Filing summary
Issuer and period: The supplied filing is Command Center, Inc.’s Form 10-Q for the 13 and 26 weeks ended June 28, 2013. This does not match the request metadata identifying Hirequest, Inc.; the filing itself identifies Command Center as the registrant.
Business context and reporting period
Command Center provided temporary workers to wholesale trades, manufacturing, hospitality, construction, restoration, and retail customers, operating 57 stores in 23 states. The financial statements are unaudited and compare the quarter and first half of 2013 with the corresponding 2012 periods.
Financial performance and liquidity
| Metric | 13 weeks ended June 28, 2013 | 13 weeks ended June 29, 2012 | 26 weeks ended June 28, 2013 | 26 weeks ended June 29, 2012 |
|---|---|---|---|---|
| Revenue | $23.29 million | $24.27 million | $43.20 million | $43.36 million |
| Gross profit / margin | $5.88 million / 25.3% | $6.01 million / 24.8% | $11.10 million / 25.7% | $10.65 million / 24.6% |
| Operating income / margin | $550,011 / 2.4% | $863,337 / 3.6% | $726,761 / 1.7% | $1.07 million / 2.5% |
| Net income | $472,573 | $842,583 | $484,779 | $281,087 |
| EBITDA-D, non-GAAP | $678,000 | $947,000 | $944,000 | $1.27 million |
- Cash flow: First-half operating activities provided $1.14 million, versus $1.34 million used in the prior-year period. Investing activities provided $11,903; financing activities used $1.48 million, principally to reduce the account purchase facility. Cash decreased $334,812 to $1.30 million.
- Liquidity and obligations: At June 28, current assets were $13.94 million and current liabilities $11.47 million. The account purchase agreement balance was $7.57 million, against a $14 million facility maximum; the filing reports compliance with its covenant. Workers’ compensation collateral deposits totaled approximately $2.3 million.
- Receivables: Net accounts receivable were $11.11 million, with a $1.17 million allowance for doubtful accounts. Weighted-average aging was 45 days. Second-quarter bad debt expense was approximately $695,000, versus approximately $85,000 a year earlier.
- Other items: The filing reports interest and other financing expense of $339,385 for the first half. It does not present a separate conventional long-term borrowing balance; the principal disclosed financing obligation is the account purchase facility.
Material changes versus the prior comparable period
- Second-quarter revenue fell 4.0%; first-half revenue declined 0.4%. Management attributed the changes to winding down Disaster Recovery Services contracts, organizational changes, and greater emphasis on operating income and cost control.
- Gross margin improved in both periods, while operating income declined: 36% in the quarter and approximately 32% year to date. SG&A rose to 22.3% of quarterly revenue and 23.5% of first-half revenue, with higher bad debt expense and, year to date, employee benefit expense cited as contributors.
- Workers’ compensation expense decreased as a share of revenue: 4.7% versus 5.1% for the quarter, and 3.8% versus 4.4% for the first half. Management cited claims management, selective job screening, and, for the first half, a reduction in the estimated claims liability.
- First-half net income increased year over year, but comparisons include a prior-year income tax provision and differing changes in derivative fair value. First-half EBITDA-D declined to $944,000 from $1.27 million.
Outlook, risks, and unusual items
- Management said its current operating plan anticipated sufficient cash to fund operations into the foreseeable future, but cautioned that lower-than-planned sales or higher working-capital needs could require additional cash or expense reductions. No specific revenue or earnings guidance was provided.
- Three delinquent customer accounts from 2012 drove increased receivable reserves. The largest was approximately $471,000 related to Hurricane Sandy cleanup work; the company said it was pursuing collection through legal channels.
- A lawsuit by Trident Seafoods and Liberty Mutual alleges Command Center has a contractual obligation for workers’ compensation benefits concerning an injured “borrowed” employee. The company disputed the claims and said the case was in pretrial discovery; the filing does not quantify potential exposure.
- Disclosure controls and procedures were reported as not effective at period end. Management reported no material changes in internal control over financial reporting during the quarter.
- Approximately 1.3 million shares were to be issued to DR Services of Louisiana after final board approval, following the contingent fee being fully earned; approximately $323,000 was reclassified from contingent liability to additional paid-in capital.
- The company disclosed limited, low-volume OTCQB trading and warned investors may have difficulty reselling shares at attractive prices. Management reported no material changes to previously disclosed risk factors.
Important facts for investors to verify
- Confirm the issuer identity: this filing is for Command Center, Inc., not Hirequest, Inc.
- Track collections and aging for the delinquent accounts, especially the approximately $471,000 Hurricane Sandy receivable, and any resulting changes to bad debt reserves.
- Review cash needs, facility availability, pricing and covenant compliance under the full-recourse account purchase agreement.
- Monitor workers’ compensation claim estimates, required collateral deposits, and the Trident Seafoods/Liberty Mutual litigation and any quantified exposure.
- Seek updates on remediation of ineffective disclosure controls and on board approval and issuance of the DR Services contingent shares.