4. ACQUISITIONS

9 Months Ended

Sep. 28, 2012

Notes to Financial Statements

Note 5 - ACQUISITIONS

On January 4, 2012 (effective January 1, 2012), through our wholly-owned and newly formed subsidiary DRSI, we entered into an asset purchase agreement (the Agreement), with DR Services of Louisiana, LLC, a Louisiana limited liability company, and Environmental Resource Group, LLC, a Louisiana limited liability company (collectively DRS, LLC). Under the terms of the Agreement, we acquired substantially all of DRS, LLC’s assets. 

The following tables summarize the consideration transferred and the recognized amounts of assets acquired:

Consideration Transferred:
Cash	$	150,000
Note payable		150,000
Equity instruments (1.5 million shares of restricted common stock)		390,000
Contingent consideration  (Up to an additional 1.5 million shares of restricted common stock)		851,727
	$	1,541,727
Identifiable Assets and Goodwill Acquired:
Customer list	$	608,096
Trade name		36,830
Vehicles and machinery		79,852
Other tangible property		10,163
Goodwill		806,786
	$	1,541,727

The number of shares to be issued pursuant to the contingent consideration is based on the sum of two calculations performed each quarter for the 8 quarters following the acquisition. The first calculation takes 9% of net revenue divided by the greater of our current stock price or $0.50 divided by 2. The second calculation takes 9% of actual net revenue less the prior year’s quarterly revenue, stepped up by 5% each quarter (i.e., 5% increase in the first of eight quarters and a 40% increase in the eighth of eight quarters) with the increase, if any, divided by the greater of our current stock price or $0.50.

The fair value of the 1.5 million shares issued was determined based on the closing price of our common stock on the date of issuance.

The fair value of the contingent shares to be issued was determined based upon a binomial model where we estimated our future stock price and the future revenue growth of DRSI over the 8 quarters following the acquisition. The assumptions used to calculate the fair value of the contingent liability are as follows:

Command Center, Inc. future stock price	$0.50 - $2.10
DRSI quarterly revenue growth	10.0% - 40.0%

The change in fair value amounted to approximately $(4,000) and $26,000 for the thirteen and thirty-nine weeks ended September 28, 2012 , respectively, and are included in the line item Gain (loss) on derivative liabilities in our Statement of Operations.

As part of the agreement, the owners of DRS, LLC entered into employment agreements with us with a term of one year in which we agreed to pay them an annual salary, performance related bonuses, and a vehicle allowance. Also as part of the agreement, the owners of DRS, LLC entered into non-compete agreements with a term of two years.

Our consolidated condensed financial statements for fiscal year 2012 reflect all DRSI transactions for the entire period. Accordingly, no pro forma information for 2012 is being presented. Pro forma results of operations for the period ended September 30, 2011, as if the acquisition date of DRS, LLC had been January 1, 2011 (the first day of our 2011 fiscal year), are as follows:

	For the Thirteen Weeks Ended September 30, 2011
	Command Center, Inc.			Disaster Recovery Services, Inc.		Adjustments			Pro-forma
Revenue	$	24,972,597		$	2,137,591	$	4,463		$	27,114,651
Cost of staffing services		19,070,906			1,438,272		3,943			20,513,121
Gross profit		5,901,691			699,319		520			6,601,530
Selling, general and administrative expenses		4,559,921			303,045		971			4,863,937
Depreciation and amortization		95,252			-					95,252
Income (loss) from operations		1,246,518			396,274		(451	)		1,642,341
Interest expense and other financing expenses		(230,824	)		-		-			(230,824	)
Change in fair value of warrant liability		403,582			-		-			403,582
Net income (loss)	$	1,419,276		$	396,274	$	(451	)	$	1,815,099
Earnings per share
Basic		0.02			0.26					0.03
Diluted		0.02			0.26					0.03
Weighted average shares outstanding
Basic		57,534,368			1,500,000					59,034,368
Diluted		61,217,221			1,500,000					62,717,221

	For the Thirty-nine Weeks Ended September 30, 2011
	Command Center, Inc.			Disaster Recovery Services, Inc.		Adjustments		Pro-forma
Revenue	$	61,652,359		$	4,317,094	$	378,419	$	66,347,872
Cost of staffing services		47,821,240			3,194,498		322,991		51,338,729
Gross profit		13,831,119			1,122,596		55,428		15,009,143
Selling, general and administrative expenses		13,242,016			612,265		7,237		13,861,518
Depreciation and amortization		353,527			-		-		353,527
Income (loss) from operations		235,576			510,331		48,191		794,098
Interest expense and other financing expenses		(533,496	)		-		-		(533,496	)
Change in fair value of warrant liability		85,503			-		-		85,503
Net income (loss)	$	(212,417	)	$	510,331	$	48,191	$	346,105
Earnings per share
Basic		(0.00	)		0.34				0.01
Diluted		(0.00	)		0.34				0.01
Weighted average shares outstanding
Basic		56,622,445			1,500,000				58,122,445
Diluted		56,622,445			1,500,000				61,336,893

The owners of DRS, LLC ran certain contracts through Environmental Resources Group, LLC. Amounts in the adjustments column relate to these contracts.

Prior to the agreement, DRS, LLC had subcontracted with us to provide temporary employment services in various disaster relief projects, such as flood recovery work, in several states.