SB-2/A 1 tfssb2dec11-01.txt TEMPORARY FINANCIAL SERVICES INC SB2/A AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 7, 2001 REGISTRATION NO. 333-60326 U.S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 POST-EFFECTIVE AMENDMENT NO. 1 FORM SB-2 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 TEMPORARY FINANCIAL SERVICES, INC. (Name of small business issuer in its charter) WASHINGTON 7360 91-2084501 (State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer incorporation or organization) Classification Code Number) Identification No.) 200 N. MULLAN, SUITE 213, SPOKANE, WA 99206 TELEPHONE:(509) 340-0273 (Address and telephone number of principal executive offices) 200 N. MULLAN, SUITE 213, SPOKANE, WA 99206 (Address of principal place of business or intended principal place of business) GREGORY B. LIPSKER 601 W. MAIN AVE. SPOKANE, WA 99201 (509) 455-9077 (TELEPHONE) (509) 624-6441 (FACSIMILE) (Name, address and telephone number of agent for service) APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE. If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box. [ ] CALCULATION OF REGISTRATION FEE Title of each Dollar Proposed Proposed class of Shares amount to maximum offering maximum aggregate Amount of to be registered be registered price per unit offering price registration fee Common Stock, $4,000,000 $5.00 $4,000,000 $1,000.00 $0.001 par value Underwriter's Warrants $ 800 $0.01 $ 800 $ 0.20 Shares underlying Underwriters Warrants $ 400,000 $5.00 $ 400,000 $ 100.00 1 The information in this Prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted. PROSPECTUS TEMPORARY FINANCIAL SERVICES, INC. (A Washington Corporation) $4,000,000 800,000 SHARES AT A PRICE OF $5.00 PER SHARE This is an initial public offering of up to 800,000 Shares of Temporary Financial Services, Inc. Common Stock. We will use the proceeds from this offering for lending, investment, and working capital. Our business plan will focus on providing accounts receivable financing, investment capital, and services to businesses in the temporary staffing industry. Before this Offering, there has been no public market for any of our Shares. Upon completion of this Offering, we intend to make application to have our stock quoted on the NASDAQ supervised OTC Bulletin Board, but our stock is likely to be an illiquid investment. We are bearing all costs incurred in the registration of these Shares, estimated at $89,000 if the maximum offering is sold ($29,000 if the minimum offering is sold). Public Securities has agreed to act as Underwriter in this offering and will offer the Shares to interested investors on a best efforts 200,000 share minimum, 800,000 share maximum basis. See "Plan of Distribution" on page 32. All shares in this offering are offered on the same terms. We will pay the Underwriter a 10% commission on the gross proceeds from the sale of the Shares. The Underwriter will receive no commission for shares sold to existing shareholders if such shares are in excess of the minimum offering amount. The Underwriter may enter into agreements with other selected dealers who will be members of the National Association of Securities Dealers, Inc. The underwriter may offer a selling concession to Selected Dealers for their participation in the offering. Until the minimum offering amount is reached, all proceeds from sales of the Shares will be placed in an Impound Account with Sterling Savings Bank, Spokane, Washington. If the minimum offering amount is not received by March 31, 2002, all proceeds will be promptly refunded to investors with interest but without deduction for offering costs. Management has indicated that it may participate in the offering by purchasing up to 200,000 shares. No commissions will be paid on shares purchased by Management. THE SHARES OFFERED ARE HIGHLY SPECULATIVE AND INVOLVE A HIGH DEGREE OF RISK TO PUBLIC INVESTORS AND SHOULD BE PURCHASED ONLY BY PERSONS WHO CAN AFFORD TO LOSE THEIR ENTIRE INVESTMENT. SEE "RISK FACTORS" AT PAGE 5. THE OFFERING PRICE BEARS NO RELATIONSHIP TO OUR EARNINGS OR BOOK VALUE OR ANY OTHER ESTABLISHED CRITERIA OF VALUE. Neither the United States Securities and Exchange Commission nor any State Securities Agency has approved or disapproved of these securities, nor has any such regulatory body reviewed this prospectus for accuracy or completeness. Any representation to the contrary is a criminal offense. Shares Offering Offering Net Proceeds Offered Price Commissions Costs to Company Minimum 200,000 $5.00 $100,000 $30,000 $ 870,000 Maximum 800,000 $5.00 $400,000 $60,000 $3,540,000 2 November 13, 2001 PROSPECTUS SUMMARY This summary highlights information contained in this Prospectus. Investors should read the entire Prospectus, including the financial statements, carefully. This Prospectus describes risks of investment that should be fully considered by each investor prior to investing. See "Risk Factors" at Page 5. EXECUTIVE OFFICE Our executive offices are located at 200 North Mullan, Suite 213, Spokane, Washington 99206. You may contact us by telephone at (509) 340-0273, by facsimile at (509) 340-0277, or by E-Mail at TFS@tempfs.com. BUSINESS OF THE ISSUER Temporary Financial Services, Inc. (the "Company") is a start-up company engaged in various aspects of the temporary staffing industry. We lend money to temporary staffing businesses for accounts receivable financing, we invest growth capital in temporary staffing businesses, and we provide value added services to temporary staffing businesses. We intend to fuel long-term growth by expanding our customer base through existing contacts in the temporary staffing industry. We cannot provide any assurances that our efforts to expand our customer base and implement our business plan will be successful. This offering, if successful, will provide additional capital to fund loans and investments to temporary staffing businesses, as well as working capital to fund our facilities, personnel and infrastructure requirements The typical target customer for accounts receivable financing will be an operator of a small temporary staffing business that has a sufficient track record and/or experience to support the lending or investment decision. We have established lending criteria designed to minimize the credit risks associated with our lending activities. These criteria include, among other things, assessment of the operator's capabilities, minimum business capitalization requirements, maintenance of an adequate accounts receivable borrowing base, and a requirement for timely reporting of financial information to demonstrate ongoing compliance with loan covenants. We use appropriate loan documents to record the terms of the loan and require security for repayment. Security will consist of a UCC lien filing on all assets of the borrower, and the use of personal guarantees and pledges where appropriate. Revenues from accounts receivable financing will come from an administrative fee and a percentage charge against the sales of the borrower. The typical temporary staffing business borrower will receive a weekly advance against the available borrowing base, net of the administrative fees and loan charges due to us. All collections of accounts receivable will be deposited into a bank account that we control or an account subject to a lock box arrangement. We will make decisions to invest in temporary staffing businesses by applying criteria similar to the standards we have established for our lending activities. The quality of the operator will be a significant factor in the investment analysis, but we will look at all available information for indications of the likelihood the operator will succeed. Investments will be made through our wholly-owned subsidiary, Temps Unlimited, Incorporated. Generally, investments will be structured as minority investments, and will, in most instances be limited to 20% equity or less. We expect to use up to 20% of the net proceeds of this offering for investment opportunities, and investments may comprise up to 20% of our business. In some cases, the investment will be made to facilitate the start-up of new temporary staffing businesses, and in other instances, the investment may be made to facilitate expansion of an existing operation through the opening of additional locations in a given geographical area. Each investment will be structured to provide a profits interest in the business, and when appropriate, preferential repayment or liquidation rights will be negotiated. 3 We may provide additional services to our loan customers and the businesses we have invested in. These services may include weekly bookkeeping services, accounts receivable collection assistance, business management advisory services, and operational assistance. These services will afford us the opportunity to observe operational issues first hand and may point out business issues with particular customers while the issues can still be readily addressed. We believe that this aspect of our business will help to distinguish us from the competition, and will also allow us to better monitor our loans and investments. We expect that this will yield better long-term results than if the value added services were not available. In addition to these services, we are also considering licensing temporary staffing software that could be made available to our temporary staffing customers. We may also evaluate facility purchase or rental and leaseback arrangements when appropriate to a given operator's circumstances. We expect that other services will also be developed as our business grows. Our initial business focus will be directed at the temporary staffing industry. Our management has many years of experience in this industry, and we believe that there is sufficient temporary staffing business available to keep us busy for the foreseeable future. Other opportunities will, however, develop from time-to-time, and we intend to evaluate these other opportunities as they arise. Decisions about other opportunities will be made after a thorough evaluation of the specific opportunity presented. We will review the prospective fit of the new business opportunity with the existing business strategy, and we will consider the impact on long-term business prospects before moving ahead on a new opportunity outside of our temporary staffing industry core. We have not identified any other business opportunities at this time. OFFERING TERMS Public Securities, Inc. has agreed to act as Underwriter on our offering of a minimum of 200,000 and a maximum of 800,000 Shares at a price of $5.00 per Share. The Shares are offered for cash only. See "Plan of Distribution" at Page 29. We have also agreed to deliver one Underwriter's Warrant for each ten shares sold in the public offering, regardless of source. Each Underwriter's Warrant entitles the Underwriter to purchase one share of our Common Stock at a price of $6.00 per share any time following the expiration of twelve months after the effective date of the offering and prior to the expiration of 60 months following the effective date. The Underwriter's Warrants and the shares issuable to the Underwriter upon exercise of the Underwriter's Warrants have been registered in this Offering. CAPITAL STOCK OUTSTANDING As of Assuming Minimum Assuming Maximum Class March 31, 2000 Offering Amount Offering Amount ------------- ---------------- ---------------- ---------------- Common Shares 350,000 550,000 1,150,000 IMPOUND OF FUNDS All funds received from the sale of Shares will be held in impound with Sterling Savings Bank, Spokane, Washington, until the minimum Offering amount of $1,000,000 has been deposited and collected. If less than $1,000,000 is received from the sale of Shares by the close of business on March 31, 2002, the Offering will be terminated and all proceeds will be promptly refunded to purchasers by the impound agent with interest and without any discount for Offering expenses. 4 USE OF PROCEEDS The following table sets forth information concerning the estimated use of proceeds from the Offering. The exact allocation of net proceeds may be adjusted in our sole discretion as good business judgment dictates. Minimum Raised Maximum Raised --------------------- --------------------- Gross Offering Proceeds $1,000,000 100.0% $4,000,000 100.0% ========== ====== ========== ====== Underwriter's Commissions 100,000 10.0% 400,000 10.0% Underwriter's Non-accountable Expenses 10,000 1.0% 40,000 1.0% Offering Costs 9,000 0.9% 9,000 0.2% Professional Fees 8,000 0.8% 8,000 0.2% Travel 3,000 0.3% 3,000 0.1% ----------- ----- ---------- ----- Total Offering Costs $ 130,000 13.0% $ 460,000 11.5% ----------- ----- ----------- ----- Estimated Net Offering Proceeds $ 870,000 87.0% $3,540,000 88.5% Receivable Financing 620,000 62.0% 2,515,000 62.9% Investment Opportunities 150,000 15.0% 625,000 15.6% Marketing Costs 5,000 0.5% 25,000 0.6% Development of Services 10,000 1.0% 10,000 0.2% Personnel Costs -0- 0.0% 75,000 1.9% Working Capital 85,000 8.5% 290,000 7.3% ----------- ----- ----------- ----- Total Uses of Net Offering Proceeds $ 870,000 87.0% $3,540,000 88.5% ========== ====== ========== ====== RISK FACTORS Investing in the company involves a high degree of risk and should only be considered by individuals who have no need for liquidity and can afford a complete loss of all monies they invest. SEE "RISK FACTORS" ON PAGE 5. RISK FACTORS AN INVESTMENT IN OUR SECURITIES INVOLVES SUBSTANTIAL RISKS. PROSPECTIVE PURCHASERS SHOULD CONSIDER THE FOLLOWING SIGNIFICANT FACTORS IN CONNECTION WITH OTHER INFORMATION CONTAINED IN THIS PROSPECTUS BEFORE MAKING A DECISION TO PURCHASE THE SECURITIES OFFERED. GENERAL RISKS OF INVESTING IN THIS OFFERING WE ARE A NEWLY FORMED COMPANY WITH LIMITED OPERATING HISTORY ON WHICH TO BASE AN INVESTMENT DECISION. We are a newly formed company with limited operating history and limited operating results. Investors cannot look to historical operations as a basis for making an investment decision. IF WE DO NOT ESTABLISH GOOD RELATIONSHIPS WITH OUR CUSTOMERS, WE MAY BE UNABLE TO ACHIEVE PROFITABLE OPERATIONS AND THE VALUE OF OUR SHARES MAY DECLINE. As a newly formed business, we have not yet established relationships with customers, and consequently, we do not have a source of repeat business. Our success will depend on our ability to establish relationships with our customers in a competitive market. 5 SUCCESS WILL DEPEND ON THE ABILITIES OF OUR MANAGEMENT TO IMPLEMENT OUR BUSINESS PLAN AND IF IMPLEMENTATION FALTERS, THE VALUE OF YOUR INVESTMENT COULD BE AFFECTED. Investors in this offering are being asked to purchase the shares in reliance on our managements' abilities to implement the business plan and make a success of the business. No assurances can be given that our management team will be able to take the business opportunity from concept to successful operations. KNOWLEDGE OF THE TEMPORARY LABOR BUSINESS IS CONCENTRATED IN TWO MEMBERS OF OUR MANAGEMENT TEAM AND THE LOSS OF EITHER COULD AFFECT OUR BUSINESS PROSPECTS. Mr. Coghlan and Mr. Enget are the only members of management with significant experience in the temporary labor industry. The loss of either Mr. Coghlan's or Mr. Enget's services could affect the ability to implement our business plan. CURRENT MANAGEMENT MAY NOT BE IN CONTROL OF THE COMPANY AFTER THIS OFFERING, AND A CHANGE IN CONTROL COULD RESULT IN A NEW BUSINESS DIRECTION WITH NEW OR DIFFERENT RISKS. The Company currently has 350,000 shares of common stock issued and outstanding. All officers and directors as a group own 180,500 of the outstanding shares. If this offering is fully funded, and assuming that officers and directors do not purchase shares in this offering, all officers and directors as a group will then own 180,500 shares or 16% of the total shares outstanding. Management may purchase shares in the offering , but if the offering is fully funded, there is a possibility that management will not own a controlling interest in the Company when the offering is completed. Lack of control could result in shareholder initiatives that change the management and/or direction of the Company. If such a change were to occur, the resulting business of the Company could differ markedly from the business described in this document. REACHING THE MINIMUM OFFERING AMOUNT IS NOT AN INDICATION OF THE QUALITY OF THIS INVESTMENT. Shares may be purchased by Management, their affiliates, or by other persons who may receive fees or other compensation or gain dependent upon the success of this Offering. Any such purchases will be on the same terms as other investors and will be for investment purposes only. These purchases will be counted in determining whether the required minimum offering amount has been met. Investors should not consider that the sale of enough Shares to reach the minimum offering amount indicates that the Shares are a sound investment THE MINIMUM OFFERING AMOUNT WAS ARBITRARILY DETERMINED AND MAY NOT BE SUFFICIENT TO IMPLEMENT OUR BUSINESS PLAN. The minimum offering amount was arbitrarily determined, and is not designed as a protection to investors or to indicate that other unaffiliated investors share their investment decision. Management and its affiliates have indicated that they may purchase up to 200,000 shares in the offering. In making an investment decision, no reliance should be placed by the investor on the amount of the offering sold prior to the investment decision. Each investor must make his own investment decision as to the merits of this Offering. WE DO NOT HAVE EMPLOYMENT AGREEMENTS WITH OUR KEY PERSONNEL, AND IF KEY EMPLOYEES LEAVE, OUR BUSINESS WILL SUFFER. The Company has elected to work with employees and key personnel under handshake arrangements for individual services. No employment agreements have been prepared. As a result, employees and key personnel are free to sever their relationship with the Company at any time. 6 WE MAY NOT BE ABLE TO PROVIDE INVESTORS WITH ANY RETURN ON THEIR INVESTMENT. Investors in this offering will only receive a return on the investment if the value of the company grows and that value growth translates to higher stock prices, or if the earnings of the company are paid out as dividends. Since inception, the Company has not operated at a profit, and no dividends have ever been paid. Consequently, there is no certainty that this investment will ever provide a return to investors. If the company does not achieve profitable operations or growth in value, the investment may eventually be worthless. AN INVESTMENT IN OUR STOCK WILL LEAD TO CONSIDERABLE DILUTION OF YOUR INVESTMENT. Prior to this offering, the net tangible book value per share of our company is $2.08. After the offering, if the maximum number of shares offered are sold, the net tangible book value per share will be $3.71 and investors in this offering will suffer immediate dilution of $1.29 (26%) per share. If the minimum number of shares offered in this offering are sold, the net tangible book value per share will be $2.90 and investors in this offering will suffer immediate dilution of $2.10 (42%) per share. THE OFFERING PRICE OF OUR SHARES BEARS NO RELATION TO THE VALUE OF THE COMPANY. The price at which our shares are being offered was arbitrarily determined by us and bears no relationship to our assets, book value, operations, net worth or to any other recognized criteria of value. In arbitrarily determining the offering price, we took into consideration such matters as our current financial resources, our assets, our cash requirements for a one-year period, and the general conditions of the securities markets. If the securities markets ascribe a lower valuation to our shares, the stock price will decline and investors in this offering will see a reduction in the value of their holdings in our shares. THERE IS NO CURRENT MARKET FOR OUR SHARES, AND IF A MARKET DOES NOT DEVELOP, AN INVESTMENT IN OUR SECURITIES WILL BE ILLIQUID. There is presently no market for the Shares. There can be no assurance that an actively traded market will exist after completion of this Offering. MANAGEMENT HAS DISCRETION OVER HOW WE WILL USE THE OFFERING PROCEEDS, AND IF MANAGEMENT CHANGES THE USE OF PROCEEDS, THE CHANGE COULD AFFECT THE BUSINESS AND THE VALUE OF THE SHARES. The uses of the net offering proceeds are set out in this Prospectus under "Uses of Proceeds" at page 19. The uses indicated are intended to allow the Company to meet the business objectives established in our business plan. See "Business" at page 10. We have retained discretion to change our uses of proceeds consistent with good business practices. This discretion raises additional risks to investors in this offering. If we change the uses of proceeds, investors will have invested in a company without the benefit of an opportunity to review those uses before investment. Any changes we make to the uses of proceeds could affect the Company's chances for long term success. AFTER THE OFFERING IS COMPLETED, OUR STOCK MAY BE CONSIDERED A "PENNY STOCK," AND CLASSIFICATION AS A PENNY STOCK COULD AFFECT THE VALUE OF THE SHARES. Following completion of this offering, investors that purchase shares will own a stock that may be classified a penny stock under the Rules and Regulations of the Securities and Exchange Commission. Penny stocks are subject to additional controls that could limit the value of the shares in the secondary trading markets. For instance, if a broker dealer is the sole market maker in our shares, that broker dealer must disclose the fact that it has presumed control over the market and must provide monthly account statements showing the value of each penny stock held in the customer's account. These requirements may be considered cumbersome by the broker dealer and could impact the willingness of the broker dealer to make a market in the shares, or they could affect the value at which the shares trade. Classification of the shares as penny stocks increases the risk of an investment in the shares. 7 WE MAY SELL ADDITIONAL SHARES OF COMMON STOCK IN THE FUTURE WITHOUT SHAREHOLDER APPROVAL, AND THIS ACTION COULD DEPRESS THE VALUE OF THE SHARES. Sales of substantial amounts of common stock eligible for future sale in the public market, or the availability of shares for sale, including shares issuable upon exercise of the Underwriter's Warrants, could adversely affect the prevailing market price of our common stock and our ability to raise capital by an offering of equity securities. RISKS ASSOCIATED WITH LENDING ACTIVITIES. WE HAVE LIMITED EXPERIENCE IN ASSESSING BORROWER CREDIT RISK, AND LOANS TO HIGH RISK BORROWERS COULD RESULT IN LOSS OF EQUITY. We do not have significant experience in performing credit risk assessments of prospective borrowers. While management has experience in reviewing and evaluating credit risks of company owned temporary labor offices, the assessment of independently owned locations may be more difficult. If we incorrectly assess the credit worthiness of a borrower, the collection of loans made to that borrower could be jeopardized. If we suffer loan port folio losses, there will be a direct impact on our shareholder equity and the value of our shares will likely decline. THE VALUE OF THE SHARES AFTER THIS OFFERING WILL DEPEND IN LARGE PART ON OUR ABILITY TO SUCCESSFULLY MANAGE OUR LOAN PORT FOLIO. If we incorrectly assess the credit risk associated with a particular borrower, or if we loan to businesses that are mismanaged, or if the collateral we receive for our loans is inadequate, we may experience losses in the value of our loan port folio. We intend to use the equity funds from this offering to make loans, so if we experience loan port folio losses, the book value of the Company will drop and the value of the shares owned by investors in this offering could fall. WE WILL NOT CONTROL THE BUSINESS OF OUR BORROWERS AND THIS COULD INCREASE THE RISK OF LOAN PORT FOLIO LOSSES. We intend to finance accounts receivable for businesses that we do not control. As a result, we will not be in a position to direct the business practices of the borrowers. If the borrowers make decisions that we consider inadvisable, or face operational problems that increase the lending risk, our recourse will be limited to termination of our lending agreement at a time when termination could further increase the lending risk. This lack of control could impact the likelihood that our loans will be repaid. IF THE SECURITY FOR OUR LOANS IS INADEQUATE, WE WILL SUFFER LOAN PORT FOLIO LOSSES ON BORROWERS THAT DEFAULT. We will require security, pledge, and/or personal guaranty agreements on the loans that we make. For most, if not all of our loans, our primary security will be the accounts receivable of the borrowers. If borrowers experience a high rate of uncollectible accounts, the accounts receivable lending base could be inadequate to cover the outstanding loans in the event of default by the borrower. If the accounts receivable are inadequate, and other forms of collateral securing the debt are not sufficient, we could suffer losses on our loan portfolio. THE RISK OF LOSSES ON LOANS MADE TO UNSEASONED COMPANIES IS HIGH, AND LOAN LOSSES WILL IMPACT SHARE VALUE. We intend to lend to businesses that are either recently or newly formed, and these borrowers will have limited or non-existent operating history on which to base the assessment of credit risk. This factor will increase the likelihood that we will lend to businesses that will experience operational difficulties in the future, and we could suffer loan portfolio losses as a result. 8 AS A RESULT OF COMPETITION, WE MAY HAVE TO LOOK TO HIGH RISK BORROWERS FOR NEW CUSTOMERS, AND THIS COULD INCREASE THE RISK OF LOAN PORT FOLIO LOSSES. The competition for qualified borrowers will be significant. There are many lenders with more experience and financial resources than us and they will be seeking the same borrowers that we intend to pursue. If our loan fees and rates are higher or our services are less comprehensive than the competition, we may not succeed with the lending activities of our business plan. We may also be limited to a class of borrower that is less qualified and of higher credit risk than we might otherwise choose to do business with. These factors will impact the success of our lending operations. WE HAVE LIMITED CAPITAL AVAILABLE FOR LOANS, AND IF WE RUN SHORT, OUR PROFITS AND THE VALUE OF OUR SHARES COULD SUFFER. Our lending activities will require significant amounts of capital. If this offering is fully funded, we intend to commit up to $2,515,000 of the offering proceeds to accounts receivable financing. While this is a significant portion of our total capitalization, in our intended business of financing accounts receivable, it is a very small amount of funds. A typical temporary labor business that we might lend to could average $15,000 to $50,000 of accounts receivable per week. This could result in a borrowing need of $60,000 to $200,000 under a revolving accounts receivable financing arrangement. A large temporary labor office, or a controlled group of offices, could require substantially more financing. As a result, the number of borrowers that we can effectively service will be limited and this will impact our profitability. WE DO NOT HAVE OTHER SOURCES OF ADDITIONAL CAPITAL FOR OUR LENDING OPERATIONS. If our borrowers succeed at growing their temporary labor operations, their borrowing needs may increase. The capital we have available for loans is limited. If our borrowers require increased lending limits to accommodate growth, and we are unable to meet their needs, we may lose the business. We intend to grow our capital base to meet the needs of our borrowers, but no assurances can be given that additional capital will be available when needed or if available that the terms will be acceptable. WE HAVE A NARROW MARKET FOCUS AND WE HAVE NO ASSURANCES THAT WE CAN OPERATE PROFITABLY IN OUR CHOSEN MARKET. We intend to focus our accounts receivable financing marketing efforts on temporary labor businesses. Our narrow focus on a single niche market increases the likelihood that our lending business will be affected by a downturn in the temporary labor industry, should a downturn occur. RISKS ASSOCIATED WITH INVESTING ACTIVITIES. WE WILL NOT CONTROL THE PORTFOLIO COMPANIES THAT WE INVEST IN, AND LACK OF CONTROL INCREASES THE RISK THAT WE WILL SUFFER LOSSES ON OUR INVESTMENT PORT FOLIO. We intend to invest in temporary labor businesses, and over time build a portfolio of interests in temporary labor companies. Our investments will generally be structured as minority interests in the entities that will own and operate the temporary labor businesses. As a result, we will not be in a position to control the entities that operate the businesses and we will have only limited input into business decisions. The success of our investments in these temporary labor businesses will depend on the business acumen and capabilities of the majority owners of the portfolio companies. No assurances can be given that we will select the right opportunities to invest in, or that those investments we do make will appreciate in value. WE HAVE LIMITED INVESTMENT EXPERIENCE, AND IF WE MAKE BAD INVESTMENT DECISIONS, OUR STOCK PRICE WILL DECLINE. Investors in this offering will be relying on us to select viable investment opportunities that will appreciate in value. We intend to focus our investing activities on minority interests in temporary labor businesses. While we have extensive experience in the temporary labor industry, we do not have significant experience at taking minority positions in small temporary labor businesses. 9 INVESTORS IN THIS OFFERING WILL BE RELYING ON MANAGEMENT TO SELECT VIABLE INVESTMENT OPPORTUNITIES. The business acumen and capabilities of the majority owners of our investment targets cannot be assessed until the opportunities are identified. Investors in this offering will be dependent on management to identify viable investment candidates with majority owners possessing the business acumen and capabilities to succeed. Most of these business opportunities have not been identified yet and investors in this offering are not in a position to judge the investment opportunities for themselves. No assurances can be given that we will succeed in our efforts to locate viable investment opportunities or that they will ultimately increase in value. WE MAY INVEST IN UNSEASONED TARGETS. Many of the businesses that we may choose to invest in will be start-ups or companies with only limited operating history. The risks of investing in start-ups and unseasoned companies are higher than if the investment targets had operating histories on which we could judge their potential for success. OUR INVESTMENT TARGETS WILL BE SUBJECT TO POTENTIALLY BURDENSOME GOVERNMENT REGULATIONS THAT COULD INCREASE THE RISK OF INVESTMENT LOSSES. We will invest in temporary labor businesses. Temporary labor businesses are subject to a wide range of government regulations, and the regulations may change from time-to-time to address specific problems or to meet political agendas. Government regulations could impact the businesses that we invest in and could negatively affect the value or appreciation of our investment portfolio. Applicable governmental regulations that could have this effect include employment laws, employee benefit regulations, occupational safety and health regulations, health insurance laws, wage and hour requirements, and worker's compensations laws. THE BUSINESS OF PLACING TEMPORARY LABORERS CREATES AN ADDITIONAL SET OF BUSINESS RISKS THAT COULD IMPACT OUR STOCK PRICE. The actions of temporary workers placed by companies that we invest in could jeopardize our investment. If a temporary worker causes an injury or property damage at a job site, the company that placed the temporary worker could be held responsible in some instances. If the company that placed the temporary worker is held responsible, our investment in that company could be negatively affected. Insurance may provide coverage for this type of occurrence, but no assurances can be given that such insurance will be available to us or, if available, that it will effectively cover any losses we might suffer. THE TEMPORARY LABOR BUSINESS IS HIGHLY COMPETITIVE WITH LOW BARRIERS TO ENTRY AND THIS COULD IMPACT THE ABILITY OF OUR PORT FOLIO COMPANIES TO OPERATE PROFITABLY. The temporary labor industry is serviced by a few large temporary staffing businesses and a very large number of small businesses. The barriers to entry in the temporary staffing business are minimal and many "mom and pop" type stores exist. In this environment, it is likely that we will invest in temporary labor businesses in areas without competition, and within a short time our port folio companies will see strong competition from other temporary staffing businesses. Competition from other businesses, both large and small, will impact the ability of our portfolio companies to operate profitably. RISKS ASSOCIATED WITH PROVIDING SERVICES. OUR ABILITY TO SUCCESSFULLY AND PROFITABLY OFFER SERVICES IS UNCERTAIN. We are currently in the process of developing services that we intend to provide to borrowers and companies that we invest in. Our services offerings are not yet fully developed and there can be no assurances that there will be a market for our services offerings when development is completed. Even if a market for our services develops, we can offer no assurances that the services can be priced competitively, or that they will be profitable. 10 THE MARKET FOR THE SERVICES WE INTEND TO OFFER IS HIGHLY PRICE SENSITIVE. Our services offerings, including accounting services, software, management advisory services, and other business services, will be offered to our customers in a highly competitive environment. In many instances, we expect that customers will utilize our loans, possible investment, and services, because we offer a comprehensive package in a one stop shop. If our products and services are not priced competitively, our borrowers may look elsewhere for services, and our business prospects could suffer. DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS This prospectus contains forward-looking statements. The forward-looking statements are contained principally in the sections entitled "Prospectus Summary," "Management's Discussion and Analysis or Plan of Operation" and "Business." These statements involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Forward-looking statements include, but are not limited to, statements about: - the capabilities, development and marketing of our products; - market opportunities caused by rapid growth in the temporary labor industry; - generation of returns through investment in business opportunities; - our plans for future services and for enhancements of our existing services to loan and investment customers; - our ability to attract customers; and - our sources of revenues and anticipated revenues, including the development and expansion of our services. In some cases, you can identify forward-looking statements by terms such as "may", "will," "should," "could," "would," "expects," "plans," "anticipates," "believes," "estimates," "projects," "predicts," "potential" and similar expressions intended to identify forward-looking statements. These statements reflect our current views with respect to future events and are based on assumptions and subject to risks and uncertainties. Given these uncertainties, you should not place undue reliance on these forward-looking statements. We discuss many of these risks in this prospectus in greater detail under the heading ""Risk Factors."" Also, these forward-looking statements represent our estimates and assumptions only as of the date of this prospectus. This prospectus contains statistical data regarding the staffing services industry that we obtained from private and public industry publications. These publications generally indicate that they have obtained their information from sources believed to be reliable, but do not guarantee the accuracy and completeness of their information. Although we believe that the publications are reliable, we have not independently verified their data. You should read this prospectus and the documents that we reference in this prospectus completely and with the understanding that our actual future results may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements. You should rely only on the information contained in this prospectus. We have not authorized anyone to provide you with different information. We are not making an offer of these securities in any state where the offer is not permitted. 11 BUSINESS HISTORY. Temporary Financial Services, Inc. was incorporated under the laws of the State of Washington on October 11, 2000. We formed the company to engage in the business of financing accounts receivable for temporary labor businesses. We also intend to invest in temporary labor businesses and to provide services to temporary labor businesses. We are aware of a number of operators in the temporary labor industry that have experience and operational expertise that are interested in starting up new operations or expanding existing operations. We intend to offer our accounts receivable financing, investing, and business services capabilities to these customers. Initially, we will focus on sales to those potential customers already known to our management. Later, we will expand our focus to include other prospects in the temporary labor industry, and we may also look at other business opportunities as they arise. As of June 30, 2001, we have loans outstanding in the aggregate amount of $228,067 to a total of three different temporary labor businesses. Since June 30, 2001, we have entered into an agreement with one additional borrower. As of September 30, 2001, outstanding loan balances aggregated $414,777 among the four current borrowers. Total loan commitments to these borrowers aggregate $700,000 to allow for further growth in their businesses. At this time, no other borrowing customers are being sought, pending completion of this offering. Our investing activities will be conducted through our wholly owned subsidiary, Temps Unlimited, Incorporated, which was incorporated under the laws of the State of Washington on October 31, 2000. Ownership in businesses that we invest in will generally comprise less than a twenty percent interest in the business. Initially, we will direct our investing activities to businesses that provide temporary labor to customers in need of unskilled and semi-skilled workers. Depending on the availability of investment capital, we may also elect to consider other alternative investment vehicles in the temporary labor industry, or in other industries. Since inception, Temps Unlimited, Inc. has invested in two temporary labor businesses. A total of $12,000 was invested in Temps Unlimited of Minnesota, LLC doing business as Staffing on Demand, and $11,250 was invested in Temps Unlimited of Nebraska, LLC doing business as ValuStaff. In each instance, we received an 18% equity stake in the business. We are not presently evaluating any other investment opportunities and expect that further investments will come after this offering is completed. INDUSTRY OVERVIEW. The staffing services industry has experienced significant growth in response to the changing work environment. According to published industry sources, the total staffing services market in the United States had revenues of approximately $124.8 billion in 1999 and 139.3 billion in 2000 (the Staffing Industry Report, Vol. XII, No. 12, June 26, 2001). The staffing industry is evolving. Traditionally, employers used staffing services to manage personnel costs and meet fluctuating staffing requirements. More recently, however, employers see temporary staffing as a way to reduce administrative overhead by outsourcing human resources operations that are not part of the employers' core business competencies. The use of temporary workers typically shifts employment costs and risks, such as workers' compensation and unemployment insurance and the possible adverse effects of changing employment regulations, to temporary staffing companies, which can allocate those costs and risks over a larger pool of employees and customers. In addition, through the use of temporary employees, businesses avoid the inconvenience and expense of hiring and firing regular employees. The American Staffing Association has estimated that more than 81% of all U.S. businesses utilize staffing services. See Staffing Facts by the American Staffing Association, (www.staffingtoday.net/aboutasa/staffingfacts.shtml). 12 The U.S. remains the largest and most developed staffing services market in the world. Since 1997, the U.S. staffing market grew at an annual rate of 11.4%. According to the Staffing Industry Report, U.S. staffing industry revenue for the industrial sector that will comprise the bulk of our business grew to an estimated $17.8 billion in 2000. Due to the economic slowdown that began in late 2000, the industrial sector of the temporary placement industry is expected to decline to $15.7 billion in 2001, and then recover to $18.1 in 2002. See Staffing Industry Report of June 26, 2001. We will direct our business development efforts to the temporary labor businesses that are active in the industrial sector. According to the Staffing Industry Report, Vol. XII, No. 12, June 26, 2001, the industrial sector of the US staffing industry will generate revenues of $15.7 billion in 2001 and $18.1 billion in 2002. This sector is believed to be highly fragmented. While there are a number of large national and international temporary labor businesses, most have not yet aggressively expanded into the industrial sector of the temporary labor business. One company that has aggressively pursued the industrial market is Labor Ready. With year 2000 revenues of $976 million, Labor Ready has an estimated 6% market share. We believe that Labor Ready is one of the largest competitors in this market segment. The remaining market is serviced a small number national firms, many regional, multi-location firms, and a large number of local operations with fewer than five offices. We believe that many of these local operations will require capital for financing operations and growth, and we intend to focus our marketing efforts on this type of borrower. MARKET OPPORTUNITY. The factors that have caused the rapid growth in the temporary labor industry give rise to several market opportunities that we intend to pursue. Since inception, we have been refining our business plan to address these perceived market opportunities. Our business will have three primary activities: lending money, investing in businesses, and providing services. We believe that there are many individuals and small operators that have experience in the temporary labor industry that are currently looking to open their own business or expand the business they already have. Our management has extensive experience in growing a large international temporary labor business, and in the process many contacts have been established with entrepreneurs that have expressed interest in owning and operating temporary labor businesses. While the barriers to entry in the temporary labor business are low, a single location still requires a level of start-up capital and financial wherewithal that exceeds the capacity of many entrepreneurs. By serving as a source of capital, both for accounts receivable financing and seed investing, we will be offering a chance to these persons and it is our belief that our willingness to work with this group will build a loyal and capable customer base. Working with new or recently formed businesses increases the risks of our business plan because we will not have the benefit of evaluating our customers on the basis of historical information. We intend to offset this risk by focusing on individuals with whom our management has prior dealings, and who have demonstrated success in other similar endeavors in a management capacity for another employer. We believe individuals that demonstrate the ability to manage a successful temporary labor business as an employee will have a better than average likelihood of success as a business owner in a similar field. LENDING MONEY. We intend to dedicate a significant portion of our energies and capital to accounts receivable financing for businesses engaged in the temporary labor business. Up to $2,515,000 of the net offering proceeds from this offering will be committed to this purpose if the offering is fully funded. 13 We are new and relatively inexperienced at lending to businesses against accounts receivable balances. In order to protect our capital base and minimize the potential for losses from bad loans, we will apply a multi-step evaluation and monitoring process to all of our borrowers. At the time a prospective customer applies for a loan, we will perform a detailed review of a number of lending criteria. We will evaluate the capitalization of the borrower, we will consider the adequacy of the borrowing base, and we will review credit information on the borrower and the principal owners of the borrower. We will also include documentation in the loan file on the operator's experience, character and references. When multiple borrowers are being evaluated for a limited amount of loan capital, we will prefer those operators known to management over those with whom we have not had prior dealings, all other criteria being equal. Our definition of the borrowing base refers to the unencumbered assets owned by the borrower that support the decision to advance credit. Most temporary labor businesses do not have a significant investment in fixed assets, since most of the business is in the nature of services provided. As a result, the borrowing base will primarily consist of the accounts receivable that the temporary labor business borrower has from its customers. Our focus on evaluation of the borrowing base will therefore consist primarily of a review of the accounts receivable aging and credit information on the significant accounts of the temporary labor business borrower. The borrowing base will be considered adequate when the evaluation indicates that the collateral is sufficient to support the loan being offered. Once the data for evaluating lending criteria is accumulated, we will submit the loan to the loan committee for consideration and when appropriate, approval. The loan committee currently consists of John Coghlan, Brad Herr and Kristie Jesmore. See "Management" at Page 22. The members of the loan committee do not have prior experience as loan officers or members of a loan committee. John Coghlan served as a financial officer of a large multinational temporary labor business, and in this capacity, Mr. Coghlan experienced the full range of cash flow and credit issues facing temporary labor offices. As a result, Mr. Coghlan is able to relate to and evaluate the borrowers from the perspective of a temporary labor business. Once a loan is approved, we will prepare a loan documentation package that will include all of the loan documents necessary for the loan in question. This package will generally include the Loan Agreement, a Security Agreement, Continuing Personal Guarantees, and if applicable, a Pledge Agreement. We will request personal guarantees and pledge of ownership in the borrower prior to lending against accounts receivable when the risk assessment indicates that personal guarantees are warranted. As collateral for the loans we make, we will request a first position security interest in all of the assets of the borrower. We will also follow the appropriate procedures to perfect our security interests in assets under Article 9 of the Uniform Commercial Code, or other applicable secured transactions laws. In general, a perfected security interest provides protection to the first-to-perfect creditor against other creditors of the borrower. Perfection of a security interest occurs when the proper procedures are followed as set out in the State laws of the appropriate jurisdiction. When we are the creditor in the first position with a perfected security interest on all of a borrower's assets, we will have a right to apply all of those assets toward our debt (including late fees, default interest charges, and collection cost), before payment to other creditors, with only limited exceptions (such as tax liens). This will increase the likelihood that we will be able to recover all, or at least some, of the amounts due from the debtor. 14 After a loan is made to a particular borrower, we will perform ongoing monitoring of the borrower's business to assure that early notice of any concerns is received. The nature of the accounts receivable financing will require each borrower to provide weekly sales information to serve as the basis for future advances. This information will be monitored for inconsistent results, or other aberrations that indicate potential problems. Additionally, we will require independent accountants to perform accounting services to most of our borrowers, and if we are providing accounting services to a borrower, we will monitor financial health through the accounting cycle. In the event one of our borrowers experiences financial difficulties and is unable to repay some or all of the amounts we have loaned, we will take action to protect our collateral position and obtain repayment through appropriate means. In instances where a distressed borrower appears to have an otherwise viable business, we may consider an equity stake offset against the delinquent balance. In the right circumstances, we believe that taking an equity stake in lieu of foreclosing on a security interest may be the best way to maximize value to our shareholders while allowing the business to continue as a customer. We expect to derive operating revenues from our lending activities through loan fees and financing charges. Each loan made will require that the borrower pay a weekly administrative fee. Currently, this fee is a flat amount of $250 per week for the first year and $150 per week thereafter. This administrative fee may be adjusted based on operational experience and market factors once the company has more borrowers in its customer base. In addition to the weekly administrative fee, the company also charges a weekly loan fee calculated as a percentage of the temporary labor revenues generated by the temporary labor business borrower from customers on account. The amount of the loan fee will also depend on the credit worthiness of the borrower, and an overall assessment of the factors evaluated during the loan approval process. The weekly administrative and loan fees are the only charges associated with active and current borrowers under our loan agreements. Our lending arrangements do not contemplate an interest rate charge for the amount of the outstanding loan balance. INVESTING IN BUSINESSES. We also intend to invest in temporary labor businesses from time-to-time. Our investments will typically be limited to minority interests in the entity that will own the temporary labor business. In the proper circumstances, we will evaluate and consider other forms of ownership, provided the business opportunity is then consistent with the goals and direction of our operations. Our investments will be made through our wholly owned subsidiary, Temps Unlimited, Inc. Our business plan for investing in temporary labor businesses is focused on generating returns through growth in the value of the businesses we invest in and through near term returns from profits percentage allocations negotiated at the time the investments are made. We believe that cash flows from operations of small temporary labor businesses will allow distributions to the business owners, including Temps Unlimited, Inc., and the cash distributions will provide us with operating revenues from investing activities. Eventually, additional investment returns may be generated from sale or other disposition of the business, either to the other owners, or in a roll-up of small temporary labor businesses into a larger entity. Exit opportunities for our investments will be evaluated on a case-by-case basis as the opportunities arise. We know of no such opportunities at this time, and no assurances can be given that exit opportunities will arise. At this time, we have invested in two temporary labor businesses. We own 18% each of Temps Unlimited of Minnesota, LLC and Temps Unlimited of Nebraska, LLC. We paid $12,000 for our 18% interest in Staffing on Demand, and $11,250 for our 18% interest in Valustaff. 15 Temps Unlimited of Minnesota, LLC, doing business as Staffing on Demand ("Staffing on Demand"), was formed on March 14, 2001, as a Washington limited liability company, and operates out of a 1,728 square foot building in St. Cloud, Minnesota. In addition to our investment in Staffing on Demand, we also provide loans and accounting services to the business. As of June 30, 2001, Staffing on Demand had an outstanding accounts receivable financing line of $4,930. Staffing on Demand commenced operations on June 15, 2001, and as of June 30, 2001 had generated $6,251 in revenues, $40,945 in operating expenses, and a net loss of $34,694. Additional detail concerning the business of Staffing on Demand is included in Note 5 to our Consolidated Financial Statements (Unaudited) at F-21 of this Prospectus. Temps Unlimited of Nebraska, LLC, doing business as ValuStaff ("ValuStaff"), was formed on March 14, 2001, as a Washington limited liability company, and operates out of a 1500 square foot facility in Omaha, Nebraska. We also provide loans and accounting services to ValuStaff. As of June 30, 2001, ValuStaff had an outstanding accounts receivable financing line of $24,983. ValuStaff opened for business on May 7, 2001, and as of June 30, 2001 had generated $58,203 in revenues against $101,953 in expenses, for a net loss of $43,750. Additional detail concerning the business of Valustaff is included in Note 5 to our Consolidated Financial Statements (Unaudited) at F-21 of this Prospectus. Over the next twelve months, we expect to invest in a number of additional temporary labor businesses. We have allocated $625,000 if this offering is fully funded ($150,000 if only the minimum is sold) to investing activities. We intend to keep the dollar amounts of our investments in individual locations under $20,000 per location, but we will consider higher investment limits when circumstances and sound business judgment indicate that a higher limit may be warranted. We also expect that additional investment capital may be required on some of our investments from time-to-time in order to support operations to the breakeven point. This need for additional investment capital could increase our investment above the target of $20,000 per location. At this time, we have not established a minimum or maximum dollar investment limit for an individual location. If this offering is fully funded, we will have more funds available for investment, and we may accelerate our investing activities as market conditions allow. We continue to receive additional requests for business investment, but at this time, we are deferring further investment evaluations until after the offering is completed. We have reserved the right to consider investments in other businesses as opportunities arise, but at this time, we are not evaluating any other opportunities outside of the temporary labor business. PROVIDING SERVICES. We will offer to also provide accounting, management advisory and collection services. We are currently providing accounting services to two temporary labor businesses, and receive monthly fees for these services. We also intend to expand our services offerings to include management advisory services, marketing assistance, and accounts receivable collection services as our customer base builds. If we are able to identify a software system that streamlines the reporting functions of temporary labor businesses, we may also seek to become a software distributor or value added reseller for the software package. At this time, we have not identified a suitable software package for this purpose. Additional services will be priced on an as used basis. Our services offerings will continue to develop following completion of this offering. 16 The service sector of our business is not expected to be a high priority in the coming months. It is expected to comprise less than 10% of our revenues. Our initial limited efforts to develop our services offerings will focus on providing services to our loan and investment customers. We believe that the services we offer will differentiate our loan and investment offerings from the competition, and will also allow us to better monitor our loan and investment portfolios. When we provide accounting services to a temporary labor business, we will be privy to operational information that will aid in the continuing evaluation of the health of that temporary labor business. If the business is also a loan or investment customer, we will be in a position to monitor the viability of our loan or investment on a real time basis. We intend to continue to expand our pool of loan and investment customers, and we believe these efforts will provide a ready source of prospective customers for our services offerings. As time and availability of personnel dictate, we may also expand our services offerings to other businesses in the temporary labor and other industries. COMPETITION. We believe that the businesses of lending to, investing in, and providing services to temporary labor businesses are highly fragmented with a few large national or international players and many small regional or local companies. We expect that we will have to aggressively compete for our customers, and that high levels of competition will serve to keep our pricing for products and services down. In the lending business, there are many asset based lenders and accounts receivable factors that will offer similar products and services to our customers. We do not expect our competition for loans to come from traditional lenders such as banks and other financial institutions since our target customer base is not likely to qualify for traditional sources of lending. The use of accounts receivable financing and factoring is well known, widespread, and readily available. A search on the World Wide Web under the key words "accounts receivable financing" yields a very large number of firms (too numerous to list) that are skilled at lending to businesses, including temporary labor businesses. Many of the firms listed are better capitalized, more experienced, and have more personnel resources than we will have, even if this offering is fully funded. We are not aware of any specific competitors that are focused almost exclusively on lending to temporary labor businesses, but many of the diversified firms will make loans of this nature. We do not believe that we will experience a shortage of customers interested in our loan offerings, but our success in providing loans to these customers will depend on our ability to price our offerings fairly, to competently service the accounts that we do win, and to manage our loan portfolio to yield a positive return. The large number of competing firms will make this task difficult. The business of investing in temporary labor businesses faces a situation similar to the business of lending. The number of firms that make investment capital available to small start-up businesses, including temporary labor businesses, is too numerous to mention. The investment firms run the gamut from individual "angel" investor to very large and professionally managed investment banking concerns. Many of the investment firms are better capitalized and more experienced than we are. As a result, when seeking investment capital, our target customers will be faced with a number of financing options. It is likely that this will result in a harder negotiation on the terms of the investment and could impact the return on our investment if we win the business. 17 Our services offerings will also be faced with high levels of competition. Accountants and bookkeepers will compete for the accounting services that we hope to provide to our loan and investment customers. There are many consultants and management advisory firms that will compete for the right to advise our prospective customers on business matters. Our intention to offer accounts receivable collection assistance will also be met with stiff competition from local collection agencies and from collection agencies with national presences. As a result, pricing of our services will be held down by competitive pressures and this could reduce the rate of return an investor in this offering might otherwise expect. TARGET CUSTOMERS. We believe that our customer base will come from small temporary labor businesses that provide unskilled and semi skilled labor to light industrial and commercial establishments. A typical establishment might be staffed with two or three employees. The owner/operator and/or employees will contact local businesses that might be in need of temporary labor, and will contract for jobs when the need arises. The facility will operate as a labor hall, where the workers will gather in the morning and will be dispatched to the available jobs. At the end of the day, the workers will typically return to the dispatch location for payment. Most of the temporary labor businesses that we will target will pay their workers the same day the work is performed. The temporary labor business will typically be paid by its customers on a monthly basis, so the same day payment to the workers creates an immediate need for accounts receivable financing. We believe that our knowledge of the temporary labor industry and our willingness to provide accounts receivable financing will allow us to competently service this market segment. METHODS OF MARKETING. We will initially rely on the contacts of our Management to generate customers for our business activities. John Coghlan and Dwight Enget previously worked in the temporary labor industry and both have extensive contacts with small temporary labor business operators and entrepreneurs. We believe that many of these small operators may be interested in our financing program, possible investment capital, and services. We will focus our initial efforts on contacting these prospects. After we have followed up on the initial prospect list, we will expand our marketing efforts to a wider audience. At this stage, marketing efforts may include direct mail programs to temporary labor businesses, word of mouth referral incentives, and advertising campaigns. We intend to prepare more detailed marketing plans as we work through the initial prospect lists, and will tailor our marketing materials and marketing efforts based on the feedback that we receive from our initial efforts. We believe that the capital that will be available for loans and investment will be sufficient for approximately eighteen months if this offering is fully funded (or approximately one year if funded to the minimum level). Our marketing efforts will be geared to match this availability of funds. We expect that additional funding will be required in the twelve to eighteen month time frame. If we are unable to obtain the additional capital that we need, we will adjust our marketing efforts accordingly. If funds are not available, our business could be adversely affected. When needed, we will seek additional capital through common equity offerings, debt placement, preferred stock offerings, and/or other forms of capital infusion. GOVERNMENTAL REGULATION. Our proposed lines of business will be subject to government regulation in a number of areas. 18 Temporary staffing firms are the legal employers of their temporary workers. To the extent that the Company invests in controlling interests of temporary staffing businesses, we may be governed by laws regulating the employer/employee relationship, such as tax withholding or reporting, social security or retirement, anti-discrimination and workers' compensation. As noted in the discussion of our proposed business activities, it is our intention to structure our investments in portfolio companies as minority interests. This may limit the impact of this form of government regulation on the company. We also intend to offer accounting services to our loan and investment customers. These services may entail the filing of payroll tax returns and other government mandated reports in accordance applicable regulations. EMPLOYEES. As of June 30, 2001, we had one full time employee working for the business. Additional services are currently being provided by outside consultants as needed to implement the early stage business plan. We anticipate that a second full time employee will be hired once this offering is completed, and one or two additional part time employees will be retained to provide support for those customers electing to utilize our services. We expect that two full time and two part time employees will be sufficient to operate the business for the coming twelve months. If the growth in our loan and investment portfolios exceeds expectations, additional personnel will be added as necessary to maintain high levels of customer service. Additional information regarding employees is provided under "Management" at Pages 22 - 25. Kristie Jesmore is currently employed by the Company on a full time basis. John Coghlan has several other business interests and devotes approximately 20% of his time to Company business. Mr. Coghlan's time commitment to Company business will remain at 20% after completion of the offering. Company business comprises approximately 95% of Mr. Herr's consulting practice, and after the offering is completed, it is expected that Mr. Herr will devote his full energy and attention to the Company's business. Dwight Enget, Gene Olsen and Greg Lipsker function as outside directors and devote attention to company matters as needed. Following completion of this offering, additional responsibilities will be allocated to existing or new personnel as needed to implement the business plan. FACILITIES. Effective June 1, 2001, we entered into a three year lease for 1,425 square feet of office space in a professional office building in Spokane, Washington. We believe that this space will be adequate to meet our needs for at least the next three years. Prior to June 1, 2001, we shared offices with our President, Mr. John Coghlan, in a high rise building in downtown Spokane. We paid Mr. Coghlan $200 per month for the use of the office space and access to the office equipment. With the move to a larger office in June, we have acquired our own office furniture and equipment. Additionally, Mr. Coghlan has moved his personal office into our facility and now pays the Company $500 per month for use of our offices and equipment and personnel. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION Temporary Financial Services, Inc. and its wholly owned subsidiary, Temps Unlimited, Inc. are engaged in the business of lending to, investing in, and providing services to temporary labor businesses. We generate revenues from lending activities through administrative and loan fees. Our investing activities will yield returns through current distributions of earnings from the businesses we invest in and through realization of value appreciation when the investment asset is sold or transferred. We also provide fee based services to our customers. After payment of operating expenses, we anticipate that profits and surplus cash flows will be reinvested in the growth of the Company for the foreseeable future. 19 RESULTS OF OPERATIONS The Company was organized in October, 2000, and began operations in the second quarter of 2001. Prior to April 1, 2001, our efforts were focused on initial fundraising activities and the development of our business plan and operational procedures. As of June 30, 2001, we had loans outstanding of $228,067, with three temporary labor businesses. We also hold minority investments in two temporary labor businesses through Temps Unlimited, Inc., a wholly owned subsidiary corporation. The investments include $12,000 for 18% of Temps Unlimited of Minnesota, LLC (dba Staffing on Demand), and $11,250 for 18% of Temps unlimited of Nebraska,LLC (dba ValuStaff). We also provide accounting services to Staffing on Demand and Valustaff. Since we began operations, we have generated $4,354 from loan fees, $4,500 from loan administration fees, and $2,000 from fee based accounting services. We have also generated dividend income of $7,368 and interest income of $3,457 from investing surplus working capital during the start-up phase of the business. Total revenues for the six months ended June 30, 2001 were $22,179. We account for our investments in Staffing on Demand and ValuStaff under the equity method of accounting. Unrealized profits and losses on the investments are recorded as income or loss on the books of Temps Unlimited, Inc. and are then consolidated with the results of Temporary Financial Services, Inc. During the second quarter, we recorded unrealized losses on investments of $6,245 from our investment in Staffing on Demand, and $7,875 from our investment in ValuStaff. During this period, Staffing on Demand was just commencing operations. Staffing on Demand generated $6,251 in total revenues and incurred a loss of $34,694. ValuStaff operated for a longer period in the quarter generating $58,203 in total revenues while posting a loss of $43,751. Both Staffing on Demand and ValuStaff are in the start-up phase and the losses are expected. We anticipate that Staffing on Demand and ValuStaff will continue to grow through the rest of 2001, and will reach breakeven operating levels in 2002. On a consolidated basis, including the unrealized losses on investments, Temporary Financial Systems, Inc. incurred total expenses of $46,145, yielding a net loss of $23,866.76 for the six months ended June 30, 2001. We believe that the losses incurred to date are consistent with the early stage development of the company and are in line with the business plan. We will continue to monitor progress throughout the remainder of 2001 and will adjust our business plan to address any operational issues as they arise. LIQUIDITY AND CAPITAL RESOURCES. At June 30, 2001, we have loans to temporary labor businesses outstanding in the amount of $228,067. We expect the amount of loaned funds to continue to increase as the borrowers' businesses grow and their borrowing needs increase. Cash and cash equivalents at June 30, 2001, amounted to $452,699. These amounts will be used to fund operations and provide loan capital through the completion of this offering. We do not anticipate that we will make any additional investments in temporary labor businesses until this offering is completed. We believe that our available cash and cash equivalents will be sufficient to meet the growing borrowing needs of our existing borrowers and up to three additional borrowers until this offering can be completed. 20 If the minimum offering is funded, an additional $870,000 will be available for the Company's business purposes. See "Use of Proceeds," below. With the current cash position and the additional funds from this offering at the minimum level, we believe we will have sufficient capital to operate for at least a twelve month period. If the offering is fully funded, the net offering proceeds of $3,540,000 will be sufficient to allow for accelerated growth of the business and should be adequate for a two year period. Pending use of offering proceeds for loans, investments, or operations, we will place the funds in accessible interest or dividend bearing accounts and will manage our surplus working capital position to provide current earnings. USE OF PROCEEDS The following table sets forth information concerning the estimated use of proceeds from the Offering. The exact allocation of net proceeds may be adjusted in our sole discretion as good business judgment dictates. Minimum Raised Maximum Raised --------------------- ------------------------- Gross Offering Proceeds $1,000,000 100.0% $4,000,000 100.0% Offering Costs Underwriting Commissions* 100,000 10.0% 400,000 10.0% Underwriter's Non-accountable Expenses* 10,000 1.0% 40,000 1.0% Offering Costs 9,000 0.9% 9,000 0.2% Professional Fees 8,000 0.8% 8,000 0.2% Travel 3,000 0.3% 3,000 0.1% ---------- -------- ----------- ------------ Estimated Total Offering Costs 130,000 13.0% 460,000 11.5% Estimated Net Offering Proceeds $ 870,000 87.0% $3,540,000 88.5% ========== ======== =========== ============ Uses of Net Offering Proceeds Receivable Financing $ 620,000 62.0% $2,515,000 62.9% Investment Opportunities 150,000 15.0% 625,000 15.6% Marketing Costs 5,000 0.5% 25,000 0.6% Development of Services 10,000 1.0% 10,000 0.2% Personnel Costs -0- 0.0% 75,000 1.9% Working Capital 85,000 8.5% 290,000 7.3% ---------- -------- ----------- ------------ Total $ 870,000 87.0% $3,540,000 88.5% ========== ======== =========== ============ The uses of proceeds indicated in the above table are listed in order of priority from what we consider to be the highest priority expenditures to the lowest. The amounts indicated do not take into account those expenditures that will be made from operating revenues following completion of this offering. DESCRIPTION OF SECURITIES COMMON STOCK We are authorized to issue One Hundred Million (100,000,000) Shares of $0.001 par value Common Stock. There are presently 350,000 Shares issued and outstanding held by 16 shareholders of record. There are no outstanding options or rights to acquire our Shares. 21 All Shares of Common Stock are equal to each other with respect to voting, liquidation, dividend and other rights. Owners of Shares of Common Stock are entitled to one vote for each Share of Common Stock owned at any Shareholders' meeting. Holders of Shares of Common Stock are entitled to receive such dividends as may be declared by the Board of Directors out of funds legally available therefore; and upon liquidation, are entitled to participate pro rata in a distribution of assets available for such a distribution to Shareholders. There are no conversion, preemptive, or other subscription rights or privileges with respect to any Shares. Our Common Stock does not have cumulative voting rights which means that the holders of more than fifty percent (50%) of the Shares voting in an election of directors may elect all of the directors if they choose to do so. In such event, the holders of the remaining Shares aggregating less than fifty percent (50%) would not be able to elect any directors. PREFERRED STOCK We are authorized to issue Five Million (5,000,000) Shares of Preferred Stock. There are currently no outstanding Shares of Preferred Stock. The Preferred Stock is entitled to preference over the Common Stock with respect to the distribution of our assets in the event of liquidation, dissolution, or winding-up of our business, whether voluntarily or involuntarily, or in the event of any other distribution of our assets among our shareholders for the purpose of winding-up our affairs. The authorized, but unissued Shares of Preferred Stock, may be divided into and issued in designated series from time to time by one or more resolutions adopted by the Board of Directors. The Directors, in their sole discretion, shall have the power to determine the relative powers, preferences, and rights of each series of Preferred Stock. While our directors have the sole discretion under our Articles of Incorporation to establish the powers, preferences, and rights of the Preferred Stock, and to issue the Preferred Stock once it is created, we represent that we will offer any Preferred Stock that we create on the same terms to all of our shareholders unless: (i) the issuance of the Preferred Stock is first approved by our Shareholders in a meeting called for this purpose; or (ii) the issuance of the Preferred Stock is first approved by a majority of our independent directors who do not have an interest in the transaction and who have access, at our expense to our legal counsel or independent legal counsel chosen by our independent directors. DIVIDENDS We have never paid dividends and expect, for the foreseeable future, that we will utilize all available funds for the development of our business. Accordingly, we have no plans to pay dividends, even if our operations generate sufficient earnings and cash flows to allow for such a payment. TRANSFER AGENT We have retained the services of Atlas Stock Transfer Corporation as our Transfer Agent and Registrar. Atlas Stock Transfer is located at 5899 South State Street, Salt Lake City, Utah 84107. 22 DILUTION Prior to this Offering, we sold 150,000 Shares of Common Stock at a price of $1.00 per Share and an additional 200,000 Shares of Common Stock at a price of $3.00 per Share. As of June 30, 2001, our net tangible book value was $726,411, or approximately $2.08 per Share of Common Stock. Net tangible book value per Share represents the amount of our total tangible assets less total liabilities divided by the number of Shares of Common Stock. After giving effect to the sale of the 800,000 maximum (200,000 minimum) Shares offered hereby and after deducting the sales agent's commission and estimated offering expenses, net tangible book value at December 31, 2000, would be $4,266,411 maximum ($1,596,411 minimum), or approximately $3.71 maximum ($2.90 minimum) per Share of our Common Stock. This represents an immediate increase in net tangible book value of $1.63 maximum ($0.82 minimum) per Share of Common Stock to our existing stockholders and an immediate dilution in net tangible book value of $1.29 (26%) maximum ($2.10 (42%) minimum) per Share of Common Stock. The following table illustrates this per Share dilution for both the minimum and maximum offering amounts: Minimum Maximum Initial public Offering price $ 5.00 $ 5.00 Net tangible book value per Share prior to the Offering $ 2.08 $ 2.08 Increase in net tangible book value per Share attributable to this Offering $ 0.82 $ 1.63 Net tangible book value per Share after the Offering $ 2.90 $ 3.71 Dilution in Value Per Share to Investors in this Offering $ 2.10 $ 1.29 Dilution of net tangible book value per Share to new investors 42% 26% MARKET PRICE OF COMMON EQUITY The is no market for our Shares and there can be no assurance that a market will develop after completion of this Offering. MANAGEMENT The following sets forth information concerning our Management and key personnel: JOHN R. COGHLAN, age 58, is President of the Company and serves as Chairman of the Board of Directors. Mr. Coghlan graduated from the University of Montana with a degree in Business Administration and has held the designation of Certified Public Accountant since 1966. Mr. Coghlan was a founder of Labor Ready, Inc., a New York Stock Exchange traded company, and served as the Chief Financial Officer and Director of Labor Ready from 1987 through 1996, when he retired. Since his retirement, Mr. Coghlan has been employed by Coghlan Family Corporation, a privately held family business that manages family investment accounts. From January 1, 1997 through December 31, 2000, Mr. Coghlan's investing activities on behalf of the Coghlan Family Corporation have resulted in a 321% increase total assets and a 321% increase in retained earnings. The returns and investment growth in Coghlan Family Corporation were generated from various investments in accounts receivable contracts, marketable securities, money market funds, and various business interests including an agribusiness, a retirement center and real estate. Coghlan Family Corporation is 100 % owned by the Coghlan Family LLC. John and Wendy Coghlan, husband and wife, own minority interests in Coghlan Family LLC and control both the LLC and the Corporation through the LLC management agreement. The remaining interests in the Coghlan Family LLC are owned by Mr. Coghlan's children and grand children. 23 Labor Ready is an international provider of temporary labor with 816 locations as of December 31, 2000 and annual revenues of $976,000,000 for the year then ended. Mr. Coghlan retired from Labor Ready in 1996 to pursue other interests and manage his investment accounts. At the time that Mr. Coghlan left Labor Ready, it operated 200 locations and generated $163,000,000 in annual revenues. Mr. Coghlan will utilize his business experience in the temporary labor industry, and the contacts that he established during that period to provide a source of business prospects for the Company. Mr. Coghlan's investment experience over the past four and one half years will also be beneficial to the extent that we have surplus cash while we build our customer base. Prior to founding Labor Ready in 1987, Mr. Coghlan was sole director and Principal of CDA Securities, a stock brokerage firm located in Spokane Washington. In 1987, while serving as Principal for CDA Securities, the Securities & Exchange Commission (SEC) filed a complaint alleging violations of registration and antifraud regulations. The allegations against Mr. Coghlan included claims that he charged undisclosed excessive mark-ups and mark-downs of 17% to 33% and made misrepresentations to customers regarding the "market price" of stock and the existence of a public market. As a result of these allegations, Mr. Coghlan stipulated to a permanent injunction from further violations, was fined $17,760 and was suspended from association with any broker dealer for twelve months. The States of Washington, Alabama, Georgia, and Ohio brought similar actions and Mr. Coghlan's brokerage license was suspended in these states. The action by the SEC was resolved in 1988 and the action by the State of Washington was resolved in 1990. Since these matters were resolved, Mr. Coghlan has complied with all aspects of the stipulated settlements. BRAD E. HERR, age 47, is Secretary and a Director. Mr. Herr is graduated from the University of Montana with a Bachelor of Science Degree in Business Accounting in 1977 and a Juris Doctorate in 1983. From 1993 through 1996, Mr. Herr practiced law in the firm of Brad E. Herr, P.S. In June 1996, Mr. Herr joined AC Data Systems, Inc. (AC Data) in Post Falls, Idaho. From 1996 through 1998, Mr. Herr held the position of Director of Finance. From 1998 through June 2001, Mr. Herr held the position of Vice-President - Business Development. AC Data is a privately held manufacturing business engaged in the design, manufacture and sale of surge suppression products marketed primarily to the telecommunications industry. In June, 2001, Mr. Herr left employment at AC Data Systems to pursue other business opportunities. Mr. Herr is currently employed by Brad E. Herr, P.S., a professional services corporation that he owns. Brad E. Herr, P.S. provides professional services to Temporary Financial Services, Inc., Temps Unlimited, Inc., and other business clients. Mr. Herr is licensed to practice law in the states of Washington and Montana. Mr. Herr also maintains inactive status as a Certified Public Accountant in the State of Montana. KRISTIE L. JESMORE, age 50, is Treasurer for the Company. Ms. Jesmore graduated from Eastern Washington University in 1982 with a Bachelor of Science Degree in Business Administration. From 1987 through September, 2000, Ms. Jesmore was self-employed providing accounting and administrative services for small businesses. On September 19, 2000, Ms. Jesmore began working with Coghlan Family Corporation and John Coghlan on Mr. Coghlan's investment and other business interests, including Temporary Financial Services, Inc. As our business has developed, Ms. Jesmore has devoted more of her time to company activities and effective on July 1, 2001, Ms. Jesmore is now employed by Temporary Financial Services, Inc. Ms. Jesmore manages the office, maintains the company's books, and provides accounting services to our customers. 24 Prior to 1987, Ms. Jesmore was employed in several stock brokerage firms. In 1987, Ms. Jesmore served as financial principal for Devonshire Securities during a period that the brokerage was out of compliance with the net capital requirements applicable to broker-dealers. As a result, it was alleged that Ms. Jesmore aided and abetted the brokerage firm in the net capital and margin requirement violations. Ms. Jesmore entered into a consent order that barred her from association with any broker-dealer in a supervisory or proprietary capacity for a period of two years. DWIGHT ENGET, age 50, is an independent Director of the Company. Mr. Enget graduated from Minot State University with a degree in Business Administration. Mr. Enget was employed by Labor Ready, Inc from 1989 to 1997. Mr. Enget began his career with Labor Ready as a branch manager and held the position of Director of Operations for the Western District upon his retirement. Since 1997, Mr. Enget has been retired. INDEPENDENT DIRECTORS. We have agreed to maintain a minimum of two independent directors of the Company following completion of this offering. For this purpose, independent directors are individuals that do not have an employment, significant business, or ownership relationship with the Company. Maintaining at least two independent directors will provide an independent source for evaluating and approving or disapproving transactions that may involve the inside officers and directors. We consider individuals owning less than 5% of the outstanding shares following completion of this offering to be independent provided they are not employees and do not have some other business relationship with us that could affect their independence. GREGORY B. LIPSKER, age 51, is an independent Director of the Company. Mr. Lipsker is a practicing attorney in Spokane, Washington. Mr. Lipsker graduated from the Georgetown University Law Center in 1976. Mr. Lipsker's practice emphasizes corporate transactions and securities matters. Since 1993 Mr. Lipsker has been the president and a director of Metaline Mining and Leasing Company, an inactive mining exploration company. From 1993 to 2000 Mr. Lipsker was the president and a director of Cimarron -Grandview Group, Inc. (now Full Moon Universe, Inc.) Both companies are reporting companies. C. Eugene Olson, age 60, accepted a position as an independent Director of the Company in October, 2001. Mr. Olsen has over fifteen years experience in public accounting, with seven years as a partner in the Spokane, Washington office of an international CPA firm. Since 1995, Mr. Olsen has served as Chief Financial Officer for Dellen Wood Products, Inc. in Spokane Washington. Mr. Olsen received a Bachelor of Science Degree in Business from the University of Idaho, and holds Certified Public Accountant certificates in Washington and Montana. He has been active in the Washington and Montana Societies of CPAs , and has served as chairman and is a past president of the Spokane Chapter of Washington Society of CPAs. 25 TRANSACTIONS WITH AFFILIATES AND CONFLICTS OF INTEREST. In all transactions between the Company and an affiliated party, the transaction will be presented to the Board of Directors and may only be approved if (1) if the transaction is on terms that are no less favorable to the Company than those that can be obtained from unaffiliated third parties and, (2) a majority of the independent directors who do not have an interest in the transaction approve of the action. We will pay for legal counsel to the independent directors if they want to consult with counsel on the matter. We believe that the requirement for approval of affiliated transactions by disinterested independent directors will assure that all activities of the Company are in the best interest of the Company and its shareholders. Shortly after formation, we undertook a private offering of our shares to officers and directors and others. The shares were offered to officers and directors for $1.00 per share payable 25% in cash and 75% in the form of a promissory note. The shares were offered to non-officer/director investors only for cash, so the sale of shares to officers and directors was on terms more favorable than those offered to other investors in the initial private offering. The sale to officers and directors was not approved by at least two independent directors. Subsequently, the notes have been paid in full with interest. Any similar transactions in the future will follow the disinterested director or disinterested shareholder approval procedures called for by our Bylaws. Through our wholly owned subsidiary, Temps Unlimited, Inc., we intend to invest in temporary labor businesses. We also expect that there may be opportunities to invest in more businesses than we will choose to accept. We may decline an investment because of the timing, other commitments, size, suitability standards, or any number of other sound business reasons. In such circumstances, it is possible that some or all of our officers and directors may choose to make the investment from personal funds. In order to fulfill their fiduciary responsibilities to the Company and our shareholders, each officer and director is aware that he or she must make business opportunities that are consistent with our business plan available to the company first. If we decline to participate, the individual officers and directors may then participate individually. Beyond the obligation to present opportunities to the Company first, there are no restrictions on participation in business opportunities by our officers and directors. COMPENSATION Effective July 1, 2001, Ms. Jesmore receives a salary of $3,000 per month from the Company. Ms. Jesmore currently handles all of the administrative and set-up tasks related to establishing loan accounts, monitoring loan activity, and addressing daily operational matters. Ms. Jesmore receives assistance as needed on business matters from John Coghlan and Brad Herr. John Coghlan and Dwight Enget are not currently compensated by the Company for their activities on our behalf. Brad E. Herr, P.S., a professional services corporation solely owned by Brad E. Herr, receives payment for professional services provided to the company as invoiced at the rate of $60 per hour. At this time, our directors receive no annual compensation or attendance fees for serving as directors. Reasonable directors' fees may be established for attendance at meetings once this offering is competed. The Company does not anticipate payment to officers for serving in that capacity, although corporate officers may also serve and will be compensated as employees when appropriate. As of the date of the Prospectus, the only employee of the Company is Ms. Jesmore. 26 Following completion of this offering, the Company will hire additional personnel as required to operate the business effectively. If the offering is funded at the minimum level, additional personnel will be hired as operating cash flows allow. We do not anticipate that we will use any of the net offering proceeds for personnel costs at the minimum funding level. If the offering is fully funded, we anticipate that we will use up to $75,000 of the net offering proceeds for personnel costs. We expect that our initial hiring will be for support staff to perform clerical and bookkeeping duties. Mr. Coghlan has indicated that he will continue to provide services to the Company as President and Director on an uncompensated basis through June 30, 2002. At that time, Mr. Coghlan's salary will be considered in light of the financial condition of the Company and the progress the Company has made up to that point in time. As the Company grows, and operating cash flows allow, we expect that we will fill the position of general manager, and add additional support staff as needed. At this time, the Company does not provide any non-cash compensation to any of the officers, directors, or key personnel. Other forms of compensation, including non-cash consideration, for key employees may be considered once the Company has achieved breakeven operating levels. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following tables set forth information regarding the number and percentage of our Shares of Common Stock held by each director, each of the named executive officers and directors and officers as a group. The table also sets forth the ownership of any non-management person known to us to own more than five percent of any class of our voting Shares. SECURITY OWNERSHIP OF NON-MANAGEMENT OWNERS. The following table sets forth information about those persons, excluding Management, that we know own more than 5% of any class of our voting Shares on June 30, 2001: % of Class % of Class % of Class Name Number of Shares at 06-30-01 at Minimum at Maximum ------------------------ ---------------- ----------- ---------- ---------- Welstad Family LLC 24,500 7.0% 4.5% 2.1% 1016 S. 28th St. Tacoma, WA 98409 ------------------ Terry Dunne 25,000 7.1% 4.5% 2.2% 601 W. Main Ave. Spokane, WA 99201 ------------------- Bill Newton 20,000 5.7% 3.6% 1.7% 5300 North Prince Pl. Jackson Hole, WY 83001 ------------------------- Jerry Smith 20,000 5.7% 3.6% 1.7% 8040 E. Morgan Trail. Scottsdale, AZ 85258 ---------------------- Norm Schroth 20,000 5.7% 3.6% 1.7% Box 841 Hermiston, OR 97838 27 SECURITY OWNERSHIP OF MANAGEMENT. The following table sets forth information concerning the ownership of our Common Shares by all directors and all directors and officers as a group as of June 30, 2001. The numbers of shares and the percentages indicated do not take into account the possible purchase of shares by the named individuals in this offering. The number of shares owned by John Coghlan include 10,000 shares owned by Coghlan Family LLC and 10,000 shares owned by Coghlan Family Corporation. % of Class % of Class % of Class Name Number of Shares at 06-30-01 at Minimum at Maximum ------------------------ ---------------- ----------- ---------- ---------- John R. Coghlan 80,500 23.0% 14.6% 7.0% 200 N. Mullan, Suite 213 Spokane, WA 99206 ------------------- Brad E. Herr 30,000 8.6% 5.5% 2.6% 200 N. Mullan, Suite 213 Spokane, WA 99206 ------------------- Kristie L. Jesmore 25,000 7.1% 4.5% 2.2% 200 N. Mullan, Suite 213 Spokane, WA 99206 ------------------- Dwight Enget 45,000 12.9% 8.2% 3.9% 5510 W. Camelback Road Glendale, AZ 85031 -------------------- All Officers and Directors 180,500 51.6% 32.8% 15.7% as a group (4 individuals) CERTAIN TRANSACTIONS Temporary Financial Services, Inc. was formed in October, 2000. Since its inception, we have engaged in a number of transactions with our management in an effort to establish business operations. These transactions may not be considered to have been conducted at arms length, although the disinterested Directors approved the transactions and the terms were considered fair at the time. The initial capitalization of the company was derived from a private placement of 100,000 shares of common stock sold to officers and directors (the founders' shares) at an offering price of $1.00 per share. In that offering, John Coghlan, Brad Herr, Kristie Jesmore, and Dwight Enget each purchased 25,000 shares in exchange for $6,250 cash and a promissory note for $18,750 payable in three annual installments of $6,250 each. The promissory notes are unsecured obligations of the individual officers and directors bearing interest at 6.3% per annum. Subsequently, on June 26, 2001, Mr. Coghlan purchased the notes from the company and the full value for the founders' shares has now been received by the Company. Brad Herr, Kristie Jesmore and Dwight Enget are now indebted to Mr. Coghlan under the promissory notes. At the same time that we were conducting the offering of founders' shares, we also offered 50,000 shares to unaffiliated investors at $1.00 per share payable in cash at the time of investment. This offering was fully subscribed in November, 2000. In December, 2000, we offered an additional 200,000 shares of Common Stock at an offering price of $3.00 per share. This offering was fully subscribed on December 31, 2000, and all subscriptions for shares in this private placement were received by January 2, 2001. In this private placement, John Coghlan purchased 55,500 shares, Brad Herr purchased 5,000 shares, and Dwight Enget purchased 20,000 shares. In each case, the full $3.00 per share price was paid by the officers and directors in cash, on the same terms as offered to other investors. 28 Following incorporation and initial funding of the business, we operated out of offices provided by Mr. Coghlan and reimbursed Mr. Coghlan $200 per month for use of his facilities and office equipment. On June 1, 2001, we rented office space in a professional office building located at 200 N. Mullan, Suite 213, Spokane, Washington and Mr. Coghlan now shares our offices. Mr. Coghlan now reimburses the company for his use at the rate of $500 per month. The amounts of rent we paid Mr. Coghlan prior to June 1, 2001, and the amounts of rent we now receive from Mr. Coghlan for his personal use of our facilities, are considered fair value for the facilities provided. Prior to July 1, 2001, Ms. Kristie Jesmore was employed by the Coghlan Family Corporation and compensated for the services she performed for Coghlan Family Corporation and John Coghlan. From October 1, 2000 through June 30, 2001, Mr. Coghlan and Ms. Jesmore were activlely involved in establishing and developing the business plan for Temporary Financial Services, Inc., but no charges were made to us for the time Ms. Jesmore and Mr. Coghlan spent on company business. Effective July 1, 2001, Ms. Jesmore is now employed by us. If her ongoing work with Coghlan Family Corporation and John Coghlan require that Ms. Jesmore spend time on Mr. Coghlan's personal business, we will be reimbursed for Ms. Jesmore's time by Mr. Coghlan. Since May 1, 2001, we have been working with Brad E. Herr, P.S., a professional service corporation owned by Brad E. Herr. Mr. Herr is paid on a hourly basis at that rate of $60 per hour for hours actually spent on our business. Mr. Herr is currently working on general business matters including business plan development, loan documentation and loan procedures, and other business matters as requested. PLAN OF DISTRIBUTION DESCRIPTION OF OFFERING We are seeking to raise up to $4,000,000 from an Offering of a minimum of 200,000 Shares and a maximum of 800,000 Shares at a price of $5.00 per Share. We have entered into an agreement with Public Securities of Spokane, Washington to act as Underwriter in the offering. Public Securities will offer the shares on a 200,000 share "best efforts, all or none," basis, and an additional 600,000 shares on a "best efforts" basis. The term "best efforts" means that the Underwriter is committed to use its best efforts to place the shares for sale to the public. The phrase "best efforts all or none" means that the Underwriter will use its best efforts to sell the minimum amount of the offering. If the Underwriter is unable to sell the minimum amount of the offering by the offering termination date, then the offering will be considered unsuccessful and all proceeds will be promptly refunded to investors with interest and without deduction for offering costs. If the minimum offering amount is sold prior to the offering termination date, the Underwriter will continue to offer the shares on a best efforts basis. The Underwriter is paid a commission only on the shares it actually sells. This is contrasted with a traditional "firm" underwriting in which the underwriter purchases an amount of shares from a company, less an underwriting discount, and then resells the shares to the public. The offering will terminate on March 31, 2002, and the Underwriter is required to use its best efforts to sell the shares, up to the maximum amount being offered, from the effective date of the registration through the offering termination date. 29 The Underwriter has agreed with us that no commissions will be due on sales of shares to existing shareholders of the Company that purchase in the public offering, to the extent that the existing shareholders purchases cause the total shares sold in the offering to exceed 200,000 shares. If the offering closes, this provision will have the effect of assuring the Underwriter of commissions on the first $1,000,000 raised in the offering, regardless of the source of the purchaser. Management has indicated that it intends to purchase up to 200,000 shares ($1,000,000) in the offering. The amount actually purchased by management will depend on the level of interest of new investors in the offering. We have agreed to pay the Underwriter a commission of 10% on sales of all shares sold in the offering, except for the excluded sales to existing shareholders as described above. The Underwriter may elect to use Selected Dealers to assist with the offering, and may grant the Selected Dealers a selling concession of up to 8% of the gross offering proceeds. If used, each Selected Dealer must be a member of the National Association of Securities Dealers, Inc. (NASD). We have agreed to pay the Underwriter a 1% non-accountable expense allowance to cover the Underwriter's expenses incurred in connection with the offering. If the offering does not close, the Underwriter's expenses will be reimbursed on an accountable basis up to a maximum of $5,000. We have also agreed to deliver one Underwriter's Warrant for each ten shares sold in the public offering, regardless of source. Each Underwriter's Warrant entitles the Underwriter to purchase one share of our Common Stock at a price of $7.00 per share any time following the expiration of twelve months after the effective date of the offering and prior to the expiration of 60 months following the effective date. The Underwriter's Warrants and the shares issuable to the Underwriter upon exercise of the Underwriter's Warrants have been registered in this Offering. The Underwriting Warrants includes demand and piggyback registration rights that will require us to maintain the registration of the shares underlying the Underwriter's Warrants beyond the termination of this offering, or to otherwise register such shares at a future date. The obligation to maintain the current registration statement or to otherwise register the shares underlying the Underwriter's Warrants at a future date, could result in significant expenses to the Company. The Underwriter has the right to terminate the Underwriting Agreement in certain circumstances, including a change in market conditions which lead the Underwriter to believe that no favorable market exists for our securities. If the Underwriter terminates its agreement with the Company, we may seek other persons to assist with the offering, or we may be forced to cancel the offering. In any case, if the Underwriter terminates the offering prior to completion, we will be faced with additional expenses and time should we choose to continue. METHOD OF SUBSCRIPTION Persons who wish to participate in the offering must deliver to the Impound Agent a properly completed and executed Subscription Agreement, together with payment of the aggregate subscription price for the shares of Common Stock subscribed for in the offering. Payment must be by: check or money order payable to Sterling Savings Bank as Impound Agent for Temporary Financial Services, Inc. Wire transfer of funds directly to the Impound Agent is also permitted. The completed Subscription Agreement and payment should be delivered to: Sterling Savings Bank 111 N. Wall Street Spokane, Washington 99201 30 The instructions accompanying the Subscription Agreement should be read carefully and followed in detail. Subscriptions for our Common Stock that are received by the Company will be forwarded to the Impound Agent. We have the unconditional right to accept or reject any subscription. If we reject a subscription, the purchase price will be returned promptly, without interest. IMPOUND AGREEMENT All funds received from the sale of Shares will be held in impound with Sterling Savings Bank, Spokane, Washington, until the minimum offering amount of $1,000,000 has been deposited and collected. At that time, the impound agent will distribute the funds to us. If less than $1,000,000 is received from the sale of Shares by the close of business on March 31, 2002, the Offering will be terminated and all proceeds will be promptly refunded to purchasers by the impound agent with interest and without any discount for Offering expenses. In this event, we will pay all costs associated with the Offering. The foregoing impound agent is performing a limited function as depository of the funds raised in this Offering, and such fact should not be construed to mean that such agent has in any way passed upon the merits or qualifications of this Offering or has given its approval of or to any person, security or transaction referred to herein. CLOSING We expect to hold an initial closing of this Offering at any time after subscriptions for the minimum amount have been accepted and funds have cleared. The final closing is expected to occur on or before March 31, 2002. Interim closings may occur between the initial closing and the final closing. We are under no obligation to continue the Offering until the maximum Offering amount is sold, and may, in our discretion, effect the final closing at any time if and after the minimum Offering amount has been achieved, or terminate the Offering prior to any closing. TERMINATION The Offering will continue until such time as one of the following occurs: - March 31, 2002, if the minimum of $1,000,000 is not reached; - The maximum of $4,000,000 is raised; or - We elect to terminate the Offering. In the event that $1,000,000 has not been deposited into the Escrow Account by the close of business March 31, 2002 the investors' funds will be returned in full, with interest and without deduction for Offering expenses. 31 SHARES ELIGIBLE FOR FUTURE SALE Prior to this Offering, there has been no public market for any of our Shares and there can be no assurance that a significant public market for any of our Shares will be developed or sustained after this offering. After this offering is completed, Public Securities (the Underwriter), will make application with the National Association of Securities Dealers, Inc. (NASDAQ) to allow quotation of our stock on the NASDAQ supervised Over the Counter Bulletin Board system (OTCBB). If our stock is allowed for quotation, a public market for our shares may develop. At this time, our Underwriter does not anticipate any problems with quotation of our shares on the OTCBB, but no assurances can be given at this time that quotation of our shares will be allowed, or if allowed that an active market in our stock will develop. If a public market for our shares develops after this offering, sales of substantial amounts of our Common Stock in the public market after this Offering, or the possibility of those sales occurring could adversely affect the prevailing market price for our Shares and our ability to raise equity capital in the future. Upon completion of this Offering, there will be 1,150,000 Shares of our Common Stock outstanding, assuming the maximum Offering is sold. The 800,000 Shares of Common Stock being offered by this Prospectus will be freely tradable without restriction under the Securities Act, unless purchased by an affiliate of ours, as that term is defined under the rules and regulations of the Securities Act, which will be subject to the resale limitations of Rule 144 under the Securities Act. The remaining 350,000 Shares are considered "restricted securities" as defined in Rule 144. These Shares were issued in private transactions and have not been registered under the Securities Act and, therefore, may not be sold unless registered under the Securities Act or sold pursuant to an exemption from registration, such as the exemption provided by Rule 144. In general, under Rule 144, beginning 90 days after the completion of this Offering, a person, or persons whose Shares are aggregated, who has beneficially owned restricted Shares for at least one year, including the holding period of any prior owner who is not an affiliate of ours, would be entitled to sell within any three-month period, a number of Shares that does not exceed the greater of: - one percent, or approximately 11,500 Shares following this Offering, of the number of Shares of our Common Stock then outstanding; or - the average weekly trading volume of our Common Stock during the four calendar weeks preceding the sale. Sales under Rule 144 are also subject to manner of sale provisions, notice requirements and to the availability of current public information about us. Under Rule 144(k), a person who is not deemed to have been an affiliate of ours at any time during the 90 days preceding a sale, and who has beneficially owned the Shares for at least two years, including the holding period of any prior owner who is not an affiliate of ours, would be entitled to sell those Shares under Rule 144(k) without complying with the manner of sale, public information, volume limitation or notice provisions of Rule 144. 32 STATEMENT AS TO INDEMNIFICATION Our Articles of Incorporation and Bylaws authorize us to indemnify our Officers, Directors and Agents for all costs and expenses incurred in defense of any suit in which they may be named as defendants arising from any action on behalf of or related to the company. We have also agreed to reciprocal indemnification provisions with the Underwriter in accordance with the terms of the Underwriting Agreement. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to our Managers, the Underwriter, or persons controlling us or the Underwriter pursuant to the foregoing provisions, we have been informed that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is therefore unenforceable. LEGAL MATTERS Legal matters in connection with our Shares to be issued in connection with the Offering will be passed upon by the law firm of Workland & Witherspoon PLLC, Spokane, Washington, as our legal counsel. We are not a party to any legal proceedings, nor have any judgments been taken, nor have any actions or suits been filed or threatened against us or our Executive Officers or Directors in their capacities as such, nor are the Executive Officers or Directors aware of any such claims which could give rise to such litigation. EXPERTS Our financial statements as of December 31, 2000 and for the period from inception (October 4, 2000) through December 31, 2000 included in this Prospectus have been so included in reliance on the report of LeMaster & Daniels PLLC, Certified Public Accountants, given on the authority of such firm as experts in auditing and accounting. Our interim Financial Statements as of June 30, 2001 and for the periods from January 1, 2001 through June 30, 2001, and from inception through June 30, 2001, were prepared by management and have not been audited, reviewed or compiled by LeMaster & Daniels. The interim financial statements are the representations of management. WHERE YOU CAN FIND ADDITIONAL INFORMATION ABOUT US We have filed with the Securities and Exchange Commission a registration statement on Form SB-2 under the Securities Act with respect to the Shares offered by this Prospectus. This Prospectus, which forms a part of the registration statement, does not contain all of the information set forth in the registration statement and the exhibits and schedules thereto. For further information with respect to us and the Shares offered by this Prospectus, reference is made to the registration statement and the exhibits and schedules thereto. Statements contained in this Prospectus as to the contents of any contract or other document filed as an exhibit to the registration statement are not necessarily complete and are qualified in their entirety by reference to the exhibits for a complete statement of their terms and conditions. The registration statement, including all amendments, exhibits and schedules thereto, may be inspected without charge at the offices of the Securities and Exchange Commission at Judiciary Plaza, 450 Fifth Street NW, Washington, D.C. 20549. Copies of this material may be obtained at prescribed rates from the 33 Public Reference Section of the Commission at 450 Fifth Street NW, Washington, DC. 20549. The Securities and Exchange Commission also maintains a Web site (http://www.sec.gov) through which the registration statement and other information can be retrieved. Upon effectiveness of the registration statement, we will be subject to the reporting and other requirements of the Securities Exchange Act of 1934 and intend to furnish our stockholders annual reports containing financial statements audited by our independent accountants and to make available quarterly reports containing unaudited financial statements for each of the first three quarters of each fiscal year. No dealer, salesperson, or other person has been authorized to give any information or to make any representations not contained in this Prospectus, and if given or made, the information or representations may not be relied on. You should rely only on the information contained in this Prospectus. The information in this Prospectus may be accurate only as of the date of this Prospectus, regardless of the time of delivery of this Prospectus or of the sale of any of our Shares. This Prospectus does not constitute an offer to sell or the solicitation of an offer to buy to any person in any jurisdiction in which the offer or solicitation would be unlawful. 34 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2000 (Audited) 35 through 43 June 30, 2001 (Management prepared, unaudited) 44 through 54 (This space left intentionally blank.) 35 TEMPORARY FINANCIAL SERVICES, INC. AND SUBSIDIARY (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED FINANCIAL STATEMENTS AND INDEPENDENT AUDITORS' REPORT DECEMBER 31, 2000 TEMPORARY FINANCIAL SERVICES, INC. AND SUBSIDIARY (A DEVELOPMENT STAGE COMPANY) CONTENTS Page INDEPENDENT AUDITORS' REPORT 2 CONSOLIDATED FINANCIAL STATEMENTS: Consolidated balance sheet 3 Consolidated statement of income 4 Consolidated statement of stockholders' equity 5 Consolidated statement of cash flows 6 Notes to consolidated financial statements 7-9 36 INDEPENDENT AUDITORS' REPORT Board of Directors Temporary Financial Services, Inc. and Subsidiary Spokane, Washington We have audited the accompanying consolidated balance sheet of Temporary Financial Services, Inc. and Subsidiary (a development stage company) as of December 31, 2000, and the related consolidated statements of income, stockholders' equity, and cash flows for the period from October 4, 2000 (inception) through December 31, 2000. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Temporary Financial Services, Inc. and Subsidiary as of December 31, 2000, and the results of their operations and their cash flows for the period from October 4, 2000 (inception) through December 31, 2000, in conformity with generally accepted accounting principles. /s/ LeMaster & Daniels, PLLC LeMASTER & DANIELS PLLC Certified Public Accountants Spokane, Washington February 15, 2001 37 TEMPORARY FINANCIAL SERVICES, INC. AND SUBSIDIARY (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED BALANCE SHEET DECEMBER 31, 2000 ------------ ASSETS CURRENT ASSETS: Cash $ 546,334 Stock subscription and interest receivable 120,800 Prepaid expenses 8,943 ------------ $ 676,077 ============ LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable $ 100 Due to officer/stockholder 600 Income tax payable 100 ------------ Total Current Liabilities 800 STOCKHOLDERS' EQUITY: Common stock -- 100,000,000 shares, $.001 par value, authorized; 310,000 shares issued and outstanding 310 Preferred stock -- 5,000,000 shares, $.001 par value, authorized; none issued - Additional paid-in capital 629,690 Common stock subscribed 120,000 Notes receivable for stock purchase (75,000) Earnings accumulated in the development stage 277 ------------ Total stockholders' equity 675,277 ------------ $ 676,077 ============ See accompanying notes to consolidated financial statements. 3 38 TEMPORARY FINANCIAL SERVICES, INC. AND SUBSIDIARY (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED STATEMENT OF INCOME PERIOD FROM OCTOBER 4, 2000 (INCEPTION) THROUGH DECEMBER 31, 2000 ----------------- REVENUE: Interest income $ 1,543 EXPENSES 1,166 ----------------- INCOME BEFORE INCOME TAX 377 Income tax provision 100 ----------------- NET INCOME $ 277 ================= BASIC EARNINGS PER SHARE $ - ================= See accompanying notes to consolidated financial statements. 4 39 TEMPORARY FINANCIAL SERVICES, INC. AND SUBSIDIARY (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY PERIOD FROM OCTOBER 4, 2000 (INCEPTION) THROUGH DECEMBER 31, 2000 Notes Earnings Receivable Accumulated Common Additional Common for in the Stock Paid-in Stock Stock Development Issued Capital Subscribed Purchase Stage Total --------- ---------- ---------- ---------- ----------- --------- BALANCES, OCTOBER 4, 2000 (INCEPTION) - $ - $ - $ - $ - $ - ADD (DEDUCT): 100,000 common shares issued to officers and consultant at $1 per share for: Cash 25 24,975 - - - 25,000 Notes receivable 75 74,925 - (75,000) - - Common stock issued for cash: 50,000 shares at $1 per share 50 49,950 - - - 50,000 160,000 shares at $3 per share 160 479,840 - - - 480,000 40,000 common shares subscribed at $3 per share - - 120,000 - - 120,000 Net income for the period - - - - 277 277 --------- ---------- ---------- ---------- ----------- --------- BALANCES, DECEMBER 31, 2000 $ 310 $ 629,690 $ 120,000 $ (75,000) $ 277 $ 575,277 ========= ========== ========== ========== =========== ========= See accompanying notes to consolidated financial statements. 5 40 TEMPORARY FINANCIAL SERVICES, INC. AND SUBSIDIARY (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED STATEMENT OF CASH FLOWS PERIOD FROM OCTOBER 4, 2000 (INCEPTION) THROUGH DECEMBER 31, 2000 ----------------- INCREASE (DECREASE) IN CASH CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 277 Adjustments to reconcile net income to net cash used in operating activities: Increase in interest receivable (800) Increase in prepaid expenses (8,943) Increase in accounts payable 700 Increase in income taxes payable 100 ----------------- Total adjustments (8,943) ----------------- Net cash used in operating activities (8,666) CASH FLOWS FROM FINANCING ACTIVITIES: Issuance of common stock for cash 555,000 ----------------- NET INCREASE IN CASH 546,334 CASH, BEGINNING OF PERIOD - ----------------- CASH, END OF PERIOD $ 546,334 ================= NONCASH FINANCING ACTIVITIES: The Company issued 75,000 common shares in exchange for notes receivable of $75,000. Common stock subscribed (40,000 shares) totalled $120,000 at December 31, 2000. See accompanying notes to consolidated financial statements. 6 41 TEMPORARY FINANCIAL SERVICES, INC. AND SUBSIDIARY (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Organization: The accompanying financial statements are those of Temporary Financial Services, Inc., incorporated in Washington State on October 4, 2000, and its wholly-owned subsidiary, Temps Unlimited, Incorporated, which was incorporated in Washington State on October 31, 2000 (collectively referred to herein as the Company). Both companies have established their fiscal year end to be December 31. The Company had no significant operations from inception to December 31, 2000. Accordingly, it is considered to be a development stage company. To date the Company's activities have primarily involved raising of private capital, development of plans for the Company's operations, and preparation for a proposed initial public stock offering. The Company expects to evolve from the development stage to the operating stage in 2001. The Company's operations, once commenced, are expected to be primarily in (but not limited to) two segments: financing for the temporary employment services industry and minority or majority ownership of temporary staffing businesses. Summary of Significant Accounting Policies: Principles of consolidation - The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary. All material intercompany accounts and transactions are eliminated in consolidation. Use of estimates - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Cash - Cash consists of demand deposits, including interest-bearing accounts, held in two local banks. Uninsured deposits totaled approximately $416,000 at December 31, 2000. At such date the Company had no cash equivalents. Deferred stock offering costs - Legal fees incurred in connection with the Company's proposed public stock offering have been deferred and are presented as prepaid expenses. Such costs, together with any additional costs to be incurred in connection with the offering, will be deducted from the offering proceeds and will reduce additional paid-in capital. If the offering is unsuccessful, offering costs will be charged to expense. Stock subscriptions receivable - Such amounts are classified as current assets, as full payment was received on January 2, 2001. 42 TEMPORARY FINANCIAL SERVICES, INC. AND SUBSIDIARY (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (cont.) Notes receivable for stock purchase - Notes receivable from officers/directors and a consultant in connection with the sale and issuance of common stock are reported as a reduction to stockholders' equity until payment is received. See note 3. Income tax - The Company expects to file a consolidated federal income tax return with its subsidiary. Deferred taxes are provided, when material, on a liability method whereby deferred tax assets are recognized for deductible temporary differences and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. There were no material temporary differences for the period presented, so deferred taxes have not been recorded in the accompanying financial statements. Earnings per share - Earnings per common share has been computed on the basis of the weighted-average number of common shares outstanding during the period presented. NOTE 2 - RELATED-PARTY TRANSACTIONS: An officer/stockholder provided office space and administrative support at no cost to the Company through December 31, 2000. Interest income of $800 relating to notes receivable from stock purchases by officers/directors and a consultant was accrued through December 31, 2000. NOTE 3 - CAPITAL STOCK: Shares Issued to Officers/Directors and Consultant: Upon incorporation, the Company entered into stock subscription agreements with three officers/directors and a consultant for a total of 100,000 common shares. Each of the four agreements provided for the sale and issuance of 25,000 shares at $1 per share. The agreements call for initial payment of $6,250 in cash and a $18,750 note receivable from each of the individuals. The notes receivable, totaling $75,000 at December 31, 2000, are unsecured and bear interest at 6.3%. They are due in equal annual principal payments plus interest over a three-year period ending in October 2003. The notes receivable are reflected as a reduction of stockholders' equity, in the accompanying financial statements until collected. Private Placements: Through December 31, 2000, the Company completed two series of unregistered private placements of common stock. A total of 250,000 shares were subscribed and, for all but 40,000 shares, payment had been received in full by December 31, 2000. Subscriptions receivable for the remaining 40,000 shares ($120,000) were collected on January 2, 2001. The gross proceeds, including the subscriptions subsequently collected, for the two private placements totaled $650,000. 43 TEMPORARY FINANCIAL SERVICES, INC. AND SUBSIDIARY (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 3 - CAPITAL STOCK: (cont.) Preferred Stock: Shares of the Company's authorized but unissued preferred stock, if issued, are entitled preference over common shares in distribution of assets upon the Company's liquidation or dissolution. Preferred shares have no stated dividend rate. In 2001 the Company intends to complete an initial public offering of 200,000 to 800,000 shares of its common stock and expects to file a registration statement with the Securities and Exchange Commission in connection with the offering. NOTE 4 - PROPOSED INITIAL PUBLIC OFFERING In 2001 the Company intends to complete an initial public offering of 200,000 to 800,000 shares of its common stock and expects to file a registration statement with the Securities Exchange Commission in connection with the offering. (This space left intentionally blank.) 44 TEMPORARY FINANCIAL SERVICES, INC. AND SUBSIDIARY (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) JUNE 30, 2001 TEMPORARY FINANCIAL SERVICES, INC. AND SUBSIDIARY (A DEVELOPMENT STAGE COMPANY) CONTENTS Page MANAGEMENT STATEMENT 2 CONSOLIDATED FINANCIAL STATEMENTS (Unaudited): Consolidated balance sheet 3 Consolidated statement of income 4 Consolidated statement of stockholders' equity 5 Consolidated statement of cash flows 6 Notes to consolidated financial statements 7-9 (This space left intentionally blank.) 45 MANAGEMENT STATEMENT The accompanying (unaudited) consolidated balance sheet of Temporary Financial Services, Inc. and Subsidiary (a development stage company) as of June 30, 2001, and the related consolidated statements of income, stockholders' equity, and cash flows for the period from January 1, 2001 through June 30, 2001, and the period from October 4, 2000 through June 30, 2001, were prepared by Management of the Company. In the opinion of Management of the Company, all adjustments necessary to a fair statement of results for the interim periods presented have been made. Management has elected to include Footnotes with these unaudited interim financial statements. Audited financial statements as of December 31, 2000 and for the periods then ended are included in the Prospectus and these interim financial statements should be read in conjunction with a review of the audited financial statements. Management Temporary Financial Services, Inc. July 20, 2001 2 46 TEMPORARY FINANCIAL SERVICES, INC. AND SUBSIDIARY (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED BALANCE SHEET (UNAUDITED) JUNE 30, 2001 ASSETS CURRENT ASSETS Cash $ 452,699 Federal income taxes 297 Deferred offering costs 25,109 Loans receivable 228,067 Other current assets 4,776 ------------ Total current assets 710,948 OTHER ASSETS Office furniture net of accumulated depreciation 13,802 Investment in temporary labor offices 9,130 ------------ Total other assets 22,932 ------------ $ 733,880 ============ LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable $ 6,869 Due to officer stockholder 600 ------------ Total current liabilities 7,469 STOCKHOLDERS' EQUITY Common Stock - 100,000,000 shares, $0.001 par value, authorized 350,000 shares issued and outstanding 350 Preferred stock - 5,000,000 shares, $0.001 par value, authorized none issued - Additional paid in capital 749,650 Earnings accumulated in the development stage (23,589) ------------ Total stockholders' equity 726,411 ------------ $ 733,880 ============ See accompanying notes to consolidated financial statements. 3 47 TEMPORARY FINANCIAL SERVICES, INC. AND SUBSIDIARY (A DEVELOPMENT STAGE COMPANY) INCEPTION (OCTOBER 4, 2000) SIX MONTHS ENDED THROUGH CONSOLIDATED STATEMENT OF INCOME JUNE 30, 2001 JUNE 30, 2001 (UNAUDITED) ---------------- ----------------- REVENUE: Loan fees $ 8,854 $ 8,854 Accounting fees 2,000 2,000 Rental Income 500 500 Interest and dividend income 10,825 12,368 ---------------- ----------------- 22,179 23,722 EXPENSES 32,025 33,191 ---------------- ----------------- NET INCOME (LOSS) BEFORE EARNINGS ON INVESTMENTS (9,846) (9,469) INCOME (LOSS) ON INVESTMENTS (14,120) (14,120) ---------------- ----------------- INCOME (LOSS) BEFORE INCOME TAX (23,966) (23,589) Income tax provision (refund) (100) -0- ---------------- ----------------- NET INCOME (LOSS) $ (23,866) $ (23,589) ================ ================= BASIC EARNINGS (LOSS) PER SHARE $ 0.07 $ 0.07 ================ ================= See accompanying notes to consolidated financial statements. 4 48 TEMPORARY FINANCIAL SERVICES, INC. AND SUBSIDIARY (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY INCEPTION (OCTOBER 4, 2000) THROUGH JUNE 30, 2001 (UNAUDITED) Notes Earnings Receivable Accumulated Common Additional Common for in the Stock Paid-in Stock Stock Development Issued Capital Subscribed Purchase Stage Total ---------- ---------- ---------- ---------- ---------- ---------- BALANCES ON OCTOBER 4, 2000 (INCEPTION) - $ - $ - $ - $ - $ - ADD (DEDUCT): 100,000 common shares issued to officers and consultant at $1 per share for: Cash 25 24,975 - - - 25,000 Notes receivable 75 74,925 - (75,000) - - Common stock issued for cash: 50,000 shares at $1 per share 50 49,950 - - - 50,000 160,000 shares at $3 per share 160 479,840 - - - 480,000 40,000 common shares subscribed at $3 per share - - 120,000 - - 120,000 Net income fo r the period - - - - 277 277 ---------- ---------- ---------- ---------- ---------- ---------- BALANCES, DECEMBER 31, 2000 310 $ 629,690 $ 120,000 $ (75,000) $ 277 $ 675,277 Payment on notes receivable for stock purchase - - - 75,000 - 75,000 Payment received for common stock subscribed 40 119,960 (120,000) - - - Net income (loss) for the period - - - - (23,866) (23,866) ---------- ---------- ---------- ---------- ---------- ---------- BALANCES, JUNE 30, 2001 350 $ 749,650 $ - $ - $(23,589) $ 726,411 ========== ========== ========== ========== ========== ========== See accompanying notes to consolidated financial statements. 5 49 TEMPORARY FINANCIAL SERVICES, INC. AND SUBSIDIARY (A DEVELOPMENT STAGE COMPANY) INCEPTION (OCTOBER 4, 2000) SIX MONTHS ENDED THROUGH CONSOLIDATED STATEMENT OF CASH FLOWS JUNE 30, 2001 JUNE 30, 2001 (UNAUDITED) ---------------- ----------------- Increase (Decrease) in Cash CASH FLOWS FROM OPERATING ACTIVITIES Net Income $ (23,866) $ (23,589) Adjustments to reconcile net income to net cash used in operating activities: Depreciation 166 166 Loss on investments 14,120 14,120 Increase in deferred offering costs (16,166) (25,109) Increase in accounts payable 6,769 6,869 Increase in due to shareholder - 600 Decrease in income taxes payable (397) (297) Increase in other assets (4,776) (4,776) ---------------- ----------------- Total Adjustments (284) (8,427) ---------------- ----------------- Net cash used in operating activities (24,150) (32,016) CASH FLOWS FROM INVESTING ACTIVITIES Increase in loans receivable (228,067) (228,067) Investment in temporary labor offices (23,250) (23,250) Purchase of office furniture (13,968) (13,968) Collection of notes receivable 75,000 - Collection of stock subscriptions 120,800 - ---------------- ----------------- Net cash used in investing activities (69,485) (265,285) ---------------- ----------------- CASH FLOWS FROM FINANCING ACTIVITIES Sale of stock for cash - 750,000 ---------------- ----------------- Net cash from financing activities - 750,000 ---------------- ----------------- NET INCREASE (DECREASE) IN CASH (93,635) 452,699 CASH, BEGINNING OF PERIOD 546,334 - ---------------- ----------------- CASH, END OF PERIOD $ 452,699 $ 452,699 ================ ================= See accompanying notes to consolidated financial statements. 6 50 TEMPORARY FINANCIAL SERVICES, INC. AND SUBSIDIARY (A DEVELOPMENT STAGE COMPANY) (UNAUDITED) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Organization: The accompanying financial statements are those of Temporary Financial Services, Inc., incorporated in Washington State on October 4, 2000, and its wholly-owned subsidiary, Temps Unlimited, Incorporated, which was incorporated in Washington State on October 31, 2000 (collectively referred to herein as the Company). Both companies have established their fiscal year end to be December 31. The Company had limited operations from inception to June 30, 2001. Accordingly, it is considered to be a development stage company. To date the Company's activities have primarily involved raising of private capital, development of plans for the Company's operations, and preparation for a proposed initial public stock offering. In the second quarter, 2001, the Company obtained invested in two temporary labor dispatch businesses, and commenced lending operations with three customers. The Company also provides accounting services to two customers. The Company expects to continue its evolution from the development stage to the operating stage in 2001. The Company's operations, once commenced, are expected to be focus on primarily in (but not limited to) two primary market segments: financing for the temporary employment services industry and minority or majority ownership of temporary staffing businesses. Summary of Significant Accounting Policies: Principles of consolidation - The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary. All material intercompany accounts and transactions are eliminated in consolidation. Use of estimates - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Cash - Cash consists of demand deposits, including interest-bearing accounts, held in various local banks. Uninsured deposits totaled approximately $452,000 at June 30, 2001. At such date the Company had no cash equivalents. Deferred stock offering costs - Legal and professional fees incurred in connection with the Company's proposed public stock offering have been deferred and are presented as prepaid expenses. Such costs, together with any additional costs to be incurred in connection with the offering, will be deducted from the offering proceeds and will reduce additional paid-in capital. If the offering is unsuccessful, offering costs will be charged to expense. 7 51 TEMPORARY FINANCIAL SERVICES, INC. AND SUBSIDIARY (A DEVELOPMENT STAGE COMPANY) (UNAUDITED) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1-ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED): Summary of Significant Accounting Policies (continued): Property and equipment - Property and equipment are stated at cost. Depreciation is computed using the straight-line method over the useful lives of the respective assets. The useful lives of the assets range from five to seven years. Stock subscriptions receivable - Such amounts are classified as current assets, as full payment was received on January 2, 2001. Notes receivable for stock purchase - Notes receivable from officers/directors and a consultant in connection with the sale and issuance of common stock are reported as a reduction to stockholders' equity until payment is received. See note 3. Income tax - The Company expects to file a consolidated federal income tax return with its subsidiary. Deferred taxes are provided, when material, on a liability method whereby deferred tax assets are recognized for deductible temporary differences and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. As of June 30, 2001, the Company had a net operating loss of $23,589. A deferred tax asset of, $3,000 has been fully offset by a corresponding valuation allowance because it is uncertain if the Company will have adequate future taxable income to offset the loss. Revenue Recognition - The Company generates revenues from loan fees, loan administration fees and fee based accounting services. The Company recognizes loan fees at the time the loan amount is advanced to a customer. Loan administration fees are set at a weekly fixed amount and are recognized as earned at the end of the week to which the loan adminsitration fee applies. Loan advances are typically made on a weekly basis, and the amount of the advance is netted against the applicable loan fees and loan administration fees. Fee based accounting services are typically charged at a monthly fixed rate, and are invoiced and recognized as income at the end of the month in which the services are performed. Allowance for bad debts - No allowance for bad debts has been established for the notes receivable outstanding on June 30, 2001. Earnings per share - Earnings per common share has been computed on the basis of the weighted-average number of common shares outstanding during the period presented. Income recognition - Income is recognized when earned. The Company reports investments in operating temporary labor businesses on the equity method and gains and losses incurred by the operating temporary labor businesses will flow through to the consolidated statement of income in the period in which the gains and losses are incurred. 8 52 TEMPORARY FINANCIAL SERVICES, INC. AND SUBSIDIARY (A DEVELOPMENT STAGE COMPANY) (UNAUDITED) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 2 - RELATED-PARTY TRANSACTIONS: An officer/stockholder provided office space and administrative support through an informal arrangement at $200 per month to the Company through May 31, 2001. On June 1, 2001, the Company leased space in a professional office building at 200 North Mullan, Suite 213, Spokane, Washington. The Company now provides office space and administrative support to an officer/stockholder and is reimbursed by the officer/stockholder under an informal arrangement at the rate of $500 per month. At inception, three officer/directors and one officer of the Company purchased 100,000 shares of common stock from the Company at a price of $1 per share. The purchase price was paid $25,000 in cash and $75,000 in promissory notes. Interest income of $800 relating to notes receivable from stock purchases by officers/directors and a consultant was accrued through December 31, 2000. The outstanding balances of the notes and accrued interest were paid on June 26, 2001. NOTE 3 - CAPITAL STOCK: Shares Issued to Officers/Directors and Consultant: Upon incorporation, the Company entered into stock subscription agreements with three officers/directors and an consultantofficer for a total of 100,000 common shares. Each of the four agreements provided for the sale and issuance of 25,000 shares at $1 per share. The agreements call for initial payment of $6,250 in cash and a $18,750 note receivable from each of the individuals. The notes receivable, totaling $75,000 at December 31, 2000, are unsecured and bear interest at 6.3%. They are due in equal annual principal payments plus interest over a three-year period ending in October 2003. The notes receivable are reflected as a reduction of stockholders' equity, in the accompanying financial statements until collected. The notes and accrued interest were paid on June 26, 2001. Private Placements: Through June 30, 2001, the Company completed two series of unregistered private placements of common stock. The gross proceeds for the two private placements totaled $650,000. Preferred Stock: Shares of the Company's authorized but unissued preferred stock, if issued, are entitled preference over common shares in distribution of assets upon the Company's liquidation or dissolution. Preferred shares have no stated dividend rate. 9 53 TEMPORARY FINANCIAL SERVICES, INC. AND SUBSIDIARY (A DEVELOPMENT STAGE COMPANY) (UNAUDITED) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 4 - PROPOSED INITIAL PUBLIC OFFERING: In 2001 the Company intends to complete an initial public offering of 200,000 to 800,000 shares of its common stock. A registration Statement has been filed with the and expects to file a registration statement with the Securities and Exchange Commission in connection with the offering. NOTE 5 - INVESTMENTS IN TEMPORARY LABOR OFFICES In the second quarter of 2001, the Company invested in two start-up temporary labor dispatch offices. These offices will provide unskilled and semi-skilled temporary workers to customer businesses as requested. Temps Unlimited, Inc., the Company's wholly owned investment subsidiary owns an 18% stake in Temps Unlimited of Minnesota, LLC, doing business as Staffing on Demand, and an 18% stake in Temps Unlimited of Nebraska, LLC, doing business as ValuStaff. Summaries of their operations from inception through June 30, 2001 are set forth below: Staffing on Demand ValuStaff ------------- ----------- Original investment $ 12,000 $ 11,250 Inception date Sales - inception through June 30, 2001 $ 6,251 $ 58,203 Expenses $ 40,945 $ 101,953 ------------- ----------- Net loss $ 34,694 $ 43,750 ============= =========== Temps Unlimited Ownership 18% 18% Temps Unlimited loss allocation $ 6,245 $ 7,875 Net carrying value of investment $ 5,755 $ 3,375 Total assets $ 42,903 $ 58,279 Total liabilities $ 10,933 $ 39,528 Total equity $ 31,970 $ 18,751 These investments are accounted for under the equity method of accounting. The net carrying value of each investment is reported on the consolidated balance sheet under the heading "Investment in temporary labor offices." Unrealized gains and losses are recognized in the periods in which the underlying investment asset incurs the gain or loss. 10 54 TEMPORARY FINANCIAL SERVICES, INC. AND SUBSIDIARY (A DEVELOPMENT STAGE COMPANY) (UNAUDITED) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 6 - FUTURE MINIMUM LEASE PAYMENTS On June 1, 2001, the Company entered into a three year lease agreement for office space. The montly rental rate is $1,187.50 during the first year, $1,217.19 during the second year, and $1,246.88 during the third year. The Company is obligated under the lease to make minimum lease payments as follows: 2001 $ 8,312 2002 14,458 2003 14,814 2004 6,234 -------- Total $ 43,818 ======== (This space left intentionally blank.) 10 55 REPRESENTATION OF COVER AND CONTENTS No dealer, salesperson, or other person has been authorized to give any information or to make any representations not contained in this Prospectus, and if given or made, the information or representations may not be relied on. You should rely only on the information contained in this Prospectus. The information in this Prospectus may be accurate only as of the date of this Prospectus, regardless of the time of delivery of this Prospectus or of the sale of any of our Shares. This Prospectus does not constitute an offer to sell or the solicitation of an offer to buy to any person in any jurisdiction in which the offer or solicitation would be unlawful. TABLE OF CONTENTS Prospectus Summary 2 Risk Factors 5 Disclosure Regarding Forward Looking Statements 9 Business 10 Managements Discussion and Analysis or Plan of Operation 17 Use of Proceeds 19 Description of Securities 20 Dilution 21 Market Price of Common Equity 21 Management 22 Security Ownership of Certain Beneficial Owners and Management 26 Certain Transactions 27 Plan of Distribution 29 Shares Eligible for Future Sale 31 Statement as to Indemnification 32 Legal Matters 32 Experts 33 Where You Can Find Additional Information 33 Index to Consolidated Financial Statements F-0 800,000 SHARES TEMPORARY FINANCIAL SERVICES, INC. COMMON STOCK PROSPECTUS PUBLIC SECURITIES, INC. November ____, 2001 56 PART II INFORMATION NOT REQUIRED IN PROSPECTUS Item 24. Indemnification of Officers and Directors We are authorized by our Articles of Incorporation and Bylaws by to indemnify, agree to indemnify or obligate our company to advance or reimburse expenses incurred by our Directors, Officers, employees or agents in any Proceeding (as defined in the Washington Business Corporation Act) to the full extent of the laws of the State of Washington as may now or hereafter exist. Section 23B.08.510 of the Business Corporation Act sets out the corporation's basic authority to indemnify. The section is structured to first define generally what the corporation may indemnify and then specify exceptions for which the corporation is not permitted to indemnify. A corporation may indemnify an individual who has been made a party to a proceeding because the individual is or was a director, against liability incurred in the proceeding if: (a) The individual acted in good faith; and (b) The individual reasonably believed: (i) In the case of conduct in the individual's official capacity with with the corporation, that the individual's conduct was in its best interests; and (ii) In all other cases, that the individual's conduct was at least not opposed to its best interests; and (c) In the case of any criminal proceeding, the individual had no reasonable cause to believe the individual's conduct was unlawful. Section 23B.08.510 defines the "outer limits" for which indemnification (other than as authorized by shareholder action) is permitted. If a director's conduct falls outside these limits, the director, however, is still potentially eligible for court-ordered indemnification under other provisions. Conduct falling within these broad guidelines is permissive; it does not entitle directors to indemnification. There is a much more limited area of mandatory indemnification. We have, however, however, through bylaw provisions, obligated themselves to indemnify directors to the maximum extent permitted by law. The general standards for indemnification are closely related to the basic statutory provision defining the general standards of director conduct. The indemnity standards, however, are lower. Section 23B.08.300 (general standards of conduct) includes a requirement that directors exercise the "care an ordinarily prudent person in a like position would exercise." This standard is not contained in the standard for indemnification, which only requires that directors act" in good faith" and that they "reasonably believe" that their actions are either in the corporation's best interests or at least not opposed to those best interests. It is possible that a director who falls below the standard of conduct prescribed by the Business Corporation Act may meet the standard for indemnification under Section 23B.08.510. Further, with respect to the reverse, the courts have stated that it is clear that a director who has met thestandards of conduct would be eligible in virtually every case to be indemnified under Section 23B.08.510. 58 Insofar as indemnification for liabilities arising under the Securities Act may be permitted to our directors, officers and controlling persons pursuant to the foregoing provisions, or otherwise, we have been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by us of expenses incurred or paid by any one of our directors, officers or controlling persons in the successful defense of any action, suit or proceeding) is asserted against us by such director, officer or controlling person in connection with the securities being registered, we will, unless in the opinion of our counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by us is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. Item 25. Other Expenses of Issuance and Distribution The estimated expenses payable in connection with the registration of the Shares is as follows: SEC Registration $ 1,000 Accounting Fees and Expenses 12,000 Transfer Agent Fees 3,500 Legal Fees and Expenses 25,000 Blue Sky Fees and Expenses 5,000 Misc. 2,500 --------- Total $ 49,000 Item 26. Recent Sales of Unregistered Securities In October 2000, we offered and sold a total of 50,000 Shares at a of $1.00 per Share to six individuals, four of whom were officers and directors and two of whom were consultants. Each of these purchasers was an accredited investor. The Shares were issued pursuant to a Section 4(2) exemption from registration under the Act. Between November 2000 and January 2001 we offered and sold 200,000 shares at a price of $3.00 per Share to 14 purchasers. Four of the purchasers were Officers or Directors (and their IRA accounts). Each purchaser was an accredited investor and each investor was deemed to be sophisticated based on their prior investment experience and their knowledge of the temporary labor industry. The Shares were issued pursuant to a Section 4(2) exemption from registration under the Act and to Rule 506 of Regulation D. Each of the certificates issued in connection with the above offerings contained restrictive language on its face and each certificate had a restrictive legend in substantially the following form: The Securities represented by this certificate have not been registered under the Securities Act of 1933 (the "Act") and may not be offered for sale, sold or otherwise transferred except pursuant to an effective registration statement under the Act or pursuant to an exemption from registration under the Act, the availability of which is to be established by opinion of counsel satisfactory to the Company to the effect that in the opinion of such counsel such registration in not required None of the Shares were offered by means of advertising or general solicitation. No commissions were paid directly or indirectly to any person in connection with the offer or sale of any of the Shares. 59 Item 27. Exhibits* (1) (i) Form of Underwriting Agreement *** (ii) Form of Underwriter's Common Stock Purchase Warrant *** (iii) Form of Selected Dealer Agreement *** (3) (i) Articles of Incorporation ** (ii) Bylaws ** (5) Opinion of Counsel ** (10) Fund Impound agreement ** (21) Subsidiaries of the registrant ** (23) (i) Consent of accountants *** (ii) Consent of counsel ** * Omitted exhibits not applicable ** As previously filed *** Attached Item 28. Undertakings Insofar as indemnification for liabilities arising under the Securities Act may be permitted to our directors, officers and controlling persons pursuant to the provisions described above in Item 24, or otherwise, we have been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by us of expenses incurred or paid by a director, officer or controlling person in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the Securities being registered, we will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. We will provide to the Underwriter, at the closing specified in the Underwriting Agreement, certificates in such denominations and registered in such names as required by the Underwriter to permit prompt delivery to each purchaser. 60 SIGNATURES Pursuant to the requirement of the Securities Act of 1933, as amended, we have duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Spokane, State of Washington, on the 2nd day of November, 2001. TEMPORARY FINANCIAL SERVICES, INC. By: /s/ JOHN COGHLAN ------------------------------------------ President, Chief Executive Officer and Chief Financial Officer We, the undersigned directors and officers of Temporary Financial Services, Inc., do hereby constitute and appoint John Coghlan and Brad Herr, or either of them , our true and lawful attorney-in-fact and agent, with full power to sign for us or any of us in our names and in any and all capacities, any and all amendments (including post-effective amendments) to this Registration Statement, or any related registration statement that is to be effective upon filing pursuant to Rule 462 (b) under the Securities Act of 1933, as amended, and to file the same, with all exhibits thereto and other documents required in connection therewith, and with full power to do any and all acts and things in our names and in any and all capacities, which such attorney-in-fact and agent may deem necessary or advisable to enable Temporary Financial Services, Inc. to comply with the Securities Act of 1933, as amended, and any rules, regulations, and requirements of the Securities and Exchange Commission, in connection with this Registration Statement; and we hereby do ratify and confirm all that the such attorney-in-fact and agent shall do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated. DATE SIGNATURE CAPACITY Dec. 7, 2001 /s/ JOHN COGHLAN President, Chief Executive Officer ------------------------ and Chief Financial Officer Dec. 7, 2001 /s/ BRAD HERR Secretary ------------------------ Dec. 7, 2001 /s/ KRISTIE JESMORE Treasurer ------------------------