**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

**FORM 10-QSB**

 
| **(Mark One)** |                                                                                   |
|----------------|----------------------------------------------------------------------------------------|
| **ý**     | **QUARTERLY REPORT UNDER SECTION 13  OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |

 

**Forthe quarterly period ended March 31, 2002**

 
| **o** | **TRANSITION  REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHNAGE ACT** |
|-------|----------------------------------------------------------------------|

 

**Forthe transition periodfrom                      to                      .**

 

**CommissionFile Number: 333-60326**

 

**TEMPORARY FINANCIAL SERVICES, INC.**

(Exact name of small business issuer asspecified in its charter)

 

| **Washington**                                                                      |   | **91-2079472**                        |
|-------------------------------------------------------------------------------------|--------|---------------------------------------|
| (State  or other jurisdiction of incorporation or organization)                     |   | (IRS  Employer Identification Number) |
|                                                                                |   |                                  |
| **200 North Mullan Road, Suite 213, Spokane,  Washington 99206**                    |
| (Address  of principal executive offices)                                           |
|                                                                                |   |                                  |
| **(509) 340-0273**                                                                  |
| (Issuer’s  telephone number)                                                   |
|                                                                                |   |                                  |
| **N.A.**                                                                            |
| (Former  name, former address and former fiscal year, if changed since last report) |

 

Indicateby check mark whether the registrant: (1) has filed all documents and reportsrequired to be filed by Section 13, or 15(d) of the Securities Exchange Act of1934 during the preceding twelve months (or for such shorter period as theRegistrant was required to file such reports), and (2) has been subject to suchfiling requirements for the past ninety days.
|                                                                     |   | Yes  ý      No  o |
|--------------------------------------------------------------------------|--------|------------------------------------------------------|
|                                                                     |   |                                                 |
| The number of shares of  common stock outstanding on April 25, 2002 was: |   | 737,280                                              |
|                                                                     |   |                                                 |
| Transitional Small  Business Disclosure Format.                          |   | Yes  o      No  ý |

 

 

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**FORM 10-QSB**

**PART I**

 

**Item 1. Financial Statements.**

 

**TemporaryFinancial Services, Inc. and Subsidiary**

 

**Contents**

 
| *Management Statement*                                  |   |
|---------------------------------------------------------|--------|
|                                                    |   |
| *CONSOLIDATED FINANCIAL STATEMENTS (Unaudited):*        |   |
|                                                    |   |
| *Consolidated balance sheets*                           |   |
|                                                    |   |
| *Consolidated statements of income*                     |   |
|                                                    |   |
| *Consolidated statements of stockholders’  equity* |   |
|                                                    |   |
| *Consolidated statements of cash flows*                 |   |
|                                                    |   |
| *Notes to consolidated financial statements*            |   |

 

2

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MANAGEMENT STATEMENT

 

**The accompanying(unaudited) consolidated balance sheets of Temporary Financial Services, Inc.and Subsidiary as of March 31, 2002 and 2001, and the related consolidatedstatements of income, stockholders’ equity, and cash flows for the three monthperiods ended March 31, 2002 and 2001, were prepared by Management of theCompany.**

 

Inthe opinion of Management of the Company, all adjustments necessary to a fairstatement of results for the interim periods presented have been made.

 

Managementhas elected to include Footnotes with these unaudited interim financialstatements.

 

Management

TemporaryFinancial Services, Inc.

May2, 2002

 

3

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**TemporaryFinancial Services, Inc. and Subsidiary**

 

**ConsolidatedBalance Sheets**

 
|                                                                                                                                  |   | **March 31** |      |
|---------------------------------------------------------------------------------------------------------------------------------------|--------|--------------|-----------|
|                                                                                                                                  |   | **2002**     |      | **2001** |   |
| ***Assets***                                                                                                                          |   |         |      |   |   |
|                                                                                                                                  |   |         |      |   |   |
| *CURRENT ASSETS*                                                                                                                      |   |         |      |   |   |
|                                                                                                                                  |   |         |      |   |   |
| Cash                                                                                                                                  |   | $            | 153,351   |   | $ | 635,821 |   |
| Accounts receivable                                                                                                                   |   | 500          |      | — |   |
| Federal income taxes                                                                                                                  |   | 297          |      | 147 |   |
| Prepaid expenses                                                                                                                      |   | 1,876        |      | — |   |
| Deferred offering costs                                                                                                               |   | 62,081       |      | 9,493 |   |
| Loans receivable:                                                                                                                     |   |         |      |   |   |
| Affiliates                                                                                                                            |   | 308,887      |      | — |   |
| Other                                                                                                                                 |   | 334,860      |      | — |   |
|                                                                                                                                  |   |         |      |   |   |
| Total current assets                                                                                                                  |   | 861,852      |      | 645,461 |   |
|                                                                                                                                  |   |         |      |   |   |
| *OTHER ASSETS*                                                                                                                        |   |         |      |   |   |
|                                                                                                                                  |   |         |      |   |   |
| Investment in affiliated companies                                                                                                    |   | 406,479      |      | 23,250 |   |
|                                                                                                                                  |   |         |      |   |   |
| FURNITURE AND EQUIPMENT, less accumulated depreciation of $2,958                                                                      |   | 27,997       |      | — |   |
|                                                                                                                                  |   |         |      |   |   |
|                                                                                                                                  |   | $            | 1,296,328 |   | $ | 668,711 |   |
|                                                                                                                                  |   |         |      |   |   |
| ***Liabilities and Stockholders’  Equity***                                                                                      |   |         |      |   |   |
|                                                                                                                                  |   |         |      |   |   |
| *CURRENT LIABILITIES*                                                                                                                 |   |         |      |   |   |
|                                                                                                                                  |   |         |      |   |   |
| Line of credit, officer/stockholder                                                                                                   |   | $            | 510,877   |   | $ | — |   |
| Accounts payable                                                                                                                      |   | 2,306        |      | 605 |   |
| Due to officer/stockholder                                                                                                            |   | —       |      | 600 |   |
| Accrued expenses                                                                                                                      |   | 4,368        |      | — |   |
| Total current liabilities                                                                                                             |   | 517,551      |      | 1,205 |   |
|                                                                                                                                  |   |         |      |   |   |
| *STOCKHOLDERS’ EQUITY*                                                                                                           |   |         |      |   |   |
|                                                                                                                                  |   |         |      |   |   |
| Common Stock — 100,000,000 shares, $0.001 par value, authorized  400,000 and 350,000 shares respectively, issued and outstanding |   | $            | 400       |   | $ | 350 |   |
| Preferred stock — 5,000,000 shares, $0.001 par value, authorized;  none issued                                                   |   | —       |      | — |   |
| Additional paid in capital                                                                                                            |   | 999,600      |      | 749,650 |   |
| Notes receivable for stock purchase                                                                                                   |   | —       |      | (75,000 | ) |
| Retained earnings (deficit)                                                                                                           |   | (221,223     | )         | (7,494 | ) |
| Total stockholders’ equity                                                                                                       |   | 778,777      |      | 667,506 |   |
|                                                                                                                                  |   |         |      |   |   |
|                                                                                                                                  |   | $            | 1,296,328 |   | $ | 668,711 |   |

 

See accompanying notes toconsolidated financial statements.

 

4

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**TemporaryFinancial Services, Inc. and Subsidiary**

 

**ConsolidatedStatements of Income**

 
|                                   |   | **Three  Months Ended** |     |
|----------------------------------------|--------|-------------------------|----------|
|                                   |   | **March 31,  2002**     |     | **March 31,  2001** |   |
| *REVENUE:*                             |   |                    |     |   |   |
|                                   |   |                    |     |   |   |
| Loan and related fees:                 |   |                    |     |   |   |
| Affiliates                             |   | $                       | 12,084   |   | $ | — |   |
| Other                                  |   | 14,728                  |     | — |   |
| Interest and investment income         |   | 9,720                   |     | 6,069 |   |
| Accounting fees                        |   | 5,500                   |     | — |   |
|                                   |   |                    |     |   |   |
|                                   |   | 42,032                  |     | 6,069 |   |
|                                   |   |                    |     |   |   |
| *OPERATING EXPENSES:*                  |   |                    |     |   |   |
|                                   |   |                    |     |   |   |
| Advertising                            |   | 5,085                   |     | — |   |
| Compensation and related expenses      |   | 20,659                  |     | — |   |
| Rent                                   |   | 5,332                   |     | 600 |   |
| Legal and professional                 |   | 42,335                  |     | 11,309 |   |
| Office expense                         |   | 9,927                   |     | — |   |
| Interest Expense                       |   | 10,326                  |     | — |   |
| Other                                  |   | 8,344                   |     | 2,031 |   |
|                                   |   |                    |     |   |   |
|                                   |   | 102,008                 |     | 13,940 |   |
|                                   |   |                    |     |   |   |
| *OTHER EXPENSE:*                       |   |                    |     |   |   |
|                                   |   |                    |     |   |   |
| Equity in losses of affiliates         |   | 45,577                  |     | — |   |
|                                   |   |                    |     |   |   |
| *(LOSS) BEFORE INCOME TAX*             |   | (105,553                | )        | (7,871 | ) |
|                                   |   |                    |     |   |   |
| Income tax benefit                     |   | —                  |     | 100 |   |
|                                   |   |                    |     |   |   |
| *NET INCOME (LOSS)*                    |   | $                       | (105,553 | ) | $ | (7,771 | ) |
|                                   |   |                    |     |   |   |
| *BASIC EARNINGS (LOSS) PER SHARE*      |   | $                       | (0.28    | ) | $ | (0.02 | ) |
|                                   |   |                    |     |   |   |
| *WEIGHTED  AVERAGE SHARES OUTSTANDING* |   | 383,333                 |     | 350,000 |   |

 

See accompanying notes to consolidated financial statements.

 

5

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**TemporaryFinancial Services, Inc. and Subsidiary**

 
| **Consolidated Statements of  Stockholders’ Equity**** ** |   |   |   |   |   | **Inception  (October 4, 2000)  through March 31, 2002** |   |   |   |
|---------------------------------------------------------------------|--------|--------|--------|--------|--------|----------------------------------------------------------|--------|--------|--------|

 
|                                                                          |   | **Common  Stock  Issued** |   | **Additional  Paid-in  Capital** |   | **Common  Stock  Subscribed** |   | **Notes  Receivable  for  Stock  Purchase** |   | **Retained  Earnings  (Deficit)** |   | **Total** | ** **

** **

** **

** ** |
|-------------------------------------------------------------------------------|--------|---------------------------|--------|----------------------------------|--------|-------------------------------|--------|---------------------------------------------|--------|-----------------------------------|--------|-----------|------------------------------------------------|
| *BALANCES ON OCTOBER 4, 2000 (INCEPTION)*                                     |   | $                         | — |                             | $      | —                        |   | $                                           | — |                              | $      | —    |                                           | $ | — |   | $ | — |   |
|                                                                          |   |                      |   |                             |   |                          |   |                                        |   |                              |   |      |                                           |
| ADD (DEDUCT):                                                                 |   |                      |   |                             |   |                          |   |                                        |   |                              |   |      |                                           |
|                                                                          |   |                      |   |                             |   |                          |   |                                        |   |                              |   |      |                                           |
| 100,000  common shares issued to officers and consultant at $1 per share for: |   |                      |   |                             |   |                          |   |                                        |   |                              |   |      |                                           |
| Cash                                                                          |   | 25                        |   | 24,975                           |   | —                        |   | —                                      |   | —                            |   | 25,000    |                                           |
| Notes receivable                                                              |   | 75                        |   | 74,925                           |   | —                        |   | (75,000                                     | )      | —                            |   | —    |                                           |
|                                                                          |   |                      |   |                             |   |                          |   |                                        |   |                              |   |      |                                           |
| Common  stock issued for cash:                                                |   |                      |   |                             |   |                          |   |                                        |   |                              |   |      |                                           |
| 50,000 shares at $1 per share                                                 |   | 50                        |   | 49,950                           |   | —                        |   | —                                      |   | —                            |   | 50,000    |                                           |
| 160,000 shares at $3 per share                                                |   | 160                       |   | 479,840                          |   | —                        |   | —                                      |   | —                            |   | 480,000   |                                           |
|                                                                          |   |                      |   |                             |   |                          |   |                                        |   |                              |   |      |                                           |
| 40,000  common shares subscribed at $3 per share                              |   | —                    |   | —                           |   | 120,000                       |   | —                                      |   | —                            |   | 120,000   |                                           |
|                                                                          |   |                      |   |                             |   |                          |   |                                        |   |                              |   |      |                                           |
| Net  income for the period                                                    |   | —                    |   | —                           |   | —                        |   | —                                      |   | 277                               |   | 277       |                                           |
|                                                                          |   |                      |   |                             |   |                          |   |                                        |   |                              |   |      |                                           |
| *BALANCES, DECEMBER 31, 2000*                                                 |   | 310                       |   | 629,690                          |   | 120,000                       |   | (75,000                                     | )      | 277                               |   | 675,277   |                                           |
|                                                                          |   |                      |   |                             |   |                          |   |                                        |   |                              |   |      |                                           |
| Issuance  of common stock subscribed                                          |   | 40                        |   | 119,960                          |   | (120,000                      | )      | —                                      |   | —                            |   | —    |                                           |
|                                                                          |   |                      |   |                             |   |                          |   |                                        |   |                              |   |      |                                           |
| Collection  of note receivable for stock purchase                             |   | —                    |   | —                           |   | —                        |   | 75,000                                      |   | —                            |   | 75,000    |                                           |
|                                                                          |   |                      |   |                             |   |                          |   |                                        |   |                              |   |      |                                           |
| Net  loss for the year                                                        |   | —                    |   | —                           |   | —                        |   | —                                      |   | (115,947                          | )      | (115,947  | )                                              |
|                                                                          |   |                      |   |                             |   |                          |   |                                        |   |                              |   |      |                                           |
| *BALANCES, DECEMBER 31, 2001*                                                 |   | $                         | 350    |                             | $      | 749,650                       |   | $                                           | — |                              | $      | —    |                                           | $ | (115,670 | ) | $ | 634,330 |   |
|                                                                          |   |                      |   |                             |   |                          |   |                                        |   |                              |   |      |                                           |
| Issuance of common stock for stock                                            |   | 50                        |   | 249,950                          |   | —                        |   | —                                      |   | —                            |   | 250,000   |                                           |
|                                                                          |   |                      |   |                             |   |                          |   |                                        |   |                              |   |      |                                           |
| Net Loss for the three months ended March  31, 2002                           |   | —                    |   | —                           |   | —                        |   | —                                      |   | (105,553                          | )      | (105,553  | )                                              |
|                                                                          |   |                      |   |                             |   |                          |   |                                        |   |                              |   |      |                                           |
| *BALANCES, MARCH 31, 2002*                                                    |   | $                         | 400    |                             | $      | 999,600                       |   | $                                           | — |                              | $      | —    |                                           | $ | (221,223 | ) | $ | 778,777 |   |

 

See accompanying notes to consolidatedfinancial statements.

 

6

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**TemporaryFinancial Services, Inc. and Subsidiary**

 

**ConsolidatedStatements of**

**CashFlows**

 
|                                                                                  |   | **For the Three Months Ended** |     |
|---------------------------------------------------------------------------------------|--------|--------------------------------|----------|
|                                                                                  |   | **March 31, 2002**             |     | **March 31, 2001** |   |
| *Increase (Decrease) in Cash*                                                         |   |                           |     |   |   |
|                                                                                  |   |                           |     |   |   |
| *CASH FLOWS FROM OPERATING ACTIVITIES*                                                |   |                           |     |   |   |
|                                                                                  |   |                           |     |   |   |
| Net income (loss)                                                                     |   | $                              | (105,553 | ) | $ | (7,771 | ) |
| Adjustments to reconcile net income (loss) to net cash used in  operating activities: |   |                           |     |   |   |
| Depreciation                                                                          |   | 975                            |     | — |   |
| Equity losses of affiliates                                                           |   | 45,577                         |     | — |   |
| (Increase) in receivables                                                             |   | 15                             |     | — |   |
| Increase in deferred offering costs                                                   |   | (8,036                         | )        | (550 | ) |
| (Decrease) in accounts payable                                                        |   | (8,644                         | )        | (95 | ) |
| Increase in accrued expenses                                                          |   | 480                            |     | 600 |   |
| Increase (decrease) in income taxes payable                                           |   | —                         |     | (247 | ) |
| Total adjustments                                                                     |   | 30,367                         |     | (292 | ) |
| Net cash used in operating activities                                                 |   | (75,186                        | )        | (8,063 | ) |
|                                                                                  |   |                           |     |   |   |
|                                                                                  |   |                           |     |   |   |
| *CASH FLOWS FROM INVESTING ACTIVITIES*                                                |   |                           |     |   |   |
|                                                                                  |   |                           |     |   |   |
| Investment in affiliates                                                              |   | (200,350                       | )        | (23,250 | ) |
| Increase in loans receivable, net                                                     |   | (237,667                       | )        | — |   |
| Additions to equipment and furniture                                                  |   | (5,436                         | )        | — |   |
| Net cash used in investing activities                                                 |   | (443,453                       | )        | (23,250 | ) |
|                                                                                  |   |                           |     |   |   |
| *CASH FLOWS FROM FINANCING ACTIVITIES*                                                |   |                           |     |   |   |
|                                                                                  |   |                           |     |   |   |
| Collections of stock subscriptions                                                    |   | —                         |     | 120,800 |   |
| Proceeds from line of credit                                                          |   | 409,918                        |     | — |   |
| Net cash from financing activities                                                    |   | 409,918                        |     | 120,800 |   |
|                                                                                  |   |                           |     |   |   |
| *NET INCREASE (**DECREASE) IN CASH*                                                   |   | (108,721                       | )        | 89,487 |   |
|                                                                                  |   |                           |     |   |   |
| *CASH, BEGINNING OF PERIOD*                                                           |   | 262,072                        |     | 546,334 |   |
|                                                                                  |   |                           |     |   |   |
| *CASH, END OF**PERIOD*                                                                |   | $                              | 153,351  |   | $ | 635,821 |   |

* *

* *

*SUPPLEMENTALSCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:*

 
| Exchange  of 50,000 shares of common stock for 250,000 shares of |   |   |    |   |   |   |   |
|------------------------------------------------------------------|--------|--------|---------|--------|--------|--------|--------|
| Genesis  Financial                                               |   | $      | 250,000 |   | $      | — |   |

 

See accompanying notes to consolidatedfinancial statements.

 

7

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**TemporaryFinancial Services, Inc. and Subsidiary**

 

**Notesto Consolidated Financial Statements**

 

***NOTE 1 —ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:***

 

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim information and with the instructions to Form 10-QSB and Regulation S-B.   Accordingly, they do not include all of the information and disclosures required for complete financial statements.  In the opinion of management, all adjustments consisting of a normal and recurring nature considered necessary for a fair presentation have been included.  Operating results in the 2002 interim periods may not necessarily be indicative of the results that may be expected for the year ending December 31, 2002.   This report should be read in conjunction with the financial statements included in the Company’s 2001 Form 10-KSB as filed with the Securities and Exchange Commission on March 29, 2002.

 

*Organization:*

 

The accompanying financial statements arethose of Temporary Financial Services, Inc., incorporated in Washington Stateon October 4, 2000, and its wholly-owned subsidiary, Temps Unlimited,Incorporated, which was incorporated in Washington State on October 31, 2000(collectively referred to herein as the Company).  Both companies have established their fiscal year end to beDecember 31.

 

The Company had no significant operations frominception (October 4, 2000) through March 31, 2001, and was considered to be adevelopment stage company until late 2001. In late 2001, the Company evolved from the development stage to theoperating stage and is no longer considered to be a development stage company.The Company’s operations consist of two segments: financing and other servicesfor businesses (including businesses engaged in the temporary employmentservices industry and businesses engaged in the seller financed real estatereceivables secondary markets), and minority ownership of businesses.  As of March 31, 2002, the Company ownedminority interests in two temporary labor businesses, and a business engaged inpurchasing and reselling real estate contract receivables.

 

*Summary of Significant Accounting Policies:*

 

*Principles of consolidation* — The consolidatedfinancial statements include the accounts of the Company and its wholly-ownedsubsidiary.  All material intercompanyaccounts and transactions are eliminated in consolidation.

 

*Use of estimates* — The preparationof financial statements in conformity with accounting principles generallyaccepted in the United States of America requires management to make estimatesand assumptions that affect the reported amounts of assets and liabilities anddisclosure of contingent assets and liabilities at the date of the financialstatements and the reported amounts of revenue and expenses during thereporting period.  Actual results coulddiffer from those estimates.

 

*Cash* — Cash consists of demand deposits,including interest-bearing accounts, held in three local banks.

 

*Deferred stock offering costs* — Legal and other fees and costs incurred inconnection with the Company’s public stock offering have been deferred as ofMarch 31, 2002 and 2001, and are presented as current assets.  The Company’s public offering terminated onMarch 31, 2002 and was successfully closed on April 18, 2002.  As a result of the successful completion ofthe public offering, in the quarter ending June

 

8

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30, 2002,all deferred offering costs will be deducted from the gross offering proceedsand will reduce additional paid-in capital.

 

*Office furniture and equipment* — Officefurniture and equipment are stated at cost. Depreciation is computed using the straight-line method over anestimated useful life of seven years.

 

*Investment Recoverability -*The Companyperiodically evaluates the recoverability of its equity investments, inaccordance with APB No. 18, “The Equity Method of Accounting for Investments inCommon Stock,” and if circumstances arise where a loss in value is consideredto be other than temporary, the Company will record a write-down of excessinvestment cost. As indicated in Note 4, in the first quarter, 2002, theCompany invested $450,350 ($200,350 cash plus 50,000 shares of the Company’scommon stock valued at $5.00 per share) for a 42% equity interest in GenesisFinancial, Inc., and loaned Genesis an additional $200,000 on a convertiblenote.  The Company subsequently agreedto provide up to $2,000,000 under a secured warehousing line of credit.  At March 31, 2002, the Company consideredits investment to be fairly valued at original cost ($450,350) less theCompany’s share of “Equity Losses in Affiliates” ($42,776).  The net investment carrying value of theGenesis investment at March 31, 2002 was $407,574.

 

*Revenue recognition -*TheCompany generates revenues from loan fees, loan administration fees, and feebased accounting services.

 

For short term loans to temporarylabor businesses, the Company recognizes loan fees at the time the loan amountsare advanced to borrowers.  Loanadministration fees are set at a weekly fixed amount and are recognized asearned at the end of the week to which the loan administration fee applies.Loan advances are typically made on a weekly basis, and the amount of theadvance is netted against the applicable loan fees and loan administrationfees.

 

In the seller financed realestate receivables business, the Company advances loan proceeds to borrowers tofinance the purchase of the real estate contracts.  The Company’s loans are then repaid at the time that the borrowerresells the real estate receivable contract. Interest will be charged monthly on line of credit advances from thedate of the advance until repaid.

 

Fee based accounting servicesare typically charged at a monthly fixed rate, and are invoiced as income atthe end of the month in which the services are performed.

 

*Allowance for loan losses* — The Companyprovides for estimated loan losses on loans receivable at a level which, inmanagement’s opinion, is adequate to absorb credit losses on such loans.  The amount of the allowance is based onmanagement’s evaluation of the collectibility of the loans receivable, includingthe nature of the loans, adequacy of collateral, credit concentrations, trendsin loss experience, specific impaired loans, economic conditions, and otherrisks inherent in the loans.  At March31, 2002, management determined that no allowance for loan losses wasnecessary.

 

*Investments in affiliates —*The Company’s minority investments in affiliated companies are reportedusing the equity method.  The Company’sshare of earnings and losses of the affiliates is reported as income or expensein the period in which the earnings or losses are incurred.

 

9

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*Notes receivable for stock purchase -* Notes receivable from officers/directors and a consultant inconnection with the sale and issuance of common stock was reported as areduction to stockholders equity until payment was received on June 26,2001.  See Note 3.

 

*Income tax* — The Companyfiles a consolidated federal income tax return with its subsidiary. Deferredtaxes are provided, when material, on a liability method whereby deferred taxassets are recognized for deductible temporary differences and deferred taxliabilities are recognized for taxable temporary differences.  Temporary differences are the differencesbetween the reported amounts of assets and liabilities and their taxbases.  There were no material temporarydifferences for the periods presented. Deferred tax assets, subject to a valuation allowance, are recognized forfuture benefits of net operating losses being carried forward.

 

*Earnings per share*— Earnings (loss) per common sharehas been computed on the basis of the weighted-average number of common sharesoutstanding during the period presented.

 

***NOTE 2 —RELATED-PARTY TRANSACTIONS:***

 

Beginning June 1, 2001, theCompany provided an officer/stockholder with office space and support staffunder an informal arrangement.  Theofficer/stockholder reimburses the Company at the rate of $500 per month forrent and personnel costs.

 

In the three months ended March31, 2002 and 2001, the Company purchased professional services of anofficer/director at a cost of $35,679 and -0-, respectively.

 

As discussed in note 3, theCompany had loans receivable from affiliates totaling $308,887 at March 31,2002.

 

At March 31, 2002, the Companyhad a $1,000,000 line of credit with an officer/stockholder (see note 5) onwhich interest expense of $9,918 was incurred in the quarter ending March 31,2002.

 

***NOTE 3 — LOANS RECEIVABLE:***

 

TheCompany provides short-term financing for temporary staffing businesses,including affiliates.  The financingconsists of notes receivable that are generally collateralized by theborrower’s accounts receivable, all assets of the borrower, and the use ofpersonal guarantees and pledges where appropriate.  Lending criteria established to minimize credit risk include,among other things, assessment of the operators capabilities, minimum businesscapitalization requirements, maintenance of an adequate accounts receivableborrowing base, and a requirement for timely reporting of financial informationto demonstrate ongoing compliance with loan covenants.  For the three months ended March 31, 2002,the Company incurred no loan losses and there were no impaired loansoutstanding at March 31, 2002.

 

Inaddition, at March 31, 2002, the Company had loaned Genesis Financial, Inc.(see Note 4) $200,000 on a two year convertible note bearing interest at 6%,and has an outstanding commitment for an undisbursed loan in the amount of$2,000,000 to Genesis financial under its secured warehousing line of credit.

 

10

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***NOTE 4 — INVESTMENTS IN AFFILIATES:***

 

In 2001, the Company’s whollyowned subsidiary, Temps Unlimited, Inc., made minority (18%) investments in twostart-up temporary labor dispatch offices. Temps Unlimited of Minnesota, LLC doing business as Staffing on Demand,and Temps Unlimited of Nebraska, LLC, doing business as ValuStaff, are formedas limited liability companies.  Thesebusinesses provide unskilled and semi-skilled temporary workers to customerbusinesses as requested.  In the threemonths ended March 31, 2002, the Company reported unrealized losses from itsinvestment in Staffing on Demand of $3,769, and unrealized gains from itsinvestment in Valustaff of $969.

 

On January 25, 2002, the Companyacquired a 42% equity interest in Genesis Financial, Inc., a newly formedWashington corporation engaged in the business of brokering, purchasing andreselling seller financed real estate receivable contracts.  The investment consisted of $200,350 cashplus 50,000 shares of restricted Temporary Financial Services, Inc. commonstock (valued at $250,000), for which the Company received 800,000 shares ofGenesis Common Stock.  After theCompany’s investment, Genesis has 1,900,000 shares issued and outstanding.  From inception (January 2, 2002) throughMarch 31, 2002, the Company’s share of unrealized losses amounted to$42,776.  For that period, Genesisgenerated no revenues or gross profit, and incurred a net loss of $96,843.

 

In addition, the Company loanedGenesis $200,000 on a convertible note, and agreed to provide a $2,000,000secured warehousing line of credit for the acquisition of seller financed realestate receivable contracts.  The$2,000,000 line of credit expires on February 15, 2003, carries a 1⁄4 %commitment fee, and bears interest at the rate of 2% over the Sterling SavingsBank Prime Rate.

 

***NOTE 5 — LINE OF CREDIT:***

 

At March 31, 2002, the Companyhad an outstanding balance of $510,877 against a $1,000,000 line-of-credit withan officer/stockholder.  Theline-of-credit is unsecured and bears interest at 10%.  The line-of-credit agreement expires onAugust 15, 2002 and any outstanding balance is due on that date.

 

***NOTE 6 — CAPITAL STOCK:***

 

*Shares Issued to Officers/Directors and Consultant:*

 

Upon incorporation, the Companyentered into stock subscription agreements with three officers/directors and aconsultant officer for a total of 100,000 common shares.  Each of the four agreements provided for thesale and issuance of 25,000 shares at $1 per share.   The agreements called for an initial payment of $6,250 in cashand an $18,750 note receivable from each of the individuals.  The notes receivable, totaling $75,000 atMarch 31, 2001, were unsecured and bore interest at 6.3%.  The notes receivable were reflected as areduction of stockholders’ equity until collected in full on June 26, 2001.

 

*Private Placements:*

 

Through March 31, 2001, theCompany completed two series of unregistered private placements of commonstock.  A total of 250,000 shares weresubscribed and payment had been received in full by March 31, 2001.    The gross proceeds for the two privateplacements totaled $650,000.

 

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*Preferred Stock:*

 

Shares of the Company’sauthorized but unissued preferred stock, if issued, are entitled preferenceover common shares in distribution of assets upon the Company’s liquidation ordissolution.  Preferred shares have nostated dividend rate.  As of March 31,2002, no shares of preferred stock had been issued.

 

*Public Stock Offering:*

 

Effective January 9, 2002, the Company initiated an initial publicoffering of 200,000 to 800,000 shares of its common stock at $5 per share.  In connection with the initial publicoffering, the Company previously filed a registration statement with theSecurities and Exchange Commission and the registration statement was declaredeffective by the Commission on January 8, 2002.  The offering terminated on March 31, 2002, and was subsequentlyclosed on April 18, 2002.  See Note 9.

 

***NOTE7 — INCOME TAX:***

 

The Company generated a tax-basis net operating loss of approximately$105,000 for the three months ended March 31, 2002, which is available forcarryover to offset future taxable income through 2022.  Total tax-basis net operating lossesavailable for carryover as of March 31, 2002 amounted to approximately $220,000(from inception of the Company on October 4, 2000).

 

At March 31, 2002, the Company estimates that it has a $55,000 deferredtax asset relating to the operating loss carryovers.  The deferred tax asset was fully offset by a valuation allowancebecause of uncertainties if the Company will generate sufficient future taxableincome to realize the tax benefit.  AtMarch 31, 2002, the income tax benefit differed from the $55,000 expectedamount because of the impact of recognizing the deferred tax asset valuationallowance.

 

***NOTE 8 — OPERATING LEASES:***

 

In June, 2001, the Companyentered into an operating lease of its office premises.  Also in 2001, the Company leased certainoffice equipment under an operating lease agreement.  Following are the future commitments under the leases for thecalendar periods presented:

 

| 2002 |   | $      | 17,000 |   |
|------|--------|--------|--------|--------|
| 2003 |   | 17,000 |   |
| 2004 |   | 8,000  |   |

 

***NOTE 9 — SUBSEQUENT EVENTS:***

 

On April 18, 2002, the Company closed its initial public offering aftersale of 337,280 shares.  Gross offeringproceeds of $1,686,400 were received and distributed in accordance with theterms of the offering.  As of March 31,2002, the Company had incurred and recorded $62,081 in deferred offeringcosts.  Additional offering costsincurred from April 1 through April 18, 2002 amounting to $124,270 were paid ator prior to closing.  After payment ofall offering costs and underwriting discounts, aggregating $186,350, theCompany received net offering proceeds of $1,500,050.  This amount will be recorded as additional equity in the quarterended June 30, 2002.

 

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In connectionwith the initial public offering, the Company entered into an underwritingagreement with Public Securities of Spokane, Washington.  Underwriting discounts and non-accountableexpense allowances paid to the Underwriter at closing amounted to $116,864.  The Underwriter also received common stockpurchase warrants entitling the Underwriter to purchase up to 33,728 shares ofthe Company’s common stock at an exercise price of $7.00 per share.  The Warrants and underlying shares wereregistered in the initial public offering and are exercisable beginning oneyear after the effective date of the offering. The Underwriter’s warrants expire on the March 31, 2007.

 

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**FORM 10-QSB**

 

**Part I, Item 2.****                                                                      ManagementsDiscussion and Analysis of financial condition and results of operations.**

 

TemporaryFinancial Services, Inc. and its wholly owned subsidiary, Temps Unlimited, Inc.are engaged in the business of lending to, investing in, and providing servicesto businesses.  We generate revenuesfrom lending activities and fee based services.  Our investing activities will yield returns through currentdistributions of earnings from the businesses we invest in and throughrealization of value appreciation when the investment asset is sold or transferred.  After payment of operating expenses, weanticipate that profits and surplus cash flows will be reinvested in the growthof the Company for the foreseeable future. We do not expect to pay cash dividends.

 

The Company was organized inOctober, 2000, and began operations in the second quarter of 2001.  In the three months ended March 31, 2001,our efforts were focused on initial fundraising activities and the developmentof our business plan and operational procedures.  Consequently, the results of operations for the three monthsended March 31, 2001 are not comparable to the three months ended March 31,2002.  This quarterly report focuses onthe three month period ended March 31, 2002. Limited analysis of the period ending on March 31, 2001 is providedwhere such analysis aids in understanding the current financial condition ofthe business.

 

**Resultsof Operations**

 

As of March31, 2002, we had loans outstanding of $643,747, with five businesses in twodistinct industry segments.  Thefollowing table provides borrower information, affiliate status and outstandingbalances as of March 31, 2002.

 
| **Temporary Staffing Businesses**                      |       |
|--------------------------------------------------------|------------|
| **Business  Name**                                     |       | **Affiliate  Status** |   | **Loan  Balance** |   |
| Valustaff                                              |       | Affiliated (18%) |   | $ | 16,780 |   |
| Staffing on Demand                                     |       | Affiliated (18%) |   | 89,970 |   |
| Everyday Staffing                                      |       | Independent |   | 224,619 |   |
| Ozark Labor                                            |       | Independent |   | 110,241 |   |
| Total temporary staffing loans                         |       |   | *** *** | ***441,610*** | *** *** |
| **Seller Financed Real Estate Receivables Businesses** | ** ** |
| Genesis Financial, Inc.                                |       | Affiliated (42%) |   | 202,137 |   |
| Total seller financed real estate  receivables loans   |       |   | *** *** | ***202,137*** | *** *** |
| Total loans outstanding all segments.                  |       |   | ** ** | **$** | **643,747** | ** ** |

 

 

In the quarterending March 31, 2002, the Company generated loan related revenues of $26,812on its lending business.

 

Revenues fromfunds loaned to businesses in the temporary staffing industry are derived fromloan fees and loan set-up and administration costs.  Loans to temporary labor businesses are made weekly based onsales and collection reports provided by the temporary labor office, andrequire significant monitoring and review of accounts receivable collateral andweekly

 

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operations reports.  We also consider loans to temporary laborbusinesses to entail more than an average amount of risk and have based ourloan rates on our assessment of effort and risk.  Our existing temporary labor business borrowers have been in ourloan programs for more than six months, and at present, loan set-up feesincluded in loan revenues are scheduled to end after twelve months in theprogram.  We currently charge $100 perweek for set-up fees.  When the set-upfees end on our existing borrowers, the aggregate loan revenues will decrease.  This may impact our business in futureperiods if new borrowers are not added to replace this lost revenue.

 

We have alsoloaned $200,000 to Genesis on a convertible note bearing interest at 6%. Theinterest rate on the Genesis loan reflects the conversion feature included inthe note and a lower servicing cost for a two year fixed term loan.  The company expects to obtain a higher yieldon this note over the term by converting the note when the underlying shareshave appreciated in value.  We have noassurances that the underlying shares will actually appreciate in value, and,if not converted to Genesis common stock, the loan will yield 6% to maturity onJanuary 4, 2004.

 

In the firstquarter 2002, we generated $5,500 in accounting fee service income by providingmonthly accounting services to three temporary staffing businesses and GenesisFinancial, Inc.  Our temporary laborbusiness accounting customers are located long distances from our offices,making onsite accounting assistance impracticable, and we have found that thelocal operators require regular monitoring to assure that the proper proceduresare being followed in the local offices. Some of this problem is related to the temporary labor business softwarethat our customers use, and we continue our search for more effectiveprocedures to streamline the accounting services. In the meantime, however, wehave found that we cannot charge a fair amount for the effort we must expend toprovide accounting services. Accordingly, accounting services in the temporary staffing industry isnot considered a viable business for the Company in the long term, and weexpect that we will phase out much of our temporary labor accounting servicesbusiness by the end of 2002.

 

We also holdminority investments in two temporary labor businesses through Temps Unlimited,Inc., a wholly owned subsidiary corporation.  Investments of $12,000 for 18% of Temps Unlimited of Minnesota, LLC (dbaStaffing on Demand), and of $11,250 for 18% of Temps unlimited of Nebraska, LLC(dba ValuStaff), were made in the second quarter 2001.

 

We account forour investments in Staffing on Demand and ValuStaff under the equity method ofaccounting.  Unrealized profits andlosses on the investments are recorded as income or loss on the books of TempsUnlimited, Inc. and are then consolidated with the results of TemporaryFinancial Services, Inc.  During thethree months ended March 31, 2002, we recorded an unrealized loss oninvestments of $3,769 from our investment in Staffing on Demand, and anunrealized gain of $969 from our investment in ValuStaff.

 

Staffing on Demand commencedoperations on June 15, 2001, and since its inception has incurred total lossesof $84,606.  Our share of losses fromStaffing on Demand total $15,229, exceeding our original investment of $12,000by $3,229.  While we currently havenegative capital account in Staffing on Demand, we expect that this businesswill continue to grow in the coming months as the weather in Minnesotaimproves.  We are exploring alternativesto reorganize the business to further improve operating results, and we remainoptimistic about the long term prospects for Staffing on Demand.

 

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ValuStaff opened for businesson May 7, 2001 and since inception has incurred total losses of $50,876.  During the three months ended March 31,2002, Valustaff generated a net profit of $5,383, and its business appears tobe turning the corner to profitability. Now that the warmer spring season is at hand, we expect the business ofValuStaff to pick up and we anticipate additional growth in revenues andprofits.

 

On January 25,2002, we funded Genesis Financial, Inc. (Genesis).  Genesis is engaged in the business of brokering, buying andreselling seller financed real estate receivables.  We invested $200,350 and 50,000 shares of Temporary FinancialServices Inc. common stock into Genesis in exchange for 800,000 shares ofGenesis Financial, Inc. common stock, representing a 42% interest in thecompany.  We also loaned Genesis$200,000 on a 6% convertible note, and agreed to provide Genesis with a$2,000,000 secured warehousing line of credit. The Genesis secured line of credit bears expires February 15, 2003,carries a 1⁄4 % loan commitment fee, and bears interest at 2% over the SterlingSavings Bank Prime Rate.

 

From January25 through March 31, 2002, Genesis focused on setting up its offices anddeveloping its operating procedures and business models.  Genesis also got the word out to the sellerfinanced real estate receivables community that it was open for business.  As a result of these efforts, in the quarterending March 31, 2002, Genesis attracted a significant amount of interest andtendered bids on approximately 160 real estate contracts with an aggregate facevalue exceeding $6,000,000.  The Companyexpects to close approximately one in three transactions that it bids on.  At March 31, 2002, the Company was workingto close its first transaction, and expects to increase transaction closings toone a day in the near future.

 

Start-upexpenses incurred by Genesis in the quarter ended March 31, 2002, resulted inan unrealized loss to Temporary Financial Services of $42,776.  This amount is reflected as Equity in Lossesof Affiliates on the income statement and as a reduction in the Genesisinvestment on the balance sheet.  Thelosses incurred by Genesis in the first quarter were expected and areconsistent with the Genesis business plan. Revenue from operations will commence in the second quarter 2002.

 

Overall, theCompany generated gross revenues of $42,032 during the three months ended March31, 2002.  Expenses totaled $147,585,resulting in a net operating loss of $105,553 for the period.  Significant efforts were devoted tocompleting the Company’s initial public offering in the first quarter of 2002.  Consistent with our business plan, we didnot actively solicit new loan business in the first quarter.  The capital provided from the initial publicoffering will now allow a more aggressive business development effort, and weexpect that our business base will continue to grow in the coming periods.  We expect that operating results for theremainder of the year will continue to reflect operating losses, but the levelof losses will decrease.  We anticipatebreakeven operating results by the end of 2002.

 

We believethat the losses incurred to date are consistent with the stage of developmentof the company and are in line with the business plan.  We will continue to monitor progressthroughout 2002 and will adjust our business plan to address any operationalissues as they arise.  As noted, we arecurrently exploring a reorganization of our Minneapolis temporary laboraffiliate to improve operating results in the Staffing on Demand stores, and weexpect that we will phase out our temporary labor business accounting servicesover the remainder of the year.  Thiswill allow us more time to review and evaluate other business opportunities.

 

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**EvolvingOperations.**

 

Since we began active operations in mid 2001, we have gained additionalinsights into the business of lending to temporary labor businesses.  We have also monitored a group of temporarylabor business entrepreneurs with whom we expected to do substantial amounts ofbusiness.  The entrepreneurial group hasproceeded more slowly and cautiously to develop new temporary labor offices,and this has affected the number and quality of borrowers that we areseeing.  As a result, our business oflending to temporary labor businesses is proceeding more slowly than weoriginally anticipated.

 

Our initial public offering raised net offering proceeds of $1,500,000and this amount coupled with our prior private equity placements leave us withtotal invested capital to date of $2,500,000. As noted above, this amount is sufficient to meet our anticipated needsfor twelve to eighteen months.  We nowbelieve, however, that we can build additional value for our shareholders byexpanding the focus of our business. During the remainder of 2002, we will evaluate other businessopportunities and continue to refine the business plan to accommodate valuebuilding activities.  We anticipate thatthe funds from our public offering will be applied in a manner consistent withthe Use of Proceeds in our Prospectus, but as additional opportunities arise, wemay seek additional funding through private placements, follow-on publicofferings, preferred stock or debt financings, or other appropriate sources, inorder to pursue the additional opportunities. When warranted, we may also redirect our existing capital structure tonew business opportunities where we believe the benefits to our shareholdersexceed the returns from the existing plan.

 

**Liquidityand Capital Resources**.

 

At March 31,2002, we have loans to temporary labor businesses outstanding in the amount of$441,610, a term loan of $200,000 to Genesis, and a secured warehousing line ofcredit commitment to Genesis in the amount of $2,000,000.   We expect the amount of loaned funds tocontinue to increase as the borrowers’ businesses grow and their borrowingneeds increase.

 

At March 31,2002, cash and cash equivalents amounted to $153,351 and our unused line ofcredit with an officer and director amounted to $489,000.  In anticipation of increasing loans toGenesis under the secured warehousing line of credit, and increasing loans totemporary labor businesses as business grows during the spring and summer,  we have discussed back-up financing with ourprimary bank and an officer and director should additional financing be needed.  In addition, we closed our public offeringon April 18, 2002 and received over $1,500,000 in net offering proceeds.  Consequently, we believe that our cashposition will be adequate to support our business operations for the nexttwelve to eighteen months.  Ifnecessary, we believe that additional leverage is available to supplement ourcash position if our borrowers require more funds than we are able to coverwith our internal capital position.

 

Pending use offree cash for loans, investments, or operations, we will place the funds inaccessible interest or dividend bearing accounts and will manage our surplusworking capital position to provide current earnings.

 

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**FORM10-QSB**

**PARTII**

 

**Part II, Item 1.  Legal proceedings. None**

 

**Part II, Item 2. Changes in securities.**

 

On March 31, 2002, Temporary Financial Services, Inc. terminated itsinitial public offering.  On April 18,2002, a closing was held for the offering and the offering proceeds weredistributed in accordance with the terms of the offering.  The following information is provided.

 

•                    The effective date of the RegistrationStatement on Form SB-2 was January 8, 2002.

•                    The Registration Statement file number withthe Securities & Exchange Commission is 333-60326.  800,000 shares of common stock wereregistered for sale at $5.00 per share.

•                    The offering Prospectus was dated January 9,2002 and the offering commenced on January 15, 2002.

•                    In accordance with the terms set forth in theProspectus, the offering terminated on March 31, 2002.

•                    As of the offering the termination date, atotal of 337,280 shares had been sold at $5.00 per share, raising an aggregateof $1,686,400.

•                    The Underwriting was conducted by PublicSecurities Corporation as lead underwriter.

•                    The offering consisted of 200,000 shares(minimum), 800,000 shares (maximum) of Temporary Financial Services, Inc.common stock, $0.001 par value per share.

•                    Offering proceeds, offering costs, and netoffering proceeds were as follows:

 
| • | Gross offering proceeds                              |   | $                     | 1,686,400 |    |
|--------|------------------------------------------------------|--------|-----------------------|-----------|---------|
|   |                                                 |   |                  |      |
| • | Transfer agent fees                                  |   | 2,032                 |      |
| • | EDGAR filing services                                |   | 2,073                 |      |
| • | Audit fees                                           |   | 3,434                 |      |
| • | Printing costs                                       |   | 25,874                |      |
| • | Underwriter’s non-accountable expense allowance |   | 16,864                |      |
| • | Underwriter’s discounts                         |   | 100,000               |      |
| • | State blue sky filing fees                           |   | 7,785                 |      |
| • | Legal fees                                           |   | 28,289                |      |
|   | •                                               |   | Total Offering Costs  |      | 186,352 |   |
|   | •                                               |   | Net Offering Proceeds |      | $       | 1,500,048 |   |

 

 

As of March 31, 2002, none ofthe net offering proceeds had been applied to the business purposes of theCompany.  Until the Closing of theoffering on April 18, 2002, the gross offering proceeds were held in the FundImpound Account at Sterling Savings Bank. Application of the net offering proceeds will be reported in the Form10-QSB for the quarter ended June 30, 2002.

 

**Part II, Item 3.Defaults upon senior securities.  None**

 

**Part II, Item 4.Submission of matters to a vote of security holders.  None**

 

**Part II, Item 5.Other information.  None**

 

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**Part II Item 6.  Exhibits and Reports on Form 8-K**

 

**(a)      Exhibits.**

 
| **Exhibit  No.** |   | **Description**                                                            |
|------------------|--------|----------------------------------------------------------------------------|
| 10.1             |   | Genesis  Financial, Inc. Stock Investment Agreement dated January 25, 2002 |
| 10.2             |   | Genesis  Financial, Inc. Convertible Note dated January 25, 2002           |
| 10.3             |   | Option to  Acquire Shares from a Shareholder dated January 25, 2002.       |
| 10.4             |   | Warehousing  Line of Credit dated February 20, 2002.                       |
| 10.5             |   | Exhibit B to  Warehousing Line of Credit — Financial Covenants        |
| 10.6             |   | Security  Agreement dated February 20, 2002                                |
| 10.7             |   | Guaranty  dated February 20, 2002.                                         |

 

**(b)      Reportson Form 8-K.  None**

 

**SIGNATURES**

 

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

 

TEMPORARY FINANCIAL SERVICES, INC.

 

 
| /s/John R. Coghlan |   | President                               |   | John R. Coghlan |   | May 9, 2002 |
|--------------------|--------|-----------------------------------------|--------|-----------------|--------|-------------|
| Signature          |   | Title                                   |   | Printed  Name   |   | Date        |
|               |   |                                    |   |            |   |        |
|               |   |                                    |   |            |   |        |
| /s/Brad E. Herr    |   | Secretary, Principal Financial  Officer |   | Brad E. Herr    |   | May 9, 2002 |
| Signature          |   | Title                                   |   | Printed Name    |   | Date        |

 

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Form 10-QSB Exhibits Index

 
| **Exhibit  Number** |   | **Description**                                                            |   |
|---------------------|--------|----------------------------------------------------------------------------|--------|
| 10.1                |   | Genesis  Financial, Inc. Stock Investment Agreement dated January 25, 2002 |   |
| 10.2                |   | Genesis  Financial, Inc. Convertible Note dated January 25, 2002           |   |
| 10.3                |   | Option to  Acquire Shares from a Shareholder dated January 25, 2002.       |   |
| 10.4                |   | Warehousing  Line of Credit dated February 20, 2002.                       |   |
| 10.5                |   | Exhibit B to  Warehousing Line of Credit — Financial Coovenenats      |   |
| 10.6                |   | Security  Agreement dated February 20, 2002                                |   |
| 10.7                |   | Guaranty  dated February 20, 2002.                                         |   |

 

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