UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549


FORM
10-Q





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


For the
quarterly period ended June 26,
2009





 ̈
            TRANSITION
      REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE
  ACT


For the
transition period from _____________ to ___________.





Commission
File Number: 000-53088





COMMAND CENTER,
      INC.


(Exact
      name of issuer as specified in its
charter)





Washington
                  
                  91-2079472(State
      or other jurisdiction of incorporation or organization)
                  
                  (IRS
      Employer Identification
Number)





3773
      West Fifth Avenue, Post Falls, Idaho 83854(Address
      of principal executive
offices)





(208)
      773-7450(Issuer’s
      telephone number)





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





Indicate
by check mark whether the registrant: (1) has filed all reports required to be
filed by Section 13, or 15(d) of the Securities Exchange Act of 1934 during the
preceding twelve months, and (2) has been subject to such filing requirements
for the past ninety days.


Yes xNo  ̈





Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a registrant.  See
definition of “large accelerated filer,” “accelerated filer,” and smaller
reporting company in Rule 12b-2 of the Exchange Act. (Check one):





Large
      accelerated filer  ̈
              
              Accelerated
      filer  ̈Non-accelerated
      filer  ̈
              
              Smaller
      reporting company x(Do
      not check if registrant)





Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).


Yes  ̈     No
x





The
number of shares of common stock outstanding on August 10, 2009 was 37,014,798
shares.








Command
Center, Inc.





Contents





FORM
10-Q


PagePART
      IItem
      1. Financial Statements (unaudited)Management
      Statement
                  10-Q
      Page 3Balance
      Sheet at June 26, 2009 and December 26, 2008
                  10-Q
      Page 4Statements
      of Operations for the thirteen week periods and the Twenty-six week
      periods ended June 26, 2009 and June 27, 2008
                  10-Q
      Page 5Statements
      of Cash Flows for the thirteen week periods ended June 26, 2009 and June
      26, 2008
                  10-Q
      Page 6Notes
      to Financial Statements
                  10-Q
      Page 7Item
      2. Management’s Discussion and Analysis of Financial Condition and Results
      of Operations
                  10-Q
      Page 14Item
      3. Quantitative and Qualitative Disclosures about Market
    Risk
                  10-Q
      Page 17Item
      4.  Controls and Procedures
                  10-Q
      Page 17Part
      IIItem
      2.  Unregistered Sales of Equity Securities
                  10-Q
      Page 18Item
      6. Exhibits and Reports on Form 8-K
                  10-Q
      Page 19Signatures
                  10-Q
      Page 19Certifications
                  10-Q
      Page 20


10-Q
 Page
2


PART
I


Item
1.  Financial Statements.





MANAGEMENT
STATEMENT





The accompanying balance sheets of
Command Center, Inc. as of June 26, 2009 (unaudited) and December 26, 2008, and
the related statements of operations and cash flows for the thirteen week and
twenty-six periods ended June 26, 2009 and June 27, 2008 (unaudited) were
prepared by Management of the Company.





The accompanying financial statements
should be read in conjunction with the audited financial statements of Command
Center, Inc. (the “Company”) as of and for the 52 weeks ended December 26, 2008,
and the notes thereto contained in the Company’s annual report on Form 10-K for
the 52 weeks ended December 26, 2008, filed with the Securities and Exchange
Commission.





Management


Command
Center, Inc.


August
10, 2009


10-Q
 Page
3





Command Center, Inc.Balance SheetJune 26, 2009
                                  
                                  
                                  December 26, 2008UnauditedAssetsCURRENT
      ASSETS:Cash
                                  
                                  $
                                  305,817
                                  
                                  
                                  $
                                  2,174,960Accounts
      receivable trade, net of allowance for bad debts of $500,000 at March 27,
      2009 and December 26, 2008
                                  
                                  
                                  4,591,973
                                  
                                  
                                  
                                  5,223,113Other
      receivables - current
                                  
                                  
                                  284,244
                                  
                                  
                                  
                                  284,244Prepaid
      expenses, deposits, and other
                                  
                                  
                                  825,445
                                  
                                  
                                  
                                  975,909Current
      portion of workers' compensation risk pool deposits
                                  
                                  
                                  1,800,000
                                  
                                  
                                  
                                  1,500,000Total
      current assets
                                  
                                  
                                  7,807,479
                                  
                                  
                                  
                                  10,158,226PROPERTY
      AND EQUIPMENT, NET
                                  
                                  
                                  2,210,340
                                  
                                  
                                  
                                  2,589,201OTHER
      ASSETS:Workers'
      compensation risk pool deposits
                                  
                                  
                                  2,167,647
                                  
                                  
                                  
                                  2,729,587Goodwill
                                  
                                  
                                  2,500,000
                                  
                                  
                                  
                                  2,500,000Intangible
      assets - net
                                  
                                  
                                  413,505
                                  
                                  
                                  
                                  503,606Total
      other assets
                                  
                                  
                                  5,081,152
                                  
                                  
                                  
                                  5,733,193$
                                  15,098,971
                                  
                                  
                                  $
                                  18,480,620Liabilities
      and Stockholders' EquityCURRENT
      LIABILITIES:Accounts
      payable
                                  
                                  $
                                  922,335
                                  
                                  
                                  $
                                  1,080,735Line
      of credit facility
                                  
                                  
                                  2,774,092
                                  
                                  
                                  
                                  2,579,313Accrued
      wages and benefits
                                  
                                  
                                  802,361
                                  
                                  
                                  
                                  981,293Other
      current liabilities
                                  
                                  
                                  504,934
                                  
                                  
                                  
                                  195,566Current
      portion of note payable
                                  
                                  
                                  9,520
                                  
                                  
                                  
                                  9,520Short-term
      notes payable
                                  
                                  
                                  1,291,680
                                  
                                  
                                  
                                  1,868,748Workers'
      compensation and risk pool deposits payable
                                  
                                  
                                  629,054
                                  
                                  
                                  
                                  531,062Warrant
      liability
                                  
                                  
                                  336,000
                                  
                                  
                                  
                                  -Current
      portion of workers' compensation claims liability
                                  
                                  
                                  1,800,000
                                  
                                  
                                  
                                  1,500,000Total
      current liabilities
                                  
                                  
                                  9,069,976
                                  
                                  
                                  
                                  8,746,237LONG-TERM
      LIABILITIES:Note
      payable, less current portion
                                  
                                  
                                  71,447
                                  
                                  
                                  
                                  76,135Finance
      obligation
                                  
                                  
                                  1,125,000
                                  
                                  
                                  
                                  1,125,000Workers'
      compensation claims liability, less current portion
                                  
                                  
                                  2,800,000
                                  
                                  
                                  
                                  2,986,372Total
      long-term liabilities
                                  
                                  
                                  3,996,447
                                  
                                  
                                  
                                  4,187,507COMMITMENTS
      AND CONTINGENCIES  (Note 10)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; 37,014,798 and
      36,290,053 shares issued and outstanding, respectively
                                  
                                  
                                  37,015
                                  
                                  
                                  
                                  36,290Additional
      paid-in capital
                                  
                                  
                                  51,425,623
                                  
                                  
                                  
                                  51,370,627Accumulated
      deficit
                                  
                                  
                                  (49,430,090
                                  )
                                  
                                  
                                  (45,860,041
                                  )Total
      stockholders' equity
                                  
                                  
                                  2,032,548
                                  
                                  
                                  
                                  5,546,876$
                                  15,098,971
                                  
                                  
                                  $
                                  18,480,620


See
accompanying notes to unaudited financial statements.


10-Q
 Page
4


Command
      Center, Inc.Statements of Operations
      (Unaudited)Thirteen
      Weeks Ended
                                        
                                        
                                        Twenty-six
      Weeks EndedJune
      26
                                        
                                        
                                        June
      27
                                        
                                        
                                        June
      26
                                        
                                        
                                        June
      272009
                                        
                                        
                                        2008
                                        
                                        
                                        2009
                                        
                                        
                                        2008REVENUE:Revenue
      from services
                                        
                                        $
                                        12,365,592
                                        
                                        
                                        $
                                        21,092,331
                                        
                                        
                                        $
                                        25,158,658
                                        
                                        
                                        $
                                        40,927,729Other
      income
                                        
                                        
                                        25,781
                                        
                                        
                                        
                                        154,045
                                        
                                        
                                        
                                        56,019
                                        
                                        
                                        
                                        255,73512,391,373
                                        
                                        
                                        
                                        21,246,376
                                        
                                        
                                        
                                        25,214,677
                                        
                                        
                                        
                                        41,183,464COST OF SERVICES:Temporary
      worker costs
                                        
                                        
                                        8,486,143
                                        
                                        
                                        
                                        14,261,352
                                        
                                        
                                        
                                        17,379,577
                                        
                                        
                                        
                                        27,567,943Workers'
      compensation costs
                                        
                                        
                                        1,018,654
                                        
                                        
                                        
                                        2,015,229
                                        
                                        
                                        
                                        1,707,141
                                        
                                        
                                        
                                        3,768,923Other
      direct costs of services
                                        
                                        
                                        4,409
                                        
                                        
                                        
                                        19,542
                                        
                                        
                                        
                                        29,131
                                        
                                        
                                        
                                        27,7929,509,206
                                        
                                        
                                        
                                        16,296,123
                                        
                                        
                                        
                                        19,115,849
                                        
                                        
                                        
                                        31,364,658GROSS
      PROFIT
                                        
                                        
                                        2,882,167
                                        
                                        
                                        
                                        4,950,253
                                        
                                        
                                        
                                        6,098,828
                                        
                                        
                                        
                                        9,818,806SELLING,
      GENERAL, AND ADMINISTRATIVE EXPENSES:Personnel
      costs
                                        
                                        
                                        1,895,150
                                        
                                        
                                        
                                        3,288,251
                                        
                                        
                                        
                                        4,178,887
                                        
                                        
                                        
                                        7,302,186Selling
      and marketing expenses
                                        
                                        
                                        9,527
                                        
                                        
                                        
                                        218,073
                                        
                                        
                                        
                                        69,811
                                        
                                        
                                        
                                        524,098Transportation
      and travel
                                        
                                        
                                        289,317
                                        
                                        
                                        
                                        702,064
                                        
                                        
                                        
                                        569,341
                                        
                                        
                                        
                                        1,336,583Office
      expenses
                                        
                                        
                                        82,678
                                        
                                        
                                        
                                        136,733
                                        
                                        
                                        
                                        176,210
                                        
                                        
                                        
                                        366,879Legal,
      professional and consulting
                                        
                                        
                                        95,484
                                        
                                        
                                        
                                        136,660
                                        
                                        
                                        
                                        414,376
                                        
                                        
                                        
                                        548,425Depreciation
      and amortization
                                        
                                        
                                        204,768
                                        
                                        
                                        
                                        215,030
                                        
                                        
                                        
                                        415,547
                                        
                                        
                                        
                                        428,826Rents
      and leases
                                        
                                        
                                        396,153
                                        
                                        
                                        
                                        691,291
                                        
                                        
                                        
                                        1,224,978
                                        
                                        
                                        
                                        1,293,207Other
      expenses
                                        
                                        
                                        873,732
                                        
                                        
                                        
                                        818,074
                                        
                                        
                                        
                                        1,888,581
                                        
                                        
                                        
                                        1,716,4183,846,809
                                        
                                        
                                        
                                        6,206,176
                                        
                                        
                                        
                                        8,937,731
                                        
                                        
                                        
                                        13,516,622LOSS
      FROM OPERATIONS
                                        
                                        
                                        (964,642
                                        )
                                        
                                        
                                        (1,255,923
                                        )
                                        
                                        
                                        (2,838,903
                                        )
                                        
                                        
                                        (3,697,816
                                        )OTHER
      INCOME (EXPENSE):Interest
      expense
                                        
                                        
                                        (120,824
                                        )
                                        
                                        
                                        (141,254
                                        )
                                        
                                        
                                        (334,317
                                        )
                                        
                                        
                                        (292,069
                                        )Loss
      on extinguishment of debt
                                        
                                        
                                        (518,251
                                        )
                                        
                                        
                                        -
                                        
                                        
                                        
                                        (518,251
                                        )
                                        
                                        
                                        -Change
      in fair value of warrant liability
                                        
                                        
                                        126,000
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        126,000
                                        
                                        
                                        
                                        -Interest
      and other income (expenses)
                                        
                                        
                                        (4,550
                                        )
                                        
                                        
                                        (5,278
                                        )
                                        
                                        
                                        (4,576
                                        )
                                        
                                        
                                        656(517,625
                                        )
                                        
                                        
                                        (146,532
                                        )
                                        
                                        
                                        (731,144
                                        )
                                        
                                        
                                        (291,413
                                        )BASIC
      AND DILUTED NET LOSS
                                        
                                        $
                                        (1,482,267
                                        )
                                        
                                        $
                                        (1,402,455
                                        )
                                        
                                        $
                                        (3,570,047
                                        )
                                        
                                        $
                                        (3,989,229
                                        )BASIC
      AND DILUTED LOSS PER SHARE
                                        
                                        $
                                        (0.04
                                        )
                                        
                                        $
                                        (0.04
                                        )
                                        
                                        $
                                        (0.10
                                        )
                                        
                                        $
                                        (0.11
                                        )WEIGHTED
      AVERAGE COMMON SHARES OUTSTANDING
                                        
                                        
                                        36,488,679
                                        
                                        
                                        
                                        36,097,086
                                        
                                        
                                        
                                        36,398,337
                                        
                                        
                                        
                                        35,911,070




10-Q
 Page
5




Command
      Center, Inc.Statements
      of Cash Flows (Unaudited)Twenty-six Weeks EndedJune 26, 2009
                                            
                                            
                                            June 27, 2008Increase
      (Decrease) in CashCASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      loss
                                            
                                            $
                                            (3,570,047
                                            )
                                            
                                            $
                                            (3,989,229
                                            )Adjustments
      to reconcile net loss to net cash used by operating
      activities:Depreciation
      and amortization
                                            
                                            
                                            415,547
                                            
                                            
                                            
                                            429,538Write-off
      of fixed assets
                                            
                                            
                                            53,415
                                            
                                            
                                            
                                            -Loss
      on debt extinguishment
                                            
                                            
                                            518,251
                                            
                                            
                                            
                                            -Amortization
      of note discount
                                            
                                            
                                            75,000
                                            
                                            
                                            
                                            -Change
      in fair value of warrant liability
                                            
                                            
                                            (126,000
                                            )
                                            
                                            
                                            -Closed
      stores reserve
                                            
                                            
                                            300,000
                                            
                                            
                                            
                                            -Common
      stock issued for rent compensation and consulting
                                            
                                            
                                            55,720
                                            
                                            
                                            
                                            123,000Changes
      in assets and liabilities:Accounts
      receivable - trade
                                            
                                            
                                            631,140
                                            
                                            
                                            
                                            421,469Other
      current liabilities
                                            
                                            
                                            76,048
                                            
                                            
                                            
                                            (171,640
                                            )Prepaid
      expenses, deposits and other
                                            
                                            
                                            150,464
                                            
                                            
                                            
                                            (624,144
                                            )Workers'
      compensation risk pool deposits
                                            
                                            
                                            261,940
                                            
                                            
                                            
                                            (1,814,148
                                            )Accounts
      payable
                                            
                                            
                                            (158,400
                                            )
                                            
                                            
                                            (10,204
                                            )Accrued
      wages & benefits
                                            
                                            
                                            (178,931
                                            )
                                            
                                            
                                            (228,589
                                            )Workers'
      compensation insurance payable
                                            
                                            
                                            97,992
                                            
                                            
                                            
                                            3,046,443Workers'
      compensation claims liability
                                            
                                            
                                            113,628
                                            
                                            
                                            
                                            1,379,983Net
      cash used by operating activities
                                            
                                            
                                            (1,284,233
                                            )
                                            
                                            
                                            (1,437,521
                                            )CASH
      FLOWS FROM INVESTING ACTIVITIES:Purchases
      of property and equipment
                                            
                                            
                                            -
                                            
                                            
                                            
                                            (73,715
                                            )Collections
      on note receivable
                                            
                                            
                                            -
                                            
                                            
                                            
                                            74,209Net
      cash provided by investing activities
                                            
                                            
                                            -
                                            
                                            
                                            
                                            494CASH
      FLOWS FROM FINANCING ACTIVITIES:Advances
      (payments) on line of credit facility, net
                                            
                                            
                                            194,778
                                            
                                            
                                            
                                            (211,285
                                            )Proceeds
      received from short-term note
                                            
                                            
                                            -
                                            
                                            
                                            
                                            1,740,000Proceeds
      allocated to warrants issued in connection with short-term
      note
                                            
                                            
                                            -
                                            
                                            
                                            
                                            260,000Collection
      of common stock subscriptions
                                            
                                            
                                            -
                                            
                                            
                                            
                                            1,878,000Costs
      of common stock offering and registration
                                            
                                            
                                            -
                                            
                                            
                                            
                                            (163,166
                                            )Principal
      payments on notes payable
                                            
                                            
                                            (779,668
                                            )
                                            
                                            
                                            (139,455
                                            )Net
      cash provided (used)  by financing activities
                                            
                                            
                                            (584,910
                                            )
                                            
                                            
                                            3,364,094NET
      INCREASE (DECREASE) IN CASH
                                            
                                            
                                            (1,869,143
                                            )
                                            
                                            
                                            1,927,067CASH,
      BEGINNING OF PERIOD
                                            
                                            
                                            2,174,960
                                            
                                            
                                            
                                            580,918CASH,
      END OF PERIOD
                                            
                                            $
                                            305,817
                                            
                                            
                                            $
                                            2,507,985Noncash
      investing and financing activities:  Fair value of warrants
      issued in connection with debt extinguishment
                                            
                                            $
                                            446,000
                                            
                                            
                                            $
                                            -




See
accompanying notes to unaudited financial statements.





10-Q
 Page
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.  At June 26, 2009 we were
operating 52 stores located in 20 states.  However, early in the third
quarter, we closed two underperforming stores, opened one new store and are
currently operating 51 stores. None of our customers currently make up a
significant portion of our revenue by geographic region or as a
whole.





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 income or accumulated deficit as previously
recorded.





NOTE
2 — RECENT AND ADOPTED ACCOUNTING PRONOUNCEMENTS:





Recent
Pronouncements





Emerging
Issues Task Force (“EITF”) 07-05, “Determining Whether an Instrument (or
Embedded Feature) Is Indexed to an Entity's Own Stock,” became effective for
fiscal years, including those interim periods, beginning after December 15,
2008. The EITF is applicable to all instruments outstanding at the beginning of
the period of adoption.  Companies holding instruments with these types of
provisions will recognize a cumulative effect for a change in accounting
principle adjustment in the year adopted which we determined were minimal as of
December 26, 2008.  The ratchet provisions of warrants the Company has
issued to short term debt holders are subject to the provisions of this
EITF.





Adopted
Pronouncements





In
December 2007, the FASB issued SFAS No. 141 (R), “Business Combinations”
(“SFAS 141(R)”).  SFAS 141 (R) requires an acquirer to measure
the identifiable assets acquired, the liabilities assumed and any
non-controlling interest in the acquiree at their fair values on the acquisition
date, with goodwill being the excess value over the net identifiable assets
acquired.  It is effective for financial statements issued for fiscal years
beginning after December 15, 2008.  The Company adopted SFAS 141
(R) on December 27, 2008 and will apply the new guidance prospectively to
business combinations completed on or after that date.





In
December 2007, the FASB issued SFAS No. 160 “Non Controlling Interests in
Consolidated Financial Statements - An Amendment of ARB No. 51,” (“SFAS 160”)
which is effective for fiscal years and interim periods within those years
beginning on or after December 15, 2008. SFAS 160 amends ARB 51 to establish
accounting and reporting standards for the non controlling ownership interest in
a subsidiary and for the deconsolidation of a subsidiary. The Company adopted
SFAS 160 on December 27, 2008. The Company does not expect this new guidance to
have a significant impact on our financial statements.





On March
19, 2008 the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments
and Hedging Activities” (“SFAS 161”).  SFAS 161 requires disclosures
of the fair value of derivative instruments and their gains and losses in a
tabular format, provides for enhanced disclosure of an entity’s liquidity by
requiring disclosure of derivative features that are credit-risk related, and
requires cross-referencing within footnotes to enable financial statement users
to locate information about derivative instruments.  The Company
adopted SFAS 160 on December 27, 2008. The adoption of this statement did not
have a material effect on the Company’s financial statements.


10-Q
 Page
7





NOTE
3 — 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 reflects the potential dilution that
could occur from common shares issuable through stock options, warrants, and
other convertible securities.   The Company had warrants for
10,762,803 and 7,762,803 shares of common stock outstanding at June 26, 2009 and
June 27, 2008, respectively.  The company incurred losses in the
twenty-six week periods ended June 26, 2009 and June 27,
2008.  Accordingly, the warrant shares are anti-dilutive and only
basic earnings per share is reported at June 26, 2009 and June 27,
2008.





NOTE
4 — RELATED-PARTY TRANSACTIONS:





The
Company has had the following transactions with related parties:





Van Leasing
Arrangements.Management has concluded that our leasing
relationship with Alligator LLC pursuant to paragraph B10 of FASB interpretation
No. 46R, would be considered a variable interest to Command Center, Inc. due to
the ownership interest in Alligator by our Chief Executive
Officer.  As such, we evaluated the relationship for consolidation
pursuant to the provisions of FIN 46R. We undertook to assess the primary
beneficiary of the Variable Interest Entity and to determine which member of the
related party group should consolidate the Variable Interest
Entity.





All
leases of Alligator’s vans by the Company meet the classification requirements
for operating leases in accordance with FASB Statement No. 13 and represent only
a contractual relationship.  Further, there are no residual value
guarantees to Alligator associated with the present operation of 6 vans and van
drivers for the Company. Van drivers are contracted with a third party and
dispatched into service for the company as needed.





As of
June 26, 2009 and June 27, 2008 the Company owed Alligator $204,934 and $76,492
respectively for lease payments and driver compensation.  Amounts paid
for the twenty-six weeks ended June 26, 2009 and June 27, 2008 was $51,607 and
$305,777 respectively. Amounts paid to Alligator are classified as
transportation and travel in the statement of operations.





The
Company does not have an equity stake in Alligator and does not participate in
its profits or losses.  Additionally the Company does not have any
voting rights or similar rights with respect to Alligator, and therefore cannot
make decisions about Alligator’s activities that could have a significant effect
on the success of Alligator.





The
Company has not guaranteed our Chief Executive Officer’s investment in
Alligator.  The Company has not guaranteed any of Alligator’s debt or
the residual value of its assets.  The Company is not obligated to
absorb the majority (or for that matter, any) of the Variable Interest Entity’s
expected losses, nor is it entitled to receive a majority (or again, any) of
Alligator’s expected residual returns.





We also
assessed which party of the related party group would most clearly be associated
with the Variable Interest Entity using the four points outlined in paragraph 17
of FIN 46R.  The results of our evaluation was that the Company is not
the primary beneficiary of the Variable Interest Entity, thus is not required to
consolidate Alligator LLC.


10-Q
 Page
8


NOTE
5 —LINE OF CREDIT FACILITY:





On May
12, 2006, we entered into an agreement with our principal lender for a financing
arrangement collateralized by eligible accounts receivable.  Eligible
accounts receivable are generally defined to include accounts that are not more
than sixty days past due.  The loan agreement includes limitations on
customer concentrations, accounts receivable with affiliated parties, accounts
receivable from governmental agencies in excess of 5% of the Company’s accounts
receivable balance, and when a customer’s aggregate past due account exceeds 50%
of that customer’s aggregate balance due.  The lender will advance 85%
of the invoiced amount for eligible receivables.  The credit facility
includes a 1% facility fee payable annually, and a $1,500 monthly administrative
fee.  The financing bears interest at the greater of the prime rate
plus two and one half percent (prime +2.5%) or 6.25% per annum.  Prime
is defined by the Wall Street Journal, Money Rates Section.  Our line
of credit interest rate at June 26, 2009 was 6.25%.  The loan
agreement further provides that interest is due at the applicable rate on the
greater of the outstanding balance or $5,000,000.  In December 2006,
the Company negotiated an increase in the maximum credit facility to
$9,950,000.  The loan agreement includes certain financial covenants
including a requirement that we maintain a working capital ratio of 1:1, that we
maintain positive cash flow, that we maintain a tangible net worth of
$3,500,000, and that we maintain a rolling average of 75% of projected
EBITDA.  At June 26, 2009, we were not in compliance with the working
capital ratio, cash flow, tangible net worth or EBITDA
requirements.  The balance due our lender at June 26, 2009 was
$2,774,092.  The credit facility has been recently renewed and now
expires on April 7, 2010. We are currently negotiating with our lender new
financial covenants and other loan terms which are more representative of our
present business operations.





NOTE
6 —SHORT-TERM NOTE PAYABLE:





On June
24, 2008, the Company entered into an agreement with an unrelated third party to
borrow $2,000,000 against an unsecured Promissory Note (“Short-Term Note” or
“Note”). The Note initially bore interest at 15% per annum with interest only
payments through January, 2009.  The Note called for monthly payments
of $400,000 plus accrued interest commencing on February 1, 2009.  The
note holder also received a warrant to purchase 1,000,000 shares of common stock
at $0.45 per share.  The warrant was valued at $250,000 using the
Black-Sholes pricing model based on assumptions about volatility, the risk free
rate of return and the term of the warrants as set out in the agreement. The
warrant value was recorded as a note discount, and was being amortized to
interest expense using a straight line method which approximates the interest
method over the life of the note.





On April
13, 2009, the Company entered into an agreement to extend the repayment term on
its Short Term Note.  At the time of the agreement, the balance on the
Note was $1,500,000.  As extended, the note is now payable at
increasing bi-weekly payments. Payments under the Note are $75,000 in April,
$100,000 in May, $100,000 in June, $150,000 in July, $250,000 in August,
$300,000 in September and $525,000 in October. The extension agreement provides
for an increase in the interest rate to 20% per annum with interest payable
bi-weekly.





In
connection with the extension agreement, the warrant for 1,000,000 shares of
common stock issued under the original Short Term Note, and another for 200,000
shares issued to the lender during 2007 were cancelled and replaced by Stock
Purchase Warrants with all the same rights and privileges as the original
warrants except the exercise prices were modified to be $0.15 per share and the
conversion dates extended to April 1, 2014.  Further, the Company
issued an additional warrant to purchase 3,000,000 shares of common stock at the
exercise price of $0.15 per share, on or before April 1, 2014.





The
Company determined that the modification of the terms of the Note was
substantially different from the original note terms. Therefore, loss on
extinguishment of debt of $518,284 has been recognized on the statement of
operations for the difference between the carrying value of the old debt and the
fair value of the new debt, plus any additional amounts, including warrants, or
fees paid to the lender.





The
Company determined the warrants issued under the extension agreement had an
approximate fair value at inception of $462,000, using a Black-Sholes pricing
model with the following inputs: exercise price of $0.15; current stock price
$0.14; expected life of five years, risk-free rate of 1.81%; and expected
volatility of 105%. Because of their re-pricing terms, these warrants were
recorded on April 13, 2009 as a derivative liability. As of June 26, 2009, this
derivative liability was adjusted to fair value resulting in a gain of $126,000
recorded as change in fair value of warrant liability in the statement of
operations for the thirteen and twenty-six weeks ended June 26,
2009.





Subsequent
to quarter end, the Company was not in compliance with bi-weekly principal and
interest payments on the extension agreement.  The lender has waived
compliance of these terms as of July 23, 2009.


10-Q
 Page
9





NOTE
7 — WORKERS’ COMPENSATION INSURANCE AND RESERVES:





We
provide our temporary and permanent workers with workers’ compensation
insurance.  Currently, we maintain large deductible workers’
compensation insurance policies through AMS Staff Leasing II (“AMS”) and TSE
PEO, Inc (“TriState”). The workers’ compensation insurance through AMS provides
coverage in 16 of the 20 states in which we operate. TriState provides coverage
in California and South Dakota and in the “monopolistic” states Washington and
North Dakota, coverage is provided under mandatory government administered
programs.  Workers’ compensation insurance was also previously
provided by Arch Insurance Group (“Arch”). The Arch policy covered our workers
in the State of California and South Dakota for the period from June 27, 2008
through June 27, 2009.





The
workers’ compensation coverage provided through TriState is a guaranteed cost
program with no deductible.  Under this program, the Company is
charged an administrative fee of 2% above payroll costs on a monthly
basis.  The TriState agreement may be cancelled by either party on 30
day’s notice.





The AMS
policy covers all other states (except the monopolistic jurisdictions of
Washington and North Dakota), originally for the policy year from May 13, 2008
through May 12, 2009, and now with the renewal of this coverage, through May 12,
2010.  While we have primary responsibility for all claims under the
AMS and Arch agreements, our insurance coverage provides reimbursement for
covered losses and expenses in excess of $250,000, on a “per occurrence”
basis.  This results in our being substantially self-insured in 16 of
our 20 states of operations.  Prior to the inception of the AMS and
Arch policies, we were insured by American International Group (“AIG”). The AIG
policies also provided reimbursement for covered losses in excess of $250,000
per occurrence. Under these 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, as is the case with our TriState coverage
in California and South Dakota, our financial statements reflect only the
mandated workers’ compensation insurance premium liability for workers’
compensation claims in these jurisdictions.





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 $1,707,141 and $3,768,923 in the twenty six weeks
ended June 26, 2009 and June 27, 2008, respectively. Workers’ compensation
expense in 2008 was impacted significantly by claims relating to the policy year
from May 12, 2006 through May 12, 2007.  AIG has assigned higher than
anticipated future claims liabilities in connection with these
claims.   We anticipate that expected future claims liabilities
will moderate over time as we gain additional historical data regarding our
settlements of these claims.





As a
result of higher than expected claims liabilities for the policy years ending in
May 2007 and May 2008, AIG requested additional collateral
deposits.  We paid $1.4 million toward this request in 2008 and
recorded the payments as additional workers’ compensation
deposits.  When we changed our workers’ compensation carrier in
mid-2008, AIG requested additional collateral payments of approximately $2.9
million dollars.  This figure did not account for the $1.4 million
already paid, nor did it take into account the settlement of nearly all open
claims from the 2006-2007 policy year and many open claims from the 2007-2008
policy year at substantially less than the reserved amounts.  We
believe that the request by our insurance carrier for $2.9 million is
unreasonable and is not supported by our most recent claims
history.  As a result, we have not made any additional collateral
deposits or premium payments.  To date, AIG has not provided requested
information to support their position and we have not booked any additional
liability for workers compensation premiums or collateral
deposits.  We do not believe that any amounts are currently
due.


10-Q
 Page
10





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 4%. Our expected future liabilities are evaluated on a
quarterly basis and adjustments are made as warranted.





NOTE
8 — STOCKHOLDERS’ EQUITY:





Sales of Common Stock.In the
thirteen weeks ended June 26, 2009, we issued shares for several different
purposes as described below.  All shares issued for non-cash
consideration were valued based on the market price for our common stock at the
dates of issuance.





·
            541,668
      shares as interest on our finance obligation for our headquarters office
      building.  Aggregate value of the shares issued was
      $37,400.


·
            75,000
      shares for services and additional compensation.  Aggregate
      value of the shares issued was
$7,560.





The
Company had 10,762,803 warrants to purchase Command Center, Inc. common stock
issued and outstanding on June 26, 2009.





NOTE
9 – 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 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 then indicated that his legal counsel was working on the
matter.  While Mr. Moothart was pursuing 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
26, 2008, 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.  At December 26, 2008, the total amount
remaining due from Everyday Staffing to the State of Washington for business and
occupation and excise taxes was $-0- and the receivable due Command Center from
Everyday Staffing was $132,500.





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 owed by Everyday Staffing at
$1,203,948 plus interest. The Company and Everyday Staffing have disputed the
amount due and the Company has retained outside legal counsel to represent its
interests. 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.


10-Q
 Page
11




Based
upon the theory of successor liability, in October 2008 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 impact 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 filed a lawsuit against Everyday
Staffing, LLC and Michael J. Moothart, seeking indemnification and monetary
damages.  Recently, on July 15, 2009, the Company obtained a judgment
against Michael J. 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.





NOTE
10 – COMMITMENTS AND CONTINGENCIES:





Finance obligation. On
November 22, 2005, Command Center, Inc. acquired a property from an unrelated
third party for $1,125,000. The property is located at 3773 W. Fifth Avenue,
Post Falls, Idaho.  On December 29, 2005, Command Center sold the real
property to John R. Coghlan, then a director, for $1,125,000 and concurrently
leased back the same property on a thirty-six month lease with a two year
renewal option. The monthly rental is $10,000 per month, triple
net.





The lease
includes an option to extend the term for two additional years at the same
rental rate and grants Command Center the option to repurchase the property any
time after January 1, 2008 at the purchase price of $1,125,000.





Command
Center, Inc. has a continuing involvement in the property through an option to
repurchase the property for the same price as we initially paid and the same
price at which the property was sold to Mr. Coghlan.  Accordingly, we
have accounted for the transaction as a financing as guided by FAS 98,
Accounting of Leases (paragraphs 10 and 11) and FAS 66, Accounting for Sales of
Real Estate.





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.





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.




10-Q
 Page
12


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 are
between $500,000 and $600,000.  Our outside legal counsel has advised
us that the potential for successor liability on the IRS claims is
remote.





We have
not accrued any amounts for these contingent payroll and other tax liabilities
at June 26, 2009.  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 the indemnification agreement of
Glenn Welstad with a pledge of our common stock.   We believe the
selling entities and their principals have adequate resources to meet these
obligations and have indicated through their actions to date that they fully
intend to pay the amounts due.  We understand that the responsible
parties have entered into payment agreements on many of the tax
obligations.





Operating
leases.  The Company leases store facilities, vehicles and
equipment.  Most of our store leases have terms that extend over three
to five years.  Some of the leases have cancellation provisions that
allow us to cancel on ninety days notice, and some of the leases have been in
existence long enough that the term has expired and we are currently occupying
the premises on month-to-month tenancies.  Estimated lease obligations
for the next five years as of June 26, 2009 are:





2009
                  
                  $
                  549,3002010
                  
                  
                  813,3432011
                  
                  
                  345,5992012
                  
                  
                  107,0432013
                  
                  
                  22,540





Leases on closed stores.Over
the last twelve months, 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, Management 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 reopenings are unlikely, we have recorded a reserve for
closed store leases totaling $300,000.  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.  Total lease
obligations on closed stores at June 26, 2009 were approximately $1,000,000 if
all leases went to term, no subtenants were found, and no rent concessions were
obtained from the landlords.  We believe it is likely that many of the
properties will be sublet and rent concessions will be available on many of the
properties and that a significant portion of the closed store rents will
ultimately not be paid by the Company.




10-Q
 Page
13


FORM
10-Q





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 June 26, 2009
compared to the thirteen weeks ended June 27, 2008.  Percentages
indicate line items as a percentage of total revenue.  The table
serves as the basis for the narrative discussion that follows.





2009
                                                                            
                                                                            
                                                                            2008REVENUE:
                                                                            
                                                                            $
                                                                            12,391,373
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            $
                                                                            21,246,376COST
      OF SERVICES:Temporary
      worker costs
                                                                            
                                                                            
                                                                            8,486,143
                                                                            
                                                                            
                                                                            
                                                                            68.5
                                                                            %
                                                                            
                                                                            
                                                                            14,261,352
                                                                            
                                                                            
                                                                            
                                                                            67.1
                                                                            %Workers'
      compensation costs
                                                                            
                                                                            
                                                                            1,018,654
                                                                            
                                                                            
                                                                            
                                                                            8.2
                                                                            %
                                                                            
                                                                            
                                                                            2,015,229
                                                                            
                                                                            
                                                                            
                                                                            9.5
                                                                            %Other
      direct costs of services
                                                                            
                                                                            
                                                                            4,409
                                                                            
                                                                            
                                                                            
                                                                            0.0
                                                                            %
                                                                            
                                                                            
                                                                            19,542
                                                                            
                                                                            
                                                                            
                                                                            0.1
                                                                            %9,509,206
                                                                            
                                                                            
                                                                            
                                                                            76.7
                                                                            %
                                                                            
                                                                            
                                                                            16,296,123
                                                                            
                                                                            
                                                                            
                                                                            76.7
                                                                            %GROSS
      PROFIT
                                                                            
                                                                            
                                                                            2,882,167
                                                                            
                                                                            
                                                                            
                                                                            23.3
                                                                            %
                                                                            
                                                                            
                                                                            4,950,253
                                                                            
                                                                            
                                                                            
                                                                            23.3
                                                                            %SELLING,
      GENERAL, ANDADMINISTRATIVE
      EXPENSES:Personnel
      costs
                                                                            
                                                                            
                                                                            1,895,150
                                                                            
                                                                            
                                                                            
                                                                            15.3
                                                                            %
                                                                            
                                                                            
                                                                            3,288,251
                                                                            
                                                                            
                                                                            
                                                                            15.5
                                                                            %Selling
      and marketing expenses
                                                                            
                                                                            
                                                                            9,527
                                                                            
                                                                            
                                                                            
                                                                            0.1
                                                                            %
                                                                            
                                                                            
                                                                            218,073
                                                                            
                                                                            
                                                                            
                                                                            1.0
                                                                            %Transportation
      and travel
                                                                            
                                                                            
                                                                            289,317
                                                                            
                                                                            
                                                                            
                                                                            2.3
                                                                            %
                                                                            
                                                                            
                                                                            702,064
                                                                            
                                                                            
                                                                            
                                                                            3.3
                                                                            %Office
      expenses
                                                                            
                                                                            
                                                                            82,678
                                                                            
                                                                            
                                                                            
                                                                            0.7
                                                                            %
                                                                            
                                                                            
                                                                            136,733
                                                                            
                                                                            
                                                                            
                                                                            0.6
                                                                            %Legal,
      professional and consulting
                                                                            
                                                                            
                                                                            95,484
                                                                            
                                                                            
                                                                            
                                                                            0.8
                                                                            %
                                                                            
                                                                            
                                                                            136,660
                                                                            
                                                                            
                                                                            
                                                                            0.6
                                                                            %Depreciation
      and amortization
                                                                            
                                                                            
                                                                            204,768
                                                                            
                                                                            
                                                                            
                                                                            1.7
                                                                            %
                                                                            
                                                                            
                                                                            215,030
                                                                            
                                                                            
                                                                            
                                                                            1.0
                                                                            %Rents
      and leases
                                                                            
                                                                            
                                                                            396,153
                                                                            
                                                                            
                                                                            
                                                                            3.2
                                                                            %
                                                                            
                                                                            
                                                                            691,291
                                                                            
                                                                            
                                                                            
                                                                            3.3
                                                                            %Other
      expenses
                                                                            
                                                                            
                                                                            873,732
                                                                            
                                                                            
                                                                            
                                                                            7.1
                                                                            %
                                                                            
                                                                            
                                                                            818,074
                                                                            
                                                                            
                                                                            
                                                                            3.9
                                                                            %3,846,809
                                                                            
                                                                            
                                                                            
                                                                            31.0
                                                                            %
                                                                            
                                                                            
                                                                            6,206,176
                                                                            
                                                                            
                                                                            
                                                                            29.2
                                                                            %LOSS
      FROM OPERATIONS
                                                                            
                                                                            
                                                                            (964,642
                                                                            )
                                                                            
                                                                            
                                                                            -7.8
                                                                            %
                                                                            
                                                                            
                                                                            (1,255,923
                                                                            )
                                                                            
                                                                            
                                                                            -5.9
                                                                            %OTHER
      INCOME (EXPENSE):
                                                                            
                                                                            
                                                                            (517,625
                                                                            )
                                                                            
                                                                            
                                                                            -4.2
                                                                            %
                                                                            
                                                                            
                                                                            (146,532
                                                                            )
                                                                            
                                                                            
                                                                            -0.7
                                                                            %NET
      LOSS
                                                                            
                                                                            $
                                                                            (1,482,267
                                                                            )
                                                                            
                                                                            
                                                                            -12.0
                                                                            %
                                                                            
                                                                            $
                                                                            (1,402,455
                                                                            )
                                                                            
                                                                            
                                                                            -6.6
                                                                            %


10-Q
 Page
14




Results
of Operations





26
Weeks Ended June 26, 2009





Operations
Summary. Revenue in the 26 week period ended June 26, 2009 was $25.4
million compared to $41.2 million in the 26 week period ended June 27, 2008, a
decline of 38%. In the second quarter 2009 compared to 2008, the downturn in
revenue was about the same, $12.4 million compared to $21.2 million or a 41.5%
shortfall. 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.





Early in
the first quarter of 2009 we closed 31 underperforming stores which left us
operating 52 stores.  During 2009 we opened three new stores to mainly
service national accounts who already had a book of business.  Early
in the third quarter of 2009 we closed 2 marginal stores and the business was
acquired by our adjacent locations. We also opened one new store. We are
presently operating 51 stores in 20 states.





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-2008, 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 2008, and the first quarter of 2009 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 is now 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 once 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 76.7% of revenue at the end of
the second quarter ended June 26, 2009 and was equal to the same percentage at
the twenty-six weeks ended June 27, 2008.  There was a reduction in
workers’ compensation costs.  Looking ahead, we believe we will be
able to reduce the cost of on-demand labor by reducing pay rates.  We
also expect on-demand labor costs to moderate as a percentage of revenue as we
enter our peak season and revenue climbs.


Toward
the end of 2008 and continuing into 2009, we have been evaluating our on-demand
labor pay rates and where possible, implementing pay rate reductions in order to
increase margins to acceptable levels.





Worker’s
compensation costs for the twenty-six weeks ended June 26, 2009 were 6.8% of
revenue compared to 9.2% of revenue for the twenty-six weeks ended June 27, 2008
($1.7 million compared to $3.8 million).  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 beginning to see 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 second
quarter 2009 are discussed under cost of services above.   In the
aggregate, cost of services was 76.7% of revenue in 2009 compared to 76.7% of
revenue in 2008 yielding margins of 23.3% in 2009 and 23.3% in
2008.  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.


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Selling, General
and Administrative Expenses.As a percentage of
revenue, selling, general and administrative expenses for the thirteen weeks
ended June 26, 2009 and June 27, 2008 were 31.0 % and 29.2% respectively. 
For the twenty-six weeks ended June 26, 2009 and June 27, 2008 were 34.9% and
32.8%. SG&A expenses for the same periods showed a monetary reduction of
$2.4 million in the 13 weeks 2009 compared to 2008 and $4.7 million in the 26
weeks 2009 vs 2008. In addition, the percentage increase in selling, general and
administrative expenses is primarily the result of the precipitous drop in
revenue and providing a closed store reserve of $300,000.




Liquidity
and Capital Resources


At June
26, 2009, we had total current assets of 7.8 million and current liabilities of
$9.1 million.  Included in current assets are cash of $306,000 and
trade accounts receivable of $4.6 million (net of allowance for bad debts of
$500,000).   Our cash position continues to deteriorate as a
result of the trailing effect of cost reductions in the declining economy and
continuing losses.





Weighted
average aging on our trade accounts receivable at June 26, 2009, was 39
days.  Actual bad debt write-off expense as a percentage of total
customer invoices during the thirteen weeks ended June 26, 2009 was
0.62%.   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.





We
currently operate under a $9,950,000 line of credit facility with our principal
lender for accounts receivable financing.  The credit facility is
collateralized with accounts receivable and entitles us to borrow up to 85% of
the value of eligible receivables.  Eligible accounts receivable are
generally defined to include accounts that are not more than sixty days past
due.  The line of credit agreement includes limitations on customer
concentrations, accounts receivable with affiliated parties, accounts receivable
from governmental agencies in excess of 5% of the Company’s accounts receivable
balance, and when a customer’s aggregate past due account exceeds 50% of that
customer’s aggregate balance due.  The credit facility includes a 1%
facility fee payable annually, and a $1,500 monthly administrative
fee.  The financing bears interest at the greater of 6.25% per annum
or the greater of the prime rate plus two and one half percent (prime + 2.5%)
or  the London Interbank Offered Rate (LIBOR) plus three percent
(LIBOR + 3.0%) per annum.  Prime and/or LIBOR are defined by the Wall
Street Journal, Money Rates Section.  Our line of credit interest rate
at June 26, 2009 was 6.25%.  The loan agreement further provides that
interest is due at the applicable rate on the greater of the outstanding balance
or $5,000,000.  The credit facility, originally due to expire on April
7, 2009, was recently renewed for one year and now expires on April 7,
2010.   The balance due our lender at June 26, 2009 was
$2,774,092.  We expect that certain terms of the loan, including the
maximum credit facility and the minimum amount on which interest is calculated,
will be modified in the coming months to better reflect the current needs of the
Company.





The line
of credit facility agreement contains certain financial covenants including a
requirement that we maintain a working capital ratio of 1:1, that we maintain
positive cash flow, that we maintain a tangible net worth of $3,500,000, and
that we maintain a rolling average EBITDA of 75% of our
projections.  At June 26, 2009, we were not in compliance with the
cash flow, tangible net worth and EBITDA requirements.    As
part of the recent renewal of our credit facility, we are currently negotiating
revised financial covenants with our lender that are more representative of our
present reduced level of business operations.





At June
26, 2009, we also owed a private investor $1,225,000 on an unsecured promissory
note bearing interest at 20% per annum and calling for bi-weekly increases in
principal and interest payments.


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16




As
discussed elsewhere in this report, in 2006 we acquired operating assets from a
number of entities that were previously our franchisees.  We have been
notified of the existence of payroll tax liabilities owed by the franchisees and
have included footnote disclosure in our financial statements of the potential
contingent liability that may exist. 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 $500,000 and
$600,000.  Our outside legal counsel has advised us that the potential
for successor liability on the IRS claims is remote.





We have
not accrued any amounts for these contingent payroll and other tax liabilities
at June 26, 2009.  We have obtained indemnification agreements from
the selling entities and their principal members for any liabilities or claims
we incur as a result of these predecessor tax liabilities.   We
believe the selling entities and their principal members have adequate resources
to meet these obligations and have indicated through their actions to date that
they fully intend to pay the amounts due. We understand that the responsible
parties have or are working on payment agreements for the substantial majority
of the tax obligations and expect to resolve these debts in full within the next
twelve months.





Our
current liquidity could be impacted if we are considered to be a successor to
these payroll tax obligations.  Liability as a successor on these
payroll tax obligations may also constitute a default under our line of credit
facility agreement with our principal lender creating a further negative impact
on our liquidity.





We expect
that additional capital will be required to fund operations during fiscal year
2009.  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 2009.





If we
require additional capital in 2009 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.





Management
conducted an evaluation of the effectiveness of our internal control over
financial reporting based on a general framework developed by management with
reference to general business, accounting and financial reporting
principles.





Based
upon this evaluation, we determined that there were no material weaknesses
affecting our internal controls over financial reporting but that there were
deficiencies in our disclosure controls and procedures as of June 26, 2009. The
deficiencies noted below are being addressed through our remediation initiatives
which are also described below.  We believe that our financial
information, notwithstanding the internal control deficiencies noted, accurately
and fairly presents our financial condition and results of operations for the
periods presented.





·
            As
      a young company, we continue to face challenges with hiring and retaining
      qualified personnel in the finance department.  Limitations in
      both the number of personnel currently staffing the finance department,
      and in the skill sets employed by such persons, create difficulties in the
      segregation of duties essential for sound internal
    controls.


10-Q
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17




·
            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.





Management’s Remediation
Initiatives





We made
substantial progress on our internal control processes during 2008 and through
the second quarter of 2009.  The accounting and information technology
departments are working closely to identify and address system interface
issues.  We have implemented new reconciliation procedures to ensure
that information is properly transferred to the accounting system.  We
have also made a concerted effort to hire and retain qualified personnel in the
accounting department.   We have retained experts when necessary
to address complex transactions that are entered into.  Management
believes that actions taken and the follow-up that will occur during 2009
collectively will effectively eliminate the above deficiencies.





During
the remainder of 2009, we plan to conduct quarterly assessments of our controls
over financial reporting using criteria established in “Internal
Control-Integrated Framework” issued by the Committee of Sponsoring
Organizations of the Treadway Commission (“COSO”).  In connection with
these assessments, we will document all significant accounting procedures and
determine whether they are designed effectively and are operating as
designed.  Our assessment of internal controls over financial
reporting will be subject to audit for the fifty-two week period ending December
25, 2009.





Our
management and Board of Directors does not expect that our disclosure
controls and procedures or internal control over financial reporting will
prevent all errors or all instances of fraud. A control system, no matter how
well designed and operated, can provide only reasonable, not absolute, assurance
that the control system’s objectives will be met. Further, the design of a
control system must reflect the fact that there are resource constraints, and
the benefits of controls must be considered relative to their costs. Because of
the inherent limitations in all control systems, no evaluation of controls can
provide absolute assurance that all control gaps and instances of fraud have
been detected. These inherent limitations include the realities that judgments
in decision-making can be faulty, and that breakdowns can occur because of
simple errors or mistakes. Controls can also be circumvented by the individual
acts of some persons, by collusion of two or more people, or by management
override of the controls. The design of any system of controls is based in part
upon certain assumptions about the likelihood of future events, and any design
may not succeed in achieving its stated goals under all potential future
conditions.




Changes in internal control over
financial reporting.




Except as
noted above, there have been no changes during the quarter ended June 26, 2009
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





Item
2.  Unregistered Sales of Equity Securities.





In the
twenty-six week period ended June 26, 2009, the Company issued an aggregate of
616,668 shares of Common Stock.  The shares of Common Stock were
issued for payment of rent, additional compensation and services valued at
$44,960.  All of these sales of unregistered securities were made in
reliance on exemptions from registration afforded by Section 4(2) of the
Securities Act of 1933, as amended (the “Act”), Rule 506 of Regulation D adopted
under the Act, and various state blue sky exemptions.  In each
instance, the investors acquired the securities for investment purposes only and
not with a view to resale.  The certificates representing the shares
bear a restrictive stock legend and were sold in private transactions without
the use of advertising or other form of public solicitation.




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18




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.
                
                10-Q,
      Page 2031.2
                
                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.
                
                10-Q,
      Page 2132.1
                
                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.
                
                10-Q,
      Page 2232.2
                
                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.
                
                10-Q,
      Page 23





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
                    August
      10, 2009Signature
                    Title
                    Printed
      Name
                    Date/s/Ralph
      Peterson
                    CFO,
      Principal Financial Officer
                    Ralph
      Peterson
                    August
      10, 2009Signature
                    Title
                    Printed
      Name
                    Date





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