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 September
25, 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 x   No
 ̈





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 January 15, 2010 was 37,212,923shares.


10-Q









Contents








FORM
10-Q


PagePART
      IItem
      1. Financial Statements (unaudited)Management
      Statement
                                            10-Q
      Page 3Balance
      Sheet at September 25, 2009 and December 26, 2008
                                            10-Q
      Page 4Statements
      of Operations for the thirteen week periods and the Thirty-nine week
      periods ended September 25, 2009 and September 26, 2008
                                            10-Q
      Page 5Statements
      of Cash Flows for the thirty-nine week periods ended September 25, 2009
      and September 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 15Item
      3. Quantitative and Qualitative Disclosures about Market
    Risk
                                            10-Q
      Page 19Item
      4.  Controls and Procedures
                                            10-Q
      Page 20Part
      IIItem
      2  Unregistered Sales of Equity Securities
                                            10-Q
      Page 20Item
      6. Exhibits and Reports on Form 8-K
                                            10-Q
      Page 20Signatures
                                            10-Q
      Page 21Certifications
                                            10-Q
      Page 22 -
25




10-Q
 Page
2





PART
I


Item 1.
Financial Statements.





MANAGEMENT
STATEMENT





The
accompanying balance sheets of Command Center, Inc. as of September 25, 2009
(unaudited) and December 26, 2008, and the unaudited statements of operations
and cash flows for the thirteen week and the thirty-nine week periods ended
September 25, 2009 and September 26, 2008 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.


January
15, 2010


10-Q
 Page
3





Command
Center, Inc.





Balance
Sheet





September 25, 2009
                    
                    
                    December 26, 2008UnauditedAssetsCURRENT
      ASSETS:Cash
                    
                    $
                    146,707
                    
                    
                    $
                    2,174,960Accounts
      receivable trade, net of allowance for bad debts of $500,000 at September
      25, 2009 and December 26, 2008
                    
                    
                    5,023,415
                    
                    
                    
                    5,223,113Prepaid
      expenses, deposits, and other current assets
                    
                    
                    965,248
                    
                    
                    
                    1,260,153Current
      portion of workers' compensation risk pool deposits
                    
                    
                    1,300,000
                    
                    
                    
                    1,500,000Total
      current assets
                    
                    
                    7,435,370
                    
                    
                    
                    10,158,226PROPERTY
      AND EQUIPMENT, NET
                    
                    
                    2,041,561
                    
                    
                    
                    2,589,201OTHER
      ASSETS:Workers'
      compensation risk pool deposits
                    
                    
                    2,533,784
                    
                    
                    
                    2,729,587Goodwill
                    
                    
                    2,500,000
                    
                    
                    
                    2,500,000Intangible
      assets - net
                    
                    
                    368,854
                    
                    
                    
                    503,606Total
      other assets
                    
                    
                    5,402,638
                    
                    
                    
                    5,733,193$
                    14,879,569
                    
                    
                    $
                    18,480,620Liabilities
      and Stockholders' EquityCURRENT
      LIABILITIES:Accounts
      payable
                    
                    $
                    1,873,304
                    
                    
                    $
                    1,080,735Line
      of credit facility
                    
                    
                    3,012,144
                    
                    
                    
                    2,579,313Accrued
      wages and benefits
                    
                    
                    583,783
                    
                    
                    
                    981,293Other
      current liabilities
                    
                    
                    284,880
                    
                    
                    
                    195,566Current
      portion of note payable
                    
                    
                    9,520
                    
                    
                    
                    9,520Short-term
      note payable, net of discount
                    
                    
                    1,025,000
                    
                    
                    
                    1,868,748Workers'
      compensation and risk pool deposits payable
                    
                    
                    668,518
                    
                    
                    
                    531,062Warrant
      liability
                    
                    
                    336,000
                    
                    
                    
                    —Current
      portion of workers' compensation claims liability
                    
                    
                    1,300,000
                    
                    
                    
                    1,500,000Total
      current liabilities
                    
                    
                    9,093,149
                    
                    
                    
                    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; 37,074,798 and
      36,290,053 shares issued and outstanding, respectively
                    
                    
                    37,075
                    
                    
                    
                    36,290Additional
      paid-in capital
                    
                    
                    51,432,762
                    
                    
                    
                    51,370,627Accumulated
      deficit
                    
                    
                    (49,679,865
                    )
                    
                    
                    (45,860,041
                    )Total
      stockholders' equity
                    
                    
                    1,789,972
                    
                    
                    
                    5,546,876$
                    14,879,569
                    
                    
                    $
                    18,480,620





See accompanying notes to unaudited financial
statements.





10-Q
 Page
4





Command
Center, Inc.





Statements
of Operations (Unaudited)





Thirteen Weeks Ended
                  
                  
                  Thirty-nine Weeks EndedSeptember25
                  
                  
                  September26
                  
                  
                  September25
                  
                  
                  September262009
                  
                  
                  2008
                  
                  
                  2009
                  
                  
                  2008REVENUE:Revenue
      from services
                  
                  $
                  13,173,084
                  
                  
                  $
                  21,747,587
                  
                  
                  $
                  38,331,742
                  
                  
                  $
                  62,675,317Other
      income
                  
                  
                  13,855
                  
                  
                  
                  122,928
                  
                  
                  
                  69,874
                  
                  
                  
                  378,66213,186,939
                  
                  
                  
                  21,870,515
                  
                  
                  
                  38,401,616
                  
                  
                  
                  63,053,979COST
      OF SERVICES:Temporary
      worker costs
                  
                  
                  8,957,172
                  
                  
                  
                  14,475,694
                  
                  
                  
                  26,282,246
                  
                  
                  
                  41,385,881Workers'
      compensation costs
                  
                  
                  463,401
                  
                  
                  
                  1,129,315
                  
                  
                  
                  2,170,542
                  
                  
                  
                  4,898,238Other
      direct costs of services
                  
                  
                  47,620
                  
                  
                  
                  253,474
                  
                  
                  
                  131,254
                  
                  
                  
                  470,5129,468,193
                  
                  
                  
                  15,858,483
                  
                  
                  
                  28,584,042
                  
                  
                  
                  46,754,631GROSS
      PROFIT
                  
                  
                  3,718,746
                  
                  
                  
                  6,012,032
                  
                  
                  
                  9,817,574
                  
                  
                  
                  16,299,348SELLING,
      GENERAL, AND ADMINISTRATIVE EXPENSES:Personnel
      costs
                  
                  
                  1,860,868
                  
                  
                  
                  2,961,797
                  
                  
                  
                  6,039,755
                  
                  
                  
                  10,263,983Selling
      and marketing expenses
                  
                  
                  11,976
                  
                  
                  
                  74,204
                  
                  
                  
                  81,787
                  
                  
                  
                  598,302Transportation
      and travel
                  
                  
                  202,789
                  
                  
                  
                  609,216
                  
                  
                  
                  772,131
                  
                  
                  
                  1,945,799Office
      expenses
                  
                  
                  35,982
                  
                  
                  
                  98,403
                  
                  
                  
                  136,670
                  
                  
                  
                  324,429Legal,
      professional and consulting
                  
                  
                  168,900
                  
                  
                  
                  247,000
                  
                  
                  
                  583,276
                  
                  
                  
                  795,425Depreciation
      and amortization
                  
                  
                  194,050
                  
                  
                  
                  214,630
                  
                  
                  
                  609,598
                  
                  
                  
                  643,456Rents
      and leases
                  
                  
                  376,141
                  
                  
                  
                  623,747
                  
                  
                  
                  1,701,119
                  
                  
                  
                  1,916,955Other
      expenses
                  
                  
                  915,612
                  
                  
                  
                  988,558
                  
                  
                  
                  2,779,714
                  
                  
                  
                  3,314,3383,766,318
                  
                  
                  
                  5,817,555
                  
                  
                  
                  12,704,050
                  
                  
                  
                  19,802,687INCOME
      (LOSS) FROM OPERATIONS
                  
                  
                  (47,572
                  )
                  
                  
                  194,477
                  
                  
                  
                  (2,886,476
                  )
                  
                  
                  (3,503,339
                  )OTHER
      INCOME (EXPENSE):Interest
      expense
                  
                  
                  (148,490
                  )
                  
                  
                  (286,285
                  )
                  
                  
                  (482,807
                  )
                  
                  
                  (578,354
                  )Loss
      on extinguishment of debt
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (518,251
                  )
                  
                  
                  -Change
      in fair value of warrant liability
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  126,000
                  
                  
                  
                  -Interest
      and other income (expense)
                  
                  
                  (53,714
                  )
                  
                  
                  (24,011
                  )
                  
                  
                  (58,290
                  )
                  
                  
                  (23,355
                  )(202,204
                  )
                  
                  
                  (310,296
                  )
                  
                  
                  (933,348
                  )
                  
                  
                  (601,709
                  )NET
      LOSS
                  
                  $
                  (249,776
                  )
                  
                  $
                  (115,819
                  )
                  
                  $
                  (3,819,824
                  )
                  
                  $
                  (4,105,048
                  )LOSS
      PER SHARE, BASIC AND DILUTED
                  
                  $
                  (0.01
                  )
                  
                  $
                  (0.00
                  )
                  
                  $
                  (0.10
                  )
                  
                  $
                  (0.11
                  )WEIGHTED
      AVERAGE COMMON SHARES OUTSTANDING
                  
                  
                  37,041,172
                  
                  
                  
                  36,157,965
                  
                  
                  
                  36,660,036
                  
                  
                  
                  35,993,368





See
accompanying notes to unaudited financial statements.





10-Q
 Page
5





Command
Center, Inc.





Statements
of Cash Flows (Unaudited)





Thirty-nine Weeks EndedSeptember 25, 2009
                    
                    
                    September 26, 2008Increase
      (Decrease) in CashCASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      loss
                    
                    $
                    (3,819,824
                    )
                    
                    $
                    (4,105,048
                    )Adjustments
      to reconcile net loss to net cash used by operating
      activities:Depreciation
      and amortization
                    
                    
                    609,597
                    
                    
                    
                    643,456Write-off
      of fixed assets
                    
                    
                    90,372
                    
                    
                    
                    -Loss
      on debt extinguishment
                    
                    
                    518,251
                    
                    
                    
                    -Amortization
      of note discount
                    
                    
                    75,000
                    
                    
                    
                    65,534Change
      in fair value of warrant liability
                    
                    
                    (126,000
                    )
                    
                    
                    -Closed
      store reserve
                    
                    
                    350,000
                    
                    
                    
                    -Common
      stock issued for compensation
                    
                    
                    62,919
                    
                    
                    
                    158,000Changes
      in operating assets and liabilities:Accounts
      receivable trade
                    
                    
                    199,698
                    
                    
                    
                    (393,840
                    )Prepaid
      expenses, deposits and other current assets
                    
                    
                    294,905
                    
                    
                    
                    (342,609
                    )Workers'
      compensation risk pool deposits
                    
                    
                    395,803
                    
                    
                    
                    (1,207,800
                    )Accounts
      payable
                    
                    
                    442,570
                    
                    
                    
                    (334,217
                    )Accrued
      wages, benefits and other current liabilities
                    
                    
                    (308,194
                    )
                    
                    
                    (480,523
                    )Workers'
      compensation and risk pool deposits payable
                    
                    
                    137,456
                    
                    
                    
                    1,527,251Workers'
      compensation claims liability
                    
                    
                    (386,372
                    )
                    
                    
                    1,312,111Net
      cash used by operating activities
                    
                    
                    (1,463,819
                    )
                    
                    
                    (3,157,685
                    )CASH
      FLOWS FROM INVESTING ACTIVITIES:Purchases
      of property and equipment
                    
                    
                    (17,577
                    )
                    
                    
                    (107,546
                    )Collections
      on note receivable
                    
                    
                    -
                    
                    
                    
                    74,209Net
      cash used by investing activities
                    
                    
                    (17,577
                    )
                    
                    
                    (33,337
                    )CASH
      FLOWS FROM FINANCING ACTIVITIES:Advances
      on line of credit facility
                    
                    
                    432,831
                    
                    
                    
                    423,874Proceeds
      received from short-term note
                    
                    
                    -
                    
                    
                    
                    1,740,000Proceeds
      allocated to warrants issued in connection with short-term
      note
                    
                    
                    -
                    
                    
                    
                    260,000Collections
      of common stock subscriptions
                    
                    
                    -
                    
                    
                    
                    1,878,000Costs
      of common stock offering and registration
                    
                    
                    -
                    
                    
                    
                    (163,166
                    )Principal
      payments on notes payable
                    
                    
                    (979,688
                    )
                    
                    
                    (140,745
                    )Net
      cash provided (used) by financing activities
                    
                    
                    (546,857
                    )
                    
                    
                    3,997,963NET
      INCREASE (DECREASE) IN CASH
                    
                    
                    (2,028,253
                    )
                    
                    
                    806,941CASH,
      BEGINNING OF PERIOD
                    
                    
                    2,174,960
                    
                    
                    
                    580,918CASH,
      END OF PERIOD
                    
                    $
                    146,707
                    
                    
                    $
                    1,387,859NON-CASH
      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


Command
Center, Inc.


Notes
to Financial Statements





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 September 25, 2009 we were
operating 50stores
located in 20 states.





Reclassifications





Certain
financial statement amounts for the prior period have been reclassified to
conform to the current period presentation. These reclassifications had no
effect on the net 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,” becomes 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.  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.





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





Command
Center, Inc.


Notes
to Financial Statements





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 September 25, 2009 and
September 26, 2008, respectively.  The company incurred losses in the
thirty-nine week periods ended September 25, 2009 and September 26,
2008.  Accordingly, the warrant shares are anti-dilutive and only
basic earnings per share is reported.





NOTE
4 - RELATED-PARTY TRANSACTIONS:





The
Company has had the following transactions with related parties:





Van
Leasing Arrangements





Management
has concluded that the leasing relationship with Alligator LLC (“Alligator”)
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.  We undertook
to assess the primary beneficiary of the Variable Interest Entity to determine
which member of the related party group should consolidate, and concluded that
the Company was not the primary beneficiary.  Therefore Alligator has
not been consolidated in these financial statements.





As of
September 25, 2009 and September 26, 2009 the Company owed Alligator $218,200
and $97,958 respectively for lease payments and driver compensation. Amounts
paid and payable to Alligator have been classified as transportation and
auto/van expenses in the statement of operations.





Subsequent
to the end of the third quarter, on October 7, 2009 Alligator transferred
ownership of the remaining four vans that were then being leased by the Company
to us.  Since that date we have owned and operated the vans, employed
the drivers and have not leased any vans or drivers from Alligator and our
business relationship with Alligator has ended.





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 an annual 1% facility fee payable monthly, 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 September 25, 2009 was
6.25%.


10-Q
 Page
8





Command
Center, Inc.


Notes
to Financial Statements





NOTE
5 - LINE OF CREDIT FACILITY, Continued:





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 September 25, 2009, we were not in compliance with the
working capital ratio, cash flow, tangible net worth or EBITDA
requirements.  Our lender has waived compliance with the working
capital, cash flow, tangible net worth and EBITDA covenants as of September 25,
2009.  The balance due our lender at September 25, 2009 was
$3,012,144.  The credit facility expires on April 7,
2010.





We are
currently involved in active negotiations with our lender for the modification
and extension of our financing arrangement.  On December 24, 2009 we
executed a nonbinding Letter of Interest setting forth the primary terms of our
new arrangement, which are more favorable to the Company than the present
agreement.  We are proceeding with the discussion and preparation of a
binding definitive agreement, consistent with the Letter of
Interest.  If we are successful in concluding the definitive
agreement, we anticipate that the new arrangement will result in significant
cost reductions for the Company.





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 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 became payable in
increasing bi-weekly payments. Payments due under the Note were $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.  Under the extension agreement, if any amounts
for  principal or interest or both remain unpaid as of October 30,
2009, then the Company is obligated to pay to the lender on May 1, 2010 an
additional amount as a liquidity redemption equal to the unpaid total on October
30, 2009.





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.


10-Q
 Page
9





Command
Center, Inc.


Notes
to Financial Statements





NOTE
6 - SHORT-TERM NOTE PAYABLE, Continued:





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 three and six months ended June 26,
2009.  As of September 25, 2009, the fair market value was the same
and no further gain or loss was recorded.





During
the third quarter and continuing to the present time, Company was not in
compliance with bi-weekly principal and interest payments on the extension
agreement.  As of October 30, 2009 there remained due principal and
accrued interest totaling $1,031,939.  As a result of this default,
the liquidity redemption penalty, equal to an additional $1,031,939 has been
incurred.  The Company is in frequent communication with the lender on
this obligation and has reached an agreement in principle with the lender to
restructure and modify the loan.  This nonbinding agreement in
principle would convert the majority of the liquidity redemption penalty to
equity, and lower the interest rate on the remaining balance.  The
agreement in principle will not become binding upon the lender or the Company
until definitive agreements are successfully prepared and
executed.  At the present time, there is no assurance that the efforts
by the Company to conclude this loan modification will be
successful.





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. In the “monopolistic” states Washington and
North Dakota, coverage is provided under mandatory government administered
programs.  Workers’ compensation insurance was provided by Arch
Insurance Group (“Arch”). The Arch policy covered our workers in the states 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 funds 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.


10-Q
 Page
10





Command
Center, Inc.


Notes
to Financial Statements





NOTE
7 -  WORKERS’ COMPENSATION INSURANCE AND RESERVES:,
Continued:





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.





On
December 1, 2009, we accepted an offer from AMS to expand the workers’
compensation coverage provided to also include California and South Dakota, to
be effective as of January 1, 2010.  Concurrently, we gave notice of
cancellation to TriState, also effective January 1, 2010.  With this
change, workers’ compensation coverage will be provided through AMS in all 18 of
the non- monopolistic states in which we presently operate.  As with
the present AMS coverage, the new AMS policy for California and South Dakota
will provide reimbursement for covered losses and expenses in excess of $250,000
per occurrence.  This will result in our being substantially
self-insured in California and South Dakota, as well as the 16 states where we
presently obtain coverage through AMS.





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 $2,170,542 and $4,898,238 in the thirty-nine weeks
ended September 25, 2009 and September 26, 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 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.





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:





In the
thirty-nine weeks ended September 25, 2009, we issued 195,000 shares for
services and 589,745 shares as interest on our finance obligation for our
headquarters office building.  Aggregate value of the shares issued
was $62,920.   All shares were valued based on the market price
for our common stock at the dates of issuance.





The
Company had 10,762,803 warrants to purchase Command Center, Inc. common stock
issued and outstanding on September 25, 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 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.


10-Q
 Page
11





Command
Center, Inc.


Notes
to Financial Statements





NOTE
9 - EVERYDAY STAFFING LLC TAX LIABILITIES, Continued:





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.





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





In
response to the Company’s position that it is not the legal successor to
Everyday Staffing, the Washington Department of Labor and Industries has
recently asserted its claim of successor liability against a second limited
liability company, also known as Everyday Staffing LLC (“Everyday Staffing
II”).  Everyday Staffing II was organized by the members of the first
limited liability company after the first Everyday Staffing LLC was
administratively dissolved by the state. The assertion by the state of successor
liability against Everyday Staffing II is consistent with the position advanced
by Command Center that Everyday Staffing II and not Command Center is the only
successor to the entity against which the industrial insurance taxes were
assessed.


10-Q
 Page
12


Command
Center, Inc.


Notes
to Financial Statements





NOTE
10 - COMMITMENTS AND CONTINGENCIES:





Finance
Obligation





On
November 22, 2005, we 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, we 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 granted us the option to repurchase the property any time after
January 1, 2008 at the purchase price of $1,125,000.





We have
had a continuing involvement in the property based on our contractual right
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.  Due to prevailing market conditions, on December 21, 2009 we
waived and released our purchase option right.  This will have the
effect of reducing the Company’s property and equipment and long-term
liabilities during the fourth quarter 2009.





Contingent
Payroll and Other Tax Liabilities





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





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





Based on
the information currently available, we estimate that the total state payroll
and other tax liabilities owed by the selling entities is between $400,000 and
$600,000 and that total payroll taxes due to the Internal Revenue Service 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 September 25, 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.


10-Q
 Page
13





Command
Center, Inc.


Notes
to Financial Statements


NOTE
10 - COMMITMENTS AND CONTINGENCIES, Continued:





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 day
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.





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, we began negotiating with landlords for
termination of the closed store leases.  We are also seeking
replacement tenants for the properties and are considering other options to
reduce the lease obligations on the closed stores.  With the
determination that store re-openings are unlikely, we had recorded a reserve for
closed store leases totaling $300,000, during 1st quarter
2009.  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.  Total closed store lease obligation at September 25,
2009 was $715,000. In the third quarter 2009, management increased the closed
store lease reserve to $350,000 under the assumption that the near term real
estate market continues to be highly unpredictable and subleasing or disposition
of closed store leases remains a significant challenge.





NOTE
11 –SUBSEQUENT EVENTS:





We have
evaluated all events subsequent to the balance sheet date of September 25, 2009
through the date of filing this Form 10-Q with the SEC on January 15,
2010.  We have determined that except as set forth in the financial
statements and footnotes thereto, there are no subsequent events that require
recognition or disclosure in these financial statements.


10-Q
 Page
14


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 for the thirteen weeks ended
September 25, 2009 compared to the thirteen weeks ended September 26,
2008.  Percentages indicate line items as a percentage of total
revenue.  The table serves as the basis for the narrative discussion
that follows.





Thirteen
      Weeks EndedSeptember
      25
                        
                        
                        September
      262009
                        
                        
                        2008REVENUE:
                        
                        $
                        13,186,939
                        
                        
                        
                        
                        
                        $
                        21,870,515COST
      OF SERVICES:Temporary
      worker costs
                        
                        
                        8,957,172
                        
                        
                        
                        67.9
                        %
                        
                        
                        14,475,694
                        
                        
                        
                        66.2
                        %Workers'
      compensation costs
                        
                        
                        463,401
                        
                        
                        
                        3.5
                        %
                        
                        
                        1,129,315
                        
                        
                        
                        5.2
                        %Other
      direct costs of services
                        
                        
                        47,620
                        
                        
                        
                        0.4
                        %
                        
                        
                        253,474
                        
                        
                        
                        1.2
                        %9,468,193
                        
                        
                        
                        71.8
                        %
                        
                        
                        15,858,483
                        
                        
                        
                        72.5
                        %GROSS
      PROFIT
                        
                        
                        3,718,746
                        
                        
                        
                        28.2
                        %
                        
                        
                        6,012,032
                        
                        
                        
                        27.5
                        %SELLING,
      GENERAL, ANDADMINISTRATIVE
      EXPENSES:Personnel
      costs
                        
                        
                        1,860,868
                        
                        
                        
                        14.1
                        %
                        
                        
                        2,961,797
                        
                        
                        
                        13.5
                        %Selling
      and marketing expenses
                        
                        
                        11,976
                        
                        
                        
                        0.1
                        %
                        
                        
                        74,204
                        
                        
                        
                        0.3
                        %Transportation
      and travel
                        
                        
                        202,789
                        
                        
                        
                        1.5
                        %
                        
                        
                        609,216
                        
                        
                        
                        2.8
                        %Office
      expenses
                        
                        
                        35,982
                        
                        
                        
                        0.3
                        %
                        
                        
                        98,403
                        
                        
                        
                        0.4
                        %Legal,
      professional and consulting
                        
                        
                        168,900
                        
                        
                        
                        1.3
                        %
                        
                        
                        247,000
                        
                        
                        
                        1.1
                        %Depreciation
      and amortization
                        
                        
                        194,050
                        
                        
                        
                        1.5
                        %
                        
                        
                        214,630
                        
                        
                        
                        1.0
                        %Rents
      and leases
                        
                        
                        376,141
                        
                        
                        
                        2.9
                        %
                        
                        
                        623,747
                        
                        
                        
                        2.9
                        %Other
      expenses
                        
                        
                        915,612
                        
                        
                        
                        6.9
                        %
                        
                        
                        988,558
                        
                        
                        
                        4.5
                        %3,766,318
                        
                        
                        
                        28.6
                        %
                        
                        
                        5,817,555
                        
                        
                        
                        26.6
                        %INCOME
      (LOSS) FROM OPERATIONS
                        
                        
                        (47,572
                        )
                        
                        
                        -0.4
                        %
                        
                        
                        194,477
                        
                        
                        
                        0.9
                        %OTHER
      INCOME (EXPENSE):
                        
                        
                        (202,204
                        )
                        
                        
                        -1.5
                        %
                        
                        
                        (310,296
                        )
                        
                        
                        -1.4
                        %NET
      LOSS
                        
                        $
                        (249,776
                        )
                        
                        
                        -1.9
                        %
                        
                        $
                        (115,819
                        )
                        
                        
                        -0.5
                        %


10-Q
 Page
15


Results
of Operations





Operations
Summary. Revenue in the thirty-nine week period ended September 25, 2009
was $38.4 million compared to $63.1 million in the thirty-nine week period ended
September 26, 2008 a decline of 39%. In the third quarter 2009 compared to 2008
the downturn in revenue was about the same, $13.2 million compared to $21.8
million or a 39.4% 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.





At
September 25, 2009, the Company was operating 50 stores located in 20 states.
None of our customers currently make up a significant portion of our revenue by
geographic region or as a whole.





The
current business climate presents significant challenges to smaller on-demand
labor companies like Command Center. These challenges to Command Center came at
a time when we were particularly vulnerable to recessionary
pressures.  As a relatively unseasoned business with aggressive growth
plans, we had not yet established a stable base of operations in our existing
stores and, with the completion of our funding in late 2007, we were set to
embark on a plan to rapidly expand our business.  We spent much of
2007 putting infrastructure and control mechanisms in place to operate a
substantially larger business.  We expected to have at least 100
stores in operation by the end of 2008 and our corporate overhead reflected this
plan.  When revenue did not ramp up as expected, we had to take a
critical look at our financial position and growth plans and by mid-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 through the third 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 as the economy begins to
recover.  Additionally, we have focused more of our sales activity on
those business sectors that are less impacted by the economic downturn such as
event services, hospitality, disaster recovery and other non-traditional
on-demand labor customers.





Cost of
Sales.  The cost of services was 74.4% of revenue at the end of
the thirty-nine weeks ended September 25, 2009 compared to 74.2% for the
thirty-nine weeks ended September 26, 2008.  The major factor for the
improvement in margins was contributed by a reduction in workers’ compensation
costs.  Looking ahead, we believe we will be able to reduce the cost
of on-demand labor by further reductions in workers’ compensation
expense.  We also expect on-demand labor costs to moderate as a
percentage of revenue as revenue continues to climb in 2010. 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 thirty-nine weeks ended September 25, 2009 were 5.7%
of revenue compared to 7.8 % of revenue for the thirty-nine weeks ended
September 26, 2008 ($2.2 million compared to $4.9 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 seeing significant
decreases in our workers’ compensation costs.  We expect this trend to
continue the balance of the year.





Gross
Margin.  The factors impacting gross margin in the third
quarter 2009 are discussed under cost of services above.   In the
aggregate, cost of services was 74.4% of revenue in 2009 compared to 74.5% of
revenue in 2008 yielding margins of 25.6% in 2009 and 25.8% 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.


10-Q
 Page
16





Results
of Operations, continued





Selling, General
and Administrative Expenses.As a percentage of
revenue, selling, general and administrative expenses for the thirteen weeks
ended September 25, 2009 and September 26, 2008 were 28.6% and 26.6%
respectively.  For the thirty-nine weeks ended September 25, 2009 and
September 26, 2008 selling, general and administrative expenses were 33.1% and
31.4%. SG&A expenses for the same periods showed a monetary reduction of
$2.1 million in the thirteen weeks 2009 vs. 2008 and $7.1 million in the
thirty-nine weeks 2009 vs. 2008. In addition the increase in selling, general
and administrative expenses as a percent of revenue is primarily the result of
the precipitous drop in revenue and providing a closed store lease reserve of
$350,000.




Liquidity
and Capital Resources





At
September 25, 2009, we had total current assets of $7.4 million and current
liabilities of $9.1 million.  Included in current assets are cash of
$146,700 and trade accounts receivable of $5.0 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 September 25, 2009 was 39
days.  Actual bad debt write-off expense as a percentage of total
customer invoices during the thirteen weeks ended September 25, 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,
which 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 an
annual 1% facility fee, payable monthly, 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 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
September 25, 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 September 25, 2009 was
$3,012,144.





On
December 21, 2009, we accepted and executed a Letter of Interest with our lender
for the modification and extension of our existing financing
arrangement.  We are presently proceeding with the discussion and
preparation of a definitive agreement consistent with the terms of the Letter of
Interest.  If we are successful in concluding the definitive
agreement, we anticipate that we will see a significant reduction in our
financing costs.





The
present 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.  These covenants were put in place in 2006 and 2007 and
do not reasonably reflect present day circumstances.  At September 25,
2009, we were not in compliance with the cash flow, tangible net worth and
EBITDA requirements.   Our lender has waived compliance with
these covenants as of September 25, 2009. The terms of the Letter of Interest
which we executed on December 21, 2009 with our lender, if successfully
implemented through execution of a definitive agreement, will substantially
modify or eliminate the financial covenants in a manner beneficial to the
Company.


10-Q
 Page
17





Liquidity
and Capital Resources, continued





In June
2008, we entered into an unsecured loan transaction with a private investor,
borrowing $2,000,000 at 15% interest.  On April 13, 2009, we entered
into an agreement to extend the payment terms of the obligation.  The
extension agreement required increasing bi-weekly payments of $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 principal and all accrued
interest was to have been paid in full as of October 30, 2009.  Under
the extension agreement, as a penalty called a “liquidity redemption”, the
amount remaining unpaid on October 30, 2009 is essentially
doubled.  The extension agreement requires payment of the liquidity
redemption penalty on May 1, 2010.





At
September 25, 2009, we owed $1,025,000 on the unsecured promissory note, which
on that date was bearing interest at 20% per annum and called for bi-weekly
increases in principal and interest payments.  During the third
quarter and continuing to the present time, the Company was not in compliance
with bi-weekly principal and interest payments on the extension
agreement.  As of October 30, 2009, principal and accrued interest
totaling $1,031,939 was in default.  The lender has not pursued any
default remedies.  As a result of this default, the liquidity
redemption penalty, equal to an additional $1,031,939, accrued and is payable on
May 1, 2010.





The
Company is in frequent communications with the lender on this obligation,
seeking to restructure and modify the terms of the loan and to reduce or
eliminate the liquidity redemption penalty.  We have reached an
agreement in principle with the lender to restructure and modify the
loan.  This nonbinding agreement in principle would convert the
majority of the liquidity redemption penalty to equity, and lower the interest
rate on the remaining balance.  This agreement in principle will not
become binding upon the lender or the Company until definitive agreements are
successfully prepared and executed.  If the Company is unsuccessful in
concluding this loan modification, then the Company will need to raise a
substantial amount of capital, sufficient to discharge all or part of the amount
owed this lender.





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 September 25, 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.





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 also be required to fund operations during fiscal
year 2010.  Our capital needs will depend on our success in
renegotiating the terms of the loan with the private investor as discussed
above, 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 for the remainder of 2009 and in 2010. 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.


10-Q
 Page
18





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.





At the
end of the period covered by this report, an evaluation was carried out under
the supervision of and with the participation of the Company’s management,
including the Chief Executive Officer and Chief Financial Officer, of the
effectiveness of the design and operations of the Company’s disclosure controls
and procedures (as defined in Rule 13a – 15(e) and Rule 15d – 15(e) under the
Exchange Act). Based on that evaluation we have concluded that as of the end of
the period covered by this report, the Company’s disclosure controls and
procedures were adequately designed and effective in ensuring that: (i)
information required to be disclosed by the Company in reports that it files or
submits to the Securities and Exchange Commission under the Exchange Act is
recorded, processed, summarized and reported within the time periods specified
in applicable rules and forms and (ii) material information required to be
disclosed in our reports filed under the Exchange Act is accumulated and
communicated to our management, as appropriate, to allow for accurate and timely
decisions regarding required disclosure.





Based
upon this evaluation, we also determined that there were deficiencies in our
disclosure controls and procedures as of September 25, 2009. The deficiencies
noted below are being addressed through our remediation initiatives which are
also described below.





·
            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.


·
            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 third 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 and
2010 collectively will effectively eliminate the above
deficiencies.





During
the remainder of 2009 and into 2010, 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
management and Board of Directors do 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.


10-Q
 Page
19




Item
4.      Controls and Procedures,
continued




Changes in internal control over
financial reporting.




Except as
noted above, there have been no changes during the thirteen weeks ended
September 25, 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
thirty-nine weeks ended September 25, 2009, the Company issued an aggregate of
784,745 shares of Common Stock.  The shares of Common Stock were
issued for payment of interest and services valued at $62,920.  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.





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 2231.2
                                
                                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 2332.1
                                
                                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 2432.1
                                
                                Certification
      of Ralph Peterson, Chief Financial Officer of Command Center, Inc.
      pursuant to 18 U.S.C. Section 1350, as adopted in Section 906 of the
      Sarbanes-Oxley Act of 2002.
                                
                                10-Q,
      Page
25


10-Q
 Page
20


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
                      January 15,
      2010Signature
                      Title
                      Printed
      Name
                      Date/s/Ralph
      Peterson
                      CFO,
      Principal Financial Officer
                      Ralph
      Peterson
                      January
      15, 2010Signature
                      Title
                      Printed
      Name
                      Date


10-Q
 Page
21