line of credit
facility.
NOTE 11 WORKERS COMPENSATION INSURANCE AND RESERVES:
We provide our temporary and permanent workers with workers compensation insurance. Currently, we
maintain a large deductible workers compensation insurance policy through American International
Group, Inc. (AIG). The policy covers the premium year from May 12, 2006 through May 11, 2007.
While we have primary responsibility for all claims, our insurance coverage provides reimbursement
for covered losses and expenses in excess of our deductible. For workers compensation claims
arising in self-insured states, our workers compensation policy covers any claim in excess of the
$250,000 deductible on a per occurrence basis. This results in our being substantially
self-insured.
We obtained our current policy in May, 2006 and since the policy inception, we have made payments
into a risk pool fund to cover claims within our self-insured layer. Our payments into the fund
for the premium year will total $2,400,000 based on estimates of expected losses calculated at
inception of the policy. If our payments exceed our actual losses over the life of the claims, we
may receive a refund of the excess risk pool payments. The workers compensation risk pool
deposits totaled $2,052,710 as of December 29, 2006 and were classified as current and non current
assets based upon managements estimate of the timing of the related claims liability. The
deposits have not been discounted to present value in the accompanying financial statements.
We have discounted the expected liability for future losses to present value using a discount rate
of 4.5%, which approximates the risk free rate on US Treasury instruments. Our expected future
liabilities will be evaluated on a quarterly basis and adjustments to these calculations will be
made as warranted.
On the basis of these expected losses, our workers compensation reserve payments are considered
adequate at December 29, 2006. If our loss experience increases during the remainder of the policy
period which runs through May 11, 2007, the expected losses could exceed the reserves, in which
case, we would be obligated to contribute additional funds to the risk pool fund. As indicated,
our maximum exposure under the policy is capped at the greater of $5,750,000 or 10.6% of payroll
expenses incurred during the premium year.
F-32
We record our workers compensation contributions, net of expenses and payments actually made on
claims incurred as Workers compensation risk pool deposits. We also record Workers
compensation claims liability for expected losses on claims arising during the current period.
The claims liability is classified as current and non-current in our financial statements.
Expected losses will extend over the life of longest lived claim which may be outstanding for many
years. As a new temporary staffing company, we have limited experience with which to estimate the
average length of time during which claims will be open. As a result, our current actuarial
analysis is based largely on industry averages which may not be applicable to our business. If our
average claims period is longer than industry average, our actual claims losses could exceed our
current estimates. Conversely, if our average claims period is shorter than industry average, our
actual claims could be less than current reserves. For workers compensation claims originating in
Washington and North Dakota (our monopolistic jurisdictions) we pay workers compensation
insurance premiums and obtain full coverage under government administered programs. We are not the
primary obligor on claims in these jurisdictions. Accordingly, our financial statements do not
reflect liability for workers compensation claims in these jurisdictions.
Workers compensation expense is recorded as a component of our cost of services and consists of
the following components: self-insurance reserves net of the discount, insurance premiums, and
premiums paid in monopolistic jurisdictions. Workers compensation expense totaled $3,773,246 in
2006. Prior to 2006, the Company operated as a franchisor of temporary staffing businesses and
workers compensation costs were not a materially significant component of operating costs.
NOTE 12 NOTE PAYABLE:
Long-term debt consists of a note payable assumed in connection with the purchase of a temporary
staffing store. The note is payable in monthly installments of $1,200 that include interest at 6%.
The note is collateralized by a temporary staffing store building.
As of December 29, 2006, the note payable outstanding will mature as follows:
|
|
|
|
|
2007 |
|
$ |
8,445 |
|
2008 |
|
|
8,966 |
|
2009 |
|
|
9,519 |
|
2010 |
|
|
10,106 |
|
2011 |
|
|
10,729 |
|
Thereafter |
|
|
55,312 |
|
|
|
|
|
|
|
$ |
103,077 |
|
|
|
|
|
NOTE 13 STOCKHOLDERS EQUITY:
Acquisition and recapitalization. On November 9, 2005, the Company entered into an Asset Purchase
Agreement and acquired the operations of Command Staffing, LLC (Command Staffing) and Harborview
Software, Inc. (Harborview) for 6,554,613 shares of common stock (See Note 1). The transaction
was accounted for as a recapitalization of Command Staffing,
F-33
TFS, and 50% of Harborview, and as a purchase of the remaining 50% of Harborview. The financial
statements report 5,150,053 shares of common stock issued in connection with the recapitalization
of Command Staffing and 50% of Harborview as though the transaction had occurred at the beginning
of 2006. The issue of 1,404,560 shares of common stock in connection with the purchase of the
remaining 50% of Harborview is reported at the date of purchase (November 9, 2005). At December
31, 2005, the Company had 10,066,013 shares issued and outstanding.
Sales of Series A preferred stock. On March 30, 2006, the Company commenced a private placement of
up to 40,000 shares of Series A Preferred Stock at an offering price of $100 per share, or an
aggregate offering price of up to $4,000,000. The Company sold 4,700 shares in the offering,
raising an aggregate of $470,000. During 2006 preferred stock was converted into 156,667 shares of
the Companys restricted common stock. The conversion took place in connection with a private
offering of common stock at $3.00 per share.
Sales of Common Stock. On July 5, 2006, the Company commenced a private offering of 2,000,000
shares of common stock at $3.00 per share. 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 amount of $585,000.
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.
Five for one forward stock split. At December 31, 2004, TFS had 702,280 shares issued and
outstanding. On August 9, 2005, TFS 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.
NOTE 14 INCOME TAX:
Results of operations include the results of Command Staffing, LLC for the period from January 1,
2005 to November 9, 2005, and the results of Command Staffing, TFS and Harborview for the period
from November 10 through December 31, 2005 (See Note 1). As a limited liability company (LLC),
net income and net loss pass directly though to the LLC members with no impact to the Companys
financial statements. The acquisitions that occurred on November 9, 2005 had the effect of changing
the tax status of the company from an LLC to a C Corporation. Any deferred tax asset or liability,
including any income tax provision or benefit that would inure subsequent to the Command Staffing
acquisitions of Harborview and TFS on November 9, 2005, would be immaterial at December 31, 2005.
For the 52 weeks ended December 29, 2006, we operated as a C corporation. During the year, we
incurred a tax basis net operating loss of approximately $1,900,000. Temporary differences between
book losses and tax net operating losses amounting to approximately $500,000 result from accruals
for workers compensation expense, compensated absences and bad debts. Permanent differences for
tax basis non-deductible meals and entertainment expenses amount to
F-34
approximately $20,000. Taking into account these temporary and permanent differences, our net
operating loss carry forward is expected to generate a deferred tax asset of $940,000. Management
estimates that our combined federal and state tax rates will be 40%. At December 29, 2006, we have
fully offset the deferred tax asset by a valuation allowance because of uncertainties concerning
our ability to generate sufficient taxable income in future periods to realize the tax benefit.
For the year ended December 29, 2006, the income tax benefit differed from the $940,000 expected
amount due to the impact of recognizing the 100% deferred tax asset valuation allowance.
NOTE 15 COMMITMENTS AND CONTINGENCIES:
Finance obligation. Our finance obligation consists of debt owed to a related party upon the
purchase of the Companys headquarters (See Note 1). The terms of the agreement call for lease
payments of $10,000 monthly commencing on January 1, 2006 for a period of three years. The Company
has the option anytime after January 1, 2008 to purchase the building for $1,125,000 or continue to
make payments of $10,000 for another 2 years under the same terms. The Company accounts for the
lease payments as interest expense.
Contingent payroll and other tax liabilities. In May and June, 2006, we acquired operating assets
for a number of temporary staffing stores. The entities that owned and operated these stores
received stock in consideration of the transaction. As operating businesses prior to our
acquisition, each entity incurred obligations for payroll withholding taxes, workers compensation
insurance fund taxes, and other liabilities. We structured the acquisition as an asset purchase
and agreed to assume only the liability for each entitys accounts receivable financing line of
credit. We also obtained representations that liabilities for payroll taxes and other liabilities
not assumed by the Company would be paid by the entities.
Since the acquisitions, it has come to our attention that certain tax obligations incurred on
operations prior to our acquisitions have not been paid. We have also received notice from the
State of Washington that it may consider the Company as a successor and liable for payment of tax
obligations incurred prior to our acquisitions. The entities that sold us the assets (theselling
entities) are primarily liable for these obligations. The owners of the entities may also be
liable. In most cases, the entities were owned or controlled by Glenn Welstad, our CEO.
We are currently working with the responsible parties to assure that the selling entities pay the
amounts due in a timely manner. Should the selling entities or the owners of those entities fail
to pay the taxes due, it is possible that the Company will be required to pay the taxes and pursue
an action for reimbursement from the selling entities and/or their owners. As of December 29,
2006, we owed the entities responsible for these taxes $1,020,687 in settlement of the acquisitions
and in repayment of various advances made by Mr. Welstad to the Company. At year end, we owed Mr.
Welstad $719,533 out of the total due. Mr. Welstad also advanced an additional $750,000 in the
first quarter of 2007. Payment of these obligations will be applied to settlement of the payroll
and other taxes of the selling entities.
Based on the information currently available, we estimate that the total state payroll and other
tax liabilities owed by the selling entities to be between $900,000 and $1,000,000. We believe
that
F-35
the amounts due to the entities and Mr. Welstad will be adequate to satisfy any claims made by
state authorities against the Company for these tax balances.
We also understand that amounts are owed by the selling entities to the Internal Revenue Service
for payroll taxes relating to periods prior to our acquisitions. From currently available
information obtained from the IRS and the responsible entities, we estimate the IRS Liabilities at
between $1,500,000 and $2,000,000. We consulted with our attorney to estimate the probability that
the Company will be considered a successor to the selling entities and thereby liable on these
potential claims. Our counsel has advised us that the potential for successor liability on the IRS
claims is remote.
We have not accrued any amounts for these contingent payroll and other tax liabilities at December
29, 2006, because we believe the payables to affiliates balance is adequate to offset any
obligations we might otherwise incur as a result of these contingencies. If our estimate of our
potential liability for these contingencies is incorrect, and/or we are held responsible for
additional taxes, our financial condition may be adversely affected.
We understand that the responsible parties are in active communication with the state and federal
agencies and are pursuing near term plans to determine the correct amount of payroll and other
taxes due and to pay the amounts so determined.
Operating leases. In addition to the building in Post Falls, Idaho, the Company also leases store
facilities, vehicles and equipment. Most of our store leases have terms that extend over three to
five years. Some of the leases have cancellation provisions that allow us to cancel on ninety day
notice, and some of the leases have been in existence long enough that the term has expired and we
are currently occupying the premises on month-to-month tenancies. During the 52 weeks ended
December 29, 2006 and the year ended December 31, 2005, the Company recognized $1,468,039 and
$28,380, respectively, of rent and lease expense in the Statements of Operations.
Where we have early cancellation rights or the lease is a month-to-month tenancy, the lease
obligations are not included in our disclosure of future minimum lease obligations set out below.
The following schedule reflects the combined future minimum payments under outstanding leases as of
December 29, 2006.
|
|
|
|
|
2007 |
|
$ |
1,898,314 |
|
2008 |
|
|
1,616,789 |
|
2009 |
|
|
1,052,410 |
|
2010 |
|
|
577,442 |
|
2011 |
|
|
232,385 |
|
Litigation. On December 31, 2005 ProTrades Connection, Inc. filed a lawsuit against Command
Staffing, LLC and seven individuals in the Superior Court for the State of California, Santa Clara
County. The individual defendants are employees of Command Center, Inc and were formerly employed
by ProTrades. In the lawsuit, the plaintiff alleges that the individual defendants breached
written covenants against the solicitation of ProTrades employees. Subsequently, the plaintiff has
amended the Complaint to bring in as defendants other entities, including Command Center, Inc. and
other individuals.
F-36
Command Center and the remaining defendants intend to continue their vigorous defense of this case.
The Company has not established a contingent loss reserve as the outcome of the litigation is
uncertain at this point in time.
NOTE 16 SEGMENT REPORTING:
During the 52 weeks ended December 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. 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 |
|
|
Temporary Staffing |
|
|
|
|
|
|
Business |
|
|
Store Operations |
|
|
Combined |
|
Revenue |
|
$ |
535,745 |
|
|
$ |
70,735,881 |
|
|
$ |
71,271,626 |
|
Cost of sales |
|
|
|
|
|
|
51,054,838 |
|
|
|
51,054,838 |
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
535,745 |
|
|
|
19,681,043 |
|
|
|
20,216,788 |
|
|
Operating expenses |
|
|
205,032 |
|
|
|
21,598,766 |
|
|
|
21,803,798 |
|
Depreciation and amortization |
|
|
|
|
|
|
336,516 |
|
|
|
336,516 |
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations |
|
|
330,713 |
|
|
|
(2,254,239 |
) |
|
|
(1,923,526 |
) |
Other income |
|
|
|
|
|
|
(495,622 |
) |
|
|
(495,622 |
) |
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
330,713 |
|
|
$ |
(2,749,861 |
) |
|
$ |
(2,419,148 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Identifiable assets |
|
|
|
|
|
|
|
|
|
|
|
|
Current assets |
|
|
|
|
|
$ |
11,896,530 |
|
|
$ |
11,896,530 |
|
Property and equipment, net |
|
|
|
|
|
|
2,265,696 |
|
|
|
2,265,696 |
|
Workers compensation risk
pool deposits |
|
|
|
|
|
|
2,052,710 |
|
|
|
2,052,710 |
|
Goodwill |
|
|
|
|
|
|
31,219,129 |
|
|
|
31,219,129 |
|
Amortizable intangibles, net |
|
|
|
|
|
|
731,000 |
|
|
|
731,000 |
|
Net assets of $32,243,657 were added during the 52 weeks ended December 29, 2006 in connection with
the acquisition of temporary staffing stores. Substantially all capital expenditures in 2006
related to the Temporary Staffing Store Operations segment.
In 2005, our operations almost exclusively consisted of franchise business operations.
F-37
NOTE 17 SUPPLEMENTAL CASH FLOW INFORMATION:
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
|
2005 |
|
Cash paid during the year for: |
|
|
|
|
|
|
|
|
Interest |
|
$ |
583,513 |
|
|
$ |
3,650 |
|
|
|
|
|
|
|
|
Non-cash investing and financing activities: |
|
|
|
|
|
|
|
|
Stock issued in connection with recapitalization |
|
$ |
|
|
|
$ |
1,527,461 |
|
|
|
|
|
|
|
|
Related party advance extinguished in sale of real property |
|
$ |
|
|
|
$ |
(600,000 |
) |
|
|
|
|
|
|
|
Related party advance used to acquire real property |
|
$ |
|
|
|
$ |
600,000 |
|
|
|
|
|
|
|
|
Related party receivable in sale of real property |
|
$ |
|
|
|
$ |
525,000 |
|
|
|
|
|
|
|
|
Common stock issued on conversion of preferred stock |
|
$ |
470,000 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued for acquisitions of: |
|
|
|
|
|
|
|
|
Accounts receivable, net |
|
$ |
6,560,388 |
|
|
$ |
41,529 |
|
Property, plant and equipment |
|
|
603,184 |
|
|
|
154,171 |
|
Financial liabilities assumed |
|
|
(4,760,855 |
) |
|
|
(137,094 |
) |
Note payable assumed |
|
|
(105,101 |
) |
|
|
(203,620 |
) |
Amounts payable to affiliates |
|
|
(529,516 |
) |
|
|
|
|
Goodwill and intangible assets |
|
|
30,475,557 |
|
|
|
1,543,572 |
|
|
|
|
|
|
|
|
Total |
|
$ |
32,243,657 |
|
|
$ |
1,404,558 |
|
|
|
|
|
|
|
|
F-38
COMMAND CENTER, INC.
Financial Statements and
Report of Independent Registered
Public Accounting Firm
December 31, 2005 and 2004
F-39
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 Companys
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.
As discussed in Note 1 to the financial statements the Company has restated its 2005 and 2004
financial statements.
February 23, 2006, except for the restatement described in Note 1 to the financial statements, to
which the date is December 29, 2006.
Spokane, Washington
F-40
COMMAND CENTER, INC. (Formerly Command Staffing LLC)
Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
As restated |
|
|
|
December 31, |
|
|
|
2005 |
|
|
2004 |
|
Assets |
|
|
|
|
|
|
|
|
CURRENT ASSETS: |
|
|
|
|
|
|
|
|
Cash |
|
$ |
369,844 |
|
|
$ |
41,268 |
|
Accounts receivable trade,
net of allowance for bad debts of $37,000 at December 31, 2005 |
|
|
356,367 |
|
|
|
8,625 |
|
Accounts receivable affiliates |
|
|
676,101 |
|
|
|
65,857 |
|
Note receivable current |
|
|
191,847 |
|
|
|
|
|
Prepaid expenses |
|
|
47,214 |
|
|
|
1,500 |
|
Investment in securities |
|
|
404,000 |
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
2,045,373 |
|
|
|
117,250 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PROPERTY AND EQUIPMENT NET |
|
|
1,589,253 |
|
|
|
129,147 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER ASSETS: |
|
|
|
|
|
|
|
|
Note receivable non-current |
|
|
91,660 |
|
|
|
99,000 |
|
Franchise options |
|
|
|
|
|
|
31,045 |
|
Goodwill |
|
|
1,543,572 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
5,269,858 |
|
|
$ |
376,442 |
|
|
|
|
|
|
|
|
Liabilities and Stockholders Equity |
|
|
|
|
|
|
|
|
CURRENT LIABILITIES: |
|
|
|
|
|
|
|
|
Accounts payable trade |
|
|
135,676 |
|
|
|
110,564 |
|
Accounts payable affiliates |
|
|
351,525 |
|
|
|
|
|
Accrued new store surcharge fees affiliate |
|
|
105,000 |
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
592,201 |
|
|
|
110,564 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LONG-TERM LIABILITIES |
|
|
|
|
|
|
|
|
Finance obligation |
|
|
1,125,000 |
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term liabilities |
|
|
1,125,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COMMITMENTS (see Note 11) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 5,852,333 (pro forma) issued and outstanding,
respectively |
|
|
10,066 |
|
|
|
5,852 |
|
Additional paid-in capital |
|
|
3,325,496 |
|
|
|
397,689 |
|
Retained earnings |
|
|
217,095 |
|
|
|
(137,663 |
) |
|
|
|
|
|
|
|
Total stockholders equity |
|
|
3,552,657 |
|
|
|
265,878 |
|
|
|
|
|
|
|
|
|
|
$ |
5,269,858 |
|
|
$ |
376,442 |
|
|
|
|
|
|
|
|
See accompanying notes to financial statements.
F-41
COMMAND CENTER, INC. (Formerly Command Staffing LLC)
Statements of Operations
|
|
|
|
|
|
|
|
|
|
|
As restated |
|
|
|
Year Ended December 31, |
|
|
|
2005 |
|
|
2004 |
|
REVENUE: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Initial franchises and license fees |
|
|
27,928 |
|
|
|
66,819 |
|
Franchise option fees |
|
|
|
|
|
|
(31,040 |
) |
Interest and investment income |
|
|
28,491 |
|
|
|
|
|
Royalty income affiliates |
|
|
1,721,453 |
|
|
|
921,223 |
|
Other income |
|
|
412,387 |
|
|
|
90,033 |
|
|
|
|
|
|
|
|
|
|
|
2,190,259 |
|
|
|
1,047,035 |
|
|
|
|
|
|
|
|
OPERATING EXPENSES: |
|
|
|
|
|
|
|
|
Compensation and related taxes |
|
|
415,787 |
|
|
|
301,908 |
|
Subcontract fees |
|
|
3 |
|
|
|
160,416 |
|
Postage |
|
|
4,883 |
|
|
|
|
|
Travel and entertainment |
|
|
85,548 |
|
|
|
36,905 |
|
Rent and office expense |
|
|
159,831 |
|
|
|
94,653 |
|
Capital Temp Fund fees |
|
|
13,750 |
|
|
|
78,943 |
|
Business development |
|
|
37,588 |
|
|
|
83,227 |
|
Software support and
communications expenses |
|
|
195,313 |
|
|
|
118,131 |
|
Telephone and internet charges |
|
|
83,762 |
|
|
|
72,321 |
|
Legal, professional and consulting |
|
|
493,946 |
|
|
|
117,308 |
|
Interest expense |
|
|
2,221 |
|
|
|
6,201 |
|
Depreciation and amortization |
|
|
58,104 |
|
|
|
24,110 |
|
Other expense |
|
|
284,765 |
|
|
|
90,575 |
|
|
|
|
|
|
|
|
|
|
|
1,835,501 |
|
|
|
1,184,698 |
|
|
|
|
|
|
|
|
INCOME (LOSS) FROM OPERATIONS |
|
|
354,758 |
|
|
|
(137,663 |
) |
|
|
|
|
|
|
|
|
|
INCOME TAX PROVISION |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME (LOSS) |
|
$ |
354,758 |
|
|
$ |
(137,663 |
) |
|
|
|
|
|
|
|
BASIC AND DILUTED INCOME (LOSS) PER SHARE |
|
$ |
0.04 |
|
|
$ |
(0.01 |
) |
|
|
|
|
|
|
|
BASIC AND DILUTED WEIGHTED AVERAGE
COMMONS SHARES OUTSTANDING |
|
|
9,563,835 |
|
|
|
9,363,733 |
|
|
|
|
|
|
|
|
See accompanying notes to financial statements.
F-42
COMMAND CENTER, INC. (Formerly Command Staffing LLC)
Statements of Stockholders Equity, restated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional |
|
|
|
|
|
|
|
|
|
Members |
|
|
Common Stock |
|
|
Paid-in |
|
|
Retained Earnings |
|
|
|
|
|
|
Equity |
|
|
Shares |
|
|
Par Value |
|
|
Capital |
|
|
(Deficit) |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCES, DECEMBER 31, 2003 |
|
$ |
124,541 |
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
124,541 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contributions |
|
|
279,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
279,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss for the year |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(137,663 |
) |
|
|
(137,663 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of recapitalization (pro forma) |
|
|
(403,541 |
) |
|
|
5,852,333 |
|
|
|
5,852 |
|
|
|
397,689 |
|
|
|
|
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCES, DECEMBER 31, 2004 |
|
|
|
|
|
|
5,852,333 |
|
|
|
5,852 |
|
|
|
397,689 |
|
|
|
(137,663 |
) |
|
|
265,878 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward stock split |
|
|
|
|
|
|
2,809,120 |
|
|
|
2,809 |
|
|
|
(2,809 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock issued for purchase of Harborview |
|
|
|
|
|
|
1,404,560 |
|
|
|
1,405 |
|
|
|
1,403,155 |
|
|
|
|
|
|
|
1,404,560 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recapitalization with Temporary
Financial Services, Inc. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,527,461 |
|
|
|
|
|
|
|
1,527,461 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income for the year |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
354,758 |
|
|
|
354,758 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCES, DECEMBER 31, 2005 |
|
$ |
|
|
|
|
10,066,013 |
|
|
$ |
10,066 |
|
|
$ |
3,325,496 |
|
|
$ |
217,095 |
|
|
$ |
3,552,657 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to financial statements.
F-43
COMMAND CENTER, INC. (Formerly Commnand Staffing LLC)
Statements of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
As restated |
|
|
|
Year Ended December 31, |
|
|
|
2005 |
|
|
2004 |
|
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
354,758 |
|
|
$ |
(137,663 |
) |
|
|
|
|
|
|
|
Adjustments to reconcile net income (loss) to net cash
provided by operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
53,917 |
|
|
|
24,110 |
|
Allowance for bad debts |
|
|
27,000 |
|
|
|
|
|
Amortization of note receivable discount |
|
|
4,187 |
|
|
|
|
|
Change in: |
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
(279,683 |
) |
|
|
(2,044 |
) |
Accounts receivable affiliates |
|
|
438,605 |
|
|
|
115,433 |
|
Other assets |
|
|
47,394 |
|
|
|
31,040 |
|
Prepaid expenses and deposits |
|
|
(45,714 |
) |
|
|
26,278 |
|
Accounts payable and accrued expenses |
|
|
(169,530 |
) |
|
|
83,727 |
|
Other current liabilities |
|
|
|
|
|
|
(11,771 |
) |
Accrued new store surcharge fees affilates |
|
|
105,000 |
|
|
|
|
|
|
|
|
|
|
|
|
Total adjustments |
|
|
181,176 |
|
|
|
266,773 |
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
535,934 |
|
|
|
129,110 |
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
Cash used to acquire property and equipment |
|
|
(609,869 |
) |
|
|
(86,064 |
) |
Advances to affiliates |
|
|
|
|
|
|
(99,000 |
) |
Cash received in aquistions |
|
|
335,009 |
|
|
|
|
|
Collections on note receivable |
|
|
200,835 |
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used by investing activities |
|
|
(74,025 |
) |
|
|
(185,064 |
) |
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
Principal payments on note payable |
|
|
(133,333 |
) |
|
|
(196,190 |
) |
Shareholder/Member advance |
|
|
|
|
|
|
279,000 |
|
|
|
|
|
|
|
|
Net cash provided (used) by financing
activities |
|
|
(133,333 |
) |
|
|
82,810 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCREASE IN CASH |
|
|
328,576 |
|
|
|
26,856 |
|
CASH, BEGINNING OF YEAR |
|
|
41,268 |
|
|
|
14,412 |
|
|
|
|
|
|
|
|
CASH, END OF YEAR |
|
$ |
369,844 |
|
|
$ |
41,268 |
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION: |
|
|
|
|
|
|
|
|
Cash payments of interest |
|
$ |
3,650 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncash investing and financing activities: |
|
|
|
|
|
|
|
|
Stock issued in connection with recapitalization |
|
$ |
1,527,461 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock issued in connection with Harborview purchase |
|
$ |
1,404,560 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Related party advance extinguished in sale of real property |
|
$ |
(600,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Related party advance used to aquire real property |
|
$ |
600,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Related party receivable in sale of real property |
|
$ |
525,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to financial statements.
F-44
NOTE 1 RESTATED FINANCIAL STATEMENTS:
The Companys financial statements have been restated from those previously reported. The
Restatement corrects errors in the Companys presentation of the recapitalization transaction that
took place November 9, 2005, and a real estate financing transaction.
Recapitalization transaction
For the year ended December 31, 2005, the Company presented comparative income statement
information for 2005 and 2004 reflecting operations of the predecessor company, Temporary Financial
Services, Inc. (TFS) through November 8, 2005, and the 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.
Upon managements review of the accounting guidance and consultation with other experts they
determined that Command Staffing was the accounting acquirer in the transaction. As a result, the
comparative financial statements for 2004 have been restated to present the financial statements of
Command Staffing. The restated financial statements also give pro forma effect the the issuance of
5,150,053 shares of TFS common stock issued to the members of Command Staffing and to Glenn Welstad
(for his 50% interest in Harborview) as if the recapitalization was effected at the beginning of
2004.
The related 2005 statements of Command Center Inc. have been restated to include the purchase of
the 50% interest in Harborview not owned by Glenn Welstad, (the Companys CEO and a director) and
the operations and cash flows of TFS for the period beginning November 9, 2005 (the acquisition
date) and ending December 31, 2005.
Real estate financing transaction
In November 2005, the Company purchased a building for $1,125,000 in Post Falls, Idaho to serve as
its corporate headquarters. In December 2005, the Company entered into transaction in which it sold
the building to John Coghlan, a director and major shareholder 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 transaction was originally accounted for as a lease. Upon further review of the applicable
accounting guidance related to the sale, management concluded that the transaction should have been
properly accounted for as a financing transaction because of the Companys option to purchase the
building back from Mr. Coghlan. Accordingly, the Company has restated its 2005 financial statements
to reflect the building and a corresponding finance obligation. The restatement has no affect on
net income as previously reported.
F-45
NOTE 1 RESTATED FINANCIAL STATEMENTS, Continued:
The following is the summary of the effects of the above corrections:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As |
|
|
|
|
|
|
Originally |
|
As |
|
|
|
|
Filed |
|
Restated |
|
Change |
2005 |
|
|
|
|
|
|
|
|
|
|
|
|
Financial position |
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
2,601,286 |
|
|
$ |
5,269,858 |
|
|
$ |
2,668,572 |
|
|
|
|
Finance obligation |
|
$ |
|
|
|
$ |
1,125,000 |
|
|
$ |
1,125,000 |
|
|
|
|
Total stockholders equity |
|
$ |
2,009,085 |
|
|
$ |
3,552,657 |
|
|
$ |
1,543,572 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Results of operations |
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
$ |
372,211 |
|
|
$ |
2,190,259 |
|
|
$ |
1,818,048 |
|
Operating expenses |
|
$ |
572,333 |
|
|
$ |
1,835,501 |
|
|
$ |
1,263,168 |
|
|
|
|
Net income (loss) |
|
$ |
(200,122 |
) |
|
$ |
354,758 |
|
|
$ |
554,880 |
|
|
|
|
Basic and diluted income
(loss) per share |
|
$ |
(0.05 |
) |
|
$ |
0.04 |
|
|
$ |
0.09 |
|
|
|
|
Basic and diluted weighted
average common shares
outstanding |
|
|
4,445,208 |
|
|
|
9,563,835 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As |
|
|
|
|
|
|
Originally |
|
As |
|
|
|
|
Filed |
|
Restated |
|
Change |
2004 |
|
|
|
|
|
|
|
|
|
|
|
|
Financial position |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
1,653,276 |
|
|
$ |
376,442 |
|
|
$ |
(1,276,834 |
) |
|
|
|
Total liabilities |
|
|
|
|
|
$ |
110,564 |
|
|
$ |
110,564 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity |
|
$ |
1,653,276 |
|
|
$ |
265,878 |
|
|
$ |
(1,387,398 |
) |
|
|
|
Results of operations |
|
|
|
|
|
|
|
|
|
|
|
|
Revenue including gain on
sale of securities |
|
$ |
415,085 |
|
|
$ |
1,047,035 |
|
|
|
631,950 |
|
Operating expenses |
|
|
291,218 |
|
|
|
1,184,698 |
|
|
|
893,480 |
|
|
|
|
Net income (loss) |
|
$ |
123,867 |
|
|
$ |
(137,663 |
) |
|
$ |
(261,530 |
) |
|
|
|
Basic and diluted income
(loss) per share |
|
$ |
0.04 |
|
|
$ |
(0.01 |
) |
|
$ |
(0.05 |
) |
|
|
|
Basic and diluted
weighted average
common shares
outstanding |
|
|
3,515,715 |
|
|
|
9,363,733 |
|
|
|
|
|
|
|
|
F-46
NOTE 2 ACQUISITION OF HARBORVIEW:
On November 9, 2005 and in connection with the recapitalization transaction described in Note 1,
the Company purchased the remaining 50% of Harborview from Ron Junck, a director for 1,404,560
shares of the Companys unregistered common stock. The shares were valued at $1.00 per share or
$1,404,560 based on managements estimate of the fair value of the shares at the time of the
transaction. The assets and liabilities purchased are as follows:
|
|
|
|
|
Accounts receivable, net |
|
$ |
47,529 |
|
Property and equipment, net |
|
|
6,771 |
|
Software development costs, net |
|
|
147,400 |
|
|
|
|
|
Goodwill |
|
|
1,543,572 |
|
|
|
|
|
Total assets |
|
$ |
1,745,272 |
|
|
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
(69,447 |
) |
Accrued expenses |
|
|
(67,647 |
) |
Related Party Notes payable |
|
|
(203,620 |
) |
|
|
|
|
Total liabilities |
|
$ |
(340,714 |
) |
|
|
|
|
Total purchase price |
|
$ |
1,404,560 |
|
|
|
|
|
Assuming that Harborview had been acquired as of the beginning of the period and included in the
consolidated statements of operations, unaudited pro forma consolidated revenues, net income (loss)
and net income (loss) per share would have been as follows:
|
|
|
|
|
|
|
|
|
For years ended December 31, |
|
2005 |
|
|
2004 |
|
|
|
|
|
|
|
|
|
|
Gross revenues |
|
$ |
2,298,268 |
|
|
$ |
1,174,865 |
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
147,500 |
|
|
$ |
(123,425 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share-basic |
|
$ |
0.02 |
|
|
$ |
(0.02 |
) |
|
|
|
|
|
|
|
Net income per share-diluted |
|
$ |
0.02 |
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 3 ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
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.
F-47
Goodwill. Goodwill relates to the acquisition of Harborview. In accordance with Statement of
Financial Accounting Standards (SFAS) No. 142, Goodwill and Other Intangible Assets, at least
annually as of December 31, 2005, goodwill is tested for impairment by applying a fair value based
test. In assessing the value of goodwill, assets and liabilities are assigned to the reporting
units and a discounted cash flow analysis is used to determine fair value.
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.
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.
F-48
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.
Revenue recognition. In 2005 and 2004, the Company generated its revenues primarily from
franchise royalty fees.
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 franchisees weekly operations. The percentage ranges from 1% to 2% based upon the
individual franchisees gross profit and the terms of the franchise agreement.
At December 31, 2005, the Company had no obligations to franchisees 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 collectability 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.
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
F-49
distributed in August, 2005, and the recapitalization of Command Staffing with TFS and Harborview
(See Note 1), had occurred on January 1, 2004.
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 (APB 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 Companys first quarter
of 2006. Management does not expect that SFAS 154 will have a material impact on the Companys
results of operations and financial condition.
NOTE 4 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:
Finance Lease Transactions. 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 Companys funds plus $600,000 advanced from John
Coghlan, a director and major shareholder. Subsequently, the Companys Board of Directors received
an offer from Mr. Coghlan to purchase the building from the Company subject to a finance lease
arrangement described in Note 10. The Board accepted Mr. Coghlans 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 Companys 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.
F-50
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. Welstads payments
under this arrangement will be limited to the amounts paid or accrued to that date.
NOTE 5 AMOUNTS DUE FROM AFFILIATES:
Accounts receivable-trade. Included in the Companys trade accounts receivable at December 31, 2005
is $356,367 due from affiliates. These amounts are due from temporary staffing businesses that are
owned or controlled by the Companys 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 real estate finance transaction. See note 10. During 2005, the Company earned
$264,637 in franchise royalty income from affiliates.
NOTE 6 PROPERTY AND EQUIPMENT:
The following table sets forth the book value of the assets and accumulated depreciation and
amortization at December 31, 2005 and 2004:
|
|
|
|
|
|
|
|
|
|
|
2005 |
|
|
2004 |
|
|
|
|
|
|
|
|
|
|
Furniture & fixtures |
|
$ |
19,591 |
|
|
$ |
3,000 |
|
Property and equipment |
|
|
1,376,515 |
|
|
|
152,356 |
|
Accumulated depreciation |
|
|
(94,853 |
) |
|
|
(31,210 |
) |
|
|
|
|
|
|
|
Furniture, fixtures & equipment, net |
|
|
1,301,253 |
|
|
|
129,147 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Software development costs |
|
|
400,000 |
|
|
|
|
|
Accumulated amortization |
|
|
(112,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Software development costs, net |
|
|
288,000 |
|
|
|
|
|
|
|
|
|
|
|
|
Total property and equipment, net |
|
$ |
1,589,253 |
|
|
$ |
129,147 |
|
|
|
|
|
|
|
|
During the year ended December 31, 2005 and 2004, the Company recognized $58,104 and $24,110,
respectively, of depreciation and amortization expense on its furniture, fixtures, equipment, and
software development costs
F-51
NOTE 7 AMOUNTS DUE TO AFFILIATES:
At December 31, 2005 accounts payable to affiliates amounted to $351,525. Included in trade
accounts payable at December 31, 2004, was $59,898 due to affiliates. 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
Companys president and chairman. In addition, the Company owed Glenn Welstad $105,000 in accrued
new store surcharge fees.
NOTE 8 CAPITAL STOCK:
Five for one forward stock split. At December 31, 2004, TFS had 702,280 shares issued and
outstanding. On August 9, 2005, TFS 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 (Command Staffing) and Harborview
Software, Inc. (Harborview) for 6,554,613 shares of common stock (see Note 1). The Company
determined that the accounting acquirer for this transaction was Command Staffing. Glenn Welstad,
managing member and controlling shareholder of Command Staffing was deemed to have acquired 50% of
Harborview in the transaction. The transaction was accounted for as a recapitalization of Command
Staffing, TFS, and 50% of Harborview, and as a purchase of the remaining 50% of Harborview not
owned by Mr. Welstad. At December 31, 2005, the Company has 10,066,013 shares issued and
outstanding.
NOTE 9 INCOME TAX:
Results of operations include the results of Command Staffing for the year ended December 31, 2004
and for the period from January 1, 2005 to November 9, 2006 (See Note 1), and the results of
Command Staffing, TFS and Harborview for the period from November 10 through December 31, 2005. As
a limited liability company (LLC), net income and net loss pass directly though to the LLC
members with no impact to the Companys financial statements. The acquistions that occurred on
November 9, 2005 had the effect of changing the tax status of the company from LLC to C
Corporation. Any deferred tax asset or liability, including any income tax provision or benefit
that would inure subsequent to the Command Staffing acquisitions of Harborview and TFS on November
9, 2005, would be immaterial at December 31, 2005.
NOTE 10 FINANCE OBLIGATION:
Finance obligation consists of debt owed to a related party upon the purchase of the Companys
headquarters (See Note 1). The terms of the agreement call for lease payments of $10,000 monthly
commencing on January 1, 2006 for a period of three years. The Company has the option anytime
after January 1, 2008 to purchase the building for $1,125,000 or continue to
F-52
make payments of $10,000 for another 2 years under the same terms. The Company accounts for the
lease payments as interest expense.
NOTE 11 OPERATING LEASE OBLIGATIONS:
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.
At December 31, 2005, the future minimum payments under the operating lease were $43,463 for 2006.
NOTE 12 BUSINESS CONCENTRATION:
In the year ended December 31, 2005 and 2004, substantially all of the Companys 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 Companys franchisees. The franchisees
are owned in whole or in part by various officers and directors of the Company. As a result, the
Companys business is concentrated among a small number of affiliated parties and is subject to
business concentration risks.
NOTE 13 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.
F-53
TABLE OF CONTENTS
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
The following table sets forth estimated expenses we expect to incur in connection with the
sale of the shares being registered. All such expenses are estimated except for the SEC and FINRA
registration fees.
|
|
|
|
|
SEC registration fee |
|
$ |
832 |
|
Printing expenses |
|
$ |
15,000 |
|
Fees and expenses of counsel for the Company |
|
$ |
125,000 |
|
Fees and expenses of accountants for Company |
|
$ |
10,000 |
|
Blue Sky fees and expenses |
|
$ |
5,000 |
|
Miscellaneous |
|
$ |
5,000 |
|
*Total |
|
$ |
160,832 |
|
Item 14. Indemnification of Directors and Officers.
The Washington Business Corporation Act provides that a company may indemnify its directors
and officers as to certain liabilities. Our Articles of Incorporation (as amended) and Bylaws
authorize our company to indemnify our directors and officers to the fullest extent permitted by
law. The effect of such provisions is to indemnify the directors and officers of our 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 our company, to the
fullest extent permitted by law.
Our Bylaws require us to indemnify each of our directors and officers so long as such director
acted in good faith and, generally, believed that an action was in the best interests of our
company. Our directors and officers, however, are not entitled to such indemnification (i) if such
director or officer is adjudged liable to our company, or (ii) if such director or officer is
adjudged liable on the basis that personal benefit was improperly received by such officer or
director.
We maintain a directors and officers liability insurance policy to insure our directors and
officers against liability for actions or omissions occurring in their capacity as a director or
officer, subject to certain exclusions and limitations.
Insofar as limitation of, or indemnification for, liabilities arising under the Securities Act
may be permitted to directors, officers, or persons controlling us pursuant to the foregoing
provisions, we have been informed that in the opinion of the Securities and Exchange Commission,
such limitation or indemnification is against public policy as expressed in the Securities Act, and
therefore, is unenforceable.
Item 15. Recent Sales of Unregistered Securities.
The following sets forth all securities sold by Command Center, Inc. within the past three
years which were not registered under the Securities Act. No underwriters were used in any such
transactions. All sales of securities described below were made in reliance upon the exemption
from registration provided by Section 4(2) of the Securities Act (and/or Regulation D promulgated
thereunder) for transactions by an issuer not involving a public offering. None of the transactions
was effected using any form of general advertising or general solicitation as such terms are used
in Regulation D under the Securities Act. The recipients of securities in each such transaction
represented their intention to acquire the securities for investment only and not with a view to or
for sale in connection with any distribution thereof and appropriate legends were affixed to the
restricted securities issued in such transactions.
PIPE Transaction
On
November 30, 2007, we entered into and closed upon a Securities Purchase and Registration
Rights Agreement (the First Purchase Agreement) with the accredited investors named therein (the
Accredited Investors) and referred to as the selling shareholders in the Registration
Statement. On December 27, 2007, we entered into and closed upon a Securities
Purchase and Registration Rights Agreement (the Second Purchase Agreement) with the accredited
investors named therein (the Accredited Investors) upon terms and conditions substantially
identical to those of the First Purchase Agreement. Under these two Purchase Agreements, we sold to
the Accredited Investors 10,296,885 units (the Units), each Unit consisting of one share of our
common stock (the Common Stock) and a warrant to purchase a 0.50 share of Common Stock (the
Warrants), for an aggregate of 10,296,885 shares of Common Stock and Warrants to purchase up to
an aggregate of 5,148,443 additional shares of Common Stock. The Units were sold for a price of
$1.00 per Unit, for an aggregate purchase price of $10,296,885 (the Offering), which includes
all fees payable to MDB Capital Group, LLC (the Placement Agent). The Warrants issued by the
Company as part of the Units entitle the Accredited Investors to purchase additional shares of
common stock (the Warrant Shares) at an exercise price of $1.25 per share on or before November
30, 2012 or December 27, 2012, respectively.
As a part
of the Offering, the Placement Agent, converted a $500,000 note issued by the
Company in connection with an August 2007 bridge loan from the Placement Agent, into Units at a
conversion price of $1.00 per Unit. The Placement Agent also accepted $593,885 of the $611,289
cash portion of its placement agent fee in the form of Units at a price of $1.00 per Unit. These amounts are
included in the $10,296,885 aggregate purchase price. Separate Common Stock Purchase Warrants to
purchase up to an additional 1,026,000 and 21,925 shares of Common Stock at $1.25 per share
were issued to the Placement Agent and its assigns as additional placement agent compensation on
November 30, 2007 and December 27, 2007, respectively.
August 14, 2007 Bridge Loan from Placement Agent
On August 14, 2007, the Company received $500,000 pursuant to a short-term Promissory Note
(the Note) from MDB Capital Group, LLC (the Placement Agent). On November 30, 2007, the Note
was cancelled and converted into Units in connection with and according to the same terms and
conditions of the Offering as discussed above. In connection with the Note, the Company also
granted the Placement Agent a warrant to purchase up to 250,000 shares of the Companys common
stock at an exercise price of $1.50 per share. The warrant is exercisable immediately and expires
on August 14, 2012 (five years after issuance).
March 30, 2007 Warrant
On March 30, 2007 in connection with a loan from Sonoran Pacific Resources, LLP (Sonoran),
we issued a Warrant to Sonoran to purchase up to 200,000 shares of our common stock, exercisable at
$3.00 per share (subject to adjustment to reflect stock dividends, stock splits, combinations or
exchanges of shares, or other capital changes), with a two year term expiring on March 31, 2009.
This warrant includes a full ratchet anti-dilution provision for issuances of our securities at a
per share issue price below $3.00. The loan to Sonoran was repaid in cash and Units in connection with the First Purchase Agreement discussed above. The Units issued to Sonoran as repayment of such debt were valued at $1,200,000 or 1,200,000 Units, and are reflected in the total Units
issued under the Offering.
July 27, 2007 Employee Stock Issuances
On July 27, 2007, the Company settled certain notes payable to affiliates for stock. These
notes were converted into common stock at a conversion price of $1.50 per share. An aggregate of
385,431 shares of common stock were issued in the note conversions, each pursuant to a Cancellation
and Exchange Agreement.
These conversions are described below:
|
|
|
|
|
|
|
|
|
|
Employee |
|
Number of Shares Issued |
|
Debt Converted |
Glenn
Welstad |
|
240,436 |
|
$360,654 |
Dwight
Enget |
|
62,728 |
|
94,091 |
Tom
Gilbert |
|
40,205 |
|
60,306 |
Tom
Hancock |
|
18,439 |
|
27,659 |
Ronald
L. Junck |
|
1,810 |
|
2,714 |
Todd
Welstad |
|
543 |
|
814 |
Dave Wallace |
|
21,270 |
|
31,909 |
Additional Stock Issuances to Glenn Welstad
New store surcharge fee. As part of the acquisition of the franchise operations of Command
Staffing and Harborview in November, 2005, the Company assumed the obligation of Command Staffing
to pay Glenn Welstad, the Companys CEO and Chairman, $5,000 for each new temporary staffing store
opened by the Company. Amounts owed to Mr. Welstad pursuant to the new store surcharge agreement
were paid by issuing 50,000 shares of common stock to Mr. Welstad over the thirteen weeks ended
September 28, 2007. In order to fulfill all present and future obligations under this agreement,
on November 14, 2007, the Company issued to Mr. Welstad 550,000 shares of common stock,
representing the net present value (estimated to be $850,000) of the Companys projected
obligations under such agreement. With the issuance of these shares, the Company has no further
obligations under the new store surcharge agreement.
2006 Series A Preferred Stock Offering and Conversion to Common Stock
On March 30, 2006, we commenced a private placement of up to 40,000 shares of Series A
Preferred Stock at an offering price of $100 per share, or an aggregate offering price of up to
$4,000,000. During 2006, we sold 4,700 shares of Series A Preferred Stock at an offering price of
$100 per share, for an aggregate offering price of $470,000. We further issued 11,254 shares of
Series A Preferred Stock for forgiveness of certain debt to the Company. The Series A Preferred
Stock was convertible into Common Stock at a conversion price of 33 and 1/3 shares of Common Stock
per one share of Series A Preferred converted. All of the Series A Preferred Shares were converted
into 156,666 shares of Common Stock.
2006 Common Stock Offerings
We issued 29,718 shares of Common Stock to John Coghlan, then a director of the Company, in
2006 in lieu of a cash payment due to him from the Company for $120,000 in rent.
By resolution dated July 5, 2006, the Board of Directors of the Company elected to terminate
the private offering of Series A Preferred Stock. The Series A Preferred Stock offering was
terminated due to market conditions which affected the marketability of the investment. To
provide for ongoing funding needs, the Board also resolved to continue fundraising efforts through
a private offering of up to 2,000,000 shares of Common Stock at an offering price of $3.00 per
share. The conversion of Series A Preferred Stock discussed above was offered in connection with
this Common Stock offering and the remaining 1,843,334 shares were offered for cash. We sold
342,002 shares of Common Stock in this private placement in 2006.
Stock Issuance Pursuant to Purchase Agreement
On the November 9, 2005, the Company (previously Temporary Financial Services, Inc.) issued
6,554,613 shares of Common Stock to accredited investors for the acquisition of the assets of
Command Staffing, LLC and Harborview Software, Inc., as described in the Asset Purchase Agreement
dated as of November 9, 2005 by and among Command Center, Inc. (formerly Temporary Financial
Services, Inc.), Command Staffing LLC, Harborview Software, Inc., and the Operations Entities as
defined therein (the Asset Purchase Agreement).
The Phase II Closings under the Asset Purchase Agreement involved two stages and the
acquisition of certain Operations Entities in exchange for the issuance of a total of 12,897,463
shares of our Common Stock to accredited investors on May 12, 2006 and June 30, 2006. Effective
May 12, 2006, we initially closed on the acquisition of 31 Operations Entities (owning a total of
48 temporary staffing stores) in exchange for the issuance of 11,438,022 shares of our Common
Stock. Eight of the Operations Entities located in the state of Minnesota received shares in the
Command Transaction in exchange for cash in lieu of the transfer of substantially all of the assets
of such Operations Entities. The Minnesota Operations Entities also agreed to transfer their
respective franchise rights with our Company back to us, effectively terminating such rights and
the directors and shareholders of the Minnesota Operations Entities agreed not to compete with our
Company. The second stage of the Phase II Closing involved the acquisition of four additional
Operations Entities (owning a total of nine temporary staffing stores) in exchange for the issuance
of up to 1,459,441 shares of our Common Stock.
Item 16. Exhibits.
|
|
|
Exhibit No. |
|
Description |
|
|
|
3.1 |
|
Articles of Incorporation (Previously filed as Exhibit 3.1 to Form SB-2 filed on May 7, 2001,
and incorporated herein by reference.) |
|
|
|
3.2 |
|
Amendment to the Articles of Incorporation (Previously filed as Exhibit 3.1 to Form 8-K filed on
November 16, 2005 and incorporated herein by reference.) |
|
|
|
Exhibit No. |
|
Description |
|
|
|
3.3
|
|
Amendment to the Articles of Incorporation (Previously filed as Exhibit 3.3 to Form 10-KSB
filed on April 2, 2007 and incorporated herein by reference.) |
|
|
|
3.4
|
|
Bylaws (Previously filed as
Exhibit 3(b) to Form SB-2 filed on May 7, 2001 and incorporated
herein by reference.) |
|
|
|
3.5
|
|
Amendment to Bylaws (Previously
filed as Exhibit 3.2 to Form 8-K dated November 16, 2005 and
incorporated herein by reference.) |
|
|
|
4.1
|
|
Securities Purchase and Registration Rights Agreement dated November 30, 2007 by and among
Command Center, Inc. and the Investors named therein. (Previously filed as Exhibit 4.1 to
Form 8-K filed on December 5, 2007 and incorporated herein by reference). |
|
|
|
4.1/A
|
|
Exhibit A to Securities Purchase and Registration Rights Agreement dated November 30,
2007 and December 27, 2007 (combined) by and among Command Center, Inc. and the Investors
named therein. Exhibit A reflects all investors that purchased in the Offering and the
aggregate proceeds and Common Shares and Warrants issued (previously filed as Exhibit
4.1/A to Amendment No. 1 Form 8-K/A filed on January 14, 2008 and incorporated herein by
reference).
|
|
|
|
4.3
|
|
Form of Warrant (Previously filed
as Exhibit 4.2 to Form 8-K filed on December 5,
2007 and incorporated herein by reference.) |
|
|
|
4.4
|
|
Common Stock Purchase Warrant for 250,000 shares of common stock exercisable at $1.50 per
share (previously filed as Exhibit 10.2 to form 10-QSB filed in November 13, 2007 and
incorporated herein by reference).
|
|
|
|
4.5*
|
|
Form of Common Stock Certificate |
|
|
|
5.1
|
|
Opinion of Rogers & Hool, LLP
filed herewith |
|
|
|
10
|
|
Material Contracts |
|
|
|
10.1
|
|
Acquisition Agreement: Asset Purchase Agreement dated as of November 9,
2005 by and among Command Center, Inc. (formerly Temporary Financial
Services, Inc.), Command Staffing LLC, Harborview Software, Inc., and the
Operations Entities as defined therein. (Previously filed as Exhibit 10.1 to
Form 8-K filed on November 16, 2005 and incorporated herein by reference.) |
|
|
|
10.2
|
|
Sale and Leaseback Agreement dated as of December 29, 2005 by and among
Command Center, Inc. and John R. Coghlan. (Previously filed as Exhibit 10.1
to Form 8-K filed on January 4, 2006 and incorporated herein by reference.) |
|
|
|
10.3
|
|
Employment Agreement with Glenn Welstad (Previously filed as Exhibit 10.3 to
Form 10-KSB filed on April 2, 2007 and incorporated herein by
reference). |
|
|
|
10.4
|
|
Employment Agreement with Tom Gilbert (Previously filed as Exhibit 10.3 to
Form 10-KSB filed on April 2, 2007 and incorporated
herein by reference). |
|
|
|
10.5
|
|
Employment Agreement with Todd Welstad (Previously filed as Exhibit 10.3 to
Form 10-KSB filed on April 2, 2007 and incorporated
herein by reference). |
|
|
|
10.6
|
|
Acquisition Agreement: Asset Purchase Agreement dated February 19, 2007 by
and among Command Center, Inc. (formerly Temporary Financial Services, Inc.)
and Anytime Labor, Inc. (Previously filed as Exhibit 10.1 to Form 10-QSB filed
on May 14, 2007 and incorporated herein by reference.) |
|
|
|
Exhibit No. |
|
Description |
|
|
|
10.7*
|
|
Loan and Security Agreement dated April 7, 2006 by and between Command
Center, Inc. and Capital Tempfunds, a division of Capital Factors, LLC
(Capital) |
|
|
|
10.8*
|
|
First Amendment to Loan and Security Agreement dated July 24, 2006 by and
between Command Center, Inc. and Capital |
|
|
|
10.9*
|
|
Second Amendment to Loan and Security Agreement dated August 22, 2006 by and
between Command Center, Inc. and Capital |
|
|
|
10.10*
|
|
Third Amendment to Loan and Security Agreement dated November 29, 2006 by
and between Command Center, Inc. and Capital |
|
|
|
10.11*
|
|
Fourth Amendment to Loan and Security Agreement dated April 2, 2007 by and
between Command Center, Inc. and Capital |
|
|
|
10.12*
|
|
Fifth Amendment to Loan and Security Agreement dated July 18, 2007 by and
between Command Center, Inc. and Capital |
|
|
|
10.13*
|
|
Sixth Amendment to Loan and Security Agreement dated November 13, 2007 by
and between Command Center, Inc. and Capital |
|
|
|
10.14*
|
|
Summary of Principal Terms Loan Transaction with Warrants by Command Center,
Inc. in favor of Sonoran Pacific Resources, LLP dated March 30,
2007. |
|
|
|
10.15*
|
|
Securities Purchase Agreement, dated August 14, 2007, by and between Command
Center, Inc. and MDB Capital Group, LLC |
|
|
|
10.16*
|
|
MDB Capital Group Engagement Letter, dated June 22, 2007, by and between
Command Center, Inc. and MDB Capital Group, LLC |
|
|
|
10.17*
|
|
Indemnification and Pledge Agreement dated November 30, 2007 between Glenn
Welstad and Command Center, Inc. |
|
|
|
10.18*
|
|
Unanimous Written Consent of the Board of Directors of Command Center, Inc. dated July
25, 2007 approving Cancellation and Exchange Agreement and Share Exchange Agreement to
cancel New Store Surcharge Fee |
|
|
|
23.1*
|
|
Consent of DeCoria, Maichel and Teague, P.S. |
|
|
|
23.2
|
|
Consent of Rogers & Hool, LLP
(included in Exhibit 5.1) filed herewith |
|
|
|
24.1
|
|
Power of Attorney included on signature page |
|
|
|
* |
|
Filed previously. |
|
|
Filed herewith. |
Item 17. Undertakings.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a post-effective
amendment to this registration statement:
(i) To
include any prospectus required by section 10(a)(3) of the Securities Act of 1933, as
amended (the Securities Act);
(ii) To reflect in the prospectus any facts or events arising after the effective date of the
registration statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration
statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered
(if the total dollar value of securities offered would not exceed
that which was registered) and any deviation from the low or high end of the estimated maximum
offering range may be reflected in the form of a prospectus filed with the Commission pursuant to
Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20%
change in the maximum aggregate offering price set forth in the Calculation of Registration Fee
table in the effective registration statement;
(iii) To include any additional material information with respect to the plan of distribution
not previously disclosed in the registration statement or any material change to such information
in the registration statement;
(2) That,
for the purpose of determining any liability under the Securities Act
of 1933, each such
post-effective amendment shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any of the securities
being registered that remain unsold at the termination of the offering.
(4) That,
for purposes of determining liability under the Securities Act of
1933 to any purchaser, each prospectus filed pursuant to Rule
424(b) as part of a registration statement relating
to an offering, other than registration statements relying on Rule 430B or other than prospectuses
filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration
statement as of the date it is first used after effectiveness. Provided, however, that no statement
made in a registration statement or prospectus that is part of the registration statement or made
in a document incorporated or deemed incorporated by reference into the registration statement or
prospectus that is part of the registration statement will, as to a purchaser with a time of
contract of sale prior to such first use, supersede or modify any statement that was made in the
registration statement or prospectus that was part of the registration statement or made in any
such document immediately prior to such date of first use.
(5) Insofar as indemnification for liabilities arising under the Securities Act may be
permitted to directors, officers and controlling persons of the registrant pursuant to the
foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy as expressed in
the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment
by the registrant of expenses incurred or paid by a director, officer or controlling person of the
registrant in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether such indemnification
by it is against public policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant certifies that it
has reasonable grounds to believe that it meets all of the requirements for filing on Form S-1 and
authorized this Registration Statement on Form S-1 to be signed on its behalf by the undersigned,
thereunto duly authorized, in Post Falls, Idaho, on February 7, 2008.
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Command Center, Inc.
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By: |
*
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Glenn Welstad, Chief Executive Officer |
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POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and
appoints Glenn Welstad and Brad E. Herr his true and lawful attorney-in-fact and agent, with full
power of substitution and resubstitution for him and in his name, place and stead, in any and all
capacities to sign any and all amendments including post-effective amendments to this registration
statement, and to file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, each acting alone, full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all intents and purposes
as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact
and agent or his/her substitutes, each acting alone, may lawfully do or cause to be done by virtue
thereof.
In accordance with the requirements of the Securities Act of 1933, this Registration Statement
was signed by the following persons in the capacities and on the
dates stated, and on February 7, 2008.
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* |
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Chief Executive Officer, Chairman and Director |
Glenn Welstad |
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* |
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Principal Financial Officer and Director |
Brad E. Herr |
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* |
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Director |
Thomas Gilbert |
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* |
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Director |
Todd Welstad |
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* |
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Director |
Ralph E. Peterson |
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* By
/s/ Brad E. Herr |
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Brad
E. Herr
Attorney-in-fact |
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EXHIBIT INDEX
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Exhibit No. |
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Description |
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3.1
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Articles of Incorporation (Previously filed as Exhibit 3.1 to Form SB-2 filed on May 7, 2001,
and incorporated herein by reference.) |
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3.2
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Amendment to the Articles of Incorporation (Previously filed as Exhibit 3.1 to Form 8-K filed on
November 16, 2005 and incorporated herein by reference.) |
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3.3
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Amendment to the Articles of Incorporation (Previously filed as Exhibit 3.3 to Form 10-KSB
filed on April 2, 2007 and incorporated herein by reference.) |
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3.4
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Bylaws (Previously filed as
Exhibit 3(b) to Form SB-2 filed on May 7, 2001 and incorporated
herein by reference.) |
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3.5
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Amendment to Bylaws (Previously
filed as Exhibit 3.2 to Form 8-K dated November 16, 2005 and
incorporated herein by reference.) |
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4.1
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Securities Purchase and Registration Rights Agreement dated November 30, 2007 by and among
Command Center, Inc. and the Investors named therein. (Previously filed as Exhibit 4.1 to
Form 8-K filed on December 5, 2007 and incorporated herein by reference). |
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4.1/A
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Exhibit A to Securities Purchase and Registration Rights Agreement dated November 30,
2007 and December 27, 2007 (combined) by and among Command Center, Inc. and the Investors
named therein. Exhibit A reflects all investors that purchased in the Offering and the
aggregate proceeds and Common Shares and Warrants issued (previously filed as Exhibit
4.1/A to Amendment No. 1 Form 8-K/A filed on January 14, 2008 and incorporated herein by
reference).
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4.3
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Form of Warrant (Previously filed
as Exhibit 4.2 to Form 8-K filed on December 5,
2007 and incorporated herein by reference.) |
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4.4
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Common Stock Purchase Warrant for 250,000 shares of common stock exercisable at $1.50 per
share (previously filed as Exhibit 10.2 to form 10-QSB filed in November 13, 2007 and
incorporated herein by reference).
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4.5*
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Form of Common Stock Certificate |
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5.1
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Opinion of Rogers & Hool, LLP
filed herewith |
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10
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Material Contracts |
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10.1
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Acquisition Agreement: Asset Purchase Agreement dated as of November 9,
2005 by and among Command Center, Inc. (formerly Temporary Financial
Services, Inc.), Command Staffing LLC, Harborview Software, Inc., and the
Operations Entities as defined therein. (Previously filed as Exhibit 10.1 to
Form 8-K filed on November 16, 2005 and incorporated herein by reference.) |
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10.2
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Sale and Leaseback Agreement dated as of December 29, 2005 by and among
Command Center, Inc. and John R. Coghlan. (Previously filed as Exhibit 10.1
to Form 8-K filed on January 4, 2006 and incorporated herein by reference.) |
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10.3
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Employment Agreement with Glenn Welstad (Previously filed as Exhibit 10.3 to
Form 10-KSB filed on April 2, 2007 and incorporated herein by
reference). |
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10.4
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Employment Agreement with Tom Gilbert (Previously filed as Exhibit 10.3 to
Form 10-KSB filed on April 2, 2007 and incorporated
herein by reference). |
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10.5
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Employment Agreement with Todd Welstad (Previously filed as Exhibit 10.3 to
Form 10-KSB filed on April 2, 2007 and incorporated
herein by reference). |
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10.6
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Acquisition Agreement: Asset Purchase Agreement dated February 19, 2007 by
and among Command Center, Inc. (formerly Temporary Financial Services, Inc.)
and Anytime Labor, Inc. (Previously filed as Exhibit 10.1 to Form 10-QSB filed
on May 14, 2007 and incorporated herein by reference.) |
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Exhibit No. |
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Description |
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10.7*
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Loan and Security Agreement dated April 7, 2006 by and between Command
Center, Inc. and Capital Tempfunds, a division of Capital Factors, LLC
(Capital) |
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10.8*
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First Amendment to Loan and Security Agreement dated July 24, 2006 by and
between Command Center, Inc. and Capital |
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10.9*
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Second Amendment to Loan and Security Agreement dated August 22, 2006 by and
between Command Center, Inc. and Capital |
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10.10*
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Third Amendment to Loan and Security Agreement dated November 29, 2006 by
and between Command Center, Inc. and Capital |
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10.11*
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Fourth Amendment to Loan and Security Agreement dated April 2, 2007 by and
between Command Center, Inc. and Capital |
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10.12*
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Fifth Amendment to Loan and Security Agreement dated July 18, 2007 by and
between Command Center, Inc. and Capital |
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10.13*
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Sixth Amendment to Loan and Security Agreement dated November 13, 2007 by
and between Command Center, Inc. and Capital |
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10.14*
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Summary of Principal Terms Loan Transaction with Warrants by Command Center,
Inc. in favor of Sonoran Pacific Resources, LLP dated March 30,
2007. |
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10.15*
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Securities Purchase Agreement, dated August 14, 2007, by and between Command
Center, Inc. and MDB Capital Group, LLC |
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10.16*
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MDB Capital Group Engagement Letter, dated June 22, 2007, by and between
Command Center, Inc. and MDB Capital Group, LLC |
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10.17*
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Indemnification and Pledge Agreement dated November 30, 2007 between Glenn
Welstad and Command Center, Inc. |
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10.18*
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Unanimous Written Consent of the Board of Directors of Command Center, Inc. dated July
25, 2007 approving Cancellation and Exchange Agreement and Share Exchange Agreement to
cancel New Store Surcharge Fee |
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23.1*
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Consent of DeCoria, Maichel and Teague, P.S. |
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23.2
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Consent of Rogers & Hool, LLP
(included in Exhibit 5.1) filed herewith |
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24.1
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Power of Attorney included on signature page |
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* |
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Filed previously. |
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Filed herewith. |