UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549





FORM
10-Q








x
              QUARTERLY
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934


For
the quarterly period ended March 26, 2010


OR


o
              TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934


For
the transition period from
            
to








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.)3773
      West Fifth Avenue
              
              83854(Address
      of Principal Executive Offices)
              
              (Zip
      Code)




(208)
773-7450


(Registrant’s
Telephone Number, including Area Code)








(Former
name, former address and former fiscal year, if changed since last
report)








Check
whether the issuer (1) filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the past 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.   x   Yes  o  No





Indicate
by check mark whether the Registrant is  o  a large
accelerated filer, o  an
accelerated file, o  a
non-accelerated filer, or  x   a
smaller reporting company (as defined in Rule 12b-2 of the Exchange
Act)





Indicate
by check mark whether the Registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act)  o  Yes  x   No





Number of
shares of issuer’s common stock outstanding at May, XX,
2010:      xxx





Command
Center, Inc.




Contents








FORM
10-Q




TABLE OF
CONTENTS





PagePART
      I – FINANCIAL INFORMATIONItem
      1:  Financial StatementsConsolidated
      Balance Sheets, March 26, 2010 (unaudited) and December 25,
      2009
                    
                    4Consolidated
      Statements of Operations for the thirteen week period ended March 26, 2010
      and March 27, 2009 (unaudited)
                    
                    5Consolidated
      Statements of Cash Flows for the thirteen weeks ended March 26, 2010 and
      March 27, 2009
                    
                    6Notes
      to Financial Statements
                    
                    7Item
      2:  Management’s Discussion and Analysis of Financial Condition
      and Results of Operations
                    
                    14Item
      3:  Quantitative and Qualitative Disclosures about Market
      Risk
                    
                    19Item
      4:  Controls and Procedures
                    
                    19PART
      II – OTHER INFORMATIONItem
      1:  Legal Proceedings
                    
                    20Item
      2:  Unregistered Sales of Equity Securities and Use of
      Proceeds
                    
                    20Item
      3:  Default on Senior Securities
                    
                    20Item
      4:  Removed and Reserved
                    
                    20Item
      5:  Other Information
                    
                    21Item
      6:  Exhibits
                    
                    21Signatures
                    
                    22


2


PART
I





Item
1.   Financial Statements.





MANAGEMENT
STATEMENT





The
unaudited financial statements have been prepared by the Company in accordance
with accounting principles generally accepted in the United States of America
for interim financial information, as well as the instructions to Form 10-Q.
Accordingly, they do not include all of the information and footnotes required
by accounting principles generally accepted in the United States of America for
complete financial statements. In the opinion of the Company’s management, all
adjustments (consisting of only normal recurring accruals) considered necessary
for a fair presentation of the interim financial statements have been included.
Operating results for the thirteen weeks ended March 26, 2010, are not
necessarily indicative of the results that may be expected for the full year
ending December 24, 2010.





For further information refer to the
financial statements and footnotes thereto in the Company’s Annual Report on
Form 10-K for the year ended December25, 2009.





Management


Command
Center, Inc.


May 17,
2010


3





Command
Center, Inc.





Balance
Sheet ( Unaudited )








March
      26, 2010
                                  
                                  
                                  December
      25, 2009UnauditedAssetsCURRENT
      ASSETS:Cash
                                  
                                  $
                                  53,565
                                  
                                  
                                  $
                                  69,971Accounts
      receivable trade, net of allowance for bad debts of
    $300,000at
      March 26, 2010 and December 25, 2009
                                  
                                  
                                  2,059,220
                                  
                                  
                                  
                                  5,025,113Other
      receivables - current
                                  
                                  
                                  37,477
                                  
                                  
                                  
                                  37,059Prepaid
      expenses, deposits, and other
                                  
                                  
                                  309,313
                                  
                                  
                                  
                                  437,483Current
      portion of workers' compensation risk pool deposits
                                  
                                  
                                  1,200,000
                                  
                                  
                                  
                                  1,300,000Total
      current assets
                                  
                                  
                                  3,659,575
                                  
                                  
                                  
                                  6,869,626PROPERTY
      AND EQUIPMENT, NET
                                  
                                  
                                  639,627
                                  
                                  
                                  
                                  877,827OTHER
      ASSETS:Workers'
      compensation risk pool deposits
                                  
                                  
                                  2,077,569
                                  
                                  
                                  
                                  2,318,805Goodwill
                                  
                                  
                                  2,500,000
                                  
                                  
                                  
                                  2,500,000Intangible
      assets - net
                                  
                                  
                                  287,834
                                  
                                  
                                  
                                  323,937Total
      other assets
                                  
                                  
                                  4,865,403
                                  
                                  
                                  
                                  5,142,742$
                                  9,164,605
                                  
                                  
                                  $
                                  12,890,195Liabilities
      and Stockholders' Equity (deficeit)CURRENT
      LIABILITIES:Accounts
      payable
                                  
                                  $
                                  1,904,130
                                  
                                  
                                  $
                                  2,174,503Checks
      issued and payable
                                  
                                  $
                                  419,299
                                  
                                  
                                  $
                                  -Line
      of credit facility
                                  
                                  
                                  -
                                  
                                  
                                  
                                  2,907,521Accrued
      wages and benefits
                                  
                                  
                                  809,338
                                  
                                  
                                  
                                  694,079Other
      current liabilities
                                  
                                  
                                  224,491
                                  
                                  
                                  
                                  224,491Current
      portion of note payable
                                  
                                  
                                  -
                                  
                                  
                                  
                                  9,520Short-term
      note payable, net of discount
                                  
                                  
                                  913,149
                                  
                                  
                                  
                                  1,025,000Short-term
      note liquidty redemption payable
                                  
                                  
                                  
                                  
                                  
                                  
                                  186,939Stock
      warrant liability
                                  
                                  
                                  731,325
                                  
                                  
                                  
                                  413,026Workers'
      compensation and risk pool deposits payable
                                  
                                  
                                  347,595
                                  
                                  
                                  
                                  501,423Current
      portion of workers' compensation claims liability
                                  
                                  
                                  1,200,000
                                  
                                  
                                  
                                  1,300,000Total
      current liabilities
                                  
                                  
                                  6,549,326
                                  
                                  
                                  
                                  9,436,502LONG-TERM
      LIABILITIES:Note
      payable, less current portion
                                  
                                  
                                  -
                                  
                                  
                                  
                                  71,447Common
      stock to be issued
                                  
                                  
                                  1,500,000
                                  
                                  
                                  
                                  922,000Workers'
      compensation claims liability, less current portion
                                  
                                  
                                  2,700,000
                                  
                                  
                                  
                                  2,800,000Total
      long-term liabilities
                                  
                                  
                                  4,200,000
                                  
                                  
                                  
                                  3,793,447Total
      liabilities
                                  
                                  
                                  10,749,327
                                  
                                  
                                  
                                  13,229,949COMMITMENTS
      AND CONTINGENCIES  (Notes 8 and 9)STOCKHOLDERS'
      EQUITY:Preferred
      stock - 5,000,000 shares, $0.001 par value, authorized;no
      shares issued and outstanding
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -Common
      stock - 100,000,000 shares, $0.001 par value, authorized;38,156,035
      and 37,212,922 shares issued and outstanding, respectively
                                  
                                  
                                  38,156
                                  
                                  
                                  
                                  37,213Additional
      paid-in capital
                                  
                                  
                                  51,913,605
                                  
                                  
                                  
                                  51,446,438Accumulated
      deficit
                                  
                                  
                                  (53,536,483
                                  )
                                  
                                  
                                  (51,823,405
                                  )Total
      stockholders' equity
                                  
                                  
                                  (1,584,722
                                  )
                                  
                                  
                                  (339,754
                                  )$
                                  9,164,605
                                  
                                  
                                  $
                                  12,890,195





See
accompanying notes to unaudited financial statements.


4





Command
Center, Inc.





Statements
of Operations (Unaudited)








Thirteen
      Weeks EndedMarch
      26,
                    
                    
                    March
      272010
                    
                    
                    2009REVENUE:Revenue
      from services
                    
                    $
                    11,878,885
                    
                    
                    $
                    12,793,065Other
      income
                    
                    
                    20,871
                    
                    
                    
                    30,23811,899,756
                    
                    
                    
                    12,823,303COST
      OF SERVICES:Temporary
      worker costs
                    
                    
                    8,548,674
                    
                    
                    
                    8,875,966Workers'
      compensation costs
                    
                    
                    427,229
                    
                    
                    
                    688,487Other
      direct costs of services
                    
                    
                    50,369
                    
                    
                    
                    150,7829,026,272
                    
                    
                    
                    9,715,235GROSS
      PROFIT
                    
                    
                    2,873,484
                    
                    
                    
                    3,108,068SELLING,
      GENERAL, AND ADMINISTRATIVE EXPENSES:Personnel
      costs
                    
                    
                    1,736,325
                    
                    
                    
                    2,261,119Selling
      and marketing expenses
                    
                    
                    82,715
                    
                    
                    
                    60,284Transportation
      and travel
                    
                    
                    107,556
                    
                    
                    
                    194,051Office
      expenses
                    
                    
                    115,566
                    
                    
                    
                    307,332Legal,
      professional and consulting
                    
                    
                    188,878
                    
                    
                    
                    318,891Depreciation
      and amortization
                    
                    
                    143,164
                    
                    
                    
                    210,780Rents
      and leases
                    
                    
                    409,923
                    
                    
                    
                    528,825Rents
      and leases- closed store reserve
                    
                    
                    -
                    
                    
                    
                    300,000Other
      expenses
                    
                    
                    640,434
                    
                    
                    
                    695,8063,424,561
                    
                    
                    
                    4,877,088LOSS
      FROM OPERATIONS
                    
                    
                    (551,077
                    )
                    
                    
                    (1,769,020
                    )OTHER
      INCOME (EXPENSE):Interest
      expense and other financing expense
                    
                    
                    (159,734
                    )
                    
                    
                    (318,761
                    )Loss
      on debt extinguishment
                    
                    
                    (844,798
                    )Change
      in fair value of warrant liability
                    
                    
                    (157,469
                    )(1,162,001
                    )
                    
                    
                    (318,761
                    )BASIC
      AND DILUTED NET LOSS
                    
                    $
                    (1,713,078
                    )
                    
                    $
                    (2,087,781
                    )BASIC
      AND DILUTED LOSS PER SHARE
                    
                    $
                    (0.05
                    )
                    
                    $
                    (0.06
                    )WEIGHTED
      AVERAGE COMMON SHARES OUTSTANDING
                    
                    
                    37,465,878
                    
                    
                    
                    36,328,844





See
accompanying notes to unaudited financial statements.


5





Command
Center, Inc.





Statements
of Cash Flows (Unaudited)








Thirteen
      Weeks EndedMarch
      26,
                                        
                                        
                                        March
      27,2010
                                        
                                        
                                        2009Increase
      (Decrease) in CashCASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      loss
                                        
                                        $
                                        (1,713,078
                                        )
                                        
                                        $
                                        (2,087,781
                                        )Adjustments
      to reconcile net loss to net cashused
      by operating activities:Depreciation
      and amortization
                                        
                                        
                                        143,164
                                        
                                        
                                        
                                        210,779Gain
      on sale of building
                                        
                                        
                                        (25,550
                                        )
                                        
                                        
                                        -Write-off
      of fixed assets
                                        
                                        
                                        -
                                        
                                        
                                        
                                        53,415Amortization
      of note discount
                                        
                                        
                                        -
                                        
                                        
                                        
                                        65,000Closed
      stores reserve
                                        
                                        
                                        -
                                        
                                        
                                        
                                        300,000Loss
      on debt extinquishment
                                        
                                        
                                        844,798
                                        
                                        
                                        
                                        -Change
      in fair value of stock warrant liability
                                        
                                        
                                        157,469
                                        
                                        
                                        
                                        -Common
      stock issued for interest and services
                                        
                                        
                                        11,400
                                        
                                        
                                        
                                        10,759Common
      stock issued for rent
                                        
                                        
                                        36,951
                                        
                                        
                                        
                                        -Changes
      in assets and liabilities:Accounts
      receivable - trade
                                        
                                        
                                        50,248
                                        
                                        
                                        
                                        461,451Other
      receivables
                                        
                                        
                                        (418
                                        )
                                        
                                        
                                        -Other
      current liabilities
                                        
                                        
                                        -
                                        
                                        
                                        
                                        61,710Prepaid
      expenses, deposits and other
                                        
                                        
                                        128,170
                                        
                                        
                                        
                                        311,142Workers'
      compensation risk pool deposits
                                        
                                        
                                        341,236
                                        
                                        
                                        
                                        140,562Accounts
      payable
                                        
                                        
                                        (270,373
                                        )
                                        
                                        
                                        398,428Accrued
      wages & benefits
                                        
                                        
                                        115,259
                                        
                                        
                                        
                                        (243,344
                                        )Workers'
      compensation insurance payable
                                        
                                        
                                        (153,828
                                        )
                                        
                                        
                                        (456,925
                                        )Workers'
      compensation claims liability
                                        
                                        
                                        (200,000
                                        )
                                        
                                        
                                        113,628Net
      cash used by operating activities
                                        
                                        
                                        (534,552
                                        )
                                        
                                        
                                        (661,176
                                        )CASH
      FLOWS FROM INVESTING ACTIVITIES:Proceeds
      on sale of building
                                        
                                        
                                        156,690
                                        
                                        
                                        
                                        -Net
      cash provided by investing activities
                                        
                                        
                                        156,690
                                        
                                        
                                        
                                        -CASH
      FLOWS FROM FINANCING ACTIVITIES:Proceeds
      (payments) on line of credit facility, net
                                        
                                        
                                        8,124
                                        
                                        
                                        
                                        (305,704
                                        )Change
      in checks issued and payable
                                        
                                        
                                        419,299
                                        
                                        
                                        
                                        -Costs
      of common stock offering and registration
                                        
                                        
                                        15,000
                                        
                                        
                                        
                                        -Principal
      payments on notes payable
                                        
                                        
                                        (80,967
                                        )
                                        
                                        
                                        (502,326
                                        )Net
      cash provided (used) by financing activities
                                        
                                        
                                        361,456
                                        
                                        
                                        
                                        (808,030
                                        )NET
      INCREASE (DECREASE) IN CASH
                                        
                                        
                                        (16,406
                                        )
                                        
                                        
                                        (1,469,206
                                        )CASH,
      BEGINNING OF PERIOD
                                        
                                        
                                        69,971
                                        
                                        
                                        
                                        2,174,960CASH,
      END OF PERIOD
                                        
                                        $
                                        53,565
                                        
                                        
                                        $
                                        705,754NONCASH
      INVESTING AND FINANCING ACTIVITIES:Fairvalue of
      Warrants issued in connection with
      debt extinguishment
                                        
                                        $
                                        161,000
                                        
                                        
                                        $
                                        -Common stock issued
      in connection with short
      term debt refinance
                                        
                                        $
                                        1,500,000
                                        
                                        
                                        $
                                        -Line
      of credit settled with accounts recievable
                                        
                                        $
                                        2,915,645
                                        
                                        
                                        $
                                        -








See
accompanying notes to unaudited financial statements


6


NOTE
1 — BASIS OF PRESENTATION:





Organization:Command Center, Inc.
(referred to as “the Company”, “CCNI”, “us” or “we”) is a Washington corporation
initially organized in 2000. We reorganized the Company in 2005 and 2006 and now
provide on-demand employees for manual labor, light industrial, and skilled
trades applications. Our customers are primarily small to mid-sized
businesses in the warehousing, landscaping, light
manufacturing, construction, transportation, retail, wholesale, and
facilities industries. As of March 26, 2010 we operate 50 stores located in 20
states.





Reclassifications: Certain
financial statement amounts for the prior period have been reclassified to
conform to the current period presentation. These reclassifications had no
effect on the net loss or accumulated deficit as previously
reported.





New
accounting policy:





Sales of Accounts
Receivable:As of March 10, 2010, the Company sells eligible
accounts receivable to Wells Fargo Bank, N.A. pursuant to the terms of an
account purchase agreement (see Note 4). According to the terms of the
agreement, the receivable are sold with full recourse and the Company assumes
all risks of collectability.  The Company accounts for these transfers
as sales reduced by the value of the recourse obligation.





Going Concern: The
accompanying financial statements have been prepared under the assumption that
the Company will continue as a going concern. The Company has incurred losses
since its inception and does not have sufficient cash at March 26, 2010 to fund
normal operations for the next 12 months. The Company’s’ only source of
recurring revenue and cash is from continued successful operation of temporary
labor stores. The Company’s plans for the long-term return to and continuation
as a going concern include financing the Company’s future operations through
sales of its common stock, entering into debt transactions or the return of
deposits from its’ workers’ compensation risk pool deposits. Additionally, the
current capital markets and general economic conditions in the United States are
significant obstacles to raising the required funds. These factors raise doubt
about the Company’s ability to continue as a going concern.





The
financial statements do not include any adjustments that might be necessary
should the Company be unable to continue as a going concern. If the going
concern basis was not appropriate for these financial statements, adjustments
would be necessary in the carrying value of assets and liabilities, the reported
expenses and the balance sheet classifications used.





NOTE
2 — 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 would reflect the potential dilution
that could occur from common shares issuable through outstanding stock options,
warrants, and convertible debt.  Total potential dilution of common
stock outstanding at March 26, 2010 and March 27, 2009 was 23,096,136 and
7,762,803 shares, respectively.  The Company incurred losses in the
thirteen week periods ended March 26, 2010 and March 27,
2009.  Accordingly, these shares are anti-dilutive and only basic
earnings per share is reported.


NOTE
3 — RELATED PARTY TRANSACTIONS:





Warrant Exercise:Ralph E
Peterson, our CFO, purchased two hundred and fifty thousand 250,000 shares of
the Company’s common stock through the exercise of warrants.The Company issued the
warrants to Mr. Peterson during 2009 as compensation for his services and, upon
exercise, as a short term method to raise capital for the Company. The Company
determined the warrants had a nominal fair value at the grant date. The warrants
were exercisable at $.08 with a four year term. The warrants were exercised on
October 1, 2009, however the common shares, shown as common stock to be issued
on the balance sheet at December 25, 2009, were issued during the period ended
March 26, 2010.


7


NOTE
3 — RELATED PARTY TRANSACTIONS, COUNTINUED:





Share Issue:The Company
authorized the issuance of 150,000 shares of the Company’s common stock to Ralph
E. Peterson, CFO for services he performed for the Company during the year ended
December 25, 2009. The Company recorded
$12,000 in compensation expense for the shares based on the fair value at the
date grant. The shares were recorded as shares to be issued on the December 25,
2009 balance sheet and issued during the period ended March 26,
2010.


NOTE
4 —LINE OF CREDIT FACILITY AND ACCOUNT PURCHASE AGREEMENT:





At
December 25, 2009 the Company was not in compliance with the financial
convenants under the terms of its line of credit facility.  On
February 19, 2010, we entered into a new agreement with our principal
lender.  The new agreement cures the event of default that existed at
year end.





The new
agreement is an account purchase agreement which allows the Company to sell
eligible accounts receivable for 90% of the invoiced amount on a full recourse
basis.  The terms of this new agreement is for a period of two years
commencing on March 8, 2010.   When the account is paid, the
remaining 10% is paid to the Company, less the applicable fees and
interest.  The facility maximum is initially 10% paid to the Company,
less the applicable fees and interest.  The facility maximum is
initially $5,000,000, with pre-approval for increases up to $7,000,000 as
needed.  The account purchase agreeement bears interest at the greater
of 6.35% per annum, the prime rate plus two and one-half
percent  (prime + 2.5%) or the London Interbank Offered Rate (LIBOR)
plus five and one-half percent (LIBOR + 5.5%) per annum.  Prime rate
is the rate as published by Wells Fargo Bank, N.A. Interest is payable on the
amount advanced or on $3,000,000, whichever is
greater.   Additional charges include a facility fee equal to one
percent of current facility  maximum (initially $5,000,000) and a
monthly monitoring fee of $5,000.  As collateral for repayment of any
and all obligations the Company granted Wells Fargo Bank, N.A. and interest in
the Company property including, but not limited to accounts, intangibles,
contract rights, investment property, deposit accounts, and other such
assets.





NOTE
5 —SHORT-TERM NOTE PAYABLE:





On March
24, 2010 the Company entered in to an amendment agreement with Sonoran Pacific
Resources regarding the short term note owed them, which had been in default
since October 30, 2009. The amendment calls for the Company to issue the lender
a combination of shares of common stock, a new convertible promissory note and
stock purchase warrants in exchange for canceling the existing
note.  The Company determined that the modification of the terms of
the note was substantially different from the original note terms. Therefore, a
loss on extinguishment of debt of approximately $845 thousand has been
recognized on the statement of operations for the difference between the net
carrying value of the old debt, including accrued interest, and the fair value
of the new debt plus any additional consideration, which included shares of
common stock, stock purchase warrants and a beneficial conversion feature within
the debt.





In
connection with the amendment, the Company issued 10,000,000 shares of common
stock to the lender and its affiliates with the sale or transfer of these
shares restricted until March 1, 2011. These shares were valued at $1,500,000
based on the closing price of the Company’s common stock as quoted on the OTCBB
of $0.15.


8


NOTE
5 —SHORT-TERM NOTE PAYABLE, CONTINUED:





The new
convertible promissory note has a principal balance of $1.3 million and bears
simple interest at 12% per annum with weekly principal and interest payments
calculated based upon weekly revenue levels, with a minimum weekly payment of
$5,000 per week. The note is due and payable on or before December 31, 2010 and
is convertible into shares of the Company at a price equal to 80% of the average
closing bid price for the common stock for the 20 days prior to the notice of
conversion. The Company recorded a debt discount of $387 thousand for the
beneficial conversion feature embedded in the convertible note. The discount
will be amortized to interest expense over the life of the note using the
effective yield method. The discount was determined using the intrinsic value
method which approximates the amount by which the converted instrument exceeds
the principal amount of the note.





The
Company also issued 1.5 million stock purchase warrants under the terms of the
agreement, that expire on March 15, 2015. The exercise price of the warrants
increases based on the following schedule





Exercise Price
                  
                  Ending Period of Exercise Price$
                  0.08
                  
                  March
      15, 2011$
                  0.16
                  
                  March
      15, 2012$
                  0.32
                  
                  March
      15, 2013$
                  0.50
                  
                  March
      15, 2014$
                  1.00
                  
                  March
      15, 2015.





The
Company determined the warrants issued under the agreement had an approximate
fair value at inception of $160 thousand, using a Black-Sholes pricing model
with the following inputs; exercise price of $0.08; current stock price
$0.15; expected life of one year, risk-free rate of 2.53%; and expected
volatility of 165%. The warrants were recorded as a stock warrant liability
and will be accounted for as a derivative liability with changes in fair value
recognized in the statement of operations because the warrants include repricing
features.





NOTE
6 — WORKERS’ COMPENSATION INSURANCE AND RESERVES:





We
provide our temporary and permanent workers with workers’ compensation
insurance.  At March  26, 2010, we maintained workers’
compensation policies through AMS Staff Leasing II (“AMS”) for coverage in 18 of
the 20 states in which we operate.  The other two states are the
“monopolistic” jurisdictions of Washington and North Dakota, where coverage is
provided under mandatory government administered programs. The AMS coverage is a
large deductible policy, while the government mandated coverage in the
monopolistic states are guaranteed loss programs with no
deductible.  While we have primary responsibility for all claims under
the AMS policy, our insurance coverage provides reimbursement for covered losses
and expenses in excess of $250,000 per occurrence. This results in our being
substantially self insured.





From June
28, 2009 through December 31, 2009, , we maintained workers’ compensation
coverage through  TSE PEO, Inc (“TriState”) for the states of
California and South Dakota. Prior to TriState, the workers’ compensation
insurance for California and South Dakota was provided by Arch Insurance Group
(“Arch”). The Arch policy covered our workers in those two states for the period
from June 27, 2008 through June 27, 2009. Before the inception of the AMS and
Arch policies, we were insured by the American International Group (“AIG”). The
AIG and Arch policies also provided for reimbursement for covered losses in
excess of $250,000 per occurrence.





Under the
policies, we make payments into a risk pool fund to cover claims within our
self-insured layer. If our payments into the fund exceed our actual losses over
the life of the claims, we may receive a refund of the excess risk pool
payments. Correspondingly, if our workers’ compensation reserve risk pool
deposits are less than the expected losses for any given policy period, we may
be obligated to contribute additional funds to the risk pool fund.





Expected
losses will extend over the life of the longest lived claim which may be
outstanding for many years. As a new temporary staffing company, we have limited
experience with which to estimate the average length of time during which claims
will be open. As a result, our current actuarial analysis is based largely on
industry averages which may not be applicable to our business. If our average
claims period is longer than industry average, our actual claims losses could
exceed our current estimates. Conversely, if our average claims period is
shorter than industry average, our actual claims could be less than current
reserves. For workers’ compensation claims originating in Washington and North
Dakota (our “monopolistic jurisdictions”) we pay workers’ compensation insurance
premiums and obtain full coverage under government administered programs. We are
not the primary obligor on claims in these jurisdictions. Accordingly, our
financial statements reflect only the mandated workers’ compensation insurance
premium liability for workers’ compensation claims in these
jurisdictions.


9


NOTE
6 — WORKERS’ COMPENSATION INSURANCE AND RESERVES, COUNTINUED:





Workers’
compensation expense for temporary workers is recorded as a component of our
cost of services and consists of the following components: self-insurance
reserves net of the discount; insurance premiums; and premiums paid in
monopolistic jurisdictions.  Workers’ compensation expense for our
temporary workers totaled $427,229 and $688,847 in the 13 weeks ended March 26,
2010 and March 27, 2009, respectively.





The
workers’ compensation risk pool deposits are classified as current and
non-current assets on the 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 financial
statements.





We have
discounted the expected liability for future losses to present value using a
discount rate of 2.5%, which approximates the risk free rate on US Treasury
instruments.  Our expected future liabilities are evaluated on a
quarterly basis and adjustments are made as warranted.




NOTE
7 — STOCKHOLDERS EQUITY:





Sales of Common Stock.In the
thirteen weeks ended March 26, 2010, we issued 943,113 shares for rent and
services. Aggregate value of shares issued was $95,316  All shares
issued for non-cash consideration were valued based on the market price for our
common stock at the dates of issuance.





The
following Warrants for Command Center, Inc’s common stock were issued and
outstanding on March 26, 2010 and March 27, 2009, respectively:





2010
                      
                      
                      2009Warrants
      outstanding at beginning of period
                      
                      
                      10,762,803
                      
                      
                      
                      7,762,803Issued
                      
                      
                      1,500,000
                      
                      
                      
                      -Exercised
                      
                      
                      -
                      
                      
                      
                      -Cancelled
                      
                      
                      -
                      
                      
                      
                      -Warrants
      outstanding at end of period
                      
                      
                      12,262,803
                      
                      
                      
                      7,762,803





A detail
of warrants outstanding at March 26, 2010 is as follows:





Number
                      
                      Expiration
      DateExercisable
      at $1.25 per share
                      
                      
                      6,312,803
                      
                      06/20/13Exercisable
      at $1.50 per share
                      
                      
                      250,000
                      
                      04/14/12Exercisable
      at $0.15 per share
                      
                      
                      4,200,000
                      
                      04/01/14Exercisable
      at between $0.08 and $1.00 per share
                      
                      
                      1,500,000
                      
                      03/15/11
      to 03/15/1512,262,803


10


NOTE
8 – EVERYDAY STAFFING LLC TAX LIABILITIES:





On June
30, 2006, the Company acquired three locations from Everyday Staffing LLC
(“Everyday Staffing”) in exchange for 579,277 shares of Command Center, Inc.
common stock. At the time of the acquisitions, Michael Moothart, controlling
member of the LLC, represented that all tax liabilities of Everyday Staffing had
been paid. As a result of the acquisitions, the Company booked a note payable to
Everyday Staffing in the amount of $113,349. In early 2008, the Company received
notice from the State of Washington that Everyday Staffing owed certain tax
obligations to the State that that arose prior to the acquisition date. The
State requested that the Company pay the amounts due under a theory of successor
liability. Subsequently, a second claim for successor liability was received by
the Company. These two claims are described below.





The first
claim relates to business and occupations and excise tax obligations in the
approximate amount of $250,000. Upon receipt of the notice, the Company
contacted Mr. Moothart and demanded that he resolve the tax obligations.
Mr. Moothart indicated that his legal counsel was working on the matter. While
Mr. Moothart waspursuing
the matter through his counsel, and in order to forestall further action against
Command Center, the Company agreed to make payments on the debt in satisfaction
of the Everyday Staffing note payable amount.  In the 52 weeks ended
December 25, 2009, the Company paid Everyday’s business and occupations and
excise tax obligations totaling approximately $231,139. During this time,
Everyday took no apparent action to deal with its obligations to the Company and
the State of Washington.





The
second claim relates to Everyday Staffing liabilities for industrial insurance
taxes that the State of Washington asserts were not paid by Everyday
Staffing. The claims against the Company are based on the theory of
successor liability. The Department of Labor and Industries has estimated the
amount of the unpaid industrial insurance premiums at $1,203,948 plus interest.
The Company and Everyday Staffing have disputed the amount due and the Company
has referred the matter to counsel. The amount claimed by the State is based on
an audit of Everyday in which the auditor appears to have made unsupportable
assignments of workers compensation job codes, hours worked and other estimates
of amounts due, all of which the Company believes to be grossly misstated. The
Company’s review of Everyday Staffing financial records shows that payments made
to the State of Washington approximate the amounts that Everyday Staffing
indicates were owed for industrial insurance.





Based
upon the theory of successor liability, the Washington Department of Labor and
Industries (“the Department”) issued two Notices and Orders of Assessment of
Industrial Insurance Taxes (“Notice”) to Command Center.  The first
Notice claims and assesses taxes of $57,446 and the second Notice claims and
assesses the amount of $900,858. The Company strongly disputes both the alleged
successor liability and also the monetary amount asserted by the Department. The
Company is pursuing its administrative remedies in order to vigorously contest
the assertions of these Notices. In strongly disputing the claims of the
Department, Management believes that the potential liability, if any, is not
probable and is not reasonably estimable at this time. Accordingly, no liability
has been established on the books of the Company for the amount claimed.
Management believes the Company’s liability, if any, from the claims and
assessments of the Department are not reasonably likely to have a material
adverse effect on the Company’s financial position, results of operations or
cash flows in future periods.





The Asset
Purchase Agreement signed in connection with the acquisition of assets from
Everyday Staffing requires that Everyday Staffing indemnify and hold harmless
Command Center for liabilities, such as the Washington assessments, that were
not expressly assumed. In response to the state claims for payment of Everyday
Staffing liabilities, the Company has filed a lawsuit against Everyday Staffing,
LLC and Mr.. Moothart, seekingindemnification and
monetary damages. Recently, on July 15, 2009, the Company obtained a judgment
against Mr. Moothart and Everyday Staffing, LLC, jointly and severally, in the
amount of $1.295 million. The collectability of this judgment is questionable.
Glenn Welstad, our CEO, has a minority interest in Everyday Staffing as a
passive investor. In response to the Company’s position that it is not the legal
successor to Everyday Staffing, the Washington Department of Labor and
Industries asserted its claim of successor liability against a second limited
liability company, also known as Everyday Staffing LLC (“Everyday Staffing
II”).  Everyday Staffing II was organized by the members of the first
limited liability company after the first Everyday Staffing LLC was
administratively dissolved by the state. The assertion by the state of successor
liability against Everyday Staffing II is consistent with the position advanced
by Command Center that Everyday Staffing II and not Command Center is the only
successor to the entity against which the industrial insurance taxes were
assessed.


11


NOTE
9-- COMMITMENTS AND CONTINGENCIES:





Contingent payroll and other tax
liabilities. In May and June 2006, we acquired operating assets for a
number of temporary staffing stores. The entities that owned and operated these
stores received stock in consideration of the transaction. As operating
businesses prior to our acquisition, each entity incurred obligations for
payroll withholding taxes, workers’ compensation insurance fund taxes, and other
liabilities. We structured the acquisition as an asset purchase and agreed to
assume only the liability for each entity’s accounts receivable financing line
of credit. We also obtained representations that liabilities for payroll taxes
and other liabilities not assumed by the Company would be paid by the entities
and in each case those entities are contractually committed to indemnify and
hold harmless the Company from unassumed liabilities.





Since the
acquisitions, it has come to our attention that certain tax obligations incurred
on operations prior to our acquisitions have not been paid. The entities that
sold us the assets (the “selling entities”) are primarily liable for these
obligations. The owners of the entities may also be liable. In most cases, the
entities were owned or controlled by Glenn Welstad, our CEO.





Based on
the information currently available, we estimate that the total state payroll
and other tax liabilities owed by the selling entities is between $400,000 and
$600,000 and that total payroll taxes due to the Internal Revenue Service is
between $1,000,000 and $2,000,000. The Company has been advised by outside legal
counsel that successor liability for the federal claims remains
remote.





The Asset
Purchase Agreement governing these transactions requires that the selling
entities indemnify us for any liabilities or claims we incur as a result of
these predecessor tax liabilities. We have also secured an indemnification
agreement from Glenn Welstad with a partial pledge of his common
stock.





The
Company has not accrued any liability related to these claims for state payroll
taxes and total payroll taxes due to the Internal Revenue Service because it has
been advised by outside legal counsel that the likelihood of showing successor
liability for these claims remains remote.  The Company would be
adversely affected if the state or federal government was able to show the
Company liable for these claims.





Leases on closed stores:Over
the last two years, the Company has closed a number of stores in response to
economic conditions and a general downturn in business opportunities in certain
markets. Management continued to evaluate opportunities in those markets and
held out hope for a recovery that would allow us to reopen the closed stores.
During the first quarter, management assessed the likelihood of reopening the
closed stores in the next twelve months as remote. As a result, we began
negotiating with landlords for termination of the closed store leases. We are
also seeking replacement tenants for the properties and are considering other
options to reduce the lease obligations on the closed stores. With the
determination that store re-openings are unlikely, we had recorded a reserve for
closed store leases. This amount represents Management’s best estimate of the
amounts we are likely to pay in settlement of the outstanding lease obligations
on the closed stores. Management has concluded that total lease obligations on
closed stores at March 26, 2010 is $275,000 under the assumption that the near
term real estate market continues to be highly unpredictable and subleasing or
disposition of closed store leases remains a significant challenge. Management
has concluded that the potential liability for closed stores could be between
$150,000 and $500,000 depending on how the real estate market performs in the
next twelve months.


NOTE
10 – SUBSEQUENT EVENTS:





Subsequent
to the period ended March 26, 2010 The Company received $200,000 dollars as part
of a private placement that is still in process.  The company is
selling units; each unit consists of one common share priced at $.08 per share
and one half share purchase warrant.   The warrants are
exercisable according to the below table.


12


NOTE
10 – SUBSEQUENT EVENTS, COUNTINUED:





Exercise
      Price
                      
                      Ending
      Period of Exercise Price$
                      0.08
                      
                      April
      15,
    2011$
                      0.16
                      
                      April
      15,
    2012$
                      0.32
                      
                      April
      15,
    2013$
                      0.50
                      
                      April
      15,
    2014$
                      1.00
                      
                      April
      15,
  2015





The
Company will use all proceeds for the placement for working capital and
repayment of existing debt.   The Company did not use a placement
agent and will not pay any finder’s fees as part of the placement. The Company
is offering the securities exempt from registration under Section 4(2) of the
Securities Act of 1933, as amended.   The Company is relying on
the prevision of the act that exempts registration pursuant to transactions by
an issuer not involving any public offering


13





Part
      I, Item 2.
            Management’s
      Discussion and Analysis or Plan of
Operations.





Command
Center is a provider of temporary employees to the light industrial,
construction, warehousing, transportation and material handling
industries.  We provide unskilled and semi-skilled workers to our
customers.  Generally, we pay our workers the same day they perform
the job.  In 2005 and 2006, we underwent a series of evolutionary
changes to convert our business from financial services to franchisor of
on-demand labor stores and finally to operator of on-demand labor
stores.  We accomplished these changes by rolling up a franchise and
software Company into the predecessor public corporation and then acquiring all
of our franchisees for stock.  We completed the rollup transactions in
the second quarter of 2006.





Our
vision is to be the preferred partner of choice for all on-demand employment
solutions by placing the right people in the right jobs every
time.  With the acquisition of the on-demand labor stores, we have
consolidated operations, established and implemented corporate operating
policies and procedures, and developed a unified branding strategy for all of
our stores.





The
following table reflects operating results in the 13 weeks ended March 26, 2010
compared to the thirteen weeks ended March 27, 2009.  Percentages
indicate line items as a percentage of total revenue.  The table
serves as the basis for the narrative discussion that follows.


14





Thirteen
      Weeks EndedMarch
      26,
                
                
                March
      27,2010
                
                
                2009REVENUE:
                
                $
                11,899,756
                
                
                
                
                
                $
                12,823,303COST
      OF SERVICES:Temporary
      worker costs
                
                
                8,548,674
                
                
                
                71.8
                %
                
                
                8,875,966
                
                
                
                69.2
                %Workers'
      compensation costs
                
                
                427,229
                
                
                
                3.6
                %
                
                
                688,487
                
                
                
                5.4
                %Other
      direct costs of services
                
                
                50,369
                
                
                
                0.4
                %
                
                
                150,782
                
                
                
                1.2
                %9,026,272
                
                
                
                75.9
                %
                
                
                9,715,235
                
                
                
                75.8
                %GROSS
      PROFIT
                
                
                2,873,484
                
                
                
                24.1
                %
                
                
                3,108,068
                
                
                
                24.2
                %SELLING,
      GENERAL, AND ADMINISTRATIVE EXPENSES:Personnel
      costs
                
                
                1,736,325
                
                
                
                14.6
                %
                
                
                2,261,119
                
                
                
                17.6
                %Selling
      and marketing expenses
                
                
                82,715
                
                
                
                0.7
                %
                
                
                60,284
                
                
                
                0.5
                %Transportation
      and travel
                
                
                107,556
                
                
                
                0.9
                %
                
                
                194,051
                
                
                
                1.5
                %Office
      expenses
                
                
                115,566
                
                
                
                1.0
                %
                
                
                307,332
                
                
                
                2.4
                %Legal,
      professional and consulting
                
                
                188,878
                
                
                
                1.6
                %
                
                
                318,891
                
                
                
                2.5
                %Depreciation
      and amortization
                
                
                143,165
                
                
                
                1.2
                %
                
                
                210,780
                
                
                
                1.6
                %Rents
      and leases
                
                
                409,923
                
                
                
                3.4
                %
                
                
                828,825
                
                
                
                6.5
                %Other
      expenses
                
                
                640,434
                
                
                
                5.4
                %
                
                
                695,806
                
                
                
                5.4
                %3,424,561
                
                
                
                28.8
                %
                
                
                4,877,088
                
                
                
                38.0
                %LOSS
      FROM OPERATIONS
                
                
                (551,077
                )
                
                
                -4.6
                %
                
                
                (1,769,020
                )
                
                
                -13.8
                %OTHER
      INCOME (EXPENSE):
                
                
                (1,162,001
                )
                
                
                -9.8
                %
                
                
                (318,761
                )
                
                
                -2.5
                %NET
      LOSS
                
                $
                (1,713,078
                )
                
                
                -14.4
                %
                
                $
                (2,087,781
                )
                
                
                -16.3
                %


15


Results
of Operations





13  Weeks
Ended March 26, 2010





Operations
Summary. Revenue in the 13 weeks period ended March 26, 2010 was $11.9
million compared to $12.8 million in the 13 weeks period ended March 27, 2009 a
decline of 7%. Economic conditions and store closures are the primary factors
that drove the decline.   The on-demand labor component of the
staffing industry is one of the first sectors to feel the impact of an economic
slowdown.





At March
26, 2010, the Company was operating 50 stores located in 20 states. None of our
customers currently make up a significant portion of our revenue by geographic
region or as a whole.





The
current business climate presents significant challenges to smaller on-demand
labor companies like Command Center. These challenges to Command Center came at
a time when we were particularly vulnerable to recessionary
pressures.  As a relatively unseasoned business with aggressive growth
plans, we had not yet established a stable base of operations in our existing
stores and, with the completion of our funding in late 2007, we were set to
embark on a plan to rapidly expand our business.  We spent much of
2007 putting infrastructure and control mechanisms in place to operate a
substantially larger business.  We expected to have at least 100
stores in operation by the end of 2008 and our corporate overhead reflected this
plan.  When revenue did not ramp up as expected, we had to take a
critical look at our financial position and growth plans and by mid-2009, we
were taking action to reverse our plans for growth and instead develop a plan
for contracting our business to ride out the recession. Like many other
businesses, we did not fully anticipate the precipitous fall of the economy or
the severity of the impact that fall would have on our revenue.





Store
Operations.In the fourth quarter
of 2009, and the through the first quarter of 2010, we developed and have now
implemented a sales program focused on solution selling concepts and tracking of
activity as a means of offsetting the downward pressure on
revenues.  The sales program has been rolled out to all branches and
we believe it will allow us to hold sales at higher levels than if we had not
implemented the program.  We also believe that the sales program will
have a positive impact on revenue growth as the economy begins to
recover.  Additionally, we have focused more of our sales activity on
those business sectors that are less impacted by the economic downturn such as
event services, hospitality, disaster recovery and other non-traditional
on-demand labor customers.





Cost of
Sales.  The cost of services was 75.9% of revenue at the end of
the first quarter ended March 26, 2010 compared to 75.8% for the thirteen weeks
ended March 27, 2009.  The major factor that caused the reduction in
margins and the increase in costs was reduced revenue in the period ended March
26, 2010 when compared to the same period in 2009; this was partially offset by
a reduction in worker compensation costs as well as other direct costs of
services.





Worker’s
compensation costs for the 13 weeks ended March 26, 2010 were 3.6% of revenue
compared to 5.4 % of revenue for the thirteen weeks March 27, 2009 ($427,229
compared to $688,487).  The decrease is a function of three forces.
The first factor is a reduction in revenue from store closings and the downturn
in the general economy.  In May of 2008, we changed our workers’
compensation insurance carrier and we have found that our new carriers are much
more aggressive in evaluating and paying claims costs.  Our cost of
worker’s compensation as a percentage of revenue spiked up between the fourth
quarter of 2007 and the second quarter of 2008.  The efforts
undertaken to control these costs in late 2007 through the change in carriers in
mid-2008 are now beginning to bear fruit. As a result, we are seeing significant
decreases in our workers’ compensation costs.  We expect this trend to
continue the balance of the year.





Gross
Margin.  The factors impacting gross margin in the first
quarter 2010 are discussed under cost of sales above.   In the
aggregate, cost of services was 75.9% of revenue in 2010 compared to 75.8% of
revenue in 2009 yielding margins of 24.1% in 2010 and 24.2% in
2009.  The current recessionary economic climate has created pressure
on our gross margins. In order to deal with this situation, we have taken steps
to reduce pay rates, and to increase bill rates to account for non-standard
costs of providing services for large scale disaster recovery projects, in an
effort to increase margins.





Selling, General
and Administrative Expenses.As a percentage of
revenue, selling, general and administrative for the thirteen weeks ended March
26, 2010 and March 27, 2009 were 28.8% and 38% respectively.  SG&A
expenses for the same periods showed a monetary reduction of $1,45 million in
the 13 weeks 2010 vs. 2009.  The decrease in selling, general and
administrative expenses as a percent of revenue is primarily the result of a
significant drop in personal costs, office expenses and rent and lease
expense.


16




Liquidity
and Capital Resources





At March
26, 2010, we had total current assets of $3.7 million and current liabilities of
$6.5million.  Included in current assets are trade accounts receivable
of $2.1 million(net of allowance for
bad debts of $300,000).   Our cash position at the end of the
quarter was $53,565; our cash position continues to deteriorate as a result of
the declining economy and continuing losses.





Weighted
average aging on our trade accounts receivable at March 26, 2010, was 43
days.  Actual bad debt write-off expense as a percentage of total
customer invoices during the thirteen weeks ended March 26, 2010 was
0.54%.    Our accounts receivable are recorded at the
invoiced amounts.  We regularly review our accounts receivable for
collectability.  The allowance for doubtful accounts is determined
based on historical write-off experience 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
quarterly.  We typically refer overdue balances to a collection agency
at ninety days and the collection agent pursues collection for another thirty
days.  Most balances over 120 days past due are written off when it is
probable the receivable will not be collected.  As our business
matures, we will continue to monitor and seek to improve our historical
collection ratio and aging experience with respect to trade accounts
receivable.  As we grow our historical collection ratio and aging
experience with respect to trade accounts receivable will continue to be
important factors affecting our liquidity.





At
December 25, 2009 the Company was not in compliance with the financial
convenants under the terms of its line of credit facility.  On
February 19, 2010, we entered into a new agreement with our principal
lender.  The new agreement cures the event of default that existed at
year end.





The new
agreement is an account purchase agreement which allows the Company to sell
eligible accounts receivable for 90% of the invoiced amount on a full recourse
basis.  The terms of this new agreement is for a period of two years
commencing on March 8, 2010.   When the account is paid, the
remaining 10% is paid to the Company, less the applicable fees and
interest.  The facility maximum is initially $5,000,000, with
pre-approval for increases up to $7,000,000 as needed.  The account
purchase agreement bears interest at the greater of 6.25% per annum, the prime
rate plus two and one-half percent  (prime + 2.5%) or the London
Interbank Offered Rate (LIBOR) plus five and one-half percent (LIBOR + 5.5%) per
annum.  Prime rate is the rate as published by Wells Fargo Bank, N.A.
Interest is payable on the amount advanced or on $3,000,000, whichever is
greater.   Additional charges include a facility fee equal to one
percent of current facility maximum (initially $5,000,000) and a monthly
monitoring fee of $5,000.  As collateral for repayment of any and all
obligations the Company granted Wells Fargo Bank, N.A. and interest in the
Company property including, but not limited to accounts, intangibles, contract
rights, investment property, deposit accounts, and other such
assets.





On March
24, 2010 the Company entered in to an amendment agreement with the lender on its
short term note. The agreement called for the Company to issue the lender a
combination of common equity, a new convertible promissory note and stock
purchase warrants in exchange for canceling the existing note.  The
Company determined that the modification of the terms of the Note was
substantially different from the original note terms. Therefore, a loss on
extinguishment of debt of $845,000 has been recognized on the statement of
operations for the difference between the net carrying value of the old debt and
the fair value of the new debt, plus any additional consideration, including
common equity, stock purchase warrants or fees paid to the lender.





The
Company issued 10,000,000 shares of common stock to the lender and its
affiliates with the sale or transfer of these shares restricted until March
1, 2011. The Mach 24, 2010 closing price of the Company’s common equity as
quoted on the OTCBB was $0.15.


17


The new
convertible promissory note has a principal balance of $1.3 million and bears
simple interest at 12% per annum with weekly principal and interest payments
calculated based upon weekly revenue levels, with a minimum weekly payment of
$5,000 per week. The Note is due and payable on or before December 31, 2010 and
is convertible into common shares of the Company at a price equal to 80% of the
average closing bid price for the common stock for the 20 days prior to the
notice of conversion. The Company recorded a debt discount of $387 thousand for
the beneficial conversion feature embedded in the convertible note. The discount
will be amortized to interest expense over the life of the note using the
effective yield method with an effective annual interest rate of approximately
51.7% . The discount was determined using the intrinsic value method which
approximates the amount by which the converted instrument exceeds the principal
amount of the note.





The
Company also issued 1.5 million stock purchase warrants under the terms of the
agreement, that expire on March 15, 2015, in exchange for a lower rate of
interest on the new convertible promissory note. The exercise price of the
warrants increases based on the following schedule.





Exercise Price
                
                Ending Period of Exercise Price$
                0.08
                
                March
      15, 2011$
                0.16
                
                March
      15, 2012$
                0.32
                
                March
      15, 2013$
                0.50
                
                March
      15, 2014$
                1.00
                
                March
      15, 2015.





The
Company determined the warrants issued under the agreement had an approximate
fair value at inception of $161,000, using a Black-Sholes pricing model with the
following inputs; exercise price of $0.08; current stock price $0.15;
expected life of one year, risk-free rate of 2.53%; and expected volatility of
165%. The warrants were recorded as a stock warrant liability and will be
accounted for as a derivative liability with changes in fair value recognized in
the statement of operations





In May
and June 2006, we acquired operating assets for a number of temporary staffing
stores. The entities that owned and operated these stores received stock in
consideration of the transaction. As operating businesses prior to our
acquisition, each entity incurred obligations for payroll withholding taxes,
workers’ compensation insurance fund taxes, and other liabilities. We structured
the acquisition as an asset purchase and agreed to assume only the liability for
each entity’s accounts receivable financing line of credit. We also obtained
representations that liabilities for payroll taxes and other liabilities not
assumed by the Company would be paid by the entities and in each case those
entities are contractually committed to indemnify and hold harmless the Company
from unassumed liabilities.





Since the
acquisitions, it has come to our attention that certain tax obligations incurred
on operations prior to our acquisitions have not been paid. The entities that
sold us the assets (the “selling entities”) are primarily liable for these
obligations. The owners of the entities may also be liable. In most cases, the
entities were owned or controlled by Glenn Welstad, our CEO.





Based on
the information currently available, we estimate that the total state payroll
and other tax liabilities owed by the selling entities is between $400,000 and
$600,000 and that total payroll taxes due to the Internal Revenue Service is
between $1,000,000 and $2,000,000. The Company has been advised by outside legal
counsel that successor liability for the federal claims remains
remote.





The Asset
Purchase Agreement governing these transactions requires that the selling
entities indemnify us for any liabilities or claims we incur as a result of
these predecessor tax liabilities. We have also secured an indemnification
agreement from Glenn Welstad with a partial pledge of his common
stock.





The
Company has not accrued any liability related to these claims for state payroll
taxes and total payroll taxes due to the Internal Revenue Service because it has
been advised by outside legal counsel that the likelihood of showing successor
liability for these claims remains remote. The Company would be adversely
affected if the state or federal government was able to show the Company liable
for these claims.





We expect
that additional capital will be required to fund operations during fiscal year
2010.  Our capital needs will depend on store operating performance,
our ability to control costs, and the continued impact on our business from the
general economic slowdown and/or recovery cycle.  We currently have
approximately 10.8 million warrants outstanding which may offer a source of
additional capital at a future date upon exercise.  Management will
continue to evaluate capital needs and sources of capital as we execute our
business plan in 2010.


18





If we
require additional capital in 2010 or thereafter, no assurances can be given
that we will be able to find additional capital on acceptable
terms.  If additional capital is not available, we may be forced to
scale back operations, lay off personnel, slow planned growth initiatives, and
take other actions to reduce our capital requirements, all of which will impact
our profitability and long term viability.





Item
3.    Quantitative and Qualitative Disclosures about Market
Risk.





We do not
believe that our business is currently subject to material exposure from the
fluctuation in interest rates.





Item
4.    Controls and
Procedures.





Conclusions
of Management Regarding Effectiveness of Disclosure Controls and
Procedures





At the
end of the period covered by this report, an evaluation was carried out under
the supervision of, and with the participation of, the Company’s management,
including the Chief Executive Officer and Chief Financial Officer, of the
effectiveness of the design and operation of the Company’s disclosure controls
and procedures (as defined in Rule 13a – 15(e) and Rule 15d – 15(e) of the
Securities and Exchange Act of 1934, as amended). Based on that evaluation, the
Chief Executive Officer and Chief Financial Officer have concluded that, except
as noted below, as of the end of the period covered by this report, the
Company’s disclosure controls and procedures were adequately designed and
effective in ensuring that information required to be disclosed by the Company
in its reports that it files or submits to the SEC under the Exchange Act, is
recorded, processed, summarized and reported within the time period specified in
applicable rules and forms.





Our Chief
Executive Officer and Chief Financial Officer have also determined that the
disclosure controls and procedures are effective, except as noted below, to
ensure that material information required to be disclosed in our reports filed
under the Exchange Act is accumulated and communicated to our management,
including the Company’s Chief Executive Officer and Chief Financial Officer, to
allow for accurate required disclosure to be made on a timely
basis.





Except as
noted below, our disclosure controls and procedures were effective as of March
26, 2010:





·
            We
      do not have an independent Board of Directors, an independent Audit
      Committee or a board member designated as an independent financial expert
      for the Company. The Board of Directors and Audit Committee are comprised
      largely of members of management. As a result, there may be lack of
      independent oversight of the management team, lack of independent review
      of our operating and financial results, and lack of independent review of
      disclosures made by the Company.





Internal
Control over Financial Reporting





Management
performed an evaluation of the Company’s internal controls over financial
reporting as of December 25, 2009, the end of its fiscal
year.     Based on this evaluation, management
determined that its internal controls over financial reporting were not
effective.     The following material weaknesses were
identified:





·
            We
      do not have an independent Board of Directors, an independent Audit
      Committee or a board member designated as an independent financial expert
      for the Company. The Board of Directors and Audit Committee are comprised
      largely of members of management. As a result, there may be lack of
      independent oversight of the management team, lack of independent review
      of our operating and financial results, and lack of independent review of
      disclosures made by the Company.





·
            As
      a relatively new Company, we continue to face challenges with hiring and
      retaining qualified personnel in the finance department. In addition, we
      continue to labor under a reduced staff as a result of a downsized
      accounting department as part of a larger cost cutting program.
      Limitations in both the number of personnel currently staffing the finance
      department, and in the skill sets employed by such persons, create
      obstacles to the segregation of duties essential for sound internal
      controls.


19





·
            During
      the first quarter of the fiscal year ending December 24, 2010, we
      experienced a higher than normal introduction of new finance and
      accounting staff members and the reduced business process knowledge
      available to these new staff members, some phases of the accounting work
      including reconciliations and recurring entries and adjusting journal
      entries were not completed on a timely basis. Completion of the financial
      statements and associated notes for the quarter required the application
      of additional third-party resources subsequent to quarter end and prior to
      the completion of the independent
review.





·
            Documentation
      of proper accounting procedures is not yet complete and some of the
      documentation that exists has not yet been reviewed or approved by
      management, or has not been properly communicated and made available to
      employees responsible for portions of the internal control
      system.





To remedy
the material weakness in internal control, we intend to:





·
            Add
      to our existing accounting staff when growth resumes and the economic
      environment stabilizes. In the meantime, steps are being taken to
      segregate duties by spreading specific control activities such as account
      reconciliations, data entry verification, and transaction approval
      procedures among existing staff and additional third-party resources who
      are independent of the transactions or reconciliations over which they are
      assigned review functions. While this step will help, we do not have
      enough internal professional accounting staff to allow segregation of the
      more technical accounting functions. We may retain experts when necessary
      to address complex transactions as a further means of limiting risk from
      this material weakness. We will continue to monitor this material weakness
      and will take steps throughout 2010 to minimize risk when
      possible.





·
            Identify
      and nominate additional independent members of the Board of Directors and
      assign these individuals to the committees of the board, including the
      Audit Committee. In addition, we will identify a qualified independent
      person on the Board and designate him or her as the financial
      expert.





·
            Provide
      focused on-the-job training and orientation to new staff members to align
      their performance with the tasks required to produce complete and accurate
      financial reports on a timely
basis.





Management
has dedicated considerable resources to spearhead remediation efforts and
continues to address these deficiencies. The accounting and information
technology departments are working closely to identify and address system
interface issues and streamline processes and procedures. We have implemented
new reconciliation procedures to ensure that information is properly transferred
to the accounting system.




Changes
in internal control over financial reporting




Except as
noted above, there have been no changes during the quarter ended March 26, 2010
in the Company’s internal controls over financial reporting that have materially
affected, or are reasonably likely to materially affect, internal controls over
financial reporting.





PART
II. OTHER INFORMATION





Item
1. Legal proceedings.





None





Item
2.  Unregistered Sales of Equity Securities.





Item
3.  Default on Senior Securities





Not
applicable





Item
4. Removed and Reserved






20





Item
5.  Other Information




None





Item
6.  Exhibits and Reports on form 8-K





Exhibit No.
                    
                    Description
                    
                    Page #31.1
                    
                    Certification
      of Glenn Welstad, Chief Executive Officer of Command Center, Inc. pursuant
      to Rule 13a-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley
      Act of 2002.31.2
                    
                    Certification
      of Ralph Peterson, Chief Financial Officer of Command Center, Inc.
      pursuant to Rule 13a-14(a) as adopted pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002.32.1
                    
                    Certification
      of Glenn Welstad, Chief Executive Officer of Command Center, Inc. pursuant
      to 18 U.S.C. Section 1350, as adopted in Section 906 of the Sarbanes-Oxley
      Act of 2002.32.1
                    
                    Certification
      of Ralph Peterson, Chief Financial Officer of Command Center, Inc.
      pursuant to 18 U.S.C. Section 1350, as adopted in Section 906 of the
      Sarbanes-Oxley Act of 2002.


21





SIGNATURES





Pursuant to the requirements of the
Securities Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly
authorized.





COMMAND
CENTER, INC.





/s/Glenn
      Welstad
                                
                                President
      and CEO
                                
                                Glenn
      Welstad
                                
                                May
      17, 2010Signature
                                
                                Title
                                
                                Printed
      Name
                                
                                Date/s/Ralph
      Peterson
                                
                                CFO,
      Principal Financial Officer
                                
                                Ralph
      Peterson
                                
                                May
      17, 2010Signature
                                
                                Title
                                
                                Printed
      Name
                                
                                Date


22