Attached files
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
|
☑
|
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
|
|
For the fiscal year ended December 29, 2017
OR
|
☐
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
|
Commission file number: 000-53088
|
Command Center, Inc.
|
|
(Exact
Name of Registrant as Specified in its Charter)
|
|
Washington
|
|
91-2079472
|
|
(State
of other jurisdiction of incorporation or
organization)
|
|
(I.R.S.
Employer Identification No.)
|
|
3609 S. Wadsworth Blvd., Suite 250 Lakewood, Co.
|
|
80235
|
|
(Address
of Principal Executive Offices)
|
|
(Zip
Code)
|
|
(866) 464-5844
|
|
(Registrant’s
Telephone Number, including Area Code)
|
|
Securities
Registered Pursuant to Section 12(b) of the
Act: None
|
|
|
|
Securities
Registered Pursuant to Section 12(g) of the Act: Common
Stock, par value $0.001
|
|
(Title
of Class)
|
|
Indicate
by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act. Yes ☐·No☑
|
|
|
|
Indicate
by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Act.
Yes ☐·No☑
|
|
|
|
Indicate
by check mark whether the registrant (1) filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes ☑·No ☐
|
|
|
|
Indicate
by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (§229.405 of this chapter) is not
contained herein, and will not be contained, to the best of
registrant’s knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. ☐
Indicate
by check mark whether the Registrant has submitted electronically
and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405
of Regulation S-T (§ 229.405 of this chapter) during the
preceding 12 months (or for such shorter period that the registrant
was required to submit and post such files). Yes ☑·No ☐
|
|
|
|
Indicate
by check mark whether the registrant is a large accelerated filer,
an accelerated filer, a non-accelerated filer, smaller reporting
company, or an emerging growth company. See the definitions of
“large accelerated filer,” “accelerated
filer,” “smaller reporting company,” and
“emerging growth company” in Rule 12b-2 of the Exchange
Act.
(Check
one): Large Accelerated Filer ☐·Accelerated Filer ☐·Non-Accelerated Filer ☐·Smaller Reporting
Company ☑·Emerging
Growth Company ☐
|
|
|
|
If an
emerging growth company, indicate by check mark if the registrant
has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided
pursuant to Section 13(a) of the Exchange Act. ☐
|
|
|
|
Indicate
by check mark whether the registrant is a shell company (as defined
in Rule 12b-2 of the Act). Yes ☐·No☑
|
|
|
|
The
aggregate market value of the voting and non-voting common equity
held by non-affiliates, computed by reference to the price at which
the common equity was last sold, as of the last business day of the
second fiscal quarter, June 30, 2017, was approximately
$15,900,000.
|
|
|
|
As of
March 28, 2018, there were 4,993,672 shares of the
registrant’s common stock outstanding.
The
following document is incorporated by reference into Parts I, II,
III, and IV of this report: None.
|
Command Center, Inc.
2017 Annual Report on Form 10-K
Table of Contents
|
|
|
Page
|
|
PART I
|
||
|
Item
1.
|
Business
|
3
|
|
Item
1A.
|
Risk
Factors
|
6
|
|
Item
1B.
|
Unresolved
Staff Comments
|
14
|
|
Item
2.
|
Description
of Properties
|
14
|
|
Item
3.
|
Legal
Proceedings
|
14
|
|
Item
4.
|
Mine
Safety Disclosure
|
15
|
|
PART II
|
||
|
Item
5.
|
Markets
for Registrant’s Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities
|
15
|
|
Item
6.
|
Selected
Financial Data
|
17
|
|
Item
7.
|
Management’s
Discussion and Analysis of Financial Conditions and Results of
Operations
|
17
|
|
Item
7A.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
21
|
|
Item
8.
|
Financial
Statements and Supplementary Data
|
22
|
|
Item
9.
|
Changes
In and Disagreements With Accountants on Accounting and Financial
Disclosure
|
42
|
|
Item
9A.
|
Controls
and Procedures
|
42
|
|
Item
9B.
|
Other
Information
|
42
|
|
PART II
|
||
|
Item
10.
|
Directors,
Executive Officers, and Corporate Governance
|
43
|
|
Item
11.
|
Executive
Compensation
|
50
|
|
Item
12.
|
Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
|
54
|
|
Item
13.
|
Certain
Relationships and Related Transactions, and Director
Independence
|
55
|
|
Item
14.
|
Principal
Accountant Fees and Services
|
56
|
|
PART IV
|
||
|
Item
15.
|
Exhibits,
Financial Statement Schedules
|
57
|
|
Item
16.
|
Form
10-K Summary
|
57
|
|
|
Signatures
|
58
|
2
Special Note Regarding Forward-Looking Statements
This
Form 10-K may contain forward-looking statements. These statements
relate to our expectations for future events and future financial
performance. Generally, the words “intend,”
“expect,” “anticipate,”
“estimate,” or “continue” and similar
expressions identify forward-looking statements. Forward-looking
statements involve risks and uncertainties, and future events and
circumstances could differ significantly from those anticipated in
the forward-looking statements. These statements are only
predictions. In addition to other factors discussed in this report,
some of the important factors that could cause actual results to
differ from those discussed in the forward-looking statements
include risk factors described in Item 1A of this Form 10-K.
Readers are cautioned not to place undue reliance on these
forward-looking statements. 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. Our expectations, beliefs, or
projections may not be achieved or accomplished. We do not, nor
have we authorized any other person to, assume responsibility for
the accuracy and completeness of the forward-looking statements. We
undertake no duty to update any of the forward-looking statements
after the date of this report, whether as a result of new
information, future events, or otherwise, except as required by
law. You are advised to consult further disclosures we may make on
related subjects in our filings with the Securities and Exchange
Commission, or the SEC.
PART I
Item 1. Business
Introduction and General Background
Command
Center, Inc. ("Command Center,” the “Company,”
“CCI,” “we,” "us," or “our”) is
a staffing company, operating primarily in the manual on-demand
labor segment of the staffing industry. In 2017, we employed
approximately 33,000 workers providing services to approximately
3,200 customers, primarily in the areas of light industrial, auto
and transportation, hospitality and event services. Our customers
range in size from small businesses to large corporate enterprises.
All of our temporary staff, which we refer to as field team
members, are employed by us. Most of our work assignments are
short-term and many are filled on little advanced notice from our
customers. In addition to short and longer-term temporary work
assignments, we sometimes recruit and place workers in temp-to-hire
positions.
As
of March 28, 2018, we owned and operated 67 on-demand labor
locations, or branches, across 23 states. We currently operate as
Command Center, Inc. Prior to 2017, we also operated through a
wholly-owned subsidiary, Disaster Recovery Services, Inc., which
ceased corporate existence in April 2016. All financial information
is consolidated and reported in our consolidated financial
statements. Our corporate headquarters is in Lakewood,
Colorado.
In
prior years we were organized as Command Staffing, LLC. We were
organized in December 2002 and commenced operations in 2003 as a
franchisor of on-demand labor businesses. In November 2005,
Temporary Financial Services, Inc., a public company, acquired the
assets of Command Staffing, LLC and Harborview Software, Inc., an
affiliated company that owned the software used in the operation of
our on-demand labor branches. The transaction was accounted for as
if Command Staffing, LLC was the accounting acquirer, and our name
changed to Command Center, Inc.
Industry Overview
The
on-demand labor industry has developed based on the business need
for flexible staffing solutions. Many businesses operate in a
cyclical production environment and find it difficult to staff
according to their changing production cycles. Companies also
desire a way to temporarily replace full-time employees when absent
due to illness, vacation, or unplanned termination. On-demand labor
offers customers the opportunity to immediately respond to changes
in staffing needs, reduce the costs associated with recruiting and
interviewing, eliminate unemployment and workers’
compensation exposure, and draw from a larger pool of potential
employees.
3
The
on-demand labor industry continues to develop specialized market
segments that reflect the diverse needs of the businesses it
serves. Technical skills, prior work history, duration of
assignment, and drug and background check requirements vary among
industries and employers. We operate primarily within the
short-term, semi-skilled and unskilled segments of the on-demand
labor industry. We endeavor to customize our services according to
the unique opportunities and assets presented by each of our
branches, while leveraging our overall size. This approach reduces
our overhead costs, improves economies of scale, establishes
procedural uniformity and internal controls, and creates a
predictable internal environment for our field team
members.
Business
Strategic Growth Opportunities: We continue to
build our network of on-demand labor branches. We supply a quality
workforce and we strive to consistently match the right field team
members with the right jobs. We have 67 locally-managed branches
throughout the United States that serve as trusted partners to
businesses and job seekers alike. Customers, representing a variety
of industries, trust us to learn their business and to plan ahead
to address their dynamic staffing needs. Job seekers trust us to
understand their complete employment picture and place them in
on-demand, temporary, temp-to-hire, or permanent placement
positions where they can grow, thrive, and provide immediate value.
The total number of branches open and operating increased from 64
at the end of fiscal year 2016 to 66 at the end of fiscal year 2017
as we expanded our operations while continuing to improve our
business fundamentals. In 2018, we plan to continue our strategy of
carefully balancing branch expansion against return on investment.
In doing so, we expect to concentrate our revenue growth efforts
primarily on sales growth within our existing branch structure,
while opening new branches in areas that present exceptional
opportunities, and looking for acquisitions that will expand our
existing operational footprint. In all of our growth opportunities,
we continue to emphasize the fundamentals of our business: sell to
quality accounts, increase margins where possible, and provide
exceptional customer service.
On-demand Labor Branch Operations: In 2017, we
continued to focus on the basics of our business: consistency and
excellence in service, increasing margins, containment of costs,
selling techniques, and company culture. We concentrated on these
measures to improve profitability and solidify the groundwork for
future growth.
During
the year, we employed approximately 33,000 field team members and
serviced approximately 3,200 customers. Our branches are
located across 23 states. Our branches are often located in
proximity to concentrated commercial and industrial areas typically
with access to public transportation and other services that are
important to our field team members. We have developed a branch
demographic model to identify and qualify potential future
locations.
Our
field operations are managed by in-branch personnel, area managers,
and corporate management. Where appropriate, business development
specialists are employed to help drive business to our branches.
Our compensation plans for branch managers, area managers, and
business development specialists are designed to secure and retain
the qualified personnel needed to meet our business, financial, and
growth objectives. Our personnel practices are designed to attract,
screen, hire, train, support, and retain qualified personnel at all
levels of our organization. We propagate best practices from our
higher performing branches across all operating groups to produce
consistent execution and improvements in company-wide
performance.
Our Temporary Staff, or Field Team Members: Field
team members are our product and our key asset. Our success is
highly dependent on our ability to attract, train, motivate, and
reward our field team members. We have invested in many programs
designed to create a long-term relationship with top-performing
field team members. These programs include health insurance, bonus
programs, safety rewards, longevity programs, training programs,
and career services.
The
pool of qualified and available field team members varies by
location. For most of our branches, the supply of field team
members is sufficient and diverse enough to meet current customer
needs. However, in some locations, field team member availability
is a limiting factor. We continue to seek additional field team
members through internet postings, newspaper advertisements,
printed flyers, branch displays, career fairs, and
word-of-mouth.
4
Our Customers: In 2017, we serviced
approximately 3,200 customers across a variety of industries. Our
10 largest customers accounted for approximately 23% of our revenue
in 2017. Additionally, at December 29, 2017, 11.8% of total
accounts receivable was due from a single customer. The top six
industries we served were retail, construction, warehousing,
industrial/manufacturing, transportation, and hospitality. In 2016,
we serviced approximately 3,200 customers in a variety of
industries. Our 10 largest customers accounted for approximately
24% of our revenue in 2016. The top six industries we served were
retail, construction, warehousing, industrial/manufacturing,
transportation, and hospitality.
Our Marketing Strategy: We find that our
customers are too busy to have time consumed by a traditional sales
person. Rather, they are looking for smart solutions to their
current challenges. Our unique sales process starts by learning
about customers and facilitating conversations where we offer
support and contribute to a growing relationship. Together, we
create an action plan that draws on our core competencies and
solves our customer's needs. Once we have resolved one need, we
consistently strive to meet additional needs. Many of our existing
customers are served by multiple branches, across multiple cities,
and in many cases, across multiple states. We have tailored
programs to specifically address the needs of these national
accounts and plan to continue our efforts to expand our national
accounts in the years ahead.
Our Workers’ Compensation Coverage: In
accordance with state laws, we provide our workforce with
workers’ compensation insurance. Currently, we are covered
under a large deductible policy with ACE American Insurance
Company, or ACE, where we have primary responsibility for claims
under the policy. Under our current policy, which has been in place
since April 1, 2014, we are responsible for covered losses and
expenses up to $500,000 per incident. Amounts in excess of $500,000
are the responsibility of ACE. From April 1, 2012 through March 31,
2014, we were covered under a large deductible policy issued by
Dallas National Insurance, who changed their name to Freestone
Insurance Company, or Freestone, in 2014. Under the prior policy,
we are responsible for covered losses and expenses up to $350,000
per incident. Amounts in excess of $350,000 are the responsibility
of Freestone.
For
workers’ compensation claims originating in Washington and
North Dakota, we pay workers’ compensation insurance premiums
and obtain full coverage under mandatory state administered
programs. Our liability associated with claims in these states is
limited to our premium payments.
Our Safety Program: To protect our workforce and
help control workers’ compensation insurance rates, we
maintain several company-wide safety programs designed to increase
awareness of safety issues. We provide safety training through
videos, safety testing, and basic and remedial instruction. Branch
managers conduct periodic job site safety inspections on new and
existing jobs to ensure that our field team members are working in
a safe environment. We encourage safe work behavior through an
incentive program that rewards our field team members for working
accident free by allowing them to purchase safety and other items
by using earned points. We also encourage our field team members to
report unsafe working conditions. Branch managers also learn risk
management and proper safety protocols when attending training
sessions at our corporate office. We regularly evaluate the risk
profile of the work we undertake on an ongoing basis, and sometimes
restrict classes of work in order to manage risk
appropriately.
Our Seasonality: Some of the industries in which
we operate are subject to seasonal fluctuation. Many of the jobs
filled by field team members 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 summer, then begins to taper off during fall and through
winter. Seasonal fluctuations are typically less in the more
temperate parts of the United States, where many of our branches
are located. Fluctuations in seasonal business affect financial
performance from period to period. Severe weather in any of our
locations for prolonged periods has the potential to impair our
business within these geographies, given the outdoor nature of many
of our assignments.
Our Competition: The manual labor sector of the
on-demand labor industry in which we operate is largely fragmented
and highly competitive, with low barriers to entry. Our competitors
range in size from small, local or regional operators with five or
fewer locations to large, multi-national operations with hundreds
of locations.
The
primary competitive factors in our market segment include price,
the ability to timely provide the requested workers, and overall
quality of service. Secondary factors include worker quality and
performance, efficiency, the ability to meet the
business-to-business vendor requirements, name recognition,
established reputation, and customer relationships. While barriers
to entry are low, businesses operating in this sector of the
on-demand labor industry do require access to significant working
capital, particularly in the spring and summer when seasonal
staffing requirements are highest. Lack of working capital can be a
significant impediment to growth for small, local, and regional
on-demand labor providers. In addition, the growth in government
regulation is also creating a barrier to entry as many smaller
firms cannot profitably comply with the administrative burden of
the new regulations.
5
Our Trademarks and Trade Names: We have
registered “Command,” “Command Center,”
“Command Staffing,” “Command Labor,”
“Real Jobs for Real People,” “Bakken
Staffing,” and “Exceeding Expectations Every
Time,” as service marks with the U.S. Patent and Trademark
Office.
Our Intellectual Property: We have proprietary
software systems in place to handle most aspects of our operations,
including field team member dispatch activities, invoicing,
accounts receivable, and payroll. Our software systems also provide
internal control over our operations, as well as produce internal
management reports necessary to track the financial performance of
individual branches. We refine our systems and processes based on
the feedback we receive from management and others within the
Company in order to adequately track and manage individual
branches. Our proprietary software systems are not patented and are
not licensed to, or used by, any other organization. We have
invested in off-site back-up and storage systems that we believe
provide reasonable protections for our electronic information
systems against breakdowns as well as other disruptions and other
unauthorized intrusions.
Our Real Property: We lease the real property for our
corporate office and of all of our branch locations. All of these
properties are leased at market rates that vary depending on
location. Each branch is between 1,000 and 5,000 square feet,
depending on location and market conditions. We believe that our
corporate office and each of the branch locations are adequate for
our current needs.
Our Employees: We currently employ a staff of
approximately 30 at our corporate headquarters in Lakewood,
Colorado. The number of employees at our corporate headquarters is
not expected to significantly increase over the next year. We also
employ approximately 190 field operations staff in our various
branches. During fiscal year 2017, we employed approximately 33,000
field team members. We are the employer of record for our field
team members, and as such, are responsible for collecting
withholding taxes and for paying employer contributions for social
security, unemployment tax, workers’ compensation, other
insurance programs, and all other governmental requirements imposed
on employers. In addition to completing Form I-9 required by the
Department of Homeland Security, we also verify the identity and
work eligibility of each new employee through the federal E-Verify
system.
Environmental Concerns: Because we are a service
business, federal, state, or local laws that regulate the discharge
of materials into the environment do not impact our
business.
Available Information: We make the following items
available, free of charge, through the investor section of our
website: annual report on Form 10-K, quarterly reports on Form
10-Q, current reports on Form 8-K, and all amendments to those
reports. These reports are available as soon as reasonably
practicable after such material is electronically filed with or
furnished to the SEC. Charters adopted by the Audit, Compensation,
Nominating, and Governance Committees of our Board of Directors, as
well as our Corporate Governance Guidelines, Standards of Ethics
and Business Conduct, and Policy on Roles and Responsibilities of
the Chairman of the Board are also available through the investor
section of our website. Our website address is: www.commandonline.com. The information
contained on our website, or on other websites linked to our
website, is not part of this report.
Any
materials we file with the SEC may be read and copied at the
SEC’s Public Reference Room, located at 100 F Street, N.E.,
Washington, D.C. 20549, on official business days during the hours
of 10:00 am to 3:00 pm. Information on the operation of the Public
Reference Room may be obtained by calling the SEC at
1-800-732-0330. The SEC maintains a website that contains reports,
proxy and information statements, and other information regarding
issuers that file electronically with the SEC at http://www.sec.gov.
ITEM 1A. RISK FACTORS
Our common stock value and our business, results of
operations, cash flows and financial condition are subject to
various risks, including, but not limited to those set forth below.
If any of the following risks actually occur, our common stock,
business, results of operations, cash flows and financial condition
could be materially adversely affected. 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. These risk factors should
be carefully considered together with the other information in this
Annual Report on Form 10-K, including the risks and uncertainties
described under the heading “Special Note Regarding
Forward-Looking Statements.”
6
We are vulnerable to fluctuations in the general economy.
The staffing needs of our customers vary greatly with the overall
condition of the economy. Even though the economy is currently
experiencing a period of growth, there is a risk that conditions
will change, and that the economic climate in the future will
become more volatile, or uncertain. This could have a material
adverse effect on our business and operating results. During
periods of weak economic growth or economic contraction, the demand
for staffing services typically declines. When demand drops, our
business is typically impacted unfavorably as we experience a
decrease of our revenue but our selling and administrative expense
base may not decline as quickly as revenues. In periods of decline,
we can only reduce selling and administrative expenses to a certain
level without negatively impacting the long-term potential of our
branch network and brands. Additionally, during economic downturns
companies may slow the rate at which they pay their vendors, or
they may become unable to pay their obligations. If our customers
become unable to pay amounts owed to us, or pay us more slowly,
then our cash flow and profitability may suffer. Deterioration of
general economic conditions could have an adverse material effect
on our business, financial condition, and results of
operations.
We are vulnerable to downturns in regional and local
economies. As of March 28, 2018, we own and operate 67
branches across 23 states. As such, we are subject to regional and
local economic conditions in many markets. Additionally, our new
branches are sometimes placed in metropolitan areas where we have
one or more existing branches, increasing our exposure to future
economic weakness in those local areas. Deterioration in regional
and local economic conditions in the areas in which we operate
could have a material adverse impact on our business, financial
condition and results of operations.
We rely on a number of key customers and if we lose any one of
these customers, our revenues may decline. Although we have a significant number of customers
in each of the geographic markets that we operate in, we rely on
certain key customers for a significant portion of our revenues. In
2017, our 10 largest customers accounted for approximately 23% of
our revenue in 2017. Additionally, at December 29, 2017, 11.8% of
total accounts receivable was due from a single customer. In 2016,
our 10 largest customers accounted for approximately 24% of our
revenue in 2016. In the future, a small number of customers may
represent a significant portion of our total revenues in any given
period. These customers may not consistently use our services at a
particular rate over any subsequent period. The loss of any of
these customers could adversely affect our
revenues.
We are vulnerable to seasonal fluctuations with lower demand in the
fall and winter months. Revenues generated from branches in
markets subject to seasonal fluctuations will be less stable and
may be lower than in other markets. Locating branches in highly
seasonal markets involves higher risks. Our individual branch
revenue can fluctuate significantly on both a quarter over quarter
and year over year basis, depending on the local economic
conditions and need for temporary labor services in the local
economy. One of our goals is to increase the diversity of customers
and industries we service at both the branch and the company level.
This will reduce the potential negative impact of an economic
downturn in any one industry or region. To the extent that we
consider the opening of new branches, we intend to select branch
locations with a view to maximizing total long-term return on our
investment in branches, personnel, marketing, and other fixed and
sunk costs. However, there can be no assurance that our
profitability will not be adversely affected by low returns on
investment in certain highly-seasonal markets. Weather can also
have a significant impact on our operations as there is typically
lower demand for staffing services during adverse weather
conditions in the winter months.
A currently pending proxy contest has caused us to incur
substantial costs, divert management’s attention and
resources, and may have other adverse effects on our
business. On November
29, 2017, Ephraim Fields filed a preliminary proxy statement
nominating five candidates for election to our Board of Directors
at the 2017 Annual Meeting of Stockholders in opposition to the
candidates nominated by our Board of Directors. Responding to proxy
contests and reacting to other actions by activist stockholders can
be disruptive, costly and time-consuming, and can divert the
attention of management and our employees. We have incurred
significant expenses for legal, consulting and administrative fees.
We anticipate we will incur future expenses in connection with this
proxy contest depending on how long it takes to get to a
resolution, which may negatively impact our future financial
results. In addition, this proxy contest and any similar activist
stockholder initiatives leads to perceived uncertainties as our
future direction, strategy, leadership and may lead to the
perception of instability or lack of continuity, which may be
exploited by our competitors, cause concern to our current or
potential customers or vendors, or cause our stock price to
experience periods of volatility. Such perceived uncertainties as
to our future direction may harm our ability to attract investors
in order to raise capital, in the event we need to raise capital,
and may impact our existing and potential relationships and make it
more difficult to attract and retain qualified personnel, and if
individuals are elected to our Board of Directors with a specific
agenda, it may adversely affect our ability to effectively and
timely implement our business plans. We believe a continuing proxy
contest by the activist stockholder could materially and adversely
affect our business, our prospects, and stockholder
value.
7
We could experience a change of control as a result of the actions
of activist stockholders. On November 29, 2017, Ephraim Fields
filed a preliminary proxy statement nominating five candidates for
election to our Board of Directors at the 2017 Annual Meeting of
Stockholders in opposition to the candidates nominated by our Board
of Directors. The replacement of a majority of the members of our
Board of Directors in a proxy contest could result in a change of
control. Such change of control might alter our business strategy
and direction in ways we cannot currently predict which could
result in a negative impact on our business and financial results.
Additionally, a change of control could have consequences under our
material agreements. Any perceived uncertainties as to our future
direction could also affect the market price and volatility of our
common stock, impact our existing and potential relationships and
make it more difficult to attract and retain qualified personnel.
We believe partial or full success by the activist shareholder
could have a material adverse effect on our business and financial
results.
The market for our common stock is limited and our shareholders may
have difficulty reselling their shares when desired or at
attractive market prices. Our stock price and our
listing may make it more difficult for our shareholders to resell
shares when desired or at attractive prices. Our Company stock
trades on the “over-the-counter” market and is quoted
on the OTCQB tier of the OTC Markets. Our common stock has
continued to trade in low volumes and at low prices. On December 7,
2017, we effected a 1-for-12 reverse stock split of our common and
preferred stock which also affected our trading volume. Some
investors view low-priced stocks as unduly speculative and
therefore not appropriate candidates for investment. Many brokerage
firms and institutional investors have internal policies
prohibiting the purchase or maintenance of positions in OTC or
low-priced stocks.
“Penny stock” rules may make buying or selling our
securities difficult and impact liquidity. Trading in our
securities may be subject to the SEC’s “penny
stock” rules. The SEC has adopted regulations that generally
define a penny stock to be any equity security that has a market
price of less than $5.00 per share, subject to certain exceptions.
These rules require that any broker-dealer who recommends our
securities to persons other than prior customers and accredited
investors must, prior to the sale, make a special written
suitability determination for the purchaser and receive the
purchaser's written agreement to execute the transaction. Unless an
exception is available, the regulations require, prior to any
transaction involving a penny stock, the delivery of a disclosure
schedule explaining the penny stock market and the risks associated
with trading in the penny stock market. In addition, broker-dealers
must disclose commissions payable to both the broker-dealer and the
registered representative, and current quotations for the
securities they offer. The additional burdens imposed upon
broker-dealers by these requirements may discourage broker-dealers
from recommending transactions in our securities, which could
severely limit the liquidity of our securities and consequently
adversely affect the market price for our securities.
Loss of key management personnel could negatively affect our
business. We have a small
management team and we are highly dependent on principal
members of our management team to operate our business. The loss of
any key executive, could have a material adverse effect on our
business, financial condition, and results of operations. On
February 1, 2018, our Chief Executive Officer of five years
resigned effective April 1, 2018. With his departure we will lose
valuable expertise and knowledge he gained while managing our
Company, and it may require new management substantial time and
efforts to regain this expertise and knowledge. During this
transition period, a newly hired or interim Chief Executive Officer
may not have the depth of knowledge to execute our business plans.
Our future performance also depends on our ability to identify,
recruit, motivate, and retain key management 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.
If we lose members of our Board of Directors, our ability to manage
our business could be impaired. On January 16, 2018 and January 22,
2018, our Chairman of the Board John Stewart and our member of the
Board Richard Finlay resigned. To date, our Board has not appointed
replacement Board members. Our ability to attract and retain
qualified Board members is critical to the success of our business
and failure to do so could adversely affect our business
performance, competitive position, and future prospects.
With the departure of these two
long-time Board members, our Board also lost valuable expertise and
knowledge, and the Board may require substantial time and efforts
to regain this expertise and knowledge. Newly appointed or elected
Board members will need time to gain the knowledge become
acquainted with our business. The success of Command Center
is heavily dependent on the talents and efforts of our Board
members. If we are unable to continue to attract and retain
qualified Board members, our business performance, competitive
position, and future prospects may be adversely
affected.
8
Difficulty in attracting, developing, and retaining qualified
branch personnel could negatively affect our business. We
rely significantly on the performance and productivity of our
branch managers and business development specialists to help drive
new business to our growing number of branches. Each branch manager
has primary responsibility for managing the operations of the
individual branch, including recruiting workers, daily dispatch of
personnel, collection of accounts receivable, and overall customer
service. To combat a typically high turnover rate for branch
managers in the on-demand labor industry, we continue to develop
and refine our training and compensation plans to encourage
employee retention. There is no assurance that our training and
compensation plans will reduce turnover in this
position.
Loss of key personnel could negatively affect our business.
The loss of any key executive could have a material adverse effect
on our business. Our future performance also depends on our ability
to identify, recruit, motivate, and retain key management
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.
Unavailability of a reliable pool of field team members may
negatively impact our business. On-demand labor
companies must continually attract reliable temporary workers to
meet customer needs. We compete for such workers with other
temporary labor businesses, as well as with actual and potential
customers, some of which seek to fill positions directly with
regular or field team members. In addition, our field team members
sometimes become regular employees of our customers. From time to
time, during peak periods and/or in certain geographic regions, we
may experience shortages of available temporary
workers.
We are dependent upon the continued availability of workers'
compensation insurance. We maintain workers'
compensation insurance as required by state laws. Very few
insurance carriers provide workers' compensation coverage for
staffing companies in the manual labor market. We expect the
insurance market to tighten even further in the future. We cannot
be certain that we will be able to obtain adequate levels of
insurance with acceptable terms, coverages, deductibles and
collateral requirements. In most of the states in which we operate,
we cannot engage in business without workers' compensation
insurance. In order to obtain coverage, we are required to post
collateral with the carrier in the form of cash or a letter of
credit from our lender. The carrier can retain this collateral for
extended periods of time, and increase the amount of such
collateral.
Increased workers’ compensation insurance premiums could
negatively affect operating results. Workers’
compensation expenses and the related liability accrual are based
on our actual claims experience. Currently, as we have throughout
most of our corporate history, we maintain a large deductible
workers’ compensation insurance policy. Our current
workers’ compensation policy has a deductible limit of
$500,000 per incident, and our workers’ compensation policy
immediately prior to April 2014 has a deductible limit of $350,000
per incident. For the years prior to April 2011, our policy has a
deductible limit of $250,000 per person. As a result, we are
substantially self-insured. Our management training and safety
programs aim to minimize both the frequency and severity of
workers’ compensation insurance claims, but a large number of
claims, or a small number of significant claims, could require
substantial payments. In Washington and North Dakota, where we
purchase our insurance through state workers’ compensation
funds, our liability is limited to payment of the insurance
premiums. We can provide no assurance that we will be able to
successfully limit the frequency and severity of our workers’
compensation claims, or that our insurance premiums and costs will
not increase substantially. Higher costs for workers’
compensation coverage, if incurred, will have a material adverse
effect on our business, financial condition, and results of
operations.
9
Increased competition in our highly competitive industry may impact
our ability to retain customers or market share. We operate
in a highly competitive industry with low barriers to entry. We
face competition from a wide variety of companies ranging in size
from large, multi-national corporations to small, local sole
proprietors. This causes extensive pricing pressure, and there can
be no assurance that we will be able to retain customers or market
share going forward, nor that we will be able to maintain
profitability or current profit margins.
We may not be able to recover collateral deposits we have placed
with our workers’ compensation insurance
carrier. Historically our workers’ compensation
insurance carriers have required collateral deposits to secure our
payment of claims up to the amount of our policy deductible. For
the two-year period ending March 31, 2014, Dallas National
Insurance, now known as Freestone Insurance Company, provided our
workers’ compensation insurance coverage under a high
deductible policy. Under the terms of the policy, we were required
to provide cash collateral of $1.8 million as security for payment
of claims up to the policy deductible. We are responsible for
paying claims up to the deductible amount. In April 2014, the
Insurance Commissioner in the State of Delaware placed Freestone in
Receivership due to concerns about Freestone’s financial
condition. In August 2014, the Receivership was converted into a
liquidation proceeding. In late 2015, we filed timely proofs of
claim with the Receiver for return of our collateral deposits, one
as a priority claim and one as a general claim. On July 5, 2016,
the Receiver filed a first accounting with the Delaware Court of
Chancery. Pursuant to this accounting, the Receiver reported cash
and cash equivalents of $87.7 million as of December 31, 2015. We
believe our claim for return of collateral will be a priority claim
and our collateral should be returned to us. However, if the
Receiver determines that our claim for return of collateral is not
entitled to priority status, or if there are not sufficient assets
available to pay all of the priority claims, we may not receive any
or all of our collateral. As a result of these developments, we
believe that an impairment is probable, but we are not able to
reasonably estimate the amount of any loss. If we do receive any of
our collateral deposit back from Freestone, it could result in a
loss of up to $1.8 million. This loss of our collateral could have
a material adverse effect on our business, results of operations,
and financial condition.
Changes in financial accounting standards or practices may cause
adverse, unexpected financial reporting fluctuations and affect our
reported results of operations. We are required to prepare
our financial statements in accordance with generally accepted
accounting principles in the United States, or U.S. GAAP, which is
periodically revised and/or expanded. From time to time, we are
required to adopt new or revised accounting standards issued by
recognized authoritative bodies, including the Financial Accounting
Standards Board, or the FASB, and the SEC. It is possible that
future accounting standards we are required to adopt may require
additional changes to the current accounting treatment that we
apply to our financial statements and may require us to make
significant changes to our reporting systems. Such changes could
result in a material adverse impact on our business, results of
operations, and financial condition. For example, effective
December 30, 2017, FASB revised the manner in which revenue is to
be recognized. While we believe the adoption of this revised
accounting standard will not have any material effect on our
financial statements, this new accounting standard is complex and
it is possible that there may be a material adverse impact on our
financial statements, business, results of operations, and
financial condition.
The delay between the time we pay our temporary workers and other
creditors and the time we collect from our customers
requires debt refinancing
to provide
working capital. Field team members are typically paid
on the same day the services are performed, while customers are
generally billed on a weekly basis with 30-day payment terms. We
currently have an account purchase agreement with Wells Fargo Bank,
N.A. that allows us to sell eligible accounts receivable for 90% of
the invoiced amount on a full recourse basis up to the facility
maximum or $14.0 million. When the receivable is collected, the
remaining 10% is paid to us, less applicable fees and interest. The
term of the agreement is through April 7, 2020. The cancelation of
the account purchase agreement would have a material adverse effect
on our liquidity, cash flows, and results of
operations.
The delay between the time we pay our temporary workers and the
time we collect from our customers requires aggressive management
of our credit risk and places pressure on working capital.
Pressure on our working capital 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 unduly intrusive credit
management practices that could 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.
10
Limitations in our receivables financing agreements negatively
impact our liquidity. Under our account purchase
agreement with Wells Fargo Bank, our borrowing base is limited to
the lesser of: (1) 90% of acceptable accounts as defined in the
agreement, or (2) $14.0 million. Our collateral requirements with
our workers' compensation insurance carrier are secured by a $6.0
million letter of credit from our lender. The amount of the letter
of credit results in a reduction to our borrowing base, currently
reducing funds otherwise available to us by $6.0 million. This
limitation on our liquidity may result in our inability to expand
or to sustain our operations, which could result in a material
adverse impact on our business.
Increased employee expenses could adversely affect our
operations. We are required to comply with all
applicable federal and state laws and regulations relating to
employment, including verification of eligibility for employment,
occupational safety and health laws, wage and hour requirements,
employment insurance, and equal opportunity employment laws. Costs
and expenses related to these requirements are a significant
operating expense and may increase as a result of changes in
federal or state laws or regulations requiring employers to provide
specified benefits to employees (such as health insurance),
increases in the minimum wage or the level of existing benefits, or
the lengthening of periods for which unemployment benefits are
available. 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.
Failure to maintain adequate financial and management processes and
controls could lead to errors in our financial reporting. If
our management is unable to certify the effectiveness of our
internal controls, including those of our third party vendors, or
if material weaknesses in our internal controls are identified, we
could be subject to regulatory scrutiny and a loss of public
confidence. In addition, if we do not maintain adequate financial
and management personnel, processes, and controls, we may not be
able to accurately report our financial performance on a timely
basis, which could cause our stock price to fall.
We will continue to be impacted by new or existing laws and
regulations relating to employment. In addition to
federal and state laws and regulations, many counties and cities
have become active in regulating various aspects of employment,
including minimum wages, paid sick leave, application forms and
background checks, and required notices to employees, among others.
As a staffing company and large employer with a wide geographical
footprint, we are often faced with new legal requirements. Although
we believe that we will be able to maintain appropriate compliance
procedures, there is no assurance that our efforts will always be
timely or effective, or that we will be able to recover the
increased cost of new legal requirements through timely pricing
increases to our customers.
We are not in compliance with Washington state law because it has
been more than 15 months since our last annual meeting. The
Business Corporation Act of Washington requires that a Washington
corporation hold a meeting of shareholders annually for the
election of directors. Our last shareholder meeting was held on
November 17, 2016. We have not held a meeting of shareholders
during 2017 because of the pending proxy contest. A court may
require us to hold an annual meeting of shareholders upon petition
of a shareholder and fix the time and place of the meeting. The
failure to hold an annual meeting may also impair our ability to
uplist to the Nasdaq Capital Market should our Board decide to
pursue such uplisting and in the event we meet all other criteria
for such uplisting.
We may incur additional tax liabilities that exceed our
estimates. We are subject to federal taxes and a multitude
of state and local taxes. We are regularly subject to audit by tax
authorities. Although we believe our tax estimates are reasonable,
the final determination of tax audits and any related litigation
could be materially different from our historical tax provisions
and accruals. The results of an audit or litigation could
materially harm our business. The taxing authorities of the
jurisdictions in which we operate may challenge our methodologies
for determining tax liabilities, or change their laws, which could
increase our effective tax rate and negatively affect our financial
position and results of operations.
We may incur additional costs and regulatory risks relating to new
laws regulating the hiring of undocumented
workers. In
addition to federal laws, the statutes of several states regulate
employer practices relating to the identification and eligibility
to work of new hires. We have implemented procedures intended to
meet all of these requirements. We process information on each new
employee through the federal government’s E-Verify system.
Although we believe that we are in compliance and we will be able
to maintain appropriate procedures, we cannot assure that our
compliance will not be flawed or delayed because of the large
number of temporary personnel that we employ. In some cases, the
penalties for noncompliance are punitive. Regulatory requirements
imposed on employers and enforcement actions relating to
immigration status of employees are expected to increase. If we are
not able to maintain appropriate compliance procedures, our
operations would be materially and adversely affected.
11
We will incur additional costs and regulatory risks relating to the
impact of health care reform upon our business and failure to
comply with such rules and regulations could materially harm our
business. The Patient Protection and Affordable Care Act and
the Health Care and Education Reconciliation Act of 2010, or
collectively, the Health Care Reform Laws, include various
health-related provisions that took effect in 2015 and 2016,
including the requirement that most individuals have health
insurance and establishing new regulations on health plans.
Although the Health Care Reform Laws do not mandate that employers
offer health insurance, beginning in 2016 tax penalties are
assessable on large employers which do not offer health insurance
that meets certain affordability or benefit requirements. Providing
such additional health insurance benefits to our qualifying
temporary workers, or the payment of tax penalties if such coverage
is not provided, will increase our costs. The economic impact of
the Health Care Reform Laws to us is not yet known. It is likely
that the Health Care Reform Laws will be revised or rewritten
pursuant to proposed legislation. The requirements and the cost
impact of revisions to existing laws, Health Care Reform Laws, or
new health care legislation is unknown. Under both the present laws
and proposed legislation, if we are unable to raise the rates we
charge our customers to cover the costs of these programs, such
increases in costs could materially harm our business.
We may be exposed to employment-related claims and costs from field
team members, customers, or third parties that could materially
adversely affect our business, financial condition and results of
operations. We are in the business of employing people
and placing them in the workplaces of other businesses. As the
employer of record, we are at risk for claims brought by our field
team members, such as wage and hour claims, discrimination and
harassment actions and workers' compensation claims. We are also at
risk for liabilities alleged to have been caused by our field team
members (such as claims relating to personal injuries, property
damage, immigration status, misappropriation of funds or property,
violation of environmental laws, or criminal activity). Significant
instances of these types of issues may impact our customers’
perception of us 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
field team members. If we are found liable for the actions or
omissions of our field team members or our customers, and adequate
insurance coverage is not available, our business, financial
condition, and results of operations could be materially and
adversely affected.
Competitive factors may require us to absorb increases in operating
costs, and we may lose volume as a result. 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, regulatory requirements and to improve our return
on invested capital. However, competitive factors may require us to
absorb cost increases, which would have a negative effect 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.
We face competition from companies that have greater resources than
we do and we may not be able to effectively compete with these
companies. There are 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 we
expect this level of competition to remain high and to increase in
the future. Competition could have a material adverse effect on our
business, financial condition, and results of operations. There is
also 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.
Improper disclosure of employee and customer data could result in
liabilities and harm our reputation. In the course of
our business, we collect, store, use, and transmit information
about our employees and customers. Protecting the privacy of this
information is critical to our business. We have established a
system of controls for safeguarding the security and privacy of our
data. Our security controls may not, in every case, be adequate to
prevent unauthorized internal or external intrusions into our
systems and improper disclosure of personal data and confidential
information relating to our employees, our customers or our
business. The regulations relating to the security and privacy of
information are increasingly prevalent and demanding. The failure
to adequately protect private information could expose us to claims
from employees and customers and regulatory actions, harm our
reputation, and have a material adverse effect on our business,
financial condition, and results of operations. Additional security
measures we may take to address customer or employee concerns may
cause higher operating expenses.
12
Cyberattacks or other breaches of our technology hardware and
software, as well as risks associated with compliance and data
privacy could have an adverse effect on our systems, our service to
our customers, our reputation, our competitive position, and
financial results. Our ability to manage our operations
successfully is critical to our success. Our business relies on our
ability to electronically gather, compile, process, store and
distribute data and other information. Unintended interruptions or
failures resulting from computer and telecommunications failures,
equipment or software malfunction, power outages, catastrophic
events, security breaches (such as unauthorized access by hackers),
social engineering schemes, unauthorized access, errors in usage by
our employees, computer viruses, ransomware or malware, and other
events could harm our business. While we have taken measures
to minimize the impact of these problems, the proper functioning of
these systems is critical to our business operations. Any security
breach or failure in our computer equipment, systems or data could
result in the interruption of our business operations, tarnish our
reputation, and expose us to damages and litigation.
Our directors, officers and current principal stockholders own a
large percentage of our common stock and could limit other
stockholders’ influence over corporate
decisions. As of March 28, 2018, our directors,
officers and current stockholders holding more than 5% of our
common stock collectively beneficially own, in the aggregate,
approximately 35% of our outstanding common stock. As a result,
these stockholders acting together, may be capable of controlling
most matters requiring stockholder approval, including the election
of directors, approval of mergers, and other significant corporate
transactions. This concentration of ownership may have the effect
of delaying or preventing a change in control. The interests of
these stockholders may not always coincide with our corporate
interests or the interests of our other stockholders, and they may
act in a manner with which some stockholders may not agree or that
may not be in the best interests of all stockholders.
We will likely be party, from time to time, to various legal
proceedings, lawsuits, and other claims arising in the ordinary
course of our business. In the ordinary course of business,
we are subject to a variety of legal proceedings, lawsuits and
claims. We anticipate that, disputes may arise in the future
relating to contract, employment, labor relations, and other
matters that could result in litigation or arbitration. These
proceedings could divert the attention of our management team and
result in costly or unfavorable outcomes. Any such litigation could
result in substantial expense, reduce profits harm our reputation,
and have a materially adverse impact on our business and financial
condition. Also see Item 3
“Legal Proceedings”.
Our customer contracts contain termination provisions that could
decrease our future revenues and earnings. Most of our
customer contracts are either day-to-day or can be terminated by
the customer on short notice without penalty. Our customers are,
therefore, not contractually obligated to continue to do business
with us in the future. This creates uncertainty with respect to the
revenues and earnings we may recognize with respect to our customer
contracts.
We have a history of net losses. Although we have
recorded a net profit in several of our most recent fiscal years,
as of December 29, 2017, we have an accumulated deficit of
approximately $36.0 million. We have incurred net losses in many of
our fiscal years since inception. We may incur additional operating
losses. We make no assurance that our revenue will increase or that
we will be profitable in any future period.
If our goodwill is impaired, we will record an additional non-cash
charge to our results of operations and the amount of the charge
may be material. At least annually, or whenever events
or circumstances arise indicating impairment may exist, we review
goodwill for impairment as required by U.S. GAAP. In 2014, we
wrote-off approximately $807,000 in goodwill relating to our 2012
acquisition of Disaster Recovery Services. In addition, on June 3,
2016, we purchased substantially all of the assets of Hanwood
Arkansas, LLC, an Arkansas limited liability company, and Hanwood
Oklahoma, LLC, an Oklahoma limited liability company. Together
these companies operated as Hancock Staffing, or Hancock, from
branches located in Little Rock, Arkansas and Oklahoma City,
Oklahoma. In connection with our 2016 acquisition of Hancock, we
identified and recognized $1.3 million in goodwill that we added to
the carrying amount of $2.5 million from the acquisition of
Disaster Recovery Services after the write-off. The resulting
carrying amount of $3.8 million 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 our market
capitalization. In the future, we may need to further reduce the
carrying amount of goodwill by taking an additional non-cash charge
to our results of operations. Such a charge would have the effect
of reducing goodwill with a corresponding impairment expense and
may have a material effect upon our reported results. The
additional expense may reduce our reported profitability or
increase our reported losses in future periods and could negatively
affect the market for our securities, our ability to obtain other
sources of capital, and may generally have a negative effect on our
future operations.
13
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. DESCRIPTION OF PROPERTIES
We
presently lease office space for our corporate headquarters in
Lakewood, Colorado. We also lease the property for all of our
current branch locations. All of these branches are leased at
market rates that vary in amount, depending on location. Most of
our branch leases have terms that extend over three to five years.
Some of the leases have cancellation provisions that allow us to
cancel with 90 days' notice. Other leases have been in existence
long enough that the term has expired and we are currently
occupying the premises on month-to-month tenancies. For additional
information related to our operating leases see Note 10 – Commitments and
Contingencies in our notes to the consolidated
financial statements.
ITEM 3. LEGAL PROCEEDINGS
Freestone Insurance Company Liquidation: From April 2012,
through March 2014, our workers’ compensation insurance
coverage was provided by Dallas National Insurance, who changed its
corporate name to Freestone Insurance Company. Under the terms of
the policies we were required to provide cash collateral of
$900,000 per year, for a total of $1.8 million, as a non-depleting
fund to secure our payment up to the deductible
amount.
From
July 2008 until April 2011, our workers’ compensation
coverage was provided under an agreement with AMS Staff Leasing II,
through a master policy with Freestone. During this time period, we
deposited approximately $500,000 with an affiliate of Freestone for
collateral related to the coverage through AMS Staff Leasing
II.
In
April 2014, the Insurance Commissioner of the State of Delaware
placed Freestone in receivership due to concerns about its
financial condition. In August 2014, the receivership was converted
to a liquidation proceeding. In late 2015, we filed timely proofs
of claim with the Receiver. One proof of claim is filed as a
priority claim seeking return of the full amount of our collateral
deposits. The other proof of claim is a general claim covering
non-collateral items. If it is ultimately determined that our claim
is not a priority claim, or if there are insufficient assets in the
liquidation to satisfy the priority claims, we may not receive any
or all of our collateral.
During
the second quarter of 2015 and the first quarter of 2016 we
recorded reserves of $250,000 for a total reserve of $500,000 on
the $2.3 million deposit balance. The current net deposit of $1.8
million is recorded as workers’ compensation risk pool
deposit in receivership. Management believes that it is probable
that the Company will incur some loss on this asset and the range
of loss on this matter could be as high as $1.8 million. The amount
of the loss will be determined by the Chancery Court’s
application of certain legal and equitable doctrines which cannot,
at this time, be predicted with any accuracy. In addition, the
receivership in the State of Delaware is an equitable proceeding
with tends to focus on what the judge overseeing the preceding
considers to be a fair result. Management reviews these deposits at
each balance sheet date. At December 29, 2017, we believe a loss is
probable, but no additional reserve was recognized because the
amount of loss cannot be reasonably estimated.
In July
2016, the Receiver filed the First Accounting for the period April
28, 2014 through December 31, 2015, with the Delaware Court of
Chancery. The First Accounting does not clarify the issues with
respect to the collateral claims, priorities and return of
collateral. In the accounting, the Receiver reports total assets
consisting of cash and cash equivalents of $87.7 million as of
December 31, 2015.
In late
May 2017, the receiver filed a petition with the court, proposing a
plan as to how the Receiver would identify and pay collateral to
all insureds that paid cash collateral to Freestone. In the
petition, the Receiver acknowledged receiving only $500,000 of our
collateral. Of the $500,000 acknowledged, the Receiver proposed to
return only approximately $6,000 to us. There was no comment or
information provided in the petition regarding the additional $1.8
million in collateral that we provided to Freestone via its agent,
High Point Risk Services, for which Freestone previously confirmed
receipt in a letter to us in January 2014. Furthermore, the
Receiver proposed similar severe reductions to the other collateral
depositors. Although the Receiver acknowledged holding $87.7
million in cash and cash equivalents as of December 31, 2015, the
Receiver proposed to pay only approximately $1.1 million in total
for return of collateral, to be divided among all collateral
depositors in differing proportions.
14
Our
initial assessment of the Receiver’s petition filed in late
May 2017 was that the plan proposed by the Receiver is incomplete,
factually incorrect and legally unsupportable. In response to
additional information provided to and sought from the Receiver by
us and by others, the Receiver has withdrawn the petition,
acknowledging possible inaccuracies. At the present time, it is
unknown when the Receiver will refile a petition regarding
collateral, nor is it known if the Receiver is likely to take a
similar or different approach in a new petition. If this or another
similar proposal was to be put forth by the Receiver and accepted
by the Chancery Court, we would suffer a loss of up to 99% of our
deposit.
Recently,
with additional documentation received directly from High Point
Risk Services, we have reconfirmed that High Point transferred at
least $1.8 million of our collateral to Freestone.
Because
we are still in the very early stages of this adversarial
litigation, we are unable to provide an estimate as to when the
court may ultimately rule on the collateral issues. Presently, we
anticipate that it will take several months for the Receiver to
rewrite its collateral proposal and file a new petition with the
court. We are similarly unable to provide a projection as to how
the court may eventually rule or what amount of collateral we may
finally receive. If the court were to ultimately award to us an
amount significantly less than the full amount of our paid-in
collateral, that result would have a material adverse effect on our
financial condition.
Other
than the Freestone litigation described above, on occasion, we may
be involved in legal matters arising in the ordinary course of our
business. While management believes that such matters are currently
insignificant, matters arising in the ordinary course of business
for which we are, or could become involved in litigation, may have
a material adverse effect on our business, financial condition or
results of operations. For additional information related to our
legal proceedings see Note 10
– Commitments and Contingencies in our notes to
the consolidated financial statements.
ITEM 4. MINE SAFETY DISCLOSURE
Not
applicable.
PART II
ITEM 5. MARKETS FOR REGISTRANT’S COMMON EQUITY, RELATED
STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY
SECURITIES
Reverse Stock Split
In
December 2017, we filed an amendment to our Articles of
Incorporation and effected a 1-for-12 reverse stock split of our
common and preferred stock, effective as of the close of business
on December 7, 2017, whereby 60,615,549 shares of our common stock
were exchanged for 5,051,542 newly issued shares. Under the terms
of the reverse stock split, fractional shares issuable to
stockholders were cashed out, resulting in a reverse split slightly
more than 1-for-12 in the aggregate. All stock prices, per share
amounts, and number of shares in this Annual Report on Form 10-K
have been retroactively adjusted to reflect the 1-for-12 reverse
stock split, resulting in the transfer of approximately $56,000
from common stock to additional paid in capital at December 29,
2017 and December 30, 2016.
Market Information
Our
common stock is quoted on the OTCQB tier of the OTC Markets under
the symbol “CCNI.” The OTCQB is a network of security
dealers who buy and sell stock. The dealers are connected by a
computer network which provides information on current
“bids” and “asks” as well as volume
information. The OTCQB is not considered a “national
exchange.”
15
The
following table shows the high and low bid information for the
common stock for the quarterly period indicated for the last two
fiscal years:
|
|
Price
(1)
|
|
|
Quarter
|
High
|
Low
|
|
First Quarter,
2016
|
$6.48
|
$4.32
|
|
Second Quarter,
2016
|
5.76
|
4.08
|
|
Third Quarter,
2016
|
5.28
|
4.32
|
|
Fourth Quarter,
2016
|
4.80
|
3.48
|
|
First Quarter,
2017
|
5.04
|
4.20
|
|
Second Quarter,
2017
|
4.44
|
3.96
|
|
Third Quarter,
2017
|
5.40
|
3.72
|
|
Fourth Quarter,
2017
|
6.12
|
4.80
|
(1)
The above
quotations reflect inter-dealer prices, without retail mark-up,
mark-down or commission and may not necessarily represent actual
transactions. The closing price for our common stock on the OTCQB
was $5.70 on March
28, 2018. The price per share numbers listed above take into
account the 1-for-12 reverse stock split that became effective on
December 7, 2017.
Holders of the Corporation’s Capital Stock
At
March 28, 2018, we had approximately 205 stockholders of record.
This figure does not reflect persons or entities that hold their
stock in nominee or “street” name through various
brokerage firms.
Dividends
No cash
dividends have been declared on our common stock to date and, at
present, we do not anticipate paying a cash dividend on our common
stock in the foreseeable future.
Equity Compensation Plan Information
Pursuant
to Item 201(d) of Regulation S-K, “Securities Authorized for
Issuance Under Equity Compensation Plans,” we are providing
the following information summarizing information about our equity
compensation plans as of December 29, 2017. All share numbers have
been updated for the 1-for-12 reverse stock split of the
Company’s common stock effective as of December 7,
2017.
|
Plan
category
|
Number of
securities to be issued upon exercise of outstanding options and
rights
|
Weighted
average exercise price of outstanding options, warrants, and
rights
|
Number of
securities remaining available for future issuance
|
|
Equity compensation
plans approved by security holders
|
75,000
|
$5.13
|
425,000
|
Our
Command Center, Inc. 2016 Employee Stock Incentive Plan was adopted
by our Board of Directors on September 29, 2016 and approved by our
stockholders at the 2016 Annual Meeting of Stockholders on November
17, 2016. We have previously provided the material terms of such
plan.
Transfer Agent and Registrar
Our
transfer agent is Continental Stock Transfer &Trust, located at
17 Battery Street, 8th Floor, New York, New York,
10004.
16
Issuer Purchases of Equity Securities
In
September 2017, our Board of Directors authorized a $5.0 million
three-year repurchase plan of our common stock. This plan replaces
the previously implemented plan, which was put in place in April
2015. During 2017 we purchased 68,586 shares of common stock at an
aggregate price of approximately $374,000 resulting in an average
price of $5.45 per share under the plan. These shares were then
retired. During 2016 we purchased 318,356 shares of common stock at
an aggregate price of approximately $1.5 million resulting in an
average price of $4.85 per share under the plan. These shares were
then retired. We have approximately $4.6 million remaining under
the repurchase plan. For additional information related to our
stock repurchase see Note 7
– Stockholders’ Equity in our notes to the
consolidated financial statements. The table below summarizes our
common stock purchased during 2017.
|
|
Total shares
purchased
|
Average price
per share
|
Total number
of shares purchased as part of publicly announced plan
|
Approximate
dollar value of shares that may be purchased under the
plan
|
|
August 26, 2017 to
September 29, 2017
|
11,175
|
$4.92
|
523,661
|
$4,945,023
|
|
September 30, 2017
to October 27, 2017
|
22,625
|
5.30
|
546,286
|
4,825,220
|
|
October 28, 2017 to
November 24, 2017
|
22,634
|
5.65
|
568,920
|
4,697,427
|
|
November 25, 2017
to December 29, 2017
|
12,152
|
5.88
|
581,072
|
4,625,981
|
|
Total
|
68,586
|
|
|
|
ITEM 6. SELECTED FINANCIAL DATA
As a
“smaller reporting company,” as defined by Rule 12b-2
of the Exchange Act and in Item 10(f)(1) of Regulation S-K, we are
electing scaled disclosure reporting obligations and therefore are
not required to provide the information requested by this
Item.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITIONS AND RESULTS OF OPERATIONS
The
following management's discussion and analysis reviews significant
factors with respect to our financial condition at December 29,
2017, and results of operations for the fiscal years ended December
29, 2017 and December 30, 2016. This discussion should be read in
conjunction with the consolidated financial statements, notes,
tables, and selected financial data presented elsewhere in this
report.
Our
discussion and analysis contains forward-looking statements that
are provided to assist in the understanding of anticipated future
financial performance. However, such performance involves risks and
uncertainties that may cause actual results to differ materially
from those discussed in such forward-looking statements. A
cautionary statement regarding forward-looking statements is set
forth under the caption “Special Note Regarding
Forward-Looking Statements” immediately prior to Item 1 of
this Annual Report on Form 10-K. This discussion and analysis
should be considered in light of such cautionary statements and the
risk factors disclosed elsewhere in this report.
17
The
following table reflects operating results from 2017 and 2016 (in
thousands, except per share amounts and percentages). Percentages
indicate line items as a percentage of total revenue. The table
serves as the basis for the narrative discussion that
follows.
|
|
Fifty-two
weeks ended
December 29,
2017
|
Fifty-three
weeks ended
December 30,
2016
|
||
|
Revenue
|
$98,072
|
100.0%
|
$93,260
|
100.0%
|
|
Cost
of staffing services
|
72,642
|
74.1%
|
69,581
|
74.6%
|
|
Gross
profit
|
25,430
|
25.9%
|
23,679
|
25.4%
|
|
Selling,
general and administrative expenses
|
21,347
|
21.8%
|
22,277
|
23.9%
|
|
Depreciation
and amortization
|
386
|
0.3%
|
298
|
0.3%
|
|
Income
from operations
|
3,697
|
3.8%
|
1,104
|
1.2%
|
|
Interest
expense and other financing expense
|
12
|
0.0%
|
25
|
0.0%
|
|
Net income before
income taxes
|
3,685
|
3.8%
|
1,079
|
1.2%
|
|
Provision for
income taxes
|
2,006
|
2.0%
|
522
|
0.6%
|
|
Net
income
|
$1,679
|
1.8%
|
$557
|
0.6%
|
|
Non-GAAP
data
|
|
|
|
|
|
EBITDA
|
$4,240
|
4.3%
|
$1,549
|
1.6%
|
Earnings
before interest, taxes, depreciation and amortization, and non-cash
compensation, or EBITDA, is a non-GAAP measure that represents our
net income before interest expense, income tax expense,
depreciation and amortization, and non-cash compensation. We
utilize EBITDA as a financial measure, as management believes
investors find it a useful tool to perform more meaningful
comparisons of past, present and future operating results and as a
means to evaluate our operational results. We believe it is a
complement to net income and other financial performance measures.
EBITDA is not intended to represent net income as defined by U.S.
GAAP, and such information should not be considered as an
alternative to net income or any other measure of performance
prescribed by U.S. GAAP.
We use
EBITDA to measure our financial performance because we believe
interest, taxes, depreciation and amortization, and non-cash
compensation bear little or no relationship to our operating
performance. By excluding interest expense, EBITDA measures our
financial performance irrespective of our capital structure or how
we finance our operations. By excluding taxes on income, we believe
EBITDA provides a basis for measuring the financial performance of
our operations excluding factors that our branches cannot control.
By excluding depreciation and amortization expense, EBITDA measures
the financial performance of our operations without regard to their
historical cost. By excluding non-cash compensation, EBITDA
provides a basis for measuring the financial performance of our
operations excluding the value of our stock and stock options. For
all of these reasons, we believe that EBITDA provides us and
investors with information that is relevant and useful in
evaluating our business.
However,
because EBITDA excludes depreciation and amortization, it does not
measure the capital we require to maintain or preserve our fixed
assets. In addition, because EBITDA does not reflect interest
expense, it does not take into account the total amount of interest
we pay on outstanding debt nor does it show trends in interest
costs due to changes in our financing or changes in interest rates.
EBITDA, as defined by us, may not be comparable to EBITDA as
reported by other companies that do not define EBITDA exactly as we
define the term. Because we use EBITDA to evaluate our financial
performance, we reconcile it to net income, which is the most
comparable financial measure calculated and presented in accordance
with U.S. GAAP.
18
The
following is a reconciliation of EBITDA to net income for the
periods presented (in thousands):
|
|
Fifty-two
weeks ended
December 29,
2017
|
Fifty-three
weeks ended
December 30,
2016
|
|
EBITDA
|
$4,240
|
$1,549
|
|
Interest
expense
|
(12)
|
(25)
|
|
Depreciation
and amortization
|
(386)
|
(298)
|
|
Provision
for income taxes
|
(2,006)
|
(522)
|
|
Non-cash
compensation
|
(157)
|
(147)
|
|
Net
income
|
$1,679
|
$557
|
Results of Operations
Fifty-two weeks ended December 29, 2017
Summary of Operations: Revenue increased approximately
$4.8 million, or 5.2%, to $98.1 million in 2017 from $93.3 million
in 2016. Our fiscal year ended December 30, 2016 had 53 weeks and
benefited from the inclusion of an additional week when compared to
2017, with average weekly revenue in 2016 being approximately $1.8
million. In June 2016, we acquired substantially all of the assets
of Hancock. In 2017, revenue from the two Hancock branches totaled
approximately $7.6 million, an increase of approximately $3.1
million over 2016. Revenue from our other branches (excluding
Hancock) in 2017 increased approximately $1.7 million, and when
taking into consideration the additional week in 2016, 2017
increased approximately $3.5 million.
Our
branches serve a wide variety of customers and industries across 23
states. Our individual branch revenue can fluctuate significantly
on both a quarter-over-quarter and year-over-year basis depending
on the local economic conditions and need for temporary labor
services in the local economy. One of our goals is to increase the
diversity of customers and industries we service at both the branch
and the company level. We believe this will reduce the potential
negative impact of an economic downturn in any one industry or
region.
Cost of Staffing Services: Cost of staffing services
decreased 0.5% to 74.1% of revenue in 2017 from 74.6% in 2016. This
decrease was primarily due to a 0.7% relative decrease in our state
unemployment insurance costs in 2017, as we have placed an
increased emphasis on managing this portion of our business in the
last two years. State unemployment tax rates fluctuate annually
based on our actual experience in each state related to claims
filed by former employees.
We also
saw a relative decrease of 0.1% in workers’ compensation
insurance costs in 2017, which can fluctuate as a result of changes
to the mix of work performed during the year, safety of our field
team members, changes in our claims history and ongoing claims
management, and changes in actuarial assumptions. We perform site
visits to ensure our employees are working in a safe environment,
provide safety training when appropriate, and actively manage our
workers’ compensation claims to minimize our expense and
exposure.
The
aforementioned decreases were offset by a 0.3% increase in
compensation paid to our temporary employees due to competitive
forces in a tightening labor market, as well as increases in
minimum wages in some states in which we operate, which can result
in fluctuations in the compensation paid to our temporary workforce
in order to provide quality field team members to our
customers.
Selling, General and Administrative Expenses, or
SG&A: SG&A, relative to revenue, decreased
2.1% to 21.8% in 2017 from 23.9% in 2016. This relative decrease is
due to a decrease in internal salaries and related payroll taxes of
0.7%, a decrease our provision for bad debt of 0.8%, and decreased
consulting and recruiting expense of 0.4%, as turnover after the
relocation of the corporate headquarters to Denver has returned to
normal levels. We also had small decreases in many areas as we
continue to aggressively and effectively manage costs. These
decreases were offset by an increase of 0.4% in professional
services related to the proxy contest and statement effected by
Ephraim Fields.
19
Liquidity and Capital Resources
We
believe that our cash flow from operations, working capital
balances at December 29, 2017, and access to our account purchase
agreement will be sufficient to fund anticipated operations through
March 2019.
At
December 29, 2017, our current assets exceeded our current
liabilities by approximately $13.3 million. Included in current
assets is cash of approximately $7.8 million and trade accounts
receivable of $9.4 million. Included in current liabilities are
accrued wages and benefits of approximately $1.5 million, and the
current portion of workers’ compensation claims liability of
approximately $1.0 million.
The
liability related to our account purchase agreement facility was
approximately $854,000 and $388,000 at December 29, 2017 and
December 30, 2016, respectively. The current financing agreement is
an account purchase agreement with Wells Fargo Bank, N.A. which
allows us to sell eligible accounts receivable for 90% of the
invoiced amount on a full recourse basis up to the facility
maximum, or $14.0 million at December 29, 2017. When the receivable
is collected, the remaining 10% is paid to us, less applicable fees
and interest. The term of the agreement is through April 7, 2020.
The agreement bears interest at the Daily One Month London
Interbank Offered Rate plus 2.50% per annum. At December 29, 2017
the effective interest rate was 4.06%. Interest is payable on the
actual amount advanced. Additional charges include an annual
facility fee equal to 0.50% of the facility threshold in place and
lockbox fees. As collateral for repayment of any and all
obligations, we granted Wells Fargo Bank, N.A. a security interest
in all of our property including, but not limited to, accounts
receivable, intangible assets, contract rights, investment
property, deposit accounts, and other such assets. We also have an
outstanding letter of credit under this agreement in the amount of
$6.0 million which reduces the amount of funds otherwise made
available to us under this agreement. As of December 29, 2017 we
had approximately $13,000 of availability on this
facility.
Operating Activities: Net cash provided by
operating activities totaled approximately $4.7 million in 2017
compared to cash used in operating activities of approximately
$464,000 in 2016. Operating activity in 2017 included net income of
approximately $1.7 million, a decrease of approximately $1.7
million in our deferred tax asset, a decrease of approximately
$683,000 in accounts receivable, an increase of approximately
$503,000 in other current liabilities, and a decrease of
approximately $578,000 in prepaid workers’ compensation.
These were offset by an increase of approximately $758,000 in our
workers’ compensation claims liability and a decrease of
approximately $199,000 in accounts payable. Operating activity in
2016 included an increase of approximately $1.6 million in accounts
receivables, an increase of approximately $338,000 in prepaid
expenses, deposits, and other assets, and a decrease of
approximately $727,000 in workers’ compensation claims
liability. These uses were offset by proceeds of approximately
$557,000 from net income, a decrease of approximately $447,000 to
our deferred tax asset, and a decrease of approximately $244,000 in
our workers’ compensation risk pool deposits.
Investing Activities: Net cash used in investing
activities totaled approximately $104,000 in 2017 compared to
approximately $2.1 million in 2016. Investing activity in 2017
related to the purchase of equipment, while in 2016 it related
primarily to the acquisition of Hancock.
Financing Activities: Net cash provided by financing
activities totaled approximately $90,000 in 2017 compared to net
cash used by financing activities of approximately $2.0 million in
2016. Financing activity in 2017 included net cash provided by our
account purchase facility of approximately $465,000 and $375,000
used to purchase treasury stock. Financing activity in 2016
included $417,000 used to repay debt related to the Hancock
acquisition, a net decrease in our account purchase facility of
approximately $91,000, and approximately $1.5 million used to
purchase treasury stock.
Critical Accounting Policies
Management's
discussion and analysis of financial condition and results of
operations are based upon our financial statements, which have been
prepared in accordance with U.S. GAAP. The preparation of these
financial statements requires management to make estimates and
judgments that affect the reported amounts of assets, liabilities,
revenues and expenses and the related disclosure of contingent
assets and liabilities. Management bases its
estimates and judgments on historical experience and on various
other factors that are believed to be reasonable under the
circumstances, the results of which form the basis for making
judgments about the carrying value of assets and liabilities that
are not readily apparent from other sources. Actual results may
differ from these estimates under different assumptions or
conditions.
20
Management believes that the following accounting policies are the
most critical to aid in fully understanding and evaluating our
reported financial results, and they require management’s
most difficult, subjective, or complex judgments, resulting from
the need to make estimates about the effect of matters that are
inherently uncertain. For additional information related
to our critical accounting policies see Note 1 –
Summary of Significant Accounting Policies in our notes to the
consolidated financial statements.
Workers’ Compensation Reserves: In
accordance with the terms of our workers’ compensation
liability insurance policy, we maintain reserves for workers’
compensation claims to cover our cost of all claims. We use third
party actuarial estimates of the future costs of the claims and
related expenses discounted by a 5% present value interest rate to
determine the amount of our reserves. The discount rate was
increased to 5% from 3% in prior years to more accurately reflect
our risk tolerance and the active management of workers’
compensation claims. We evaluate the reserves quarterly 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.
Accounts Receivable and Allowance for Doubtful
Accounts: Accounts receivable are carried at
their estimated recoverable amount, net of allowances. The
allowance for doubtful accounts is determined based on historical
write-off experience, age of receivable, other qualitative factors
and extenuating circumstances, 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 monthly and past due balances are written-off when it is
probable that the receivable will not be collected. At December 29,
2017 and December 30, 2016, our allowance for doubtful accounts was
approximately $282,000 and $899,000, respectively.
Goodwill and Other Intangible Assets: Goodwill
represents the excess purchase price over the fair value of
identifiable assets received attributable to business acquisitions
and combinations. Goodwill and other intangible assets are measured
for impairment at least annually and whenever events and
circumstances arise that indicate impairment may exist, such as a
significant adverse change in the business climate. In assessing
the value of goodwill, assets and liabilities are assigned to the
reporting units and the appropriate valuation methodologies are
used to determine fair value at the reporting unit level.
Identified intangible assets are amortized using the straight-line
method over their estimated useful lives which are estimated to be
between two and seven years.
Income Taxes: We account for income taxes under
the liability method, whereby deferred income tax liabilities or
assets at the end of each period are determined using the enacted
tax rate expected to be in effect when the taxes are actually paid
or recovered. A valuation allowance is recognized on deferred tax
assets when it is more likely than not that some or all of these
deferred tax assets will not be realized. Our policy is to
prescribe a recognition threshold and measurement attribute for the
recognition and measurement of a tax position taken or expected to
be taken in a tax return.
We have
analyzed our filing positions in all jurisdictions where we are
required to file returns and found no positions that would require
a liability for unrecognized income tax positions to be recognized.
In the event that we are assessed penalties and/or interest,
penalties will be charged to other financing expense and interest
will be charged to interest expense.
Share-Based Compensation: Periodically, we issue
common shares or options to purchase our common shares to our
officers, directors, employees, or other parties. Compensation
expense for these equity awards are recognized over the vesting
period, based on the fair value on the grant date. We recognize
compensation expense for only the portion of options that are
expected to vest, rather than record forfeitures when they occur.
If the actual number of forfeitures differs from those estimated by
management, additional adjustments to compensation expense may be
required in the future periods. We determine the fair value of
equity awards using the Black-Scholes valuation model for stock
options and the quoted market price for stock awards.
Impairment of Long-lived Asset: We review the
carrying values of our long-lived assets, including property, plant
and equipment, and intangible assets whenever events or changes in
circumstances indicate that such carrying values may not be
recoverable. Long-lived assets are carried at historical cost if
the projected cash flows from their use will recover their carrying
amounts on an undiscounted basis without considering interest. If
projected cash flows are less than their carrying value, the
long-lived assets are reduced to their estimated fair value.
Considerable judgement is required to project such cash flows and,
if required, estimate the fair value of the impaired long-lived
assets.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
We are
a “smaller reporting company” as defined by Regulation
S-K and as such, we are not providing the information contained in
this item pursuant to Regulation S-K.
21
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Table of Contents
|
|
|
Page
|
|
Reports of Independent Registered Public Accounting
Firms
|
|
23
|
|
Consolidated Balance Sheets
|
|
25
|
|
Consolidated Statements of Income
|
|
26
|
|
Consolidated Statements of Changes in Stockholders’
Equity
|
|
27
|
|
Consolidated Statements of Cash Flows
|
|
28
|
|
Notes to Consolidated Financial Statements
|
|
29
|
22
Report
of Independent Registered Public Accounting Firm
To the
Stockholders and Board of Directors
Command
Center, Inc.
Lakewood,
Colorado
OPINION ON THE CONSOLIDATED FINANCIAL STATEMENTS
We have audited the accompanying consolidated balance sheet of
Command Center, Inc. (the "Company") as of December 29, 2017, and
the related consolidated statements of income, comprehensive
income, stockholders' equity, and cash flows, for year then ended,
and the related notes and schedules (collectively referred to as
the "financial statements"). In our opinion, the financial
statements present fairly, in all material respects, the financial
position of the Company as of December 29, 2017, and the results of
its operations and its cash flows for the year then ended, in
conformity with accounting principles generally accepted in the
United States of America.
BASIS FOR OPINION
These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on the
Company's financial statements based on our audit. We are a public
accounting firm registered with the Public Company Accounting
Oversight Board (United States) ("PCAOB") and are required to be
independent with respect to the Company in accordance with the U.S.
federal securities laws and the applicable rules and regulations of
the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the
PCAOB. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial
statements are free of material misstatement, whether due to error
or fraud. The Company is not required to have, nor were we engaged
to perform, an audit of its internal control over financial
reporting. As part of our audit we are required to obtain an
understanding of internal control over financial reporting but not
for the purpose of expressing an opinion on the effectiveness of
the Company's internal control over financial reporting.
Accordingly, we express no such opinion.
Our audit included performing procedures to assess the risks of
material misstatement of the financial statements, whether due to
error or fraud, and performing procedures that respond to those
risks. Such procedures included examining, on a test basis,
evidence regarding the amounts and disclosures in the financial
statements. Our audit also included evaluating the accounting
principles used and significant estimates made by management, as
well as evaluating the overall presentation of the financial
statements. We believe that our audit provides a reasonable basis
for our opinion.
EKS&H
LLLP
March
29, 2018
Denver,
Colorado
We have
served as the Company's auditor since 2017.
23
Report
of Independent Registered Public Accounting Firm
To the Board of Directors and
Stockholders’ of Command Center, Inc.
We have audited the accompanying consolidated balance sheet of
Command Center, Inc. as of the fiscal year December 30, 2016, and
the related consolidated statements of income, changes in
stockholders’ equity, and cash flows for the fiscal year then
ended. Command Center, Inc.’s management is responsible for
these consolidated financial statements. Our responsibility is to
express an opinion on these consolidated financial statements based
on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. The Company is not required to have,
nor were we engaged to perform, an audit of its internal control
over financial reporting. Our audit included consideration of
internal control over financial reporting as a basis for designing
audit procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of
the Company’s internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We
believe that our audit provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial
position of Command Center, Inc. as of December 30, 2016, and the
results of its operations and its cash flows for the fiscal year
ended December 30, 2016 in conformity with accounting principles
generally accepted in the United States of America.
As discussed in Note 1 to the Consolidated Financial Statements,
Command Center, Inc. revised its previously reported 2016
Consolidated Financial Statements.
PMB Helin Donovan, LLP
/s/ PMB Helin Donovan, LLP
Austin, Texas
April 11, 2017, except for note 1 for which the date is March 28,
2018
24
Command Center, Inc.
Consolidated Balance Sheets
|
|
December
29,
2017
|
December
30,
2016
(revised)
|
|
ASSETS
|
|
|
|
Current
Assets
|
|
|
|
Cash
|
$7,768,631
|
$3,022,741
|
|
Restricted
cash
|
12,853
|
24,676
|
|
Accounts
receivable, net of allowance for doubtful accounts
|
9,394,376
|
10,287,456
|
|
Prepaid expenses,
deposits, and other assets
|
740,280
|
633,615
|
|
Prepaid workers'
compensation
|
167,597
|
745,697
|
|
Current portion of
workers' compensation risk pool deposits
|
99,624
|
106,527
|
|
Total Current
Assets
|
18,183,361
|
14,820,712
|
|
Property and
equipment, net
|
372,145
|
432,857
|
|
Deferred tax
asset
|
721,602
|
2,387,645
|
|
Workers'
compensation risk pool deposits, less current portion,
net
|
201,563
|
206,813
|
|
Workers'
compensation risk pool deposit in receivership, net
|
1,800,000
|
1,800,000
|
|
Goodwill and other
intangible assets, net
|
4,085,576
|
4,307,611
|
|
Total
Assets
|
$25,364,247
|
$23,955,638
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|
|
|
Current
Liabilities
|
|
|
|
Accounts
payable
|
$563,402
|
$762,277
|
|
Account purchase
agreement facility
|
853,562
|
388,280
|
|
Other current
liabilities
|
898,809
|
395,926
|
|
Accrued wages and
benefits
|
1,503,688
|
1,567,585
|
|
Current portion of
workers' compensation claims liability
|
1,031,500
|
1,101,966
|
|
Total Current
Liabilities
|
4,850,961
|
4,216,034
|
|
Workers'
compensation claims liability, less current portion
|
917,497
|
1,604,735
|
|
Total
Liabilities
|
5,768,458
|
5,820,769
|
|
Commitments and
contingencies (see Note 10)
|
|
|
|
Stockholders'
Equity
|
|
|
|
Preferred stock -
$0.001 par value, 416,666 shares authorized; none
issued
|
-
|
-
|
|
Common stock -
$0.001 par value, 8,333,333 shares authorized; 4,993,672 and
5,052,888 shares issued and outstanding, respectively
|
4,994
|
5,053
|
|
Additional paid-in
capital
|
56,211,837
|
56,430,206
|
|
Accumulated
deficit
|
(36,621,042)
|
(38,300,390)
|
|
Total Stockholders'
Equity
|
19,595,789
|
18,134,869
|
|
Total Liabilities
and Stockholders' Equity
|
$25,364,247
|
$23,955,638
|
See
accompanying notes to consolidated financial
statements.
25
Command Center, Inc.
Consolidated Statements of Income
|
|
Fifty-two
weeks ended
December 29,
2017
|
Fifty-three
weeks ended
December 30,
2016 (revised)
|
|
Revenue
|
$98,072,198
|
$93,259,508
|
|
Cost
of staffing services
|
72,641,609
|
69,580,410
|
|
Gross
profit
|
25,430,589
|
23,679,098
|
|
Selling,
general and administrative expenses
|
21,347,681
|
22,276,476
|
|
Depreciation
and amortization
|
386,413
|
298,300
|
|
Income
from operations
|
3,696,495
|
1,104,322
|
|
Interest
expense and other financing expense
|
11,619
|
25,018
|
|
Net income before
income taxes
|
3,684,876
|
1,079,304
|
|
Provision for
income taxes
|
2,005,528
|
522,751
|
|
Net
income
|
$1,679,348
|
$556,553
|
|
|
|
|
|
Earnings per share:
|
|
|
|
Basic
|
$0.33
|
$0.11
|
|
Diluted
|
$0.33
|
$0.11
|
|
|
|
|
|
Weighted average shares outstanding:
|
|
|
|
Basic
|
5,043,254
|
5,195,890
|
|
Diluted
|
5,105,006
|
5,257,955
|
See
accompanying notes to consolidated financial
statements.
26
Command Center, Inc.
Consolidated Statement of Changes in Stockholders’
Equity
|
|
Common
Stock
|
|
Accumulated
|
|
|
|
|
Shares
|
Par
Value
|
APIC
|
Deficit
|
Total
|
|
Balance at
December 25, 2015 (revised)
|
5,358,774
|
$5,359
|
$57,811,247
|
$(38,856,943)
|
$18,959,663
|
|
Common stock
issued for services
|
12,470
|
12
|
9,738
|
-
|
9,750
|
|
Stock-based
compensation
|
-
|
-
|
137,567
|
-
|
137,567
|
|
Common stock
purchased and retired
|
(318,356)
|
(318)
|
(1,528,346)
|
-
|
(1,528,664)
|
|
Net income
for the year (revised)
|
-
|
-
|
-
|
556,553
|
556,553
|
|
Balance at
December 30, 2016 (revised)
|
5,052,888
|
5,053
|
56,430,206
|
(38,300,390)
|
18,134,869
|
|
Common stock
issued for services
|
9,583
|
10
|
49,690
|
-
|
49,700
|
|
Stock-based
compensation
|
-
|
-
|
107,090
|
-
|
107,090
|
|
Common stock
purchased and retired
|
(68,799)
|
(69)
|
(375,149)
|
-
|
(375,218)
|
|
Net income
for the year
|
-
|
-
|
-
|
1,679,348
|
1,679,348
|
|
Balance at
December 29, 2017
|
4,993,672
|
$4,994
|
$56,211,837
|
$(36,621,042)
|
$19,595,789
|
See
accompanying notes to consolidated financial
statements.
27
Command Center, Inc.
Consolidated Statements of Cash Flows
|
|
Fifty-two
weeks ended
December 29,
2017
|
Fifty-three
weeks ended
December 30,
2016 (revised)
|
|
Cash flows from operating activities
|
|
|
|
Net
income
|
$1,679,348
|
$556,553
|
|
Adjustments
to reconcile net income to net cash provided by (used in)
operations:
|
|
|
|
Depreciation
and amortization
|
386,413
|
298,300
|
|
Provision
for bad debt
|
209,805
|
768,502
|
|
Stock-based
compensation
|
156,790
|
147,168
|
|
Deferred
tax asset
|
1,666,043
|
447,198
|
|
Changes
in operating assets and liabilities:
|
|
|
|
Accounts
receivable
|
683,273
|
(1,553,642)
|
|
Prepaid
expenses, deposits, and other assets
|
(106,665)
|
(337,813)
|
|
Prepaid
workers' compensation
|
578,100
|
10,308
|
|
Accounts
payable
|
(198,875)
|
201,316
|
|
Other
current liabilities
|
502,883
|
(246,130)
|
|
Accrued
wages and benefits
|
(63,897)
|
115,027
|
|
Workers'
compensation risk pool deposits
|
12,153
|
243,993
|
|
Checks
issued and payable
|
-
|
(388,250)
|
|
Workers'
compensation claims liability
|
(757,703)
|
(726,737)
|
|
Net
cash provided by (used in) operating activities
|
4,747,668
|
(464,207)
|
|
Cash flows from investing activities
|
|
|
|
Cash
paid for acquisition
|
-
|
(1,980,000)
|
|
Purchase
of property and equipment
|
(103,665)
|
(100,609)
|
|
Net
cash used in investing activities
|
(103,665)
|
(2,080,609)
|
|
Cash flows from financing activities
|
|
|
|
Net
change in account purchase agreement facility
|
465,282
|
(91,336)
|
|
Purchase
of treasury stock
|
(375,218)
|
(1,528,665)
|
|
Payment
on acquired debt
|
-
|
(417,190)
|
|
Net
cash provided by (used in) financing activities
|
90,064
|
(2,037,191)
|
|
Net increase (decrease) in cash
|
4,734,067
|
(4,582,007)
|
|
Cash, beginning of period
|
3,047,417
|
7,629,424
|
|
Cash, end of period
|
$7,781,484
|
$3,047,417
|
|
Non-cash investing and financing activities
|
|
|
|
Contingent
obligations (see Note 5)
|
$-
|
$220,000
|
|
Supplemental disclosure of cash flow information
|
|
|
|
Interest
paid
|
11,620
|
25,018
|
|
Income
taxes paid
|
522,525
|
169,684
|
See
accompanying notes to consolidated financial
statements.
28
Command Center, Inc.
Notes to Consolidated Financial Statements
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Description of Business: Command Center, Inc.
("Command Center,” the “Company,”
“CCI,” “we,” "us," or “our”) is
a leading provider of on-demand labor in the staffing industry. Our
customers are primarily small to mid-sized businesses in the
retail, construction, warehousing, industrial/manufacturing,
transportation, and hospitality industries. At December 29, 2017 we
operated 66 branches in 22 states. Our corporate headquarter is in
Lakewood, Colorado.
Basis of Presentation: The consolidated financial
statements include the accounts of Command Center, Inc. and our
wholly-owned subsidiary, Disaster Recovery Services, Inc., which
ceased corporate existence in April 2016. All significant
intercompany balances and transactions have been eliminated in
consolidation. The consolidated financial statements and
accompanying notes are prepared in accordance with accounting
principles generally accepted in the United States of America
(“U.S. GAAP”).
Use of Estimates: The preparation of consolidated
financial statements in conformity with U.S. GAAP requires us 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 consolidated financial statements
and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those
estimates.
Fiscal Year End: Our consolidated financial
statements are presented on a 52/53-week fiscal year end
basis, with the last day of the fiscal year being the last Friday
of each calendar year. In fiscal years consisting of 53 weeks, the
final quarter will consist of 14 weeks, while in 52 week years all
quarters consist of 13 weeks. Our fiscal year 2017 consisted of 52
weeks, while our fiscal year 2016 consisted of 53
weeks.
Reclassifications: Certain amounts in the
consolidated financial statements for 2016 have been reclassified
to conform to the 2017 presentation. These reclassifications have
no effect on net income, earnings per share, or stockholders’
equity as previously reported.
Revenue Recognition: We generate revenues primarily
from providing on-demand labor services. Revenue from services is
recognized at the time the service is performed. Revenues are
reported net of customer credits and taxes collected from customers
that are remitted to taxing authorities.
Revisions: During the
fourth quarter of 2017 and the first quarter of 2018, we identified
that immaterial amounts of certain assets were misstated in prior
years. As a result, the account purchase agreement was understated
by approximately $502,000, the current portion of workers’
compensation deposits were overstated by approximately $298,000,
and the deferred tax asset was understated by approximately
$71,000. For the year ended December 30, 2016, general and
administrative expenses, were under accrued by approximately
$502,000 and provision for income tax was over accrued by
approximately $299,000.
Pursuant to the guidance of Staff Accounting Bulletin No. 99,
Materiality, we concluded that the errors were not material to any
of its prior year consolidated financial statements. However, these
misstatements would have been material to the 2017 financial
statements. The accompanying consolidated statement of operations
for the year ended December 30, 2016 includes a cumulative revision
relating to these misstatements.
These revisions did not have any material effect on income from
operations, net income, cash flows, or non-GAAP reporting metrics
nor did they affect the Company’s past compliance with debt
covenants. These misstatements had no effect on our cash
balances.
29
The following table compares previously reported balances to
revised balances as of December 30, 2016 and for the year ended
December 30, 2016.
|
Balance Sheet
Changes
|
Previously
reported 2016
|
Adjustment
|
2016
revised
|
|
Current portion of
workers' compensation deposits
|
$404,327
|
$(297,800)
|
$106,527
|
|
Deferred tax
asset
|
2,316,774
|
70,871
|
2,387,645
|
|
Prepaid expenses,
deposits, and other assets
|
747,392
|
(113,777)
|
633,615
|
|
Account purchase
agreement facility
|
-
|
388,280
|
388,280
|
|
Accumulated
deficit
|
(37,571,404)
|
(728,986)
|
(38,300,390)
|
|
|
|
|
-
|
|
Statement
of income changes
|
|
|
-
|
|
Selling, general,
and administrative expenses
|
21,774,419
|
502,057
|
22,276,476
|
|
Provision for
income taxes
|
822,035
|
(299,284)
|
522,751
|
|
Net
income
|
759,326
|
(202,773)
|
556,553
|
|
Basic earnings per
share
|
0.15
|
(0.04)
|
0.11
|
|
Diluted earnings
per share
|
0.14
|
(0.03)
|
0.11
|
Cost of Staffing Services: Cost of services
includes the wages of field team members, related payroll taxes,
workers’ compensation expenses, and other direct costs of
services. We do not include branch level costs in this calculation
such as rent, branch manager salary or other branch level operating
expenses.
Cash and Cash Equivalents: Cash and cash
equivalents consists of demand deposits, including interest-bearing
accounts with original maturities of three months or less, held in
banking institutions and a trust account.
Restricted Cash: We maintain a cash balance that
is held on deposit as a requirement of our workers’
compensation insurance provider.
Accounts Receivable and Allowance for Doubtful
Accounts: Accounts receivable are carried at
their estimated recoverable amount, net of allowances. The
allowance for doubtful accounts is determined based on historical
write-off experience, age of receivable, other qualitative factors
and extenuating circumstances, 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 monthly and past due balances are written-off when it is
probable that the receivable will not be collected. At December 29,
2017 and December 30, 2016, our allowance for doubtful accounts was
approximately $282,000 and $899,000, respectively.
Property and Equipment: Property and equipment
are recorded at cost. We compute depreciation using the
straight-line method over the estimated useful lives, typically
three to five years. Leasehold improvements are capitalized and
amortized over the shorter of the non-cancelable lease term or
their useful lives. Repairs and maintenance are expensed as
incurred. When assets are sold or retired, cost and accumulated
depreciation are eliminated from the consolidated balance sheet and
gain or loss is reflected in the consolidated statement of
income.
Workers’ Compensation Reserves: In
accordance with the terms of our workers’ compensation
liability insurance policy, we maintain reserves for workers’
compensation claims to cover our cost of all claims. We use third
party actuarial estimates of the future costs of the claims and
related expenses discounted by a 5% present value interest rate to
determine the amount of our reserves. The discount rate was
increased to 5% from 3% in prior years to more accurately reflect
the Company’s risk tolerance and the active management of
workers’ compensation claims. We evaluate the reserves
quarterly 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
represents the excess purchase price over the fair value of
identifiable assets received attributable to business acquisitions
and combinations. Goodwill and other intangible assets are measured
for impairment at least annually and whenever events and
circumstances arise that indicate impairment may exist, such as a
significant adverse change in the business climate. In assessing
the value of goodwill, assets and liabilities are assigned to the
reporting units and the appropriate valuation methodologies are
used to determine fair value at the reporting unit level.
Identified intangible assets are amortized using the straight-line
method over their estimated useful lives which are estimated to be
between two and seven years.
30
Fair Value of Financial Instruments: We carry
financial instruments on the consolidated balance sheet at the fair
value of the instruments as of the consolidated balance sheet date.
At the end of each period, management assesses the fair value of
each instrument and adjusts the carrying value to reflect its
assessment. At December 29, 2017 and December 30, 2016, the
carrying values of accounts receivable and accounts payable
approximated their fair values due to relatively short
maturities.
Income Taxes: We account for income taxes under
the liability method, whereby deferred income tax liabilities or
assets at the end of each period are determined using the enacted
tax rate expected to be in effect when the taxes are actually paid
or recovered. A valuation allowance is recognized on deferred tax
assets when it is more likely than not that some or all of these
deferred tax assets will not be realized. Our policy is to
prescribe a recognition threshold and measurement attribute for the
recognition and measurement of a tax position taken or expected to
be taken in a tax return.
We have
analyzed our filing positions in all jurisdictions where we are
required to file returns, and found no positions that would require
a liability for unrecognized income tax positions to be recognized.
In the event that we are assessed penalties and/or interest,
penalties will be charged to other financing expense and interest
will be charged to interest expense.
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. Diluted earnings per share
reflect the potential dilution of securities that could share in
our earnings through the conversion of common shares issuable via
outstanding stock warrants, and/or stock options. We had common
stock equivalents outstanding to purchase 254,995 and 208,166
shares of common stock at December 29, 2017 and December 30,
2016, respectively. If we incur losses in the periods presented, or
if conversion into common shares is anti-dilutive, basic and
dilutive earnings per share are equal.
Diluted
common shares outstanding were calculated using the Treasury Stock
Method and are as follows:
|
|
December 29,
2017
|
December 30,
2016
|
|
Weighted
average number of common shares used in basic net income per common
share
|
5,043,254
|
5,195,890
|
|
Dilutive
effects of stock options
|
61,752
|
62,065
|
|
Weighted
average number of common shares used in diluted net income per
common share
|
5,105,006
|
5,257,955
|
Share-Based Compensation: Periodically, we issue
common shares or options to purchase our common shares to our
officers, directors, employees, or other parties. Compensation
expense for these equity awards are recognized over the vesting
period, based on the fair value on the grant date. We recognize
compensation expense for only the portion of options that are
expected to vest, rather than record forfeitures when they occur.
If the actual number of forfeitures differs from those estimated by
management, additional adjustments to compensation expense may be
required in the future periods. We determine the fair value of
equity awards using the Black-Scholes valuation model for stock
options and the quoted market price for stock awards.
Advertising Costs: Advertising costs consist
primarily of print and other promotional activities. We expense
advertisements as incurred. During the fiscal years ended December
29, 2017 and December 30, 2016, advertising costs included in
selling, general and administrative expenses were approximately
$33,000 and $46,000, respectively.
Concentrations: At December 29, 2017, 11.8% of
total accounts receivable was due from a single customer. At
December 30, 2016, 20.6% of total accounts payable was due to a
single vendor. There were no other concentrations in 2017 or
2016.
Impairment of Long-lived Asset: We review the
carrying values of our long-lived assets, including property, plant
and equipment, and intangible assets whenever events or changes in
circumstances indicate that such carrying values may not be
recoverable. Long-lived assets are carried at historical cost if
the projected cash flows from their use will recover their carrying
amounts on an undiscounted basis without considering interest. If
projected cash flows are less than their carrying value, the
long-lived assets are reduced to their estimated fair value.
Considerable judgement is required to project such cash flows and,
if required, estimate the fair value of the impaired long-lived
assets.
31
Fair Value Measures: Fair value is the price that would
be received to sell an asset, or paid to transfer a liability, in
the principal or most advantageous market for the asset or
liability in an ordinary transaction between market participants on
the measurement date. Our policy on fair value measures requires us
to maximize the use of observable inputs and minimize the use of
unobservable inputs when measuring fair value. The policy
establishes a fair value hierarchy based on the level of
independent, objective evidence surrounding the inputs used to
measure fair value. A financial instrument’s categorization
within the fair value hierarchy is based upon the lowest level of
input that is significant to the fair value measurement. The policy
prioritizes the inputs into three levels that may be used to
measure fair value:
Level
1: Applies to assets or liabilities for which there are quoted
prices in active markets for identical assets or
liabilities.
Level
2: Applies to assets or liabilities for which there are inputs
other than quoted prices that are observable for the asset or
liability such as quoted prices for similar assets or liabilities
in active markets; quoted prices for identical assets or
liabilities in markets with insufficient volume or infrequent
transactions (less active markets); or model-derived valuations in
which significant inputs are observable or can be derived
principally from, or corroborated by, observable market
data.
Level
3: Applies to assets or liabilities for which there are
unobservable inputs to the valuation methodology that are
significant to the measurement of the fair value of the assets or
liabilities.
Recent Accounting Pronouncements: In May 2014, the Financial Accounting
Standards Board (“FASB”) issued revenue recognition
guidance under Accounting Standard Update (“ASU”)
2014-09 that will supersede the existing revenue recognition
guidance under U.S. GAAP. The new standard focuses on creating a
single source of revenue guidance for revenue arising from
contracts with customers for all industries. The objective of the
new standard is for companies to recognize revenue when it
transfers the promised goods or services to its customers at an
amount that represents what the company expects to be entitled to
in exchange for those goods or services. In July 2015, the FASB
deferred the effective date by one year (ASU 2015-14). This ASU is
effective for annual periods, and interim periods within those
annual periods, beginning on or after December 15, 2017. Early
adoption is permitted, but not before the original effective date
of December 15, 2016. Since the issuance of the original standard,
the FASB has issued several other subsequent updates including the
following: 1) clarification of the implementation guidance on
principal versus agent considerations (ASU 2016-08); 2) further
guidance on identifying performance obligations in a contract as
well as clarifications on the licensing implementation guidance
(ASU 2016-10); 3) rescission of several Securities and Exchange
Commission Staff Announcements that are codified in Topic 605 (ASU
2016-11); and 4) additional guidance and practical expedients in
response to identified implementation issues (ASU 2016-12). The new
standard will be effective for us beginning December 30, 2017 and
we expect to implement the standard with the modified retrospective
approach, which recognizes the cumulative effect of application
recognized on that date. We established a team made up of members
from our accounting and legal departments that reviewed our
contracts and evaluated our accounting policies to identify
potential differences that would result from applying this
standard. We have concluded that the adoption of this standard will
not have a material impact on our consolidated results of
operations, consolidated financial position, and cash flows, other
than expanded disclosure beginning in the first quarter of 2018. We
will continue to recognize revenue simultaneously as the
performance obligation is satisfied.
In February 2016, the FASB issued ASU 2016-02 amending the existing
accounting standards for lease accounting and requiring lessees to
recognize lease assets and lease liabilities for all leases with
lease terms of more than 12 months, including those classified as
operating leases. Both the asset and liability will initially be
measured at the present value of the future minimum lease payments,
with the asset being subject to adjustments such as initial direct
costs. Consistent with current U.S. GAAP, the presentation of
expenses and cash flows will depend primarily on the classification
of the lease as either a finance or an operating lease. The new
standard also requires additional quantitative and qualitative
disclosures regarding the amount, timing and uncertainty of cash
flows arising from leases in order to provide additional
information about the nature of an organization’s leasing
activities. This ASU is effective for annual periods, and interim
periods within those annual periods, beginning after December 15,
2018 and requires modified retrospective application. Early
adoption is permitted. We are currently evaluating the impact of
the new guidance on our consolidated financial statements and
related disclosures.
32
In November 2016, the FASB issued ASU 2016-18, “Statement of
Cash Flows (Topic 230) Restricted Cash.” The new guidance
requires that the reconciliation of the beginning-of-period and
end-of-period amounts shown in the statement of cash flows include
restricted cash and restricted cash equivalents. If restricted cash
is presented separately from cash and cash equivalents on the
balance sheet, companies will be required to reconcile the amounts
presented on the statement of cash flows to the amounts on the
balance sheet. Companies also need to disclose information about
the nature of the restrictions. This guidance is effective for
fiscal years beginning after December 15, 2017, and the interim
periods within those fiscal years. We adopted this guidance during
the first quarter of 2017.
In January 2017, the FASB issued ASU 2017-04, “Intangibles
– Goodwill and Other (Topic 350): Simplifying the Test for
Goodwill Impairment.” The new guidance simplifies the
subsequent measurement of goodwill by eliminating the requirement
to perform a Step 2 impairment test to compute the implied fair
value of goodwill. Instead, companies will only compare the fair
value of a reporting unit to its carrying value (Step 1) and
recognize an impairment charge for the amount by which the carrying
amount exceeds the reporting unit’s fair value; however, the
loss recognized may not exceed the total amount of goodwill
allocated to that reporting unit. Additionally, an entity should
consider income tax effects from any tax-deductible goodwill on the
carrying amount of the reporting unit when measuring the goodwill
impairment loss, if applicable. This amended guidance is effective
for fiscal years and interim periods beginning after December 15,
2019, with early adoption permitted for interim or annual goodwill
impairment tests performed on testing dates after January 1,
2017. We are currently evaluating the impact of the new
guidance on our consolidated financial statements and related
disclosures.
In June 2016, the FASB issued ASU 2016-13, “Financial
Instruments – Credit Losses (Topic 326): Measurement of
Credit Losses on Financial Instruments.” The standard
significantly changes how entities will measure credit losses for
most financial assets and certain other instruments that are not
measured at fair value through net income. The standard will
replace todays “incurred loss” approach with an
“expected loss” model for instruments measured at
amortized cost. For available-for-sale securities, entities will be
required to record allowances rather than reduce the carrying
amount, as they do today under the other-than-temporary impairment
model. It also simplifies the accounting model for purchased
credit-impaired debt securities and loans. This guidance is
effective for annual periods beginning after December 15, 2019, and
interim periods therein. Early adoption is permitted for annual
periods beginning after December 15, 2018, and interim periods
therein. We are currently evaluating the impact of the new guidance
on our consolidated financial statements and related
disclosures.
Other accounting standards that have been issued by the Financial
Accounting Standards Board or other standards-setting bodies are
not expected to have a material impact on our financial position,
results of operations, and cash flows. For the period ended
December 29, 2017, the adoption of other accounting standards had
no material impact on our financial positions, results of
operations, or cash flows.
NOTE 2 – PROPERTY AND EQUIPMENT
The
following table summarizes the book value of the assets and
accumulated depreciation and amortization at December 29, 2017
and December 30, 2016:
|
|
2017
|
2016
|
|
Leasehold
improvements
|
$354,918
|
$341,993
|
|
Vehicles
and machinery
|
170,941
|
170,941
|
|
Furniture
and fixtures
|
140,356
|
140,938
|
|
Computer
hardware and licensed software
|
601,857
|
509,576
|
|
Accumulated
depreciation and amortization
|
(895,927)
|
(730,591)
|
|
Total
property and equipment, net
|
$372,145
|
$432,857
|
Depreciation
and amortization expense related to property and equipment totaled
approximately $165,000 and $168,000 during the fiscal years
ended December 29, 2017 and December 30, 2016,
respectively.
33
NOTE 3 – GOODWILL AND INTANGIBLE ASSETS
In June
2016, we purchased substantially all of the assets of Hancock. In
connection with the acquisition of Hancock, we identified and
recognized approximately $1.3 million in goodwill that we added to
the remaining carrying amount of $2.5 million from previous
acquisitions. In addition, we added approximately $660,000 in
acquired intangible assets. For additional information
see Note 5 –
Acquisition.
At
least annually, or whenever events or circumstances arise
indicating an impairment may exist, we review goodwill for
impairment. We are a single reporting unit consisting of purchased
on-demand labor branches, thus the analysis is conducted for the
Company as a whole. Our goodwill represents the consideration given
for acquisitions in excess of the fair value of identifiable assets
received. No provision has been made for an impairment loss as of
December 29, 2017 or December 30, 2016.
Amortization
expense related to intangible assets totaled approximately $221,000
and $130,000 during the fiscal years ended December 29, 2017
and December 30, 2016, respectively.
NOTE 4 – ACCOUNT PURCHASE AGREEMENT & LINE OF CREDIT
FACILITY
In May
2016, we signed an account purchase agreement with our lender,
Wells Fargo Bank, N.A, which allows us to sell eligible accounts
receivable for 90% of the invoiced amount on a full recourse basis
up to the facility maximum, or $14.0 million on December 29, 2017
and December 30, 2016. When the receivable is paid by our
customers, the remaining 10% is paid to us, less applicable fees
and interest. Eligible accounts receivable are generally defined to
include accounts that are not more than ninety days past
due.
Pursuant
to this agreement, we owed approximately $854,000 and $388,000 at
December 29, 2017 and December 30, 2016, respectively. The current
agreement bears interest at the Daily One Month London Interbank
Offered Rate plus 2.50% per annum. At December 29, 2017 the
effective interest rate was 4.06%. Interest is payable on the
actual amount advanced. Additional charges include an annual
facility fee equal to 0.50% of the facility threshold in place and
lockbox fees. As collateral for repayment of any and all
obligations, we granted Wells Fargo Bank, N.A. a security interest
in our all of our property including, but not limited to, accounts
receivable, intangible assets, contract rights, deposit accounts,
and other such assets. The agreement requires that the sum of our
unrestricted cash plus net accounts receivable must at all times be
greater than the sum of the amount outstanding under the agreement
plus accrued payroll and accrued payroll taxes. At December 29,
2017 and December 30, 2016 we were in compliance with this
covenant.
As of
December 29, 2017, we have a letter of credit with Wells Fargo for
approximately $6.0 million that secures our obligations to our
workers’ compensation insurance carrier and reduces the
amount available to us under the account purchase agreement. For
additional information related to this letter of credit,
see Note 6 –
Workers’ Compensation Insurance and
Reserves.
NOTE 5 – ACQUISITION
In June
2016, we purchased substantially all the assets of Hanwood
Arkansas, LLC, an Arkansas limited liability company, and Hanwood
Oklahoma, LLC, an Oklahoma limited liability company. Together
these companies operated as Hancock Staffing
(“Hancock”) from branches located in Little Rock,
Arkansas and Oklahoma City, Oklahoma.
We
acquired all of the assets used in connection with the operation of
these two staffing branches. In addition, we assumed liabilities
for future payments due under the leases for the two branches,
amounts owed on motor vehicles acquired, and the amount due on
their receivables factoring line.
The aggregate consideration paid for Hancock was approximately $2.6
million, allocated as follows: (i) cash of $2.0 million; (ii) an
unsecured one-year holdback obligation of $220,000; and (iii)
assumed liabilities of approximately $417,000. The holdback
obligation was fully released in February 2018.
34
In connection with the acquisition of Hancock, we identified and
recognized intangible assets of approximately $660,000 representing
customer relationships and employment agreements/non-compete
agreements. The customer relationships are being amortized on a
straight-line basis over their estimated life of four years and the
non-compete agreements are being amortized over their two-year
terms. Amortization expense related to these intangible assets
totaled approximately $221,000 and $130,000 during the fiscal
years ended December 29, 2017 and December 30, 2016,
respectively. At December 29, 2017, this net intangible asset
balance was approximately $308,000. We will recognize amortization
expense of approximately $155,000 in our fiscal year 2018,
approximately $108,000 in our fiscal year 2019, and approximately
$45,000 in our fiscal year 2020.
The following table summarizes the fair values of the assets
acquired and liabilities assumed and recorded at the date of
acquisition:
|
Assets:
|
|
|
Current
assets
|
$587,833
|
|
Fixed
assets
|
92,220
|
|
Intangible
assets
|
659,564
|
|
Goodwill
|
1,277,568
|
|
|
$2,617,185
|
|
Liabilities:
|
|
|
Current
liabilities
|
$417,185
|
|
Net
purchase price
|
$2,200,000
|
The
following unaudited pro forma consolidated statements of income (in
thousands) line items summarize amounts as if Hancock had been
acquired at the beginning of 2016:
|
|
2016
|
|
Revenue
|
$97,060
|
|
|
|
|
Net
income before income tax
|
1,847
|
|
Income
tax
|
(922)
|
|
Net
income
|
$925
|
Revenue
from the date of the acquisition through December 30, 2016 was
approximately $4.5 million and has been included in the
consolidated statements of income.
NOTE 6 – WORKERS’ COMPENSATION INSURANCE AND
RESERVES
In
April 2014, we changed our workers’ compensation carrier to
ACE American Insurance Company (“ACE”) in all states in
which we operate other than Washington and North Dakota. The ACE
policy is a large deductible policy where we have primary
responsibility for all claims made. ACE provides insurance for
covered losses and expenses in excess of $500,000 per incident.
Under this large deductible program, we are largely self-insured.
Per our contractual agreements with ACE, we must provide a
collateral deposit of $6.0 million, which is accomplished through a
letter of credit under our account purchase agreement with Wells
Fargo. For workers’ compensation claims originating in
Washington and North Dakota, we pay workers’ compensation
insurance premiums and obtain full coverage under mandatory state
government administered programs. Our liability associated with
claims in these jurisdictions is limited to the payment of
premiums, which are based upon the amount of payroll paid within
the particular state. Accordingly, our consolidated financial
statements reflect only the mandated workers’ compensation
insurance premium liability for workers’ compensation claims
in these jurisdictions.
From
April 2012 to March 2014, our workers’ compensation coverage
was obtained through Dallas National Insurance in all states in
which we operate, other than Washington and North Dakota. During
this time period, Dallas National changed its corporate name to
Freestone Insurance Company (“Freestone”). The
Freestone coverage was a large deductible policy where we have
primary responsibility for claims under the policy. Freestone
provided insurance for covered losses and expenses in excess of
$350,000 per incident. Per our contractual agreements with
Freestone, we made payments of $1.8 million as a non-depleting
deposit as collateral for our self-insured claims. See Note 10 – Commitments and
Contingencies, for additional information on cash collateral
provided to Freestone.
35
From
April 2011 to March 2012, our workers’ compensation coverage
was obtained through Zurich American Insurance Company
(“Zurich”) in all states in which we operate, other
than Washington and North Dakota. The policy with Zurich was a
guaranteed cost plan under which all claims are paid by Zurich.
Zurich provided workers’ compensation coverage in all states
in which we operate other than Washington and North
Dakota.
Prior
to Zurich, our workers’ compensation carrier was AMS Staff
Leasing II (“AMS”) in all states in which we operate,
Washington and North Dakota. The AMS coverage was a large
deductible policy where we have primary responsibility for claims
under the policy. Under the AMS policies, we made payments into a
risk pool fund to cover claims within our self-insured layer. Per
our contractual agreements for this coverage, we were originally
required to maintain two deposits, one in the amount of $500,000
and one in the amount of $215,000. At December 29, 2017 and
December 30, 2016, our deposits with AMS were approximately
$483,000 and $215,000, respectively.
Prior
to AMS, our workers’ compensation carrier was American
International Group, Inc. (“AIG”) in all states in
which we operate, other than Washington and North Dakota. The AIG
coverage was a large deductible policy where we have primary
responsibility for claims under the policy. Under the AIG policies,
we made payments into a risk pool fund to cover claims within our
self-insured layer. At December 29, 2017 and December 30, 2016, our
risk pool deposit with AIG was approximately $100,000.
As part
of our large deductible workers’ compensation programs, our
carriers require that we collateralize a portion of our future
workers’ compensation obligations in order to secure future
payments made on our behalf. This collateral is typically in the
form of cash and cash equivalents. At December 29, 2017, we had
cash collateral deposits of approximately $301,000, of which
approximately $100,000 is included in current assets. With the
addition of the $6.0 million letter of credit, our cash and
non-cash collateral totaled approximately $6.3 million at December
29, 2017.
Workers’
compensation expense for field team members is recorded as a
component of our cost of services and consists of the following
components: changes in our self-insurance reserves as determined by
our third party actuary, actual claims paid, insurance premiums and
administrative fees paid to our workers’ compensation
carrier(s), and premiums paid to mandatory state government
administered programs. Workers’ compensation expense for our
temporary workers totaled approximately $3.7 million and $3.5
million for the fiscal years ended December 29, 2017 and December
30, 2016, respectively.
The
following reflects the changes in our workers’ compensation
deposits and our workers’ compensation claims liability
during the fiscal years ended December 29, 2017 and December 30,
2016:
|
Workers’ Compensation Deposits
|
2017
|
2016
|
|
Workers’
compensation deposits available at the beginning of the
period
|
$313,340
|
$307,333
|
|
Additional
workers’ compensation deposits made during the
period
|
-
|
9,105
|
|
Deposits
applied to payment of claims during the period
|
(12,153)
|
(3,098)
|
|
Deposits
available for future claims at the end of the period
|
$301,187
|
$313,340
|
|
Workers’ Compensation Claims Liability
|
|
|
|
Estimated
future claims liabilities at the beginning of the
period
|
$2,706,701
|
$3,433,438
|
|
Claims
paid during the period
|
(2,246,367)
|
(2,197,128)
|
|
Additional
future claims liabilities recorded during the period
|
1,488,663
|
1,470,391
|
|
Estimated
future claims liabilities at the end of the period
|
$1,948,997
|
$2,706,701
|
The
workers’ compensation risk pool deposits are classified as
current and non-current assets on the consolidated balance sheet
based upon management’s estimate of when the related claims
liabilities will be paid. The deposits have not been discounted to
present value in the accompanying consolidated financial
statements. All liabilities associated with our workers’
compensation claims are fully reserved on our consolidated balance
sheet.
36
NOTE 7 – STOCKHOLDERS’ EQUITY
Reverse stock split: In December 2017, we filed an amendment
to our Articles of Incorporation and effected a 1-for-12 reverse
stock split of our common and preferred stock, effective as of the
close of business on December 7, 2017, whereby 60,615,549 shares of
our common stock were exchanged for 5,051,542 newly issued shares.
Under the terms of the reverse stock split, fractional shares
combined to total 213 common shares issuable to stockholders were
cashed out, resulting in a reverse split slightly more than
1-for-12 in the aggregate. All stock prices, per share amounts, and
number of shares in the consolidated financial statements and
related notes have been retroactively adjusted to reflect the
reverse stock split, resulting in the transfer of approximately
$56,000 from common stock to additional paid in capital at December
29, 2017 and December 30, 2016.
Issuance of Common Stock: We issued 9,583 shares of common
stock valued at $49,700 for services in 2017.
Stock Repurchase: In September 2017, our Board of
Directors authorized a $5.0 million three-year repurchase plan of
our common stock. This plan replaces the previously announced plan,
which was put in place in April 2015. During 2017 we repurchased
68,586 shares of our common stock at an aggregate price of
approximately $374,000, resulting in an average price of $5.45 per
share. During 2016 we purchased 318,356 shares of our common stock
at an aggregate price of approximately $1.5 million, resulting in
an average price of $4.85 per share. These shares were then
retired. We have approximately $4.6 million remaining under the
plan. The table below summarizes our common stock purchased during
2017.
|
|
Total shares
purchased
|
Average price
per share
|
Total number
of shares purchased as part of publicly announced plan
|
Approximate
dollar value of shares that may be purchased under the
plan
|
|
August 26, 2017 to
September 29, 2017
|
11,175
|
$4.92
|
523,661
|
$4,945,023
|
|
September 30, 2017
to October 27, 2017
|
22,625
|
5.30
|
546,286
|
4,825,220
|
|
October 28, 2017 to
November 24, 2017
|
22,634
|
5.65
|
568,920
|
4,697,427
|
|
November 25, 2017
to December 29, 2017
|
12,152
|
5.88
|
581,072
|
4,625,981
|
|
Total
|
68,586
|
|
|
|
NOTE 8 – STOCK-BASED COMPENSATION
Employee Stock Incentive Plan: Our 2008 Stock
Incentive Plan, which permitted the grant of up to 533,333 stock
options, expired in January 2016. Outstanding awards continue to
remain in effect according to the terms of the plan and the award
documents. On November 17, 2016, our Stockholders approved
the Command Center, Inc. 2016 Stock Incentive Plan under
which the Compensation Committee is authorized to issue awards for
up 500,000 shares over the 10-year life of the plan. Pursuant
to awards under these plans, there were 191,456 and 155,040 options
vested at December 29, 2017 and December 30, 2016,
respectively.
During
2017, we granted 74,997 stock options to officers and an employee
of the Company. The options were granted with an exercise price of
the fair market on the date of grant, ten year life and vesting
over three years from the date of grant. During 2016 we granted
8,750 stock options to an officer of the Company. The options were
granted with an exercise price of the fair market on the date of
grant, seven year life and vesting over four years from the date of
grant.
|
|
Number of shares under options
|
Weighted average exercise price per share
|
Weighted average grant date fair value
|
|
Outstanding
December 25, 2015
|
302,790
|
$ 5.40
|
$3.31
|
|
Granted
|
8,750
|
5.88
|
3.84
|
|
Forfeited
|
(78,374)
|
7.15
|
1.15
|
|
Expired
|
(25,000)
|
2.68
|
1.19
|
|
Outstanding
December 30, 2016
|
208,166
|
4.40
|
2.87
|
|
Granted
|
74,997
|
5.13
|
2.65
|
|
Forfeited
|
(834)
|
8.04
|
4.53
|
|
Expired
|
(27,334)
|
5.32
|
3.96
|
|
Outstanding
December 29, 2017
|
254,995
|
4.49
|
6.48
|
37
The
fair value of each option award is estimated on the date of grant
using the Black-Scholes pricing model and expensed over the vesting
period. Expected volatility is based on historical annualized
volatility of our stock. The expected term of options granted
represents the period of time that options granted are expected to
be outstanding. The risk-free rate is based upon the U.S. Treasury
yield curve in effect at the time of grant. Currently we do not
foresee the payment of dividends in the near term. The assumptions
used to calculate the fair value are as follows:
|
|
2017
|
2016
|
|
Expected term
(years)
|
5.8
|
5.5
|
|
Expected
volatility
|
61.5%
|
41.3%
|
|
Dividend
yield
|
-
|
-
|
|
Risk-free
rate
|
1.1%
|
1.5%
|
Share-based
compensation expense relating to the issuance of stock options and
stock grants totaled approximately $157,000 and $147,000 during the
fiscal years ended December 29, 2017 and December 30, 2016,
respectively.
The
following table reflects a summary of our non-vested stock options
outstanding at December 25, 2015 and changes during the fiscal
years ended December 29, 2017 and December 30, 2016:
|
|
Number
of options
|
Weighted
average exercise price per share
|
Weighted
average grant date fair value
|
|
Non-vested,
December 25, 2015
|
163,490
|
$5.86
|
$3.43
|
|
Granted
|
8,750
|
5.88
|
3.84
|
|
Vested
|
(61,823)
|
4.79
|
3.03
|
|
Forfeited
|
(57,291)
|
8.24
|
4.33
|
|
Non-vested,
December 30, 2016
|
53,126
|
4.81
|
2.98
|
|
Granted
|
74,997
|
4.49
|
5.68
|
|
Vested
|
(63,750)
|
5.47
|
2.86
|
|
Forfeited
|
(834)
|
8.04
|
4.53
|
|
Non-vested,
December 29, 2017
|
63,539
|
5.47
|
2.86
|
As of
December 29, 2017, there was unrecognized share-based compensation
expense totaling approximately $142,000 relating to non-vested
options that will be recognized over the next 2.75
years.
The
following summarizes information about the stock options
outstanding at December 29, 2017:
|
|
Number
of options
|
Weighted
average exercise price per share
|
Weighted
average remaining contractual life (years)
|
Aggregate
intrinsic value
|
|
Outstanding
|
254,995
|
$4.49
|
6.23
|
$826,756
|
|
Exercisable
|
191,456
|
4.17
|
5.29
|
451,874
|
|
Outstanding options
|
Vested options
|
|||
|
Range of exercise prices
|
Number of shares outstanding
|
Weighted average contractual life
|
Number of shares exercisable
|
Weighted average contractual life
|
|
$2.40 - 4.80
|
158,332
|
6.1
|
133,333
|
5.4
|
|
$4.81 - 8.76
|
96,663
|
6.4
|
58,123
|
5.0
|
Employee Stock Issuance: During 2014 we granted 65,416
shares of restricted common stock to employees. These shares vested
one year from the date of grant if the grantee was still employed
by us. Of these shares, a total of 47,208 vested and were issued to
employees and the remaining 18,208 shares were
forfeited.
38
Employee Stock Purchase Plan: We approved an
employee stock purchase plan in 2008 permitting the grant of 83,333
shares of common stock to employees. No shares have been issued
pursuant to this plan.
NOTE 9 – INCOME TAX
On
December 22, 2017, the U.S. government enacted comprehensive tax
legislation commonly referred to as the Tax Cuts and Jobs Act (the
“Tax Act”). The Tax Act makes broad and complex changes
to the U.S. tax code that will affect our fiscal year ended
December 29, 2017, including, but not limited to, (1) reducing the
U.S. federal corporate tax rate to 21%; (2) eliminating the
corporate alternative minimum tax (AMT) and changing how existing
AMT credits can be realized; (3) creating the base erosion
anti-abuse tax (BEAT), a new minimum tax; (4) creating a new
limitation on deductible interest expense; (5) changing rules
related to uses and limitations of net operating loss carryforwards
created in tax years beginning after December 31, 2017; (6) bonus
depreciation that will allow for full expensing of qualified
property; and (7) imposing limitations on the deductibility of
certain executive compensation. In connection with our initial
analysis of the impact of the Tax Act, we recorded an additional
tax expense of approximately $349,000 in the fourth quarter of
2017. This expense is primarily due to remeasurement of our net
deferred tax assets at the enacted rate of 21% compared to the
previous rate of 34%.
The
provision for deferred income taxes is comprised of the
following:
|
|
2017
|
2016
|
|
Current:
|
|
|
|
Federal
|
$126,487
|
$15,337
|
|
State
|
212,995
|
60,217
|
|
Deferred:
|
|
|
|
Federal
|
1,586,296
|
457,510
|
|
State
|
79,750
|
(10,313)
|
|
Provision
for income taxes
|
$2,005,528
|
$522,751
|
Deferred
income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax
purposes. Significant components of our deferred taxes are as
follows:
|
|
2017
|
2016
|
|
Deferred
tax assets and liabilities:
|
|
|
|
Net operating
loss
|
$-
|
$173,976
|
|
Accrued
vacation
|
49,030
|
50,923
|
|
Workers'
compensation claims liability
|
481,299
|
1,015,630
|
|
Depreciation and
amortization
|
42,227
|
43,632
|
|
Bad debt
reserve
|
69,622
|
337,543
|
|
Stock compensation
(restricted stock)
|
-
|
56,758
|
|
Deferred
rent
|
21,235
|
32,320
|
|
Charitable
contributions
|
-
|
6,379
|
|
AMT
credit
|
-
|
310,519
|
|
Other
|
58,189
|
359,965
|
|
Total deferred tax
asset
|
$721,602
|
$2,387,645
|
Our
charitable contribution carryover will expire in the years 2017
through 2018.
39
Management
estimates that our combined federal and state tax rates was
approximately 25.4% for 2017, net of federal benefit on state
income taxes. The items accounting for the difference between
income taxes computed at the statutory federal income tax rate and
the income taxes reported on the statements of income are as
follows:
|
|
2017
|
2016
|
||
|
Income tax expense
based on statutory rate
|
$1,252,858
|
34.0%
|
$366,963
|
34.0%
|
|
Permanent
differences
|
46,939
|
1.3%
|
104,259
|
4.0%
|
|
State income taxes
expense, net of federal taxes
|
220,326
|
6.0%
|
46,505
|
9.7%
|
|
Remeasurement of
net deferred tax assets at 21%
|
349,240
|
9.5%
|
-
|
0.0%
|
|
Other
|
136,165
|
3.7%
|
5,024
|
0.7%
|
|
Total taxes on
income
|
$2,205,528
|
57.7%
|
$522,751
|
48.4%
|
We have
analyzed our filing positions in all jurisdictions where we are
required to file income tax returns and found no positions that
would require a liability for unrecognized income tax benefits to
be recognized. We include interest and penalties as interest
expense on the consolidated financial statements.
NOTE 10 – COMMITMENTS AND CONTINGENCIES
Freestone Insurance Company Liquidation: From April 2012,
through March 2014, our workers’ compensation insurance
coverage was provided by Dallas National Insurance, who changed its
corporate name to Freestone Insurance Company. Under the terms of
the policies we were required to provide cash collateral of
$900,000 per year, for a total of $1.8 million, as a non-depleting
fund to secure our payment up to the deductible
amount.
From
July 2008 until April 2011, our workers’ compensation
coverage was provided under an agreement with AMS Staff Leasing II,
through a master policy with Freestone. During this time period, we
deposited approximately $500,000 with an affiliate of Freestone for
collateral related to the coverage through AMS Staff Leasing
II.
In
April 2014, the Insurance Commissioner of the State of Delaware
placed Freestone in receivership due to concerns about its
financial condition. In August 2014, the receivership was converted
to a liquidation proceeding. In late 2015, we filed timely proofs
of claim with the Receiver. One proof of claim is filed as a
priority claim seeking return of the full amount of our collateral
deposits. The other proof of claim is a general claim covering
non-collateral items. If it is ultimately determined that our claim
is not a priority claim, or if there are insufficient assets in the
liquidation to satisfy the priority claims, we may not receive any
or all of our collateral.
During
the second quarter of 2015 and the first quarter of 2016 we
recorded reserves of $250,000 for a total reserve of $500,000 on
the $2.3 million deposit balance. The current net deposit of $1.8
million is recorded as workers’ compensation risk pool
deposit in receivership. Management believes that it is probable
that the Company will incur some loss on this asset and the range
of loss on this matter could be as high as $1.8 million. The amount
of the loss will be determined by the Chancery Court’s
application of certain legal and equitable doctrines which cannot,
at this time, be predicted with any accuracy. In addition, the
receivership in the State of Delaware is an equitable proceeding
with tends to focus on what the judge overseeing the preceding
considers to be a fair result. Management reviews these deposits at
each balance sheet date. At December 29, 2017, management believes
a loss is probable, but no additional reserve was recognized
because the amount of loss cannot be reasonably
estimated.
In July
2016, the Receiver filed the First Accounting for the period April
28, 2014 through December 31, 2015, with the Delaware Court of
Chancery. The First Accounting does not clarify the issues with
respect to the collateral claims, priorities and return of
collateral. In the accounting, the Receiver reports total assets
consisting of cash and cash equivalents of $87.7 million as of
December 31, 2015.
In late
May 2017, the Receiver filed a petition with the court, proposing a
plan as to how the Receiver would identify and pay collateral to
all insureds that paid cash collateral to Freestone. In the
petition, the Receiver acknowledged receiving only $500,000 of our
collateral. Of the $500,000 acknowledged, the Receiver proposed to
return only approximately $6,000 to us. There was no comment or
information provided in the petition regarding the additional $1.8
million in collateral that we provided to Freestone via its agent,
High Point Risk Services, for which Freestone previously confirmed
receipt in a letter to us in January 2014. Furthermore, the
Receiver proposed similar severe reductions to the other collateral
depositors. Although the Receiver acknowledged holding $87.7
million in cash and cash equivalents as of December 31, 2015, the
Receiver proposed to pay only approximately $1.1 million in total
for return of collateral, to be divided among all collateral
depositors in differing proportions.
40
Our
initial assessment of the Receiver’s petition was that the
plan proposed by the Receiver is incomplete, factually incorrect
and legally unsupportable. In response to additional information
provided to and sought from the Receiver by us and by others, the
Receiver has withdrawn the May 2017 petition, acknowledging
possible inaccuracies. At the present time, it is unknown when the
Receiver will refile a petition regarding collateral, nor is it
known if the Receiver is likely to take a similar or different
approach in a new petition. If this or another similar proposal was
to be put forth by the Receiver and accepted by the Chancery Court,
we would suffer a loss of up to 99% of our deposit.
Recently,
with additional documentation received directly from High Point
Risk Services, we have reconfirmed that High Point transferred at
least $1.8 million of our collateral to Freestone.
Because
we are still in the very early stages of this adversarial
litigation, we are unable provide an estimate as to when the court
may ultimately rule on the collateral issues. Presently, we
anticipate that it will take several months for the Receiver to
rewrite its collateral proposal and file a new petition with the
court. We are similarly unable to provide a projection as to how
the court may eventually rule or what amount of collateral we may
finally receive. If the court were to ultimately award to us an
amount significantly less than the full amount of our paid-in
collateral, that result would have a material adverse effect on our
financial condition.
Operating leases: We presently lease office
space for our corporate headquarters in Lakewood, Colorado. We own
all of the office furniture and equipment used in our corporate
headquarters. We also lease the facilities for all of our branch
locations. All of these facilities are leased at market rates that
vary in amount depending on location. Each branch is between 1,000
and 5,000 square feet, depending on location and market conditions.
Most of our branch leases have terms that extend over three to five
years. Some of the leases have cancellation provisions that allow
us to cancel with 90 days' notice. Other leases have been in
existence long enough that the term has expired and we are
currently occupying the premises on month-to-month tenancies. Below
are the minimum lease obligations as of December 29,
2017:
|
Year
|
Obligation
|
|
2018
|
$1,006,852
|
|
2019
|
707,115
|
|
2020
|
433,866
|
|
2021
|
94,139
|
|
2022
|
31,824
|
|
Thereafter
|
-
|
|
Total
|
$2,273,796
|
Lease
expense totaled approximately $1.5 million and $1.4 million for the
fiscal years ended December 29, 2017 and December 30, 2016,
respectively.
Legal Proceedings: From time to time we are involved in
various legal proceedings. We believe that the outcome of these
proceedings, even if determined adversely, will not have a material
adverse effect on our business, financial condition or results of
operations. There have been no material changes in our legal
proceedings since December 29, 2017. Legal costs related to
contingencies are expensed as incurred.
41
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
On
April 17, 2017, we dismissed PMB Helin Donovan LLP as our
independent registered public accounting firm, effective April 17,
2017. Effective April 17, 2017, we appointed EKS&H LLLP based
in Denver, Colorado as our new independent registered public
accounting firm. The dismissal of PMB Helin Donovan and the
appointment of EKS&H was approved by our Audit Committee on
April 17, 2017.
PMB
Helin Donovan LLP’s reports on our consolidated financial
statements as of and for the fiscal years ended December 30, 2016
and December 25, 2015 did not contain any adverse opinion or a
disclaimer of opinion, nor were they qualified or modified as to
uncertainty, audit scope or accounting principles. During our two
most recent fiscal years ended December 30, 2016 and December 25,
2015 and through April 17, 2017, we have not had any disagreement
with PMB Helin Donovan LLP on any matter of accounting principles
or practices, financial statement disclosure or auditing scope or
procedures, which disagreement, if not resolved to PMB Helin
Donovan LLP’s satisfaction, would have caused PMB Helin
Donovan LLP to make reference to the subject matter of the
disagreement in their reports on our consolidated financial
statements. In addition, during our two most recent fiscal years
ended December 30, 2016 and December 25, 2015 and through April 17,
2017, there were no “reportable events” as that term is
defined in Item 304(a)(1)(v) of Regulation S-K.
We have
not consulted EKS&H LLLP on any matter relating to either (i)
the application of accounting principles to a specific transaction,
either completed or contemplated, or the type of audit opinion that
might be rendered on our financial statements or (ii) any matter
that was the subject of a disagreement (as that term is defined in
Item 304(a)(1)(iv) of Regulation S-K and the related instructions)
or a "reportable event" (as that term is defined in Item
304(a)(1)(v) of Regulation S-K) for the fiscal years ended December
30, 2016 and December 25, 2015.
We
provided PMB Helin Donovan LLP and EKS&H LLLP each with a copy
of this disclosure prior to its filing with the Securities and
Exchange Commission, and requested that PMB Helin Donovan LLP and
EKS&H LLLP review this disclosure for accuracy and
completeness.
ITEM 9A. CONTROLS AND PROCEDURES
(a) Evaluation of disclosure
controls and procedures. Our Chief Executive Officer ("CEO") and the
Chief Financial Officer ("CFO") evaluated our disclosure controls
and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under
the Securities and Exchange Act of 1934, as amended (the "Exchange
Act"), prior to the filing of this Form 10-K. Based on that
evaluation, our CEO and CFO concluded that, as of December 29,
2017, our disclosure controls and procedures were
effective.
(b) Management's report on
internal control over financial reporting. Our management, including our CEO and CFO,
is responsible for establishing and maintaining adequate internal
control over financial reporting, as such term is defined in
Exchange Act Rules 13a-15(f) and 15d-15(f). Our management
conducted an evaluation of the effectiveness of our internal
control over financial reporting based on the framework
in Internal Control - Integrated Framework (2013) issued
by the Committee of Sponsoring Organizations of the Treadway
Commission. Based on our evaluation under the framework
in Internal Control - Integrated Framework (2013), our
management concluded that our internal control over financial
reporting was effective as of December 29,
2017.
(c) Changes in internal controls
over financial reporting. There were no changes in our internal
control over financial reporting during our most recently completed
quarter that materially affected, or are reasonably likely to
materially affect, our internal control over financial
reporting.
ITEM 9B. OTHER INFORMATION
None.
42
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE
GOVERNANCE
The
names and ages and positions of our directors and executive
officers are listed below along with their business experience
during the past five years. The business address of all executive
officers of the Company is 3609 S. Wadsworth Blvd., Suite 250,
Lakewood Colorado 80235. 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
stockholders to serve until they resign or are removed, or are
otherwise disqualified to serve, or until their successors are
elected and qualified. Executive officers are appointed by the
Board. No family relationships exist among any of our directors or
executive officers.
|
Frederick Sandford
|
Chief Executive Officer, President, and Director (until April 1,
2018)
|
|
Cory Smith
|
Chief Financial Officer
|
|
Ronald L. Junck
|
Executive Vice President, Secretary, and General
Counsel
|
|
John Schneller
|
Director
|
|
JD Smith
|
Director
|
|
R. Rimmy Malhotra
|
Director
|
|
Steven Bathgate
|
Director
|
|
Steven P. Oman
|
Director
|
|
Richard M. Finlay
|
Director (until January 22, 2018)
|
|
John D. Stewart
|
Director (until January 16, 2018)
|
Frederick J. Sandford, age 57, was appointed as our
President and Chief Executive Officer on February 22, 2013, and was
first elected as a director at the Company’s 2013
stockholders meeting. Mr. Sandford has over 30 years of leadership
experience as CEO, President, or General Manager, guiding
businesses in various stages, including startups, turnarounds and
wind downs. He has led companies in diverse industries, including
technology, industrial fabrication, security services, waste
management and retail. Prior to joining our company, he served as
an independent consultant to Silicon Valley venture capitalists.
From 2003-2005, he led the restructuring of The Environmental
Trust, a land mitigation organization with 80 holdings, resulting
in significant asset protection. Mr. Sandford was awarded a full
fellowship and earned his MBA from Cornell University while serving
as the CEO of Student Agencies, America’s oldest student-run
company. He earned a BA in Psychology from the University of
Massachusetts at Amherst. He is a former U.S. Navy
SEAL.
Cory Smith, age 42, was appointed as our Chief
Financial Officer on July 31, 2017. Mr. Smith was previously
employed by Command Center from 2010 through 2015, serving as our
Controller during the final two years of his tenure. Before
rejoining Command Center, he was employed by Southeast Staffing
beginning in 2015, where he served as the Vice President of
Finance. From 2005 to 2010, Mr. Smith worked as a Certified Public
Accountant, primarily performing attestation work. Mr. Smith
graduated cum laude from Lewis-Clark State College with a Bachelor
of Science in Business Administration.
Ronald L. Junck, age 70, has been our Executive Vice
President and General Counsel since November 2006. From November
2006 until May 2017, he also served as our Secretary. From 1974
until 1998, Mr. Junck practiced law in Phoenix, Arizona,
specializing in business law and commercial transactions,
representing a wide variety of business organizations in their
corporate and business affairs, as well as in court. He has
lectured extensively at colleges and universities on various
aspects of business law. From 1998 through 2001, Mr. Junck served
as Executive Vice President and General Counsel of Labor Ready,
Inc., and for several years served as a director of that company.
In 2001, Mr. Junck returned to the private practice of law. Mr.
Junck served as a member of our Board of Directors from November
2005 until November 2007. Mr. Junck received a Bachelor of Science
in Mechanical Engineering from the University of Illinois in 1971
and a Juris Doctorate from Valparaiso University in 1974. He is
admitted to practice before all of the state and federal courts in
the State of Arizona, the United States Court of Appeals for the
Ninth Circuit and the U.S. Court of Federal Claims.
43
John Schneller, age 52, was appointed to our Board of
Directors on June 23, 2008. Mr. Schneller is a partner at the
investment banking firm of Scura Paley & Company LLC. Prior to
joining Scura Paley Mr. Schneller was the Chief Financial Officer
of iMedicor, Inc., an enterprise healthcare software company. Prior
to iMedicor Mr. Schneller served from 2002 to 2007 as an investment
analyst at Knott Partners, a multi-billion dollar, value-based, New
York hedge fund. Mr. Schneller's area of expertise was analysis and
investing in micro-to-mid-cap securities with emphasis in the
fields of intellectual property, technology, content distribution,
nanotechnology, healthcare, non-bank financials, business services,
insurance companies, packaging and retail. Mr. Schneller received
his Bachelor of Arts in History from the University of
Massachusetts at Amherst, MA, a Master's in Public Administration
from Suffolk University in Boston and a Master's in Business
Administration from the Johnson Graduate School of Management at
Cornell University in Ithaca, NY.
JD Smith, age 47,
has been a member of our Board of Directors since December 10,
2012. Mr. Smith has worked in real estate investment, construction
and development since 1982. Currently, Mr. Smith is the owner of
Real Estate Investment Consultants, LLC, a turnkey investment
service firm serving all sectors of real estate and investment and
development businesses. He also serves on the Board of Directors of
iMedicor, Inc., a publicly-held New York based company and provider
of comprehensive healthcare communications solutions. From 2008
until 2012 he was Director of Development for CP Financial, a
venture capital firm based in Scottsdale, Arizona. From 1993 until
2008 he developed over two dozen projects in the Phoenix Metro
Area, acting through his companies JD Investments, Inc., The High
Sonoran Group, Inc., and JD Smith Development, LLC. In 1990 he
formed his first operating company to buy and maintain residential
rental properties and obtained his real estate license. In 1993 he
graduated from Arizona State University with a Bachelor’s of
Science degree in Real Estate.
R. Rimmy Malhotra, age 42, was
appointed to our Board of Directors on April 6, 2016. From 2013 to
the present, Mr. Malhotra has served as the Managing Member and
Portfolio Manager for the Nicoya Fund LP, a private investment
partnership. Previously, from 2008 to 2013 he served as portfolio
manager of the Gratio Values Fund, a mutual fund registered under
the Investment Act of 1940. Prior to this, he was an Investment
Analyst at a New York based hedge fund. He earned an MBA in Finance
from The Wharton School and a Master’s degree in
International Relations from the University of Pennsylvania where
he was a Lauder Fellow. Mr. Malhotra holds undergraduate degrees in
Computer Science and Economics from Johns Hopkins
University.
Steven Bathgate, age 63,
has over 35 years of security industry experience, particularly
with microcap companies. He was appointed to our Board of Directors
in 2016. In 1995 he founded GVC Capital LLC and he is the Senior
Managing Partner of that firm. GVC Capital is an investment banking
firm located in Denver, Colorado, focusing primarily on providing
comprehensive investment banking services to undervalued microcap
companies. Prior to founding GVC Capital, Mr. Bathgate was CEO of
securities firm Cohig & Associates in Denver from 1985 to 1995
and was previously Managing Partner, Equity Trading, at Wall Street
West. He currently is also a director for Global Healthcare REIT
and Bluebook International, Inc. Mr. Bathgate received a Bachelor
of Science in Finance from the University of Colorado, Leeds School
of Business.
Steven P. Oman, age 69, is
currently a partner in the law firm Provident Law, PLLC, located in
Scottsdale, Arizona, and has held this position since June of 2015.
Mr. Oman has been a practicing attorney for over 40 years,
primarily in areas of business, real estate and estate planning.
Prior to his work at Provident Law, he was a sole practitioner for
many years in Scottsdale, Arizona, for the Law Office of Steven P.
Oman. Since December 15, 2016, Mr. Oman has also served as a
director, president and CEO of Alanco Technologies, Inc., a
publicly-held company that provided various services and products
over the years, including satellite-based technology, but which
most recently focused on water disposal facilities receiving and
disposing of produced water generated from oil and natural gas
production. Mr. Oman received his Bachelor of Mechanical
Engineering degree in 1970 from the University of Minnesota,
Institute of Technology, and his J.D. from William Mitchell College
of Law, St. Paul, Minnesota in 1975. Mr. Oman is a member of the
State Bar of Arizona and the Maricopa County Bar
Association.
44
Richard Finlay, age 57, was a
member of our Board of Directors from July 9, 2015 to January 22,
2018. Mr. Finlay is currently Chief Financial Officer at
BNBuilders, Inc. (BNB), a construction company focused on life
science, biotech, lab research, health care, education and
commercial markets with offices in Seattle and San Diego. Prior to
joining BNB, Mr. Finlay spent 4 years in non-profit leadership as
CFO at Eastside Catholic School and in Guatemala for Ecofiltro, a
social enterprise manufacturing and distributing water filters.
Prior to his work in Central America, Mr. Finlay served in senior
leadership positions (either CEO or CFO) with a veterinary hospital
group, a boat manufacturer, a fitness / nutrition focused company
and an innovative early stage health care company. Additional
experience includes more than 15 years’ experience in
business development, finance and accounting with a Fortune 500
company as well as small and mid-size regional companies. He is a
1984 graduate of the University of Washington earning a Bachelor of
Arts in Business Administration.
John Stewart, age 61, was a member of our Board of Directors
from November 2013 to January 16, 2018, and served as Chairman from
December 2014 to January 2018. Mr. Stewart graduated summa cum
laude from the University of North Dakota with a Bachelor's of
Science in Business Administration. He currently serves as Senior
Advisor at Ritaway Investment Group. Also, he has been the
President of Glacial Holdings, Inc. and Glacial Holdings LLC,
private multi-family residential and commercial real estate holding
companies, and of Glacial Holdings Property Management, Inc., a
private property management company since 1992. Through a number of
private entities, Mr. Stewart is an investor in various business
enterprises. During the past nine years, he has served as the chair
of the Advisory Board of the Bank of North Dakota, a director of
Corridor Investors, LLC, the Minot Family YMCA and Kalix, and as a
trustee of the Oppen Family Guidance Institute. Mr. Stewart was
employed as a Certified Public Accountant by the accounting firms
of Arthur Andersen & Co. (from 1978 to 1980) and Brady, Martz
& Associates P.C. (from 1980 to 1997). Mr. Stewart has been a
member of the Board of Trustees of Investors Real Estate Trust
(NYSE – IRET) since 2004.
Corporate Governance Policies and Code of Ethics
We have
adopted a Standard of Ethics and Business Conduct, Corporate
Governance Guidelines, and a Policy on Roles and Responsibilities
of the Chairman of the Board. Those policies are available on our
website at www.commandonline.com and in print
to any stockholder upon request at no charge. Requests should be
addressed to: Secretary, Command Center, Inc., 3609 S. Wadsworth,
Suite 250, Lakewood, CO 80235.
The
Standards of Ethics and Business Conduct is applicable to all
directors, officers and employees of Command Center. To date,
there have been no waivers under our Standards of Ethics and
Business Conduct. We intend to disclose future amendments to, or
waivers from, our Standards of Ethics and Business Conduct on our
website within four business days following the date of such
amendment or waiver.
Committees of the Board of Directors
Our
Board of Directors established three standing committees and a
special committee to facilitate and assist the Board in the
execution of its responsibilities. The committees are the Audit
Committee, the Compensation Committee and the Nominating and
Governance Committee, and the Strategic Alternatives Committee. The
composition and function of each of our committees complies with
the rules of the SEC that are currently applicable to us and we
intend to comply with additional exchange listing requirements to
the extent that they become applicable to us in the future. The
Board has also adopted charters for the Audit Committee,
Compensation Committee and Nominating and Governance Committee.
Charters for these committees are available on our website
at www.commandonline.com. The charter of each committee is
also available in print to any stockholder upon request at no
charge. The table below shows current membership for each of the
standing Board committees and the special Board
committee.
|
Audit Committee
|
|
Compensation Committee
|
|
Nominating and Governance Committee
|
|
Strategic Alternatives Committee
|
|
R. Rimmy Malhotra (Chair)
|
|
John Schneller (Chair)
|
|
JD Smith (Chair)
|
|
R. Rimmy Malhotra (Chair)
|
|
JD Smith
|
|
JD Smith
|
|
Steven Bathgate
|
|
John Schneller
|
|
Steven Bathgate
|
|
R. Rimmy Malhotra
|
|
R. Rimmy Malhotra
|
|
JD Smith
|
|
Steven P. Oman
|
|
|
|
|
|
Steven Bathgate
|
45
Audit Committee: R. Rimmy Malhotra (Chairman), JD
Smith, Steven Bathgate, and Steven P. Oman currently serve on the
Audit Committee. During 2017, John Stewart served as the Chairman
and Mr. Finlay served as a member of the Audit Committee. The Audit
Committee held four meetings in 2017 and reviewed our quarterly
filings and our annual filing and audit. Additional discussions
among committee members outside of meetings were held to discuss
the audit process and the preparation and review the consolidated
financial statements.
Our
Board of Directors has determined that R. Rimmy Malhotra qualifies as an
“audit committee financial expert” as defined under the
Securities Exchange Act of 1934 and the applicable rules of the
Nasdaq Capital Market. Our Board of Directors has determined that
John Stewart qualified as an “audit committee financial
expert" in 2017. All the members of the Audit Committee are
financially literate pursuant to the Nasdaq Listing Rules. Each of
the members of the Audit Committee met and meets the independence
standards for independent directors under the Nasdaq Listing
Rules.
The Audit Committee’s responsibilities include:
a)
appointing,
determining funding for, evaluating, and replacing of, and
assessing the independence of our independent registered public
accounting firm;
b)
reviewing
and discussing with management and the independent registered
public accounting firm our annual and quarterly financial
statements and related disclosures;
c)
pre-approving
auditing and permissible non-audit services, and the terms of such
services, to be provided by our independent registered public
accounting firm;
d)
coordinating
the oversight and reviewing the adequacy of our internal controls
over financial reporting;
e)
establishing
policies and procedures for the receipt and retention of accounting
related complaints and concerns;
f)
preparing
the audit committee report required by Securities and Exchange
Commission rules to be included in our annual proxy statement;
and
g)
monitoring
compliance with our Code of Ethics
Compensation Committee: John Schneller
(Chairman), JD Smith, and R. Rimmy Malhotra currently serve on the
Compensation Committee. The Compensation Committee met on six
occasions in 2017. The Compensation Committee is comprised of three
non-employee directors. The non-employee directors have been
determined by the Board to be independent pursuant to Rule 10A-3 of
the Exchange Act and the Nasdaq Listing Rules.
The Compensation Committee oversees our executive compensation
program, establishes our compensation philosophy and policies, and
administers our compensation plans. The Compensation
Committee generally reviews the compensation programs applicable to
executive officers on an annual basis. In setting
compensation levels for a particular executive, the Committee takes
into consideration the proposed compensation package as a whole and
each element individually, as well as the executive's past and
expected future contributions to our business.
The Committee has the authority to engage its own independent
advisors to assist in carrying out its responsibilities. No
such advisors are currently engaged. The Compensation Committee did not use an advisor
to assist it in determining executive compensation for our 2017
fiscal year. Executive management of the Company is
actively involved in determining appropriate compensation and
making recommendations to the Compensation Committee for its
consideration.
Nominating and Governance Committee: JD Smith
(Chairman), Steven Bathgate, and R. Rimmy Malhotra currently
serve on the Nominating and Corporate Governance Committee. The
Nominating and Corporate Governance Committee met on three
occasions in 2017. Each of the members of the Nominating and
Governance Committee meets the independence standards for
independent directors under the Nasdaq Listing Rules.
The
Nominating and Governance Committee Charter grants such Committee
the authority to determine the skills and qualifications required
of directors and to develop criteria to be considered in selecting
potential candidates for Board membership. Neither the Committee
nor the Board has established any minimum qualifications for
nominees, but the Board does consider the composition of the Board
as a whole, the requisite characteristics (including independence,
diversity, experience in industry, finance, administration and
operations) of each candidate, and the skills and expertise of its
current members, while taking into account the overall operating
efficiency of the Board and its committees.
46
The Nominating and Governance Committee’s responsibilities
include, but are not limited to:
a)
developing
and recommending to the Board criteria for Board and committee
membership;
b)
establishing
procedures for identifying and evaluating director candidates
including nominees recommended by shareholders;
c)
identifying
individuals qualified to become Board members;
d)
recommending
to the Board the persons to be nominated for election as directors
and to each of the Board’s committees; and
e)
overseeing
the evaluation of the effectiveness of the organization of the
Board, including its committees, and the Board’s
performance.
Special Committee: In February 2017, our Board
established the Strategic Alternatives Committee as a special
committee and appointed R. Rimmy Malhotra (Chairman), John
Schneller, JD Smith, and Steven Bathgate to serve on the Committee.
The Committee is empowered to identify and evaluate strategic
opportunities available to the Company. The Committee has engaged
the services of an investment banking firm to assist the Committee
in fulfilling this assignment. Each of the members of the Strategic
Alternatives Committee meets the independence standards for
independent directors under the Nasdaq Listing Rules.
Director Nominations
The
Board of Directors nominates directors for election at each annual
meeting of stockholders and appoints new directors to fill
vacancies when they arise. The Nominating and Governance Committee
has the responsibility to identify, evaluate, recruit and recommend
qualified candidates to the Board of Directors for nomination or
election.
One of
the Board of Directors’ objectives in evaluating director
nominations is to ensure that its membership is composed of
experienced and dedicated individuals with a diversity of
backgrounds, perspectives and skills. The Nominating and Governance
Committee will select nominees for director based on their
character, judgment, diversity of experience, business acumen, and
ability to act on behalf of all stockholders. We do not have a
formal diversity policy, however, the Nominating and Governance
Committee endeavors to have a Board representing diverse viewpoints
as well as diverse expertise at policy-making levels in many areas,
including business, accounting and finance, marketing and sales,
legal, government affairs, regulatory affairs, business
development, technology and in other areas that are relevant to our
activities.
The
Nominating and Governance Committee believes that nominees for
director should have experience, such as those mentioned above,
that may be useful to the Company and the Board of Directors, high
personal and professional ethics and the willingness and ability to
devote sufficient time to carry out effectively their duties as
directors. The Nominating and Governance Committee believes it is
appropriate for at least one, and, preferably, multiple, members of
the Board of Directors to meet the criteria for an “audit
committee financial expert” as defined by rules of the SEC,
and for a majority of the members of the Board of Directors to meet
the definition of “independent director” as defined by
the Nasdaq Listing Rules. The Nominating and Governance Committee
also believes it is appropriate for key members of our management
to participate as members of the Board of Directors. Prior to each
annual meeting of stockholders, the Nominating and Governance
Committee identifies nominees first by evaluating the current
directors whose term will expire at the annual meeting and who are
willing to continue in service. These candidates are evaluated
based on the criteria described above, including as demonstrated by
the candidate’s prior service as a director, and the needs of
the Board of Directors with respect to the particular talents and
experience of its directors. In the event that a director does not
wish to continue in service, the Nominating and Governance
Committee determines not to re-nominate the director, a vacancy is
created on the Board of Directors as a result of a resignation, an
increase in the size of the Board or other event, the Committee
will consider various candidates for Board membership, including
those suggested by the Committee members, by other Board members,
by any executive search firm engaged by the Committee or by
stockholders.
47
On
September 5, 2017, our Board of Directors approved and adopted an
amendment, effective as of such date, to our amended and restated
bylaws. The amendment added Article 3.8, which is an advance notice
provision for director nominations and stockholder proposals. A
stockholder who wishes to suggest a prospective nominee for the
Board of Directors should notify Command Center’s Secretary
in writing and include any supporting material the stockholder
considers appropriate. Information to be in the notice includes (i)
the name, age, business address and residence address for the
nominee, (ii) the principal occupation or employment of each such
nominee, (iii) the number of shares of capital stock of the
corporation which are owned of record and beneficially by each such
nominee (if any), (iv), such other information concerning each such
nominee as would be required to be disclosed in a proxy statement
soliciting proxies for the election of such nominee as a director
in an election contest (even if an election contest is not
involved) or that is otherwise required to be disclosed, under
Section 14(a) of the Securities Exchange Act of 1934, as amended,
and the rules and regulations promulgated thereunder, (v) the
consent of the nominee to being named in the proxy statement as a
nominee and to serve as a director if elected, and (vi) as to the
Proposing Stockholder: (A) the name and address of the Proposing
Stockholder as they appear on the corporation’s books and of
the beneficial owner, if any, on whose behalf the nomination is
being made, (B) the class and number of shares of the corporation
which are owned by the Proposing Stockholder (beneficially and of
record) and owned by the beneficial owner, if any, on whose behalf
the nomination is being made, as of the date of the Proposing
Stockholder’s notice, and a representation that the Proposing
Stockholder will notify the Corporation in writing of the class and
number of such shares owned of record and beneficially as of the
record date for the meeting promptly following the later of the
record date or the date notice of the record date is first publicly
disclosed, (C) a description of any agreement, arrangement or
understanding with respect to such nomination between or among the
Proposing Stockholder and any of its affiliates or associates, and
any others (including their names) acting in concert with any of
the foregoing, and a representation that the Proposing Stockholder
will notify the corporation in writing of any such agreement,
arrangement or understanding in effect as of the record date for
the meeting promptly following the later of the record date or the
date notice of the record date is first publicly disclosed, (D) a
description of any agreement, arrangement or understanding
(including any derivative or short positions, profit interests,
options, hedging transactions, and borrowed or loaned shares) that
has been entered into as of the date of the Proposing
Stockholder’s notice by, or on behalf of, the Proposing
Stockholder or any of its affiliates or associates, the effect or
intent of which is to mitigate loss to, manage risk or benefit of
share price changes for, or increase or decrease the voting power
of the Proposing Stockholder or any of its affiliates or associates
with respect to shares of stock of the corporation, and a
representation that the Proposing Stockholder will notify the
Corporation in writing of any such agreement, arrangement or
understanding in effect as of the record date for the meeting
promptly following the later of the record date or the date notice
of the record date is first publicly disclosed, (E) a
representation that the Proposing Stockholder is a holder of record
of shares of the corporation entitled to vote at the meeting and
intends to appear in person or by proxy at the meeting to nominate
the person or persons specified in the notice, and (F) a
representation whether the Proposing Stockholder intends to deliver
a proxy statement and/or form of proxy to holders of at least the
percentage of the corporation’s outstanding capital stock
required to approve the nomination and/or otherwise to solicit
proxies from stockholders in support of the nomination. Submission
of a prospective nominee must comply with the requirements set
forth in the Company's Bylaws.
Stockholder
nominations must be made in accordance with the procedures outlined
in, and must include the information required by, our Bylaws and
must be addressed to: Secretary, Command Center, Inc., 3609 S.
Wadsworth, Suite 250, Lakewood, CO 80235. Stockholders can obtain a
copy of our Bylaws by writing to the Secretary at this
address.
Stockholder Communications with the Board of Directors
If a
stockholder wishes to communicate with the Board of Directors, he
or she may send any communication in writing to: Secretary, Command
Center, Inc., 3609 S. Wadsworth, Suite 250, Lakewood, CO 80235. The
stockholder should include his or her name and address in the
written communication and indicate whether he or she is a
stockholder of Command Center. The Secretary will review any
communication received from a stockholder, and all material
communications from stockholders will be forwarded to the
appropriate director or directors or Committee of the Board of
Directors based on the subject matter.
48
Director Compensation
The
following table summarizes the cash, equity awards, and all other
compensation earned by each of our non-employee directors during
the fiscal year ended December 29, 2017. Directors who are also
officers are included in the Summary Executive Compensation Table
below.
|
Name
|
Fees
earned or paid in cash
|
Share awards
(1)
|
Option
awards (2)
|
All
other
|
Total
|
|
JD
Smith
|
$32,500
|
$8,000
|
$-
|
$-
|
$40,500
|
|
John
Schneller
|
32,500
|
8,000
|
-
|
-
|
40,500
|
|
R. Rimmy
Malhotra
|
31,000
|
8,000
|
-
|
-
|
39,000
|
|
Steven
Bathgate
|
27,500
|
8,000
|
-
|
-
|
35,500
|
|
John Stewart
(3)
|
41,500
|
8,000
|
-
|
-
|
49,500
|
|
Richard Finlay
(4)
|
28,500
|
8,000
|
-
|
-
|
36,500
|
(1)
This column
represents the grant date fair value of shares awarded to each
non-employee director in 2017 in accordance with U.S. GAAP. This
amount represents shares awarded for service in 2016. The amounts
were calculated using the closing price of our stock on the grant
date.
(2)
This column
represents the grant date fair value of options awarded to each
non-employee director in 2017 in accordance with U.S.
GAAP.
(3)
Director and
Chairman of the Board until January 16, 2018.
(4)
Director until
January 22, 2018.
Narrative to Director Compensation Table
The
Compensation Committee recommends and the Board of Directors
determines the compensation for our directors, based on industry
standards and our financial situation. During 2017, we paid each of
our independent directors a base amount of $25,000 as an annual
retainer, paid on a quarterly basis, and granted each independent
director 20,000 shares of our common stock. In addition, the
Chairman of the Board receives an additional $10,000 annual
retainer, the Chairman of the Audit Committee receives an
additional $6,500 annual retainer, and each Chairman of the
Compensation Committee and the Nominating and Governance Committee
receives an additional $5,000 annual retainer. Non-chairman members
of the Audit committee receive an additional $3,500 annual
retainer, and non-chairman members of all other committees receive
an additional $2,500 annual retainer.
Attendance at Meetings
During
2017, our Board of Directors held twelve meetings and acted by
unanimous written consent on four occasions. During 2016, our Board
held six meetings and acted by unanimous written consent on four
additional occasions. Each member attended at least 75% of the
meetings of the Board and committees on which he or she served
during his or her term of office. Directors are expected to attend
the Company’s meetings of stockholders, absent unusual
circumstances. Last year’s annual meeting of stockholders was
attended by all of our directors.
Section 16(a) Beneficial Ownership Reporting
Compliance
Section
16(a) of the Securities and Exchange Act of 1934, as amended,
requires our officers, directors, and beneficial owners of more
than 10% any of our equity securities to timely file certain
reports regarding ownership of and transactions in our securities
with the Securities and Exchange Commission. Copies of the required
filings must also be furnished to us. We became subject to the
requirements of Section 16(a) on February 8, 2008. Section 16(a)
compliance was required during the fiscal year ended December 29,
2017. Based solely on a review of Forms 3, 4 and 5 and
amendments thereto furnished to us pursuant to Rule 16a-3(e)
under the Exchange Act during 2017, we believe that, during 2017,
the filing requirements under Section 16(a) of the Exchange
Act were satisfied except one Form 3 was filed late by 21 days for
Mr. Cory Smith.
49
Indebtedness of Management
No
director or executive officer or nominee for director, or any
member of the immediate family of such has been indebted to the
Company during the past year.
Officer and Director Legal Proceedings
There
are no legal proceedings involving our officers or
directors.
ITEM 11. EXECUTIVE COMPENSATION
Role of Executive Officers in Executive Compensation
The
Compensation Committee is charged with reviewing executive
compensation and making recommendations to the Board of Directors
based upon their review and analysis. None of our executive
officers currently serve as a member of the compensation committee
of any entity that has one or more executive officers serving as an
independent director on our Board of Directors or Compensation
Committee.
Summary Compensation Table
The
following tables provide a summary of information about
compensation expensed or accrued by us during the fiscal years
ended December 29, 2017, and December 30, 2016 for (a) our Chief
Executive Officer, (b) our Chief Financial Officers,
and (c) the two other executive officers other than our CEO
and CFO serving at the end of such fiscal years; collectively, the
Named Executive Officers or NEOs. Columns required by SEC rules are
omitted where there is no amount to report.
|
Name
and Principal Position
|
Year
|
Salary
|
Bonus (4)
|
Stock
Awards
|
All
other compensation
|
Total
|
|
Frederick
Sandford
|
2017
|
$275,000
|
$-
|
$62,251
|
$258 (1)
|
$337,509
|
|
President,
Chief Executive Officer, and Director
|
2016
|
275,000
|
85,000
|
-
|
258 (1)
|
360,258
|
|
Cory Smith Chief Financial Officer
(2)
|
2017
|
63,462
|
-
|
12,450
|
15,653 (5)
|
91,564
|
|
Ronald
Junck
|
2017
|
206,538
|
-
|
75,391
|
229 (1)
|
282,158
|
|
Executive
Vice President and General Counsel
|
2016
|
185,000
|
35,000
|
-
|
228 (1)
|
220,228
|
|
Colette
Pieper
|
2017
|
146,617
|
20,000
|
-
|
100,231 (6)
|
266,848
|
|
Former Chief Financial Officer (3)
|
2016
|
60,481
|
-
|
-
|
54,830
|
115,311
|
(1)
Includes payments
for company sponsored life insurance.
(2)
Mr. Smith was
appointed Chief Financial Officer on July 22, 2017.
(3)
Our former Chief
Financial Officer, Ms. Pieper, was appointed on September 2, 2016.
Ms. Pieper’s tenure as an officer and employee expired on
September 1, 2017.
(4)
Bonus payments were
awarded based on the successful relocation of the corporate office
from Coeur d'Alene, Idaho to Lakewood, Colorado.
(5)
Mr. Smith’s
other compensation is for reimbursable relocation
expenses.
(6)
Ms. Pieper other
compensation includes a $100,000 severance payment pursuant to the
severance agreement dated July 20, 2017.
50
Narrative to Summary Compensation Table
Summary of Executive Employment Agreements: On October 13,
2015, we entered into an executive employment agreement with
Frederick Sandford, or the CEO Agreement. The key terms of the CEO
Agreement are as follows: (i) A base salary of $275,000, with an
annual bonus opportunity under the terms and conditions of the
Executive Bonus Plan. There is no guarantee of any annual bonus.
(ii) If there is a change in control (as defined in the CEO
Agreement), Mr. Sandford will continue to receive his base salary
and annual bonus for 24 months after termination, together with
vesting of all options granted. (iii) In the event of termination
without cause (as defined in the CEO Agreement), Mr. Sandford would
continue to receive his base salary for the longer of: 18 months
following termination or the remainder of the then current term of
the CEO Agreement. (iv) Non-competition and confidentiality
provisions are applicable under the CEO Agreement. (v) The
effective date of the CEO Agreement is October 13, 2015, and
continues for three years unless sooner terminated. Automatic
extensions apply in certain events.
On July
22, 2017, we entered into an executive employment agreement with
Cory Smith. The key terms of the agreement are as follows:
(i) A base salary of $150,000, with an annual bonus opportunity
under the terms and conditions of the Executive Bonus Plan. There
is no guarantee of any annual bonus. (ii) We will pay certain
relocation expenses, travel and expense reimbursement, professional
membership expenses, education expenses, and vacation. (iii) If
there is a change in control (as defined in the agreement), Mr.
Smith will continue to receive his base salary for the longer of: 6
months following termination or the remainder of the then current
agreement. In the event of termination without cause (as defined in
the agreement), he would continue to receive his base salary for
the remainder of the then current agreement. (iv) Non-competition
and confidentiality provisions are applicable under the agreement.
(v) The effective date of the agreement is July 22, 2017, and
continues for one year unless sooner terminated. Automatic
extensions apply in certain events.
There
are no present or anticipated executive employment agreements with
Ronald Junck, Executive Vice President and General Counsel. Ronald
Junck receives a base salary of $225,000 per year,
effective July 15, 2017, plus performance based compensation as set
by the Board. Prior to July 15, 2017, Mr. Junck’s base salary
was $185,000 per year.
Pursuant
to the executive employment agreement with our former Chief
Financial Officer, Colette Pieper, that expired on September 1,
2017, Ms. Pieper was entitled to base salary of $200,000, with an
annual bonus opportunity under the terms and conditions of the
Executive Bonus Plan. There was no guarantee of any annual bonus.
On July 20, 2017, we entered into a severance agreement with Ms.
Pieper. Pursuant to the severance agreement, we agreed to pay Ms.
Pieper her base salary through the end of her previously entered
executive employment agreement, or September 1, 2017; pay her an
additional severance payment in the amount of $100,000. In return,
Ms. Pieper resigned from her position as Chief Financial Officer of
the Company, and released Command Center of all claims she may have
against Command Center. The severance agreement includes
confidentiality and non-disparagement provisions.
All our
executive officers receive expense reimbursement for business
travel and participation in employee benefits programs made
available during the term of employment.
Summary of the Executive Bonus Program
On September 5, 2017, we adopted the 2017 Executive Bonus
Plan. The plan was established by our Compensation Committee with
input from management. The plan sets out four goals and incentives
for management upon achievement of which management will be awarded
cash or equity. These goals represent our business focus for the
2017 fiscal year and strive to align our business focus with the
interests of our shareholders.
Pursuant to the 2017 Executive Bonus Plan a bonus pool will be
created for fiscal year 2017. Each of the four goal achievements
will contribute to the bonus pool. The bonus pool will be
distributed among our management as follows:
|
a)
Chief Executive Officer, Frederick Sandford:
|
50%
|
|
b)
Executive Vice President and General Counsel, Ron
Junck
|
25%
|
|
c)
Chief Financial Officer, Cory Smith:
|
10%
|
|
d)
Associate General Counsel and Secretary, Brendan
Simaytis:
|
15%
|
51
The first goal under the 2017 Executive Bonus Plan incentivizes
improving our cash flow based on improving our EBITDA from an
established baseline set by the bonus plan. For any amount in
excess of the EBITDA baseline, 10% in cash will accrue to the bonus
pool to be divided among management. The second goal involves
improving our accounts receivable collections from an established
baseline number of days of sales outstanding set by the bonus plan.
Each day of sales outstanding below the baseline will generate
$20,000 for the bonus pool to be divided among management. The
third goal seeks to improve our investor relations, such as filing
quarterly and annual reports timely, meeting with investors, and
publishing an annual letter to shareholders. The bonus plan sets
forth certain criteria which, if all accomplished, will generate
$60,000 for the bonus pool. Last, $50,000 will be added to the
bonus pool if management secures a $10 million or greater credit
facility. The Board reserves discretion for any awards in
connection with the 2017 Executive Bonus Plan.
On September 29, 2017, in connection with the 2017 Executive Bonus
Plan, our Compensation Committee awarded 500,000 stock options for
up to 500,000 shares of our common stock, $0.001 par value each, to
the executive officers as follows:
|
a) Chief Executive Officer, Frederick Sandford:
|
250,000 stock options
|
|
b) Executive Vice President and General Counsel, Ron
Junck
|
125,000 stock options
|
|
c) Chief Financial Officer, Cory Smith
|
50,000 stock options
|
|
d) Associate General Counsel and Secretary, Brendan
Simaytis
|
75,000 stock options
|
The option exercise price is $0.45 per share. The options vest in
four equal tranches with the first one-fourth vesting on the grant
date, or September 29, 2017, the second one-fourth vesting on the
first anniversary of the grant date, or September 29, 2018, the
third one-fourth vesting on the second anniversary of the grant
date, or September 29, 2019, and the remaining one-fourth vesting
on the third anniversary of the grant date, or September 29, 2020.
The options expire on September 29, 2027.
Outstanding Equity Awards at Fiscal Year-End
The
following table shows grants of options outstanding on December 29,
2017, the last day of our last completed fiscal year, to each of
the NEOs named in the Summary Compensation Table.
|
Name
|
|
Grant
date
|
Number
of securities underlying unexercised options
exercisable
|
Number
of securities underlying unexercised options
unexercisable
|
Option
exercise price
|
Option expiration date
|
|
Frederick
Sandford
|
|
2/22/2013
|
125,000
|
-
|
$2.40
|
2/21/2023
|
|
|
|
10/31/2014
|
18,750
|
6,250 (1)
|
8.04
|
10/31/2021
|
|
|
|
9/29/2017
|
5,208
|
15,625 (2)
|
5.40
|
9/28/2027
|
|
Ron
Junck
|
|
9/22/2017
|
4,167
|
12,499 (3)
|
4.80
|
9/21/2027
|
|
|
|
9/29/2017
|
2,604
|
7,812 (2)
|
5.40
|
9/28/2027
|
|
Cory
Smith
|
|
9/29/2017
|
1,042
|
3,124 (3)
|
5.40
|
9/28/2027
|
(1)
The stock options
vest in four equal tranches on each anniversary of the grant date,
beginning on October 31, 2015, and being fully vested on October
31, 2018.
(2)
The stock options
vest in four equal tranches, with the first one-fourth vested on
the grant date, or September 29, 2017, the second one-fourth
vesting on September 29, 2018, the third one-fourth vesting on
September 29, 2019, and the remainder vesting on September 29,
2020.
(3)
The stock options
vest in four equal tranches with the first one-fourth vested on the
grant date, or September 22, 2017, the second one-fourth vesting on
September 22, 2018, the third one-fourth vesting on September 22,
2019, and the remainder vesting on September 22, 2020.
52
Payments upon Termination and Change in Control
The
following is a summary setting forth potential severance payments
and benefits provided for Frederick Sandford and Cory Smith, the
only current NEOs with a written employment agreement.
|
Frederick Sandford, President and Chief Executive
Officer
|
Involuntary termination without cause
(2)
|
Termination for change in control
(3)
|
Death (4)
|
Disability (4)
|
|
Base
Salary
|
$412,500
|
$550,000
|
$137,500
|
$137,500
|
|
Bonus (1)
|
-
|
550,000
|
-
|
-
|
|
Total
|
$412,500
|
$1,100,000
|
$137,500
|
$137,500
|
(1)
For
purposes of this table, the annual bonus amount is assumed to be
equal to 100% of base salary.
(2)
Includes base salary for 18 months.
(3)
Includes base salary and bonus for 24
months.
(4)
Includes base salary for six months.
|
Cory Smith,
Chief Financial Officer
|
Involuntary termination without cause
(2)
|
Termination for change in control
(3)
|
Death (4)
|
Disability (4)
|
|
Base
Salary
|
$75,000
|
$75,000
|
$75,000
|
$75,000
|
|
Bonus (1)
|
-
|
137,500
|
-
|
-
|
|
Total
|
$75,000
|
$212,500
|
$75,000
|
$75,000
|
(1)
For
purposes of this table, amount is equal to 25% of the President and
CEO’s bonus stated above.
(2)
Includes base salary for 6 months.
(3)
Includes base salary and bonus for 6
months.
(4)
Includes base salary for 6 months.
Payments Made Upon Any Termination: Regardless of the manner
in which an NEOs employment terminates, the executive is entitled
to receive amounts earned during his term of employment. Such
amounts include: earned but unpaid salary through the date of
termination; non-equity incentive compensation earned and payable
prior to the date of termination; option grants received which have
already vested and are exercisable prior to the date of termination
(subject to the terms of the applicable option agreements) and
unused vacation pay.
Payments Made Upon Involuntary Termination Without Cause: In
the case of Mr. Sandford, he will continue to receive his base
salary for the remainder of the then-current term or 18 months,
whichever is longer. In the case of Mr. Smith, he will continue to
receive his base salary for six months from termination or the
remainder of the then current term, whichever is
longer.
Payments Made Upon a Change in Control: Mr. Sandford’s
and Mr. Smith’s employment agreement contains change in
control provisions. The benefits, in addition to the items listed
under the heading “Payments Made Upon Any Termination”
above include the vesting of all outstanding stock
options.
In the
case of Mr. Sandford, he will continue to receive his base salary
and bonus for 24 months. In the case of Mr. Smith, he will continue
to receive his base salary and bonus for six months.
Payments Made Upon Death or Permanent Disability: In the
event of the death or permanent disability of an NEO, the executive
or personal representative or estate, as applicable, would receive,
in addition to the items listed under the heading “Payments
Made Upon Any Termination” above the vesting of all
outstanding stock options.
Mr.
Sandford and Mr. Smith, or their personal representatives or
estates, as applicable, will continue to receive the executive's
base salary during the six month period following the date of
termination.
53
ITEM 12. 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 common stock, 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 4,993,672 shares of common stock issued and outstanding
as of December 29, 2017.
Security Ownership of Non-Management Owners
|
Name and address of Beneficial Owner
|
|
Title of class
|
|
Amount and nature of beneficial
ownership (1)
|
|
Percent of class
|
|
Jerry Smith (2)
|
|
Common Stock
|
|
479,725
|
|
9.61%
|
|
Merle Rydesky (4)
|
|
Common Stock
|
|
602,917
|
|
12.07%
|
(1)
Beneficial
ownership is calculated in accordance with Rule 13-d-3(d)(1) of the
Exchange Act, and includes shares held outright, shares held by
entity(s) controlled by NEOs and/or Directors, and shares issuable
upon exercise of options or warrants which are exercisable on or
within 60 days of March 29, 2018.
(2)
The number of
shares comprising Mr. Smith’s beneficial ownership is based
upon the written representations of his legal counsel. Mr. Smith’s
address is: care of Command
Center, Inc., 3609 S Wadsworth Blvd., Suite 250 Lakewood, CO
80235.
(3)
The number of
shares comprising Dr. Rydesky’s beneficial ownership is based
upon the Schedules 13D filed by Merle Rydesky and Barbara Rydesky
on February 11, 2015 and the verbal representations of Dr. Rydesky.
Mr. Rydesky’s address is: 3238 Pine Lake Road, Orchard Lake,
MI 48234.
Security Ownership of Management
|
Name and address of Beneficial
Owner (1)
|
|
Title of class
|
|
Amount and nature of beneficial
ownership (2)
|
|
Percent of class
|
|
Frederick Sandford (3)
|
|
Common Stock
|
|
165,208
|
|
3.3%
|
|
Ron Junck (4)
|
|
Common Stock
|
|
128,455
|
|
2.6%
|
|
Cory Smith (5)
|
|
Common Stock
|
|
2,291
|
|
*
|
|
JD Smith (6)
|
|
Common Stock
|
|
31,749
|
|
*
|
|
John Schneller (7)
|
|
Common Stock
|
|
27,083
|
|
*
|
|
R. Rimmy Malhotra (8)
|
|
Common Stock
|
|
117,410
|
|
2.4%
|
|
Steven Bathgate (9)
|
|
Common Stock
|
|
97,474
|
|
2.0%
|
|
Steven P. Oman
|
|
Common Stock
|
|
-
|
|
*
|
|
All Officers and Directors as a group
|
|
Common Stock
|
|
632,094
|
|
11.4%
|
*
Indicates ownership of less than 1.0%
(1)
The
address of the NEOs and Directors is: care of Command
Center, Inc., 3609 S Wadsworth Blvd, Suite 250 Lakewood, CO
80235.
(2)
Beneficial ownership is calculated in accordance
with Rule 13-d-3(d)(1) of the Exchange Act, and includes shares
held outright, shares held by entities controlled by NEOs and/or
Directors, and shares issuable upon exercise of options or warrants
which are exercisable on or within 60 days of March
29, 2018.
(3)
Includes
16,250 shares held outright and options to purchase 148,958
shares.
(4)
In
Includes 112,762 shares held outright, 8,923 shares held indirectly
through Inland Empire Temporary Staffing Services LLC of which Mr.
Junck is a member, and options to purchase 6,770
shares.
(5)
Includes
1,250 shares held outright and options to purchase 1,041
shares.
(6)
Includes
19,666 shares held outright and options to purchase 12,083
shares.
(7)
Includes
23,750 shares held outright and options to purchase 3,333
shares.
(8)
Includes
1,666 shares held outright and 115,744 shares held indirectly
through the Nicoya Fund. The shares held by the Nicoya fund are
directly owned by the Nicoya Fund LLC, a Delaware limited liability
company. This reporting person is the managing member and a
co-owner of Nicoya Capital LLC, which is the managing member and
owner of the Nicoya Fund.
(9)
Includes
14,558 shares held outright and 82,915 shares held indirectly,
including 66,666 by Mr. Bathgate’s spouse, 7,916 by the
Bathgate Family Partnership and 8,333 by Viva Co.,
LLC.
54
Equity Compensation Plans
At the
annual meeting of stockholders held on November 17, 2016, the
stockholders approved the adoption of the Command Center, Inc. 2016
Stock Incentive Plan. The 2008 Stock Incentive Plan expired in
January 2016, except as to awards that remain outstanding under the
plan.
Securities authorized for issuance under equity compensation
plans.
As of
December 29, 2017, we had one equity compensation plan, namely
the Command Center, Inc. 2016 Stock Incentive
Plan, approved by the stockholders on November 17, 2016.
Pursuant to the 2016 Plan, the Compensation Committee is authorized
to issue awards for up to 500,000 shares over the 10-year life of
the plan. Currently, there have been 75,000 options granted under
this plan.
Changes in Control
We are
in ongoing conversation with Mr. Ephraim Fields regarding a
potential compromise as a result of the pending proxy contest. Such
conversations may result in a contract or other arrangement the
operation of which may at a subsequent date result in a change in
control of Command Center.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND
DIRECTOR INDEPENDENCE
There
were no related party transactions during 2017 or
2016.
None of
our executive officers serve 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 our employees.
Related Person Transactions Policy and Procedures
As set
forth in the written charter of the Audit Committee, any related
person transaction involving a Company director or executive
officer must be reviewed and approved by the Audit Committee. Any
member of the Audit Committee who is a related person with respect
to a transaction under review may not participate in the
deliberations or vote on the approval or ratification of the
transaction. Related persons include any director or executive
officer, certain stockholders and any of their “immediate
family members” (as defined by SEC regulations). In addition,
the Board of Directors determines on an annual basis which
directors meet the definition of independent director under the
Nasdaq Listing Rules and reviews any director relationship that
would potentially interfere with his or her exercise of independent
judgment in carrying out the responsibilities of a
director.
Director Independence
Our
Board of Directors affirmatively determines the independence of
each director and nominee for election as a director in accordance
with certain criteria, which include all elements of independence
set forth in the related Securities and Exchange Commission Rules
and Regulations and the Nasdaq Listing Rules. As part of the Board
Committee meetings and as they feel necessary or appropriate at
full Board meetings, the independent directors routinely meet in
executive session without management or any non-independent
directors present.
Based
on these standards and information provided by our Board of
Directors and officers, our Board of Directors determined that
Steven Bathgate, Richard Finlay, Rimmy Malhotra, John Schneller, JD
Smith, Steven P. Oman, and John Stewart, all non-employee
directors, are independent and have no material relationship with
the Company, except as directors and as stockholders of the
Company.
55
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The
Board of Directors selected EKS&H as the independent registered
public accounting firm to examine our consolidated financial
statements for the fiscal year ending December 29, 2017. The Board
of Directors selected PMB Helin Donovan (PMB) as the independent
registered public accounting firm to examine our consolidated
financial statements for the fiscal year ending December 30,
2016.
The
following table summarizes the fees that EKS&H and PMB charged
us for the listed services during 2017 and 2016:
|
Type of fee
|
2017
|
2016
|
|
Audit fee (1)
|
$150,799
|
$122,500
|
|
Audit related fees (2)
|
-
|
-
|
|
Tax fees (3)
|
50,350
|
35,310
|
|
All other fees (4)
|
-
|
-
|
|
|
$201,149
|
$157,810
|
(1)
Audit fees consist
of fees billed for professional services provided in connection
with the audit of the Company’s consolidated financial
statements and reviews of our quarterly consolidated financial
statements.
(2)
Audit related fees
consist of assurance and related services that include, but are not
limited to, internal control reviews, attest services not required
by statute or regulation and consultation concerning financial
accounting and reporting standards, and not reported under
“Audit fees.”
(3)
Tax fees consist of
the aggregate fees billed for professional services for tax
compliance, tax advice, and tax planning. These services include
preparation of federal income tax returns.
(4)
All other fees
consist of fees billed for products and services other than the
services reported above.
Our
Audit Committee reviewed the audit and tax services rendered by
EKS&H and PMB and concluded that such services were compatible
with maintaining the auditors’ independence. All audit,
non-audit, tax services, and other services performed by our
independent accountants are pre-approved by our Audit Committee to
assure that such services do not impair the auditors’
independence from us. We do not use EKS&H or PMB for financial
information system design and implementation. These services, which
include designing or implementing a system that aggregates source
data underlying the financial statements, or generates information
that is significant to our financial statements, are provided
internally. We do not engage EKS&H or PMB to provide compliance
outsourcing services.
56
PART VI
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
Documents
filed as part of this report on Form 10-K or incorporated by
reference:
(1)
Our consolidated
financial statements can be found in Item 8 of this
report.
(2)
Consolidated
Financial Statement Schedules (omitted because they are either not
required, are not applicable, or the required information is
disclosed in the notes to the consolidated financial statements or
related notes).
(3)
The following
exhibits are filed with this Annual Report on Form 10-K or
incorporated by reference:
|
Exhibit No.
|
|
Description
|
|
|
Articles
of Incorporation. Incorporated by reference to Exhibit 3.1 to Form
SB-2, as filed May 7, 2001.
|
|
|
|
Amendment
to the Articles of Incorporation. Incorporated by reference to
Exhibit 3.1 to Form 8-K, as filed November 16, 2005.
|
|
|
|
Amendment
to the Articles of Incorporation. Incorporated by reference to
Exhibit 3.3 to Form S-1, as filed January 14, 2008.
|
|
|
|
Amended
and Restated Bylaws, as of September 5, 2017. Incorporated by
reference to Exhibit 3.2 to Form 8-K as filed on September 8,
2017.
|
|
|
|
Form of
Common Stock Share Certificate. Incorporated by reference to
Exhibit 4.5 to Form S-1 as filed January 14, 2008.
|
|
|
|
Executive
Employment Agreement with Fredrick Sandford. Incorporated by
reference to Exhibit 10.1 to Form 8-K as filed on October 13,
2015.
|
|
|
|
Executive
Employment Agreement with Cory Smith. Incorporated by reference to
Exhibit 10.1 to Form 8-K as filed on August 4, 2017.
|
|
|
|
Command
Center, Inc. 2016 Stock Incentive Plan. Included as Appendix B to
Form DEF 14A as filed October 11, 2016, and incorporated herein by
reference.
|
|
|
|
Account
Purchase Agreement by and between Command Center, Inc. and Wells
Fargo Bank, N.A., dated May 12, 2016. Incorporated by reference to
Exhibit 10.1 to Form 10-Q as filed on May 15, 2017.
|
|
|
|
Executive
Severance Agreement with Colette Pieper dated July 20, 2017.
Incorporated by reference to Exhibit 10.6 to Form 8-K as filed on
August 4, 2017.
|
|
|
|
Standard
of Ethics and Business Conduct. Incorporated by reference to
Exhibit 14.1 to Form 10-K as filed on April 11, 2017.
|
|
|
|
Letter
to Securities and Exchange Commission from PMB Helin Donovan LLP,
dated April 19, 2017. Incorporated by reference to Exhibit 16.1 to
Form 8-K as filed on April 20, 2017.
|
|
|
|
List of
Subsidiaries (filed herewith).
|
|
|
|
Consent
of EKS&H (filed herewith).
|
|
|
|
Consent
of PMB Helin Donovan (filed herewith).
|
|
|
|
Certification
of Principal Executive Officer-Section 302 Certification (filed
herewith)
|
|
|
|
Certification
of Principal Accounting Officer-Section 302 Certification (filed
herewith)
|
|
|
|
Certification
of Chief Executive Officer-Section 906 Certification (filed
herewith)
|
|
|
|
Certification
of Principal Accounting Officer-Section 906 Certification (filed
herewith)
|
|
|
101.INS
|
|
XBRL
Instance Document (filed herewith)
|
|
101.SCH
|
|
XBRL
Taxonomy Extension Schema Document (filed herewith)
|
|
101.CAL
|
|
XBRL
Taxonomy Extension Calculation Linkbase Document (filed
herewith)
|
|
101.DEF
|
|
XBRL
Taxonomy Extension Definition Linkbase Document (filed
herewith)
|
|
101.LAB
|
|
XBRL
Taxonomy Extension Label Linkbase Document (filed
herewith)
|
|
101.PRE
|
|
XBRL
Taxonomy Extension Presentation Linkbase Document (filed
herewith)
|
ITEM 16. FORM 10-K SUMMARY
None.
57
SIGNATURES
In
accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
COMMAND
CENTER, INC.
|
/s/ Frederick Sandford
|
|
Frederick Sandford
|
|
March 29,
2018
|
|
Signature
|
|
Printed Name
|
|
Date
|
|
President, Chief Executive Officer, Director
|
|
|
|
|
|
|
|
|
|
|
|
/s/ Cory Smith
|
|
Cory Smith
|
|
March 29,
2018
|
|
Signature
|
|
Printed Name
|
|
Date
|
|
Chief Financial Officer
|
|
|
|
|
In
accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
|
/s/ JD Smith
|
|
JD Smith
|
|
March 29,
2018
|
|
Signature
|
|
Printed Name
|
|
Date
|
|
Director
|
|
|
|
|
|
|
|
|
|
|
|
/s/ John Schneller
|
|
John Schneller
|
|
March 29,
2018
|
|
Signature
|
|
Printed Name
|
|
Date
|
|
Director
|
|
|
|
|
|
|
|
|
|
|
|
/s/ R. Rimmy Malhotra
|
|
R. Rimmy Malhotra
|
|
March 29,
2018
|
|
Signature
|
|
Printed Name
|
|
Date
|
|
Director
|
|
|
|
|
|
|
|
|
|
|
|
/s/ Steven Bathgate
|
|
Steven Bathgate
|
|
March 29,
2018
|
|
Signature
|
|
Printed Name
|
|
Date
|
|
Director
|
|
|
|
|
|
|
|
|
|
|
|
/s/ Seven P. Oman
|
|
Steven P. Oman
|
|
March 29,
2018
|
|
Signature
|
|
Printed Name
|
|
Date
|
|
Director
|
|
|
|
|
58