Command Center, Inc. (CCNI) Q1 2019 Earnings Conference Call May 14, 2019 10:00 AM ET Company Participants Louie Toma - Hayden IR Rick Coleman - Chief Executive Officer Cory Smith - Chief Financial Officer Conference Call Participants Operator Greetings and welcome to the Command Center, Inc., First Quarter 2019 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder thi ...

Financial Data and Key Metrics Changes - Revenue in Q4 2018 was $24.4 million, a slight decrease of 0.3% from $24.5 million in Q4 2017, attributed to turnover in sales positions due to increased competition in the job market [18] - Gross margin improved to 27.1% in Q4 2018 from 24.5% in Q4 2017, driven by a benefit related to changes in worker's compensation accrual [19] - Net income for Q4 2018 was $1.1 million or $0.23 per diluted share, compared to a net loss of $89,000 or negative $0.02 per diluted share in the prior year [20] - Adjusted EBITDA in Q4 2018 was $1.6 million, up from $687,000 in 2017 [21] - For the full year 2018, revenue was $97.4 million, a decrease of 0.7% from $98.1 million in 2017, with net income of $1 million or $0.20 per diluted share compared to $1.7 million or $0.33 per diluted share in 2017 [22][23] Business Line Data and Key Metrics Changes - Selling, general, and administrative expenses in Q4 2018 were $5.2 million, down from $5.4 million in the same quarter last year, primarily due to lower bad debt and legal fees [20] - The company recorded an expense related to changes in worker's compensation accruals of $555,000 in 2018 compared to $303,000 in 2017 [22] Company Strategy and Development Direction - The company announced a merger with Hire Quest Holdings, which is expected to enhance profitability and create sustainable shareholder value [10][11] - The merger will result in a combined entity with 160 branches across 31 states, expanding geographic footprint and differentiating from competitors [13] - The transition to a franchise model is anticipated to lead to a decline in top-line revenue but an increase in gross and operating margins [15] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the merger's potential to drive significant improvements in profitability and shareholder value [11][16] - The company ended 2018 with a strong quarter and a solid balance sheet, entering 2019 with significant momentum [16] Other Important Information - The company plans to file a proxy statement with full details of the merger transaction, which is expected to close in Q2 2019 [25] - A self-tender offer at $6 per share for up to 1.5 million shares is planned, contingent on the merger closing [26] Q&A Session Summary Question: Congratulations on the merger transaction - An analyst congratulated the management on the merger with Hire Quest, acknowledging the lengthy process [29] Question: Inquiry about worker's compensation in the new business model - Management confirmed that worker's compensation insurance will still be provided for temporary workers, with franchises managing safety programs [32] Question: Cost synergies related to the projected EBITDA - Management declined to provide guidance on cost synergies at this time, indicating more information will be available in the proxy statement [34]

[PART I](index=4&type=section&id=PART%20I) [Item 1. Business](index=4&type=section&id=Item%201.%20Business) Command Center, Inc. provides on-demand labor across 22 states, pursuing strategic growth and a proposed merger with Hire Quest Holdings, LLC - Command Center, Inc. operates **67 on-demand labor branches** across **22 states**, employing approximately **32,000 field team members** and serving about **3,600 customers** in industrial/manufacturing/warehousing, construction, hospitality, transportation, and retail industries[11](index=11&type=chunk)[12](index=12&type=chunk)[23](index=23&type=chunk) - The company's strategic growth focuses on improving its network of on-demand labor branches, concentrating revenue growth on sales within existing structures, and considering new branches or acquisitions in exceptional opportunities[17](index=17&type=chunk) - A significant subsequent event is the Agreement and Plan of Merger with Hire Quest Holdings, LLC, where Command Center, Inc. will acquire Hire Quest. Post-merger, Hire Quest members will own **68% of the combined company**, and the company name will change to HireQuest, Inc., subject to shareholder approval[38](index=38&type=chunk)[40](index=40&type=chunk)[41](index=41&type=chunk) [Item 1A. Risk Factors](index=9&type=section&id=Item%201A.%20Risk%20Factors) The company faces various risks including economic fluctuations, customer reliance, seasonal demand, operational challenges, financial issues, and regulatory compliance - The company is vulnerable to fluctuations in the general economy and regional/local economies, which can significantly impact demand for staffing services and revenue[42](index=42&type=chunk)[43](index=43&type=chunk) - Reliance on a small number of key customers poses a risk, as the top 10 customers accounted for approximately **25% of revenue in 2018** and **23% in 2017**[44](index=44&type=chunk) - Significant risks include the potential inability to recover collateral deposits placed with Freestone Insurance Company, which is in liquidation, with a reserve reduction of approximately **$1.5 million in 2018**[56](index=56&type=chunk) - The company faces challenges in attracting, developing, and retaining qualified branch personnel and field team members, which is critical for meeting customer needs and driving new business[50](index=50&type=chunk)[52](index=52&type=chunk) [Item 1B. Unresolved Staff Comments](index=15&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) There are no unresolved staff comments to report [Item 2. Description of Properties](index=15&type=section&id=Item%202.%20Description%20of%20Properties) The company leases its corporate headquarters and all 67 branch locations, with most branch leases having three-to-five-year terms or operating month-to-month - The company leases its corporate headquarters and all **67 branch locations**, with most branch leases having 3-5 year terms or operating month-to-month[79](index=79&type=chunk) [Item 3. Legal Proceedings](index=15&type=section&id=Item%203.%20Legal%20Proceedings) The primary legal proceeding involves the liquidation of Freestone Insurance Company, from which Command Center is seeking the return of **$1.8 million** in cash collateral for workers' compensation policies, with a **$1.5 million** reserve recorded in 2018 - The company is involved in legal proceedings related to the liquidation of Freestone Insurance Company, seeking the return of **$1.8 million** in cash collateral for workers' compensation policies from 2012-2014[80](index=80&type=chunk)[85](index=85&type=chunk) - In 2018, a reserve of approximately **$1.5 million** was recorded against the **$1.8 million** deposit with Freestone, resulting in a net carrying amount of **$260,000**, reflecting the estimate that the priority claim will have little to no value and recovery might be around **20%**[85](index=85&type=chunk)[86](index=86&type=chunk) [Item 4. Mine Safety Disclosure](index=17&type=section&id=Item%204.%20Mine%20Safety%20Disclosure) This item is not applicable to the company's operations [PART II](index=17&type=section&id=PART%20II) [Item 5. Markets for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=17&type=section&id=Item%205.%20Markets%20for%20Registrant%27s%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) The company's common stock trades on NASDAQ under 'CCNI', a 1-for-12 reverse stock split was effected in December 2017, and an active **$5.0 million** stock repurchase plan is in place - A **1-for-12 reverse stock split** was effected on December 7, 2017, reducing outstanding common shares from **60,615,549 to 5,051,542**[92](index=92&type=chunk) Common Stock High and Low Sales Prices (Quarterly) | Quarter | High ($) | Low ($) | | :----------------------------- | :------- | :------ | | Fourth Quarter, 2018 | 5.91 | 3.55 | | Third Quarter, 2018 | 6.30 | 5.14 | | Second Quarter, 2018 | 6.40 | 5.35 | | First Quarter, 2018 | 6.49 | 5.32 | | Fourth Quarter, 2017 | 6.12 | 4.80 | | Third Quarter, 2017 | 5.40 | 3.72 | | Second Quarter, 2017 | 4.44 | 3.96 | | First Quarter, 2017 | 5.04 | 4.20 | - The company repurchased approximately **324,000 shares** of common stock for **$1.8 million** in 2018 (average **$5.65/share**) and **69,000 shares** for **$374,000** in 2017 (average **$5.45/share**) under a **$5.0 million** three-year repurchase plan, with **$2.8 million** remaining as of December 28, 2018[99](index=99&type=chunk) [Item 6. Selected Financial Data](index=18&type=section&id=Item%206.%20Selected%20Financial%20Data) As a 'smaller reporting company,' the registrant is not required to provide the information requested by this Item and has elected scaled disclosure reporting obligations [Item 7. Management's Discussion and Analysis of Financial Conditions and Results of Operations](index=18&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Conditions%20and%20Results%20of%20Operations) Revenue decreased slightly by **0.7%** in 2018 to **$97.4 million**, gross profit margin decreased to **25.6%**, and SG&A expenses increased by **$2.1 million** due to non-recurring charges, impacting net cash from operations Operating Results Summary (2018 vs. 2017) | Metric | 2018 (in thousands) | % of Revenue (2018) | 2017 (in thousands) | % of Revenue (2017) | | :------------------------------------------ | :------------------ | :------------------ | :------------------ | :------------------ | | Revenue | $97,389 | 100.0% | $98,072 | 100.0% | | Cost of staffing services | $72,450 | 74.4% | $72,642 | 74.1% | | Gross profit | $24,939 | 25.6% | $25,430 | 25.9% | | Selling, general and administrative expenses | $23,434 | 24.1% | $21,347 | 21.8% | | Depreciation and amortization | $324 | 0.3% | $386 | 0.4% | | Income from operations | $1,181 | 1.2% | $3,697 | 3.8% | | Net income | $974 | 1.0% | $1,679 | 1.7% | | Adjusted EBITDA | $4,074 | 4.2% | $4,240 | 4.3% | - Revenue decreased by approximately **$683,000 (0.7%)** in 2018 compared to 2017, primarily due to lower revenue in the second and third quarters of 2018, attributed to higher sales position turnover and seasonality[109](index=109&type=chunk) - Selling, General and Administrative (SG&A) expenses increased by approximately **$2.1 million** in 2018, largely due to non-recurring charges totaling **$2.4 million**, including a **$1.5 million** impairment of a workers' compensation deposit in receivership and executive severance[112](index=112&type=chunk) - Net cash provided by operating activities decreased from **$4.7 million in 2017** to **$2.6 million in 2018**, while net cash used in financing activities shifted from a **$90,000 provision in 2017** to a **$2.3 million usage in 2018**, mainly due to treasury stock purchases[117](index=117&type=chunk)[119](index=119&type=chunk) [Item 7A. Quantitative and Qualitative Disclosures About Market Risk](index=22&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) As a 'smaller reporting company,' the registrant is not providing the information contained in this item pursuant to Regulation S-K [Item 8. Financial Statements and Supplementary Data](index=23&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section presents the audited consolidated financial statements for Command Center, Inc. for the fiscal years ended December 28, 2018, and December 29, 2017, including balance sheets, statements of income, changes in stockholders' equity, and cash flows, along with detailed notes [Report of Independent Registered Public Accounting Firm](index=23&type=section&id=Report%20of%20Independent%20Registered%20Public%20Accounting%20Firm) Plante & Moran, PLLC issued an unqualified opinion on the 2018 consolidated financial statements, affirming fair presentation in conformity with U.S. GAAP - Plante & Moran, PLLC audited the consolidated financial statements for the fifty-two weeks ended December 28, 2018, and issued an unqualified opinion, stating the financial statements present fairly, in all material respects, the financial position, results of operations, and cash flows in conformity with U.S. GAAP[132](index=132&type=chunk) [Report of Independent Public Accounting Firm](index=24&type=section&id=Report%20of%20Independent%20Public%20Accounting%20Firm) EKS&H LLLP issued an unqualified opinion on the 2017 consolidated financial statements, confirming fair presentation in conformity with U.S. GAAP - EKS&H LLLP audited the consolidated financial statements for the fifty-two weeks ended December 29, 2017, and issued an unqualified opinion, confirming fair presentation of the financial position, results of operations, and cash flows in conformity with U.S. GAAP[139](index=139&type=chunk)[140](index=140&type=chunk) [Consolidated Balance Sheets](index=25&type=section&id=Consolidated%20Balance%20Sheets) This section provides a snapshot of the company's assets, liabilities, and stockholders' equity at the end of fiscal years 2018 and 2017 Consolidated Balance Sheet Highlights (in thousands) | Item | December 28, 2018 | December 29, 2017 | | :------------------------------------------ | :------------------ | :------------------ | | Total Assets | $23,432 | $25,364 | | Total Current Assets | $17,638 | $18,183 | | Cash | $7,934 | $7,769 | | Accounts Receivable, net | $9,041 | $9,394 | | Total Liabilities | $4,505 | $5,768 | | Total Current Liabilities | $3,662 | $4,851 | | Total Stockholders' Equity | $18,891 | $19,596 | [Consolidated Statements of Income](index=26&type=section&id=Consolidated%20Statements%20of%20Income) This section presents the company's revenues, expenses, and net income for the fiscal years 2018 and 2017 Consolidated Statements of Income Highlights (in thousands) | Item | 2018 | 2017 | | :------------------------------------------ | :------------------ | :------------------ | | Revenue | $97,389 | $98,072 | | Gross profit | $24,939 | $25,431 | | Selling, general and administrative expenses | $23,433 | $21,348 | | Income from operations | $1,181 | $3,696 | | Net income | $974 | $1,679 | | Basic Earnings per share | $0.20 | $0.33 | | Diluted Earnings per share | $0.20 | $0.33 | [Consolidated Statement of Changes in Stockholders' Equity](index=27&type=section&id=Consolidated%20Statement%20of%20Changes%20in%20Stockholders%27%20Equity) This section details the changes in the company's stockholders' equity for the fiscal years 2018 and 2017, including net income and stock transactions Changes in Stockholders' Equity (2018 vs. 2017) | Item | 2018 | 2017 | | :------------------------------------------ | :------------------ | :------------------ | | Balance at beginning of period | $19,595,789 | $18,134,869 | | Common stock issued for services | $62,436 | $49,700 | | Stock-based compensation | $332,089 | $107,090 | | Common stock purchased and retired | $(1,829,153) | $(375,218) | | Net income for the year | $974,287 | $1,679,348 | | Balance at end of period | $18,891,467 | $19,595,789 | [Consolidated Statements of Cash Flow](index=28&type=section&id=Consolidated%20Statements%20of%20Cash%20Flow) This section outlines the cash inflows and outflows from operating, investing, and financing activities for the fiscal years 2018 and 2017 Consolidated Statements of Cash Flow Highlights (in thousands) | Item | 2018 | 2017 | | :------------------------------------------ | :------------------ | :------------------ | | Net cash provided by operating activities | $2,623 | $4,748 | | Net cash used in investing activities | $(117) | $(104) | | Net cash (used in) provided by financing activities | $(2,284) | $90 | | Net increase in cash | $222 | $4,734 | | Cash and restricted cash, end of period | $8,004 | $7,781 | [Notes to Consolidated Financial Statements](index=29&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) [NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES](index=29&type=section&id=NOTE%201%20%E2%80%93%20SUMMARY%20OF%20SIGNIFICANT%20ACCOUNTING%20POLICIES) This note details the company's significant accounting policies, including revenue recognition, allowance for doubtful accounts, and adoption of new accounting standards - The company adopted new revenue recognition guidance (ASU 2014-09) on December 30, 2017, using the modified retrospective method, which resulted in a **$3,000 increase in revenue** and a decrease in accumulated deficit, but did not materially impact financial statements[158](index=158&type=chunk)[180](index=180&type=chunk) Revenue Disaggregated by Industry (2018 vs. 2017) | Industry | 2018 Revenue (in thousands) | 2018 % | 2017 Revenue (in thousands) | 2017 % | | :------------------------------------ | :-------------------------- | :------- | :-------------------------- | :------- | | Industrial, manufacturing and warehousing | $34,208 | 35.1% | $33,496 | 34.2% | | Construction | $18,462 | 19.0% | $19,988 | 20.4% | | Hospitality | $16,480 | 16.9% | $18,305 | 18.7% | | Transportation | $15,322 | 15.7% | $14,046 | 14.3% | | Retail and Other | $12,916 | 13.3% | $12,238 | 12.4% | | Total | $97,389 | 100.0% | $98,072 | 100.0% | - The allowance for doubtful accounts decreased from approximately **$282,000** at December 29, 2017, to **$113,000** at December 28, 2018[162](index=162&type=chunk) - The company adopted ASU 2017-04, simplifying the goodwill impairment test, during fiscal year 2018, and expects to recognize a right-of-use asset and lease liability of approximately **$2.1 million** upon adoption of ASU 2016-02 (lease accounting) in 2019[176](index=176&type=chunk)[181](index=181&type=chunk) [NOTE 2 – PROPERTY AND EQUIPMENT](index=32&type=section&id=NOTE%202%20%E2%80%93%20PROPERTY%20AND%20EQUIPMENT) This note provides details on the company's property and equipment, including categories and accumulated depreciation Property and Equipment, Net (in thousands) | Item | December 28, 2018 | December 29, 2017 | | :------------------------------------------ | :------------------ | :------------------ | | Leasehold improvements | $290 | $269 | | Vehicles and machinery | $74 | $100 | | Furniture and fixtures | $128 | $128 | | Computer hardware and licensed software | $634 | $502 | | Accumulated depreciation and amortization | $(796) | $(627) | | Total property and equipment, net | $329 | $372 | - Depreciation and amortization expense related to property and equipment was approximately **$169,000 in 2018**, a slight increase from **$165,000 in 2017**[183](index=183&type=chunk) [NOTE 3 – GOODWILL AND INTANGIBLE ASSETS](index=33&type=section&id=NOTE%203%20%E2%80%93%20GOODWILL%20AND%20INTANGIBLE%20ASSETS) This note details the company's goodwill and intangible assets, including customer relationships and non-compete agreements, and their amortization Goodwill and Intangible Assets (in thousands) | Item | December 28, 2018 Net | December 29, 2017 Net | | :------------------------------------------ | :-------------------- | :-------------------- | | Goodwill | $3,778 | $3,778 | | Customer relationships | $153 | $260 | | Non-compete agreements | $0 | $48 | | Total goodwill and intangible assets | $3,931 | $4,086 | - Amortization expense for intangible assets decreased from approximately **$221,000 in 2017** to **$155,000 in 2018**[186](index=186&type=chunk) Estimated Future Amortization Expenses of Intangible Assets | Year | Obligation | | :--- | :--------- | | 2019 | $107,746 | | 2020 | $44,894 | | Thereafter | $0 | | Total | $152,640 | [NOTE 4 – ACCOUNT PURCHASE AGREEMENT & LINE OF CREDIT FACILITY](index=33&type=section&id=NOTE%204%20%E2%80%93%20ACCOUNT%20PURCHASE%20AGREEMENT%20%26%20LINE%20OF%20CREDIT%20FACILITY) This note describes the company's account purchase agreement with Wells Fargo, providing **$14.0 million** in financing capacity, and a **$6.2 million** letter of credit securing workers' compensation obligations - The company has an account purchase agreement with Wells Fargo Bank, N.A., allowing it to sell eligible accounts receivable up to a maximum of **$14.0 million**. As of December 28, 2018, the liability under this agreement was approximately **$399,000**, down from **$854,000 in 2017**[188](index=188&type=chunk)[189](index=189&type=chunk) - A **$6.2 million** letter of credit with Wells Fargo secures workers' compensation obligations, reducing the available funds under the account purchase agreement. As of December 28, 2018, only approximately **$2,000** of availability remained on this facility[116](index=116&type=chunk)[190](index=190&type=chunk) [NOTE 5 – WORKERS' COMPENSATION INSURANCE AND RESERVES](index=33&type=section&id=NOTE%205%20%E2%80%93%20WORKERS%27%20COMPENSATION%20INSURANCE%20AND%20RESERVES) This note details the company's large deductible workers' compensation policy, making it largely self-insured for claims up to **$500,000** per incident, secured by a **$6.2 million** letter of credit - The company uses a large deductible workers' compensation policy with ACE American Insurance Company, making it largely self-insured for claims up to **$500,000** per incident, secured by a **$6.2 million** letter of credit[191](index=191&type=chunk) - Workers' compensation expense for field team members increased from approximately **$3.7 million in 2017** to **$3.8 million in 2018**[199](index=199&type=chunk) Workers' Compensation Claims Liability (2018 vs. 2017) | Item | December 28, 2018 | December 29, 2017 | | :------------------------------------------ | :------------------ | :------------------ | | Estimated future claims liabilities at beginning of period | $1,948,997 | $2,706,701 | | Claims paid during the period | $(1,850,913) | $(2,246,367) | | Additional future claims liabilities recorded | $1,784,014 | $1,488,663 | | Estimated future claims liabilities at end of period | $1,882,098 | $1,948,997 | [NOTE 6 – STOCKHOLDERS' EQUITY](index=36&type=section&id=NOTE%206%20%E2%80%93%20STOCKHOLDERS%27%20EQUITY) This note outlines changes in stockholders' equity, including common stock issued for services and share repurchases under the **$5.0 million** three-year repurchase plan - In 2018, the company issued approximately **11,000 shares** of common stock valued at **$62,000** for services, compared to **10,000 shares** valued at **$50,000 in 2017**[202](index=202&type=chunk) - Under its **$5.0 million** three-year repurchase plan, the company repurchased approximately **324,000 shares** for **$1.8 million** in 2018 and **69,000 shares** for **$374,000** in 2017. Approximately **$2.8 million** remained under the plan as of December 28, 2018[203](index=203&type=chunk) [NOTE 7 – STOCK-BASED COMPENSATION](index=36&type=section&id=NOTE%207%20%E2%80%93%20STOCK-BASED%20COMPENSATION) This note details the company's 2016 Stock Incentive Plan, including stock options and restricted shares granted, and the associated compensation expense - The company's 2016 Stock Incentive Plan authorizes awards for up to **500,000 shares**. In 2018, **117,500 stock options** were granted to board members and an officer, and approximately **48,000 restricted shares** were granted to non-employee directors[204](index=204&type=chunk)[206](index=206&type=chunk)[207](index=207&type=chunk) Stock Options Outstanding (2018 vs. 2017) | Item | December 28, 2018 | December 29, 2017 | | :------------------------------------------ | :------------------ | :------------------ | | Outstanding options | 160,831 | 254,995 | | Weighted average exercise price | $5.86 | $4.49 | | Weighted average grant date fair value | $3.18 | $6.48 | | Exercisable options | 76,308 | 191,000 (approx) | | Non-vested options | 84,523 | 63,539 | - Share-based compensation expense increased significantly from approximately **$157,000 in 2017** to **$332,000 in 2018** for stock options, plus an additional **$62,000** for stock grants in 2018. Unrecognized share-based compensation expense totaled approximately **$425,000** as of December 28, 2018[209](index=209&type=chunk) [NOTE 8 – INCOME TAX](index=38&type=section&id=NOTE%208%20%E2%80%93%20INCOME%20TAX) This note discusses the impact of the Tax Cuts and Jobs Act on the company's tax rate and provides a breakdown of the provision for income taxes - The Tax Cuts and Jobs Act, enacted in December 2017, reduced the U.S. federal corporate tax rate to **21%**, leading to an additional tax expense of approximately **$349,000** in Q4 2017 due to the remeasurement of net deferred tax assets[210](index=210&type=chunk) Provision for Income Taxes (2018 vs. 2017) | Item | 2018 | 2017 | | :------------------------------------------ | :------------------ | :------------------ | | Current Federal | $126,487 | $473,964 | | Current State | $89,414 | $212,998 | | Deferred Federal | $(211,514) | $1,586,296 | | Deferred State | $(146,792) | $79,747 | | Total Provision for Income Taxes | $205,072 | $2,005,528 | - The company's combined federal and state tax rate was approximately **17.8% for 2018**, significantly lower than the **54.5% total taxes on income reported in 2017**, which included the impact of deferred tax asset remeasurement[212](index=212&type=chunk) [NOTE 9 – COMMITMENTS AND CONTINGENCIES](index=39&type=section&id=NOTE%209%20%E2%80%93%20COMMITMENTS%20AND%20CONTINGENCIES) This note details the company's significant contingency related to the Freestone Insurance Company liquidation, seeking **$1.8 million** in cash collateral, and outlines minimum operating lease obligations - The company has a significant contingency related to the Freestone Insurance Company liquidation, where it seeks the return of **$1.8 million** in cash collateral. A reserve of **$1.5 million** was recorded in 2018, reducing the net carrying amount to **$260,000**, as recovery is estimated to be approximately **20%** of the deposit[213](index=213&type=chunk)[218](index=218&type=chunk)[219](index=219&type=chunk) Minimum Operating Lease Obligations | Year | Obligation | | :--- | :--------- | | 2019 | $1,116,737 | | 2020 | $778,512 | | 2021 | $295,769 | | 2022 | $106,265 | | 2023 | $24,038 | | Thereafter | $0 | | Total | $2,321,321 | - Lease expense increased from approximately **$1.4 million in 2017** to **$1.5 million in 2018**[222](index=222&type=chunk) [NOTE 10 – SUBSEQUENT EVENTS](index=42&type=section&id=NOTE%2010%20%E2%80%93%20SUBSEQUENT%20EVENTS) This note discloses the company's Merger Agreement to acquire Hire Quest Holdings, LLC, which will result in a name change to HireQuest, Inc. and Hire Quest members owning **68%** of the combined entity - On April 7, 2019, the company entered into a Merger Agreement to acquire Hire Quest Holdings, LLC. Upon completion, the company will change its name to HireQuest, Inc., and Hire Quest members will receive shares representing **68%** of the combined entity's common stock[224](index=224&type=chunk)[226](index=226&type=chunk)[227](index=227&type=chunk) - The merger agreement also contemplates a self-tender offer to purchase up to **1,500,000 shares** of the company's common stock at **$6.00 per share**[224](index=224&type=chunk) [PART III](index=44&type=section&id=PART%20III) [Item 9. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure](index=43&type=section&id=Item%209.%20Changes%20In%20and%20Disagreements%20With%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) EKS&H LLLP resigned as the independent auditor on October 1, 2018, due to a combination with Plante Moran PLLC, which was subsequently engaged, with no disagreements on accounting or financial disclosure - EKS&H LLLP resigned as the independent auditor on October 1, 2018, following its combination with Plante Moran PLLC, which was then engaged as the new auditor[229](index=229&type=chunk) - There were no disagreements with EKS&H on accounting principles, financial disclosure, or auditing scope, nor any 'reportable events' during the fiscal year ended December 28, 2018, up to their resignation[230](index=230&type=chunk) [Item 9A. Controls and Procedures](index=43&type=section&id=Item%209A.%20Controls%20and%20Procedures) The CEO and CFO concluded that the company's disclosure controls and procedures and internal control over financial reporting were effective as of December 28, 2018, with no material changes in internal controls - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of December 28, 2018[233](index=233&type=chunk) - Management concluded that internal control over financial reporting was effective as of December 28, 2018, based on the COSO framework[234](index=234&type=chunk) - There were no material changes in internal control over financial reporting during the most recently completed fiscal quarter[235](index=235&type=chunk) [Item 9B. Other Information](index=43&type=section&id=Item%209B.%20Other%20Information) There is no other information to report under this item [Item 10. Directors, Executive Officers, and Corporate Governance](index=44&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%2C%20and%20Corporate%20Governance) The Board of Directors, comprising seven members, includes key executive appointments in 2018 and maintains corporate governance policies with independent committees, including an audit committee financial expert - Richard K. Coleman, Jr. was appointed President, CEO, and Director on April 1, 2018. Cory Smith was appointed CFO on July 31, 2017. Brendan Simaytis was appointed Executive Vice President and General Counsel on July 1, 2018[240](index=240&type=chunk)[241](index=241&type=chunk)[242](index=242&type=chunk) - The Board of Directors has three standing committees (Audit, Compensation, Nominating and Governance) and a special Strategic Alternatives Committee, all composed of independent directors[251](index=251&type=chunk)[253](index=253&type=chunk)[255](index=255&type=chunk)[258](index=258&type=chunk)[260](index=260&type=chunk) - Galen Vetter qualifies as an 'audit committee financial expert' and all Audit Committee members are financially literate and independent[253](index=253&type=chunk) Non-Employee Director Compensation (2018) | Name | Fees Earned or Paid in Cash ($) | Share Awards ($) | Option Awards ($) | Total ($) | | :-------------------- | :------------------------------ | :--------------- | :---------------- | :---------- | | JD Smith | 39,445 | 64,225 | - | 103,670 | | R. Rimmy Malhotra | 38,720 | 64,225 | 26,730 | 129,675 | | Steven Bathgate | 32,316 | 64,225 | 26,730 | 123,271 | | Steven P. Oman | 23,683 | 52,373 | - | 76,055 | | Galen Vetter | 24,672 | 51,582 | - | 76,254 | | Lawrence F. Hagenbuch | 21,504 | 51,582 | - | 73,086 | | John Schneller | 17,321 | 14,225 | - | 31,546 | | Richard Finlay | 11,364 | - | - | 11,364 | | John Stewart | 11,537 | - | - | 11,537 | | Total | 220,562 | 362,436 | 53,460 | 636,459 | [Item 11. Executive Compensation](index=50&type=section&id=Item%2011.%20Executive%20Compensation) Executive compensation is reviewed by the Compensation Committee, with employment agreements outlining base salaries, performance bonuses, and change-in-control payments, and a **15%** adjusted EBITDA bonus pool for 2018 Summary Executive Compensation (2018 vs. 2017) | Name and Principal Position | Year | Salary ($) | Bonus ($) | Option Awards ($) | All Other Compensation ($) | Total ($) | | :------------------------------------------ | :--- | :--------- | :-------- | :---------------- | :------------------------- | :---------- | | Richard K. Coleman, Jr. (CEO) | 2018 | 243,750 | 100,000 | 316,335 | 297 | 660,382 | | Cory Smith (CFO) | 2018 | 172,500 | 23,763 | - | 27,728 | 223,991 | | | 2017 | 63,462 | - | 12,450 | - | 75,912 | | Brendan Simaytis (EVP & GC) | 2018 | 196,250 | 35,644 | - | 90 | 231,984 | | | 2017 | 176,077 | 40,000 | 62,941 | - | 279,018 | | Frederick Sandford (Former CEO) | 2018 | 68,750 | - | - | 697,664 | 766,414 | | | 2017 | 275,000 | - | 62,251 | - | 337,251 | | Ronald Junck (Former EVP & GC) | 2018 | 171,363 | 59,407 | - | 20,155 | 250,925 | | | 2017 | 206,538 | - | 75,391 | - | 281,929 | - Former CEO Frederick Sandford's employment was terminated on March 31, 2018, with a severance agreement including a **$275,000 severance payment** and **105%** of the value of his unexercised options[281](index=281&type=chunk) - The 2018 executive bonus program established a pool of **15% of adjusted EBITDA** exceeding **$3 million**, with **50%** allocated to the CEO, **25%** to the CFO, and **25%** to the EVP and General Counsel[287](index=287&type=chunk) Outstanding Equity Awards for NEOs (December 28, 2018) | Name | Grant Date | Unexercised Options Exercisable | Unexercised Options Unexercisable | Option Exercise Price ($) | Option Expiration Date | | :-------------------- | :--------- | :------------------------------ | :-------------------------------- | :------------------------ | :--------------------- | | Richard K. Coleman, Jr. | 4/1/2018 | 42,143 | 57,857 | 5.70 | 3/31/2028 | | Cory Smith | 9/29/2017 | 2,083 | 2,083 | 5.40 | 9/28/2027 | | Brendan Simaytis | 9/22/2017 | 8,333 | 8,333 | 4.80 | 9/21/2027 | | | 9/29/2017 | 3,125 | 3,125 | 5.40 | 9/28/2027 | [Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=55&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) This section details beneficial ownership of common stock by non-management individuals holding over **5%** and by the company's management, with all officers and directors as a group owning **8.4%** of outstanding common stock Security Ownership of Non-Management Owners (December 28, 2018) | Name | Title of Class | Amount and Nature of Beneficial Ownership | Percent of Class | | :-------------------- | :------------- | :---------------------------------------- | :--------------- | | Jerry Smith | Common Stock | 479,725 | 10.2% | | Barbara Rydesky | Common Stock | 555,253 | 11.9% | | Ephraim Fields | Common Stock | 340,782 | 7.3% | Security Ownership of Management (December 28, 2018) | Name | Title of Class | Amount and Nature of Beneficial Ownership | Percent of Class | | :------------------------------------------ | :------------- | :---------------------------------------- | :--------------- | | Richard K. Coleman, Jr. | Common Stock | 55,000 | 1.2% | | Brendan Simaytis | Common Stock | 17,958 | * | | Cory Smith | Common Stock | 3,333 | * | | JD Smith | Common Stock | 42,274 | * | | Steven P. Oman | Common Stock | 8,442 | * | | R. Rimmy Malhotra | Common Stock | 140,510 | 3.0% | | Steven Bathgate | Common Stock | 114,445 | 2.4% | | Galen Vetter | Common Stock | 10,581 | * | | Lawrence F. Hagenbuch | Common Stock | 2,278 | * | | All Officers and Directors as a group (nine persons) | Common Stock | 394,821 | 8.4% | | Ron Junck | Common Stock | 121,685 | 2.6% | | Frederick Sandford | Common Stock | 16,250 | * | * Indicates ownership of less than 1.0% - The 2016 Stock Incentive Plan, approved by stockholders, authorizes the issuance of awards for up to **500,000 common shares** over its 10-year life[307](index=307&type=chunk) [Item 13. Certain Relationships and Related Transactions, and Director Independence](index=57&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence) No related party transactions occurred in 2018 or 2017, with the Audit Committee reviewing such transactions, and six non-employee directors determined to be independent by the Board - No related party transactions occurred during 2018 or 2017[308](index=308&type=chunk) - The Audit Committee is responsible for reviewing and approving any related person transactions involving a Company director or executive officer[310](index=310&type=chunk) - Six non-employee directors—Steven Bathgate, R. Rimmy Malhotra, JD Smith, Steven P. Oman, Galen Vetter, and Lawrence F. Hagenbuch—were determined to be independent by the Board of Directors[312](index=312&type=chunk) [Item 14. Principal Accountant Fees and Services](index=57&type=section&id=Item%2014.%20Principal%20Accountant%20Fees%20and%20Services) Plante Moran PLLC was selected as the independent registered public accounting firm for 2018, with audit fees increasing to **$110,245**, and the Audit Committee pre-approves all audit and non-audit services Principal Accountant Fees (2018 vs. 2017) | Type of Fee | 2018 ($) | 2017 ($) | | :---------- | :------- | :------- | | Audit fee | 110,245 | 56,611 | | Audit related fees | - | - | | Tax fees | - | - | | All other fees | - | - | | Total | 110,245 | 56,611 | - The Audit Committee pre-approves all audit, non-audit, tax, and other services provided by the independent accountants to ensure their independence[316](index=316&type=chunk) [PART IV](index=58&type=section&id=PART%20IV) [Item 15. Exhibits and Financial Statement Schedules](index=58&type=section&id=Item%2015.%20Exhibits%20and%20Financial%20Statement%20Schedules) This section lists all exhibits and financial statement schedules filed as part of the Form 10-K, including organizational documents, employment agreements, and various certifications - The exhibits include organizational documents (Articles of Incorporation, Bylaws), key employment agreements (Richard K. Coleman, Jr., Cory Smith, Brendan Simaytis), the 2016 Stock Incentive Plan, the Account Purchase Agreement with Wells Fargo, and severance agreements for former executives[318](index=318&type=chunk) [Item 16. Form 10-K Summary](index=59&type=section&id=Item%2016.%20Form%2010-K%20Summary) This item indicates that no Form 10-K Summary is provided [Signatures](index=60&type=section&id=Signatures) The Form 10-K is signed on behalf of Command Center, Inc. by its President, Chief Executive Officer, and Director, Richard K. Coleman, Jr., and its Chief Financial Officer, Cory Smith, along with other directors - The Form 10-K is signed by Richard K. Coleman, Jr. (President, CEO, Director) and Cory Smith (CFO) on April 9, 2019, along with other directors[324](index=324&type=chunk)[327](index=327&type=chunk)