SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QA (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarter ended June 30, 1995 Commission File number 0-23828 Labor Ready, Inc. (Exact Name of Registrant as specified in its charter) Washington 91-1287341 (State of Incorporation) (Federal I.R.S. No.) 2156 Pacific Avenue, Tacoma, Washington 98402 (Address of principal executive offices) (Zip Code) Registrant's Telephone Number 206-383-9101 Securities registered pursuant to Section 12(b) or 12(g) of the Act: Common Stock, No Par Value Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes(X) No( ). Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by Reference in Part III of this Form 10-Q or any amendment to this Form 10-Q. (X) The aggregate market value of the voting stock held by nonaffiliates of the registrant, on June 30, 1995 was 43,912,836. As of June 30, 1995, the Registrant had 3,870,415 shares of Common Stock and 854,082 shares of Preferred Stock outstanding. DOCUMENTS INCORPORATED BY REFERENCE: NONE Page 1 PART I - FINANCIAL INFORMATION Item 1. Financial Statements LABOR READY INC. CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) June 30, 1995 INDEX Consolidated Statements of Financial Position at June 30, 1995 and December 31, 1994 4-5 Consolidated Statement of Operations for the Six Months and the Three Months Ended June 30, 1995 and 1994 6 Consolidated Statement of Changes in Stockholders' Equity for the Year Ended December 31, 1994 and the Six Months Ended June 30, 1995 7 Consolidated Statement of Cash Flows for the Six Months Ended June 30, 1995 and 1994 and the Three Months Ended June 30, 1995 and 1994 8-9 Page 2 LABOR READY, INC. Consolidated Statement of Financial Position at June 30, 1995 and December 31, 1994 (Unaudited) ASSETS 1995 1994 CURRENT ASSETS: Cash and equivalents $ 106,551 $ 603,977 Workers' compensation deposits 1,130,575 Workers' compensation rent-a-captive insurance assets 1,389,000 Accounts receivable, net of allowance for doubtful accounts of $587,512 and $365,927, respectively 9,149,100 5,162,830 Workers' compensation credits receivable 262,600 206,794 Prepaid expenses and other 478,196 348,814 Notes receivable 567,755 Deferred income tax 99,369 118,590 Total Current Assets 12,052,571 7,571,580 DEPRECIABLE ASSETS AND LAND: Cost 2,841,198 1,071,070 Accumulated depreciation 385,545 244,497 Total Property and equipment 2,455,653 826,573 OTHER ASSETS: Intangible assets, less amortization of $94,010 and $69,020 166,441 191,431 Workers' compensation credits receivable, less current portion 644,644 105,832 Deferred income tax 94,366 94,366 Other 160,065 122,194 Total Other Assets 1,065,516 513,823 TOTAL ASSETS $15,573,740 $8,911,976 Page 3 LABOR READY, INC. Consolidated Statement of Financial Position at June 30, 1995 and December 31, 1994 (Unaudited) LIABILITIES AND STOCKHOLDERS' EQUITY 1995 1994 CURRENT LIABILITIES: Accounts payable $ 1,560,608 $ 268,932 Accrued wages and benefits 1,201,973 390,607 Accrued taxes, other than income 652,134 430,880 Accrued interest 25,786 53,002 Accrued workers' compensation 334,186 708,869 Workers' compensation rent-a- captive insurance liabilities 437,000 Income taxes payable 54,763 497,000 Note payable, accounts receivable financing 5,053,395 3,160,580 Dividends payable 21,352 42,705 Current portion of long-term debt 338,276 78,291 Total Current Liabilities 9,679,473 5,630,866 LONG-TERM LIABILITIES: Long-term debt, less current maturaties 969,920 244,250 14% Convertible Debentures ________ 75,000 969,920 319,250 STOCKHOLDERS' EQUITY: Preferred stock, $1 par value: 5,000,000 shares authorized; issued and outstanding: 854,082 and 854,082 shares 854,082 854,082 Common stock, no par value: 25,000,000 shares authorized; issued and outstanding: 3,870,415 and 3,314,729 shares 5,500,964 3,540,187 Cumulative foreign currency transaction adjustment (17,103) (2,853) Accumulated (deficit) (1,413,596) (1,429,556) Total Stockholders' Equity 4,924,347 2,961,860 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $15,573,740 $8,911,976 Page 4 LABOR READY, INC. Consolidated Statement of Operations For the Six Months and the Three Months Ended June 30, 1995 and 1994 (Unaudited) Six Months Ended Three Months Ended 1995 1994 1995 1994 REVENUES FROM SERVICES $32,367,336 $13,535,778 $19,749,584 $8,318,364 COST OF SALES 26,376,625 10,889,478 15,882,286 6,682,149 5,990,711 2,646,300 3,867,298 1,636,215 OPERATING EXPENSES 5,643,007 2,216,232 3,147,956 1,147,303 INCOME FROM OPERATIONS 347,704 430,068 719,342 488,912 OTHER INCOME (DEDUCTIONS) (291,171) (138,999) (126,785) (62,992) INCOME BEFORE INCOME TAX 56,533 291,069 592,557 425,920 INCOME TAX PROVISION 19,221 98,591 201,469 98,591 NET INCOME (LOSS) $37,312 $192,478 $391,088 $327,329 EARNINGS (LOSS) PER COMMON SHARE: Net Income $.01 $.07 $.10 $.11 Weighted average shares outstanding 3,996,193 2,602,874 3,998,082 2,602,874 Page 5 LABOR READY, INC. Consolidated Statement of Changes in Stockholders' Equity For the Year Ended December 31, 1994 and the Six Months Ended June 30, 1995 (Unaudited) Cumulative Foreign Currency Common Stock Preferred Accumulated Translation Shares Amount Stock (Deficit) Adjustment Balance Dec. 31, 1993 2,602,874 2,135,764 1,003,088 (2,387,662) Net income year ended Dec. 31, 1994 851,805 Debentures converted 237,895 271,200 Common Stock issued from private placement 474,960 1,130,223 Preferred stock canceled (149,006) 149,006 Common Stock canceled on lapsing subscriptions (2,000) (2,000) Common stock issued for services 1,000 5,000 Foreign currency translation $(2,853) Preferred stock dividend (42,705) Balance Dec. 31, 1994 3,314,729 3,540,187 854,082 (1,429,556) (2,853) Net income (loss) six months ended June 30, 1995 37,312 Foreign currency translation (14,250) Debentures converted 58,595 75,000 Options exercised 12,000 27,000 Issued for debt 798 7,679 Common stock issued 69,998 for cash 9,333 Preferred stock dividend (21,352) Common stock issued from exercise warrants 474,960 1,781,100 Balance June 30, 1995 3,870,415 $5,500,964 854,082 $(1,413,596) $(17,103) Page 6 LABOR READY, INC. Consolidated Statement of Cash Flows for the Six Months Ended June 30, 1995 and 1994 and the Three Months Ended June 30, 1995 and 1994 (Unaudited) Six Months Ended Three Months Ended 1995 1994 1995 1994 CASH FLOWS FROM OPERATING ACTIVATES: NET INCOME (LOSS): Consolidated operations $37,312 $192,478 $391,088 $327,329 Adjustments to Reconcile Net Loss to Net Cash Applied to Operating Activities: Depreciation & amortization1 66,038 59,591 85,614 36,582 Provision for doubtful account 221,615 (36,926) Changes in Assets & Liabilities: Account receivable (4,207,855) (1,441,848) (3,337,947)(1,121,842) Worker compensation credits receivable (594,618) (115,267) (594,618) (50,108) Prepaid income taxes 16,469 16,469 Other current assets (177,949) (59,114) Restricted cash and workers' compensation deposits (258,425) 52,949 Prepaid expenses and other (167,253) 114,011 Accounts payable 1,291,676 512,635 567,145 340,561 Accrued wages and benefits 811,366 81,594 535,575 62,925 Accrued taxes, other than income221,254 177,612 (14,863) 125,548 Accrued interest (27,216) 3,801 (39,949) 4,264 Accrued workers' compensation 62,317 18,038 (168,865) 95,251 Income taxes payable (442,237) (109,989) Change in deferred income taxes 19,221 80,022 119,221 80,022 Net cash used in operating activities (2,866,805) (592,824) (2,437,554) ( 142,113) Page 7 LABOR READY, INC. Consolidated Statement of Cash Flows for the Six Months Ended June 30, 1995 and 1994 and the Three Months Ended June 30, 1995 and 1994 (Unaudited) Six Months Ended Three Months Ended 1995 1994 1995 1994 CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (952,258) (325,182) (555,514) (239,166) CASH FLOWS FROM FINANCING ACTIVITIES: Net borrowings on note payable 1,892,815 981,158 2,032,830 579,830 Proceeds from issuance of common stock 104,667 104,667 Proceeds from stock subscriptions 5,050 3,439 Proceeds from warrants exercised 1,213,345 659,049 Dividends paid (42,705) (50,154) Borrowings on long-term debt 300,000 300,000 Payments on long-term debt (132,245) (25,657) (71,713) (6,065) NET CASH PROVIDED BY FINANCING ACTIVITIES 3,335,887 910,397 3,024,843 577,204 EFFECT OF EXCHANGE RATES (14,250) (2,581) NET INCREASE (DECREASE) IN CASH & EQUIVALENTS: (497,426) (7,609) 29,194 195,925 CASH AND EQUIVALENTS: BEGINNING OF PERIOD 603,977 229,259 77,357 25,725 END OF PERIOD $ 106,551 $221,650 $ 106,551 $ 221,650 SUPPLEMENTAL DISCLOSURES: Interest Paid $ 440,959 $135,198 $ 289,306 $ 58,728 Income Taxes Paid $ 442,237 $ 192,237 Issuance of common stock for conversion of convertible debentures $ 75,000 $271,200 $ 271,200 Issuance common stock for payment accounts payable $ 7,679 $ 7,679 Acquisition of Building and Land in exchange of debt $ 817,900 $ 47,500 $ 817,900 Page 8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations The Company increased revenues from services to $32,367,336 from $13,535,778, an increase of $18,831,558 or 139%. The Company had a net profit for the six months ended June 30, 1995 of $37,312 vs. a net profit of $192,478 for the same period a year earlier; a decrease of $155,166. The primary factor creating the net decrease in profits was the fact that management expanded operation in 1995 at a faster rate as compared to 1994. The Company grew from fifty-one operating dispatch locations at December 31, 1994 to ninety-six operating locations at June 30, 1995, an increase of forty-five operating dispatch locations for the six month period. The Company grew from seventeen operating dispatch locations at December 31, 1993 to thirty operating locations at June 30, 1994, an increase of thirteen operating dispatch locations the six month period. Opening costs for new dispatch locations; which are expensed, are estimated to have averaged $35,000 per location in 1995 and $25,000 in 1994 or a total of $1,575,000 in 1995 and $325,000 in 1994 for the six months ended June 30, 1995 and 1994 respectively. It is estimated that two thirds of these costs are attributed to cost of sales and one third to operating expenses. Costs of sales increased as a percentage of sales from 80.4% in 1994 to 81.5% in 1995, an increase of 1.1%. The primary components of the change in cost of sales were from dispatch location management salaries and related expenses, which increased as a percentage of sales from 9.7% in 1994 to 14.5% in 1995, an increase of 4.8%; workers compensation, which decreased as a percentage of sales from 8.4% in 1994 to 3.9% in 1995, a decrease of 4.5%; and direct labor costs which increased as a percentage of sales from 53.5% in 1994 to 55.8% in 1995, an increase of 2.3% Operating expenses increased from $2,216,232 to $5,643,007, an increase of $3,426,775 or 155%. The largest increases came from contract and professional fees which increased from $245,286 to $646,840 or $401,554 (164%) and auto and travel which increased from $161,273 to $454,472 or $293,199 (182%). The professional fee increase was primarily due to permanent management employee screening costs. The auto and travel increase was primarily the result of new location openings and continued maintenance. Sales increased for the comparable six months ended June 30 from $13,535,778 in 1994 to $32,367,336 in 1995, an increase of $18,831,550. The sales increase came from two sources shown as follows: Same dispatch location sales increase $ 3,406,554 New dispatch locations 15,424,996 Total increase $18,831,550 Page 9 Liquidity and Financial Condition At June 30, 1995 the Company has $2,373,098 of working capital to finance its' operations. Accounts receivable as a percentage of the comparable previous years quarter sales follow: June 30 June 30 1995 1994 Comparable quarter sales $19,749,584 $8,318,364 Accounts receivable, net 9,149,100 3,348,684 Percentage 46% 40% The Company is projecting, based on prior years quarterly sales trends, monthly sales from $7,900,000 per month in July, 1995 to $12,900,000 per month in September, 1995 and quarterly sales as follow: Quarter Ended 1993 1994 1995 March 31 $2,479,281 $ 5,217,414 $12,617,752 June 30 3,564,912 8,318,364 19,749,584 September 30 4,545,822 12,099,977 29,000,000 December 31* 5,068,808 10,411,938 31,000,000 *1995 amounts are projected. Management believes that it has adequate working capital to finance the projected sales for the quarter ending September 30 and December 31, 1995. Actual sales through the six months ended June 30, 1995, were $632,939 or 3% below the Company's projected sales for that period. The projections for the quarters ended September 30 and December 31, 1995, have been reduced accordingly. To finance projected increases in sales and related overhead expenses the Company is currently negotiating a private placement of long-term subordinated debt financing in the amount of $10,000,000 of which approximately $4,000,000 would be used as working capital to support current operations and finance expected 1995 new location growth. The balance of the funds would be used to finance self insurance and captive insurance workers' compensation programs. There is no assurance that the private placement will be completed. A temporary increase in the accounts receivable operating line of credit to $9,000,000 was completed in August 1995. The Company is in negotiations to obtain a permanent operating line of credit of $10,000,000. Page 10 PART II - OTHER INFORMATION Item 1. Legal Proceedings. None Item 2. Changes in Securities. None Item 3. Defaults Upon Senior Securities. None Item 4. Submission of matters to a vote of Security Holders. None Item 5. Other information. None Item 6. Exhibits and Reports on Form 8-K. None SIGNATURES The unaudited interim financial statements furnished by management reflect all adjustments which are, in the opinion of management, necessary for a fair presentation of financial position and results of operation. Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. REGISTRANT: LABOR READY, INC. /s/ Glenn A. Welstad 8/10/95 By:__________________________ ______ Glenn A. Welstad Date President /s/ Glenn A. Welstad 8/10/95 By:__________________________ ______ Glenn A. Welstad Date Principal Financial Officer Page 11