Business Context and Reporting Period
Company: Command Center, Inc. (Note: Input metadata referenced "Hirequest, Inc.", but the filing text identifies the issuer as Command Center, Inc.)
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: June 26, 2009
Business Overview: The Company provides on-demand temporary employees for manual labor, light industrial, and skilled trades applications. As of June 26, 2009, it operated 52 stores across 20 states, though it closed two underperforming stores and opened one new store shortly after quarter-end, resulting in 51 active locations.
Key Financial Metrics
| Metric | 13 Weeks Ended June 26, 2009 |
26 Weeks Ended June 26, 2009 |
26 Weeks Ended June 27, 2008 |
|---|---|---|---|
| Total Revenue | $12,391,373 | $25,214,677 | $41,183,464 |
| Gross Profit | $2,882,167 | $6,098,828 | $9,818,806 |
| Gross Margin | 23.3% | 24.2% | 23.8% |
| Net Loss | $(1,482,267) | $(3,570,047) | $(3,989,229) |
| Loss Per Share (Basic/Diluted) | $(0.04) | $(0.10) | $(0.11) |
| Cash and Equivalents | $305,817 | (Balance Sheet Data) | |
| Total Current Assets | $7,807,479 | ||
| Total Current Liabilities | $9,069,976 | (Balance Sheet Data) | |
| Working Capital | $(1,262,497) | ||
| Line of Credit Balance | $2,774,092 | (Balance Sheet Data) | |
| Short-Term Notes Payable | $1,291,680 |
Cash Flow (26 Weeks Ended June 26, 2009): Net cash used by operating activities was $(1,284,233). Net cash used by financing activities was $(584,910). There was no cash flow from investing activities.
Material Changes vs. Prior Period
- Revenue Decline: Revenue for the 26 weeks ended June 26, 2009, decreased by 38.8% compared to the same period in 2008 ($25.2M vs. $41.2M). The 13-week period saw a 41.5% decline. Management attributes this to the economic downturn and the closure of 31 underperforming stores in early 2009.
- Cost of Services: While total costs decreased due to lower volume, the cost of services as a percentage of revenue remained stable at 76.7% for the 26-week period in both 2009 and 2008. Workers' compensation costs decreased significantly as a percentage of revenue (6.8% in 2009 vs. 9.2% in 2008) following a change in insurance carriers.
- Operating Expenses: Selling, General, and Administrative (SG&A) expenses decreased in absolute dollars but increased as a percentage of revenue (34.9% in 2009 vs. 32.8% in 2008 for the 26-week period). This increase was driven by a $300,000 reserve recorded for closed store leases.
- Debt Restructuring: The Company recognized a $518,251 loss on the extinguishment of debt in the 26-week period due to the modification of a short-term note payable, which included issuing new warrants and increasing the interest rate to 20%.
Guidance, Outlook, Risks, and Contingencies
Outlook and Management Commentary: Management expects additional capital to be required to fund operations for the remainder of fiscal year 2009. The Company is focusing on cost control, reducing pay rates where possible, and targeting business sectors less impacted by the recession (e.g., event services, disaster recovery). No specific financial guidance was provided for future periods.
Material Risks and Contingencies:
- Liquidity and Covenant Compliance: The Company is not in compliance with financial covenants regarding working capital, cash flow, tangible net worth, and EBITDA under its $9.95 million line of credit. It is currently negotiating revised terms with its lender. Cash balances have deteriorated significantly from $2.17 million at year-end 2008 to $305,817.
- Successor Liability (Tax): The Company faces potential successor liability claims from the State of Washington regarding unpaid payroll and industrial insurance taxes from acquired entities (Everyday Staffing LLC). Claims total approximately $1.2 million. The Company disputes these claims and has obtained a judgment against the former owners, though collectability is questionable.
- Workers' Compensation Reserves: The Company is substantially self-insured in 16 states. There is a risk that actual claims could exceed current estimates if the average claims period is longer than industry averages. A dispute exists with a former carrier (AIG) regarding a $2.9 million collateral deposit request, which the Company has not paid.
- Internal Controls: Management identified deficiencies in disclosure controls and procedures, citing a lack of qualified personnel in the finance department and incomplete documentation of accounting procedures.
Investor Verification Checklist
- Covenant Status: Verify the outcome of negotiations with the principal lender regarding the waiver or modification of financial covenants (working capital, tangible net worth, EBITDA).
- Cash Runway: Assess the sufficiency of the $305,817 cash balance against operating losses and debt service obligations, particularly the 20% interest short-term note.
- Legal Contingencies: Monitor the status of the $1.2 million judgment against Everyday Staffing LLC and the Washington State Department of Labor and Industries tax assessments to determine if a liability must be accrued.
- Workers' Comp Exposure: Review the actuarial assumptions for the self-insured workers' compensation reserves and the status of the dispute with AIG regarding collateral deposits.
- Store Footprint: Confirm the final number of operating stores and the financial impact of the $300,000 closed store lease reserve.