-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, ViLSew2L7Ge1xym5NhxiDDfXKc9NHpMCR2whRw1HgntUzcg4DoHLTlPEZ5akp2fh qKspvVbnDWydTib766X4qQ== 0001052918-01-500081.txt : 20010829 0001052918-01-500081.hdr.sgml : 20010829 ACCESSION NUMBER: 0001052918-01-500081 CONFORMED SUBMISSION TYPE: SB-2/A PUBLIC DOCUMENT COUNT: 5 FILED AS OF DATE: 20010828 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TEMPORARY FINANCIAL SERVICES INC CENTRAL INDEX KEY: 0001140102 STANDARD INDUSTRIAL CLASSIFICATION: FINANCE SERVICES [6199] IRS NUMBER: 912084501 STATE OF INCORPORATION: WA FILING VALUES: FORM TYPE: SB-2/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-60326 FILM NUMBER: 1724694 BUSINESS ADDRESS: STREET 1: 422 W. RIVERSIDE, SUITE 1313 CITY: SPOKANE STATE: WA ZIP: 99201 BUSINESS PHONE: 5096248055 SB-2/A 1 tfs10sbrevaug10.txt TEMPORARY FINANCIAL SERVICES, INC. FORM SB-2/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 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) Id. 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
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE COMPANY SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. 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 PRICE: $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. We are bearing all costs incurred in the registration of these Shares, including the Underwriter's non-accountable expense allowance, attorney's fees, accounting fees, filing fees, and printing and distribution fees 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" basis. We will pay the Underwriter a 10% commission on the gross proceeds from the sale of the Shares (except for shares sold to existing shareholders on which no commissions will be paid). 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 December 31, 2001, all proceeds will be refunded to investors without deduction for offering costs and without interest. 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 August ____, 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. 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. 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 5. 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 December 31, 2001, 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. 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 RISKS OF INVESTING IN A START-UP. We are a newly formed company with limited operating history and limited operating results. Investors in this offering are being asked to purchase the shares in reliance on managements abilities to implement the business plan and make a success of the business. No assurances can be given that management will be able to accomplish the process of taking the business opportunity from concept to successful operations. DEPENDENCE ON KEY PERSONNEL. Our success depends to a great extent upon the continued services of the President and other members of executive Management. 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 have a significant negative impact on our ability to achieve our business goals. Our success will also be dependent upon our ability to locate and hire qualified staff. RELINQUISHMENT OF CONTROL. 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 own 180,500 (16%). If the offering is funded to the minimum level, all officers and directors as a group will own 180,500 (33%). As a result, the current officers and directors will not have control of the Company following completion of the offering, and the Company. Lack of control could result in shareholder initiatives that change the management and/or direction of the Company, and a change in management or direction could have an impact on the long term success of the business. This creates additional risk for investors in this offering. Officers and directors of the Company have indicated that they may purchase shares in the offering although the level of participation is uncertain. If the officers and directors purchase shares in this offering, the percentage of ownership of all officers and directors as a group will change. PURCHASES BY MANAGEMENT. 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. Such purchases will be counted in determining whether the required minimum level of purchases has been met. Investors, therefore, should not consider that the sale of enough Shares to reach the specified minimum indicates that such sales have been made to investors who have no financial or other interest in the Offering, or who otherwise are exercising independent investment discretion. The sale of the specified minimum, while necessary to the business operations, is NOT designed as a protection to investors or to indicate that other unaffiliated investors share their investment decision. Because purchases by Management, its affiliates, and other persons who may receive fees or other compensation or gain dependent upon the success of the Offering may be substantial, no individual investor should place any reliance on the sale of the specified minimum as an indication of the merits of this Offering. Each investor must make his own investment decision as to the merits of this Offering. NO EMPLOYMENT AGREEMENTS. We do not have employment agreements with any of our key personnel. If we lost the services of any of our key personnel, our business could be adversely affected. NO CERTAINTY OF RETURN ON INVESTMENT. No assurance can be given that purchasers of the Shares will realize a return on their investment. As a result of the uncertainty and risks associated with our operations, investors may lose their entire investments. DILUTION. Purchasers of Shares will experience immediate and substantial dilution in the net tangible book value of their 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 book value per share will be $2.90 and investors in this offering will suffer immediate dilution of $2.10 (42%) per share. ARBITRARY OFFERING PRICE. The price at which our shares are being offered has been 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 have taken 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. Since the offering price has been arbitrarily determined, market forces may ascribe a higher or lower valuation for our shares, taking into account our assets, book value, operations and net worth or any other recognized criteria of value and the laws of supply and demand in general. LACK OF LIQUIDITY. 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. DISCRETION OVER USE OF PROCEEDS. 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 the intended uses of proceeds before investment. Any changes we make to the uses of proceeds could affect the Company's chances for long term success. RISKS OF OWNING PENNY STOCKS. 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 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. RISKS ASSOCIATED WITH LENDING ACTIVITIES. LACK OF EXPERIENCE IN ASSESSING CREDIT RISK. We do not have significant experience in performing credit risk assessments of prospective borrowers. If we incorrectly assess the credit worthiness of a borrower, the collection of loans made to that borrower could be jeopardized. LACK OF CONTROL OVER BORROWER'S BUSINESS. 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. SECURITY FOR LOANS MAY BE INADEQUATE. 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. UNSEASONED BORROWERS. 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. COMPETITION FOR BORROWERS. 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. CAPITAL AVAILABLE FOR LOANS WILL BE LIMITED. 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. NO ASSURANCES THAT ADDITIONAL CAPITAL WILL BE AVAILABLE. 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. NARROW MARKET FOCUS. 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. LACK OF CONTROL OVER PORTFOLIO COMPANIES. 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. LIMITED INVESTMENT EXPERIENCE. 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. RELIANCE ON MANAGEMENT. 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. UNSEASONED TARGETS. Many of the businesses that we may choose to invest in will be start-ups or companies with only limited operating history. No assurances can be given that the businesses we select will be successful, or that our investments will appreciate. The risks of investing in start-ups and unseasoned companies are higher than if the investment targets had operating histories on which to judge their likelihood of success. GOVERNEMENT REGULATION. 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. RISKS FROM PLACING TEMPORARY LABORERS. 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. FRAGMENTED INDUSTRY. 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. UNPROVEN PRODUCT OFFERINGS. We are a newly formed company with limited operating history. 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. PRICE SENSITIVITY. 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 loans and 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. 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. Several other lending arrangements with new prospects are also being reviewed. 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). 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. This sector is believed to be highly fragmented with many small single location operators, a large number of small to medium sized multiple location operators, and a small number of large national operators. Many of these businesses will require capital for financing operations and growth. 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 and fine tuning 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. 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. 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. 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 priority 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. 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 $250 per week for the first year and $150 per week thereafter. This administrative fee will 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 loan fee based on a percentage of sales made on credit by the borrower. The percentage rate for the calculation of the loan fee will depend on the credit worthiness of the borrower, and an overall assessment of the factors evaluated during the loan approval process. 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. 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 in its initial two weeks of operations averaged $3,100 per week in revenues from temporary labor placements. 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 in its first eight weeks of operations ValuStaff averaged $7,275 per week in revenues from temporary labor placements. Over the next twelve months, we expect to invest in five 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. 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. 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. GOVERNMENTAL REGULATION. Our proposed lines of business will be subject to government regulation in a number of areas. 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. 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. 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 acitivites 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 for18% 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. 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 Sales Agent Commissions* 100,000 10.0% 400,000 10.0% Sales Agent 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% ========== ======== =========== ============ * Assumes no Shares are sold by Officers and Directors. 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. 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. 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 ($082 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. 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 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. 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 beusiness 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 is 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. JAMES BAGGETT, age 51, is an independent Director of the Company. Mr. Baggett currently serves as General Manager of Workers for You, Inc., a newly formed temporary labor business located in Spokane, Washington. Prior to joining Workers for You, Inc., from 1998 through June 30, 2001, Mr. Baggett was employed as a Real Estate Salesperson with Janek Co. From 1995 through 1998, Mr. Baggett worked for Labor Ready, Inc. as the Branch Manager of the Labor Ready temporary dispatch office in Spokane Washington. Mr. Baggett attended one year of college at Spokane Falls Community College with coursework in business administration, and has continued to broaden his business training with practical work experience. Mr. Baggett's work experience as a manager of temporary labor businesses will provide a unique insight into the kinds of customers that the Company will be targeting. TRANSACTIONS WITH AFFILIATES AND CONFLICTS OF INTEREST. In all transactions between the Company and an affiliated party, the transactions will be presented to the Board of Directors and may only be approved if 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. 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 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. 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 offering will terminate on December 31, 2001, 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. 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. The level at which the existing shareholders will participate in this offering is uncertain and no assurances can be given that any shares will be purchased by the existing shareholders. 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 ____% 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 $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 include demand and piggy-back registration rights which may require us to register the shares issuable to the Underwriter upon exercise of the Underwriter's Warrants. The obligation to register the shares underlying the Underwriter's Warrants could result in significant registration expenses to the Company. Up to 80% of the Underwriter's Warrants may be called by the Company and redeemed at any time following twelve months from the effective date of the offering upon payment of $______. If called for redemption, the Underwriter will then have thirty days in which to exercise the called Underwriter's Warrants or they will be redeemed and canclled. 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 Spokane, Washington 99201 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 December 31, 2001, 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 December 31, 2001. 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: - - December 31, 2001, if the minimum of $1,000,000 is not reached; or - - 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 December 31, 2001 the investors' funds will be returned in full, with interest and without deduction for Offering expenses. 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. 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 85,000 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. 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 complied 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 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. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2000 (Audited) F- 1 through F-10 June 30, 2001 (Management prepared, unaudited) F-11 through F-22 (This space left intentionally blank.) 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 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 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 STOCKHOLDERSEQUITY LIABILITIES Accounts payable $ 100 STOCKHOLDERSEQUITY: 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 977 ------------ Total stockholders' equity 675,977 ------------ $ 676,077 ============ See accompanying notes to consolidated financial statements. 3 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 566 ----------------- NET INCOME $ 977 ================= BASIC EARNINGS PER SHARE $ - ================= See accompanying notes to consolidated financial statements. 4 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 - - - - 977 977 --------- ---------- ---------- ---------- ----------- --------- BALANCES, DECEMBER 31, 2000 $ 310 $ 629,690 $ 120,000 $ (75,000) $ 977 $ 675,977 ========= ========== ========== ========== =========== =========
See accompanying notes to consolidated financial statements. 5 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 $ 977 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 100 ----------------- Total adjustments (9,643) ----------------- 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 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. 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. In addition, immaterial current income tax payable at December 31, 2000, has not been accrued. 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. Nominal amounts ascribed to such items were not material to the Company and have not been recorded in the accompanying financial statements. 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. 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. (This space left intentionally blank.) 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.) 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 December 31, 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 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 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 Interest and dividend income 13,325 14,868 ---------------- ----------------- 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) (100) ---------------- ----------------- NET INCOME (LOSS) $ (23,866) $ (23,489) ================ ================= BASIC EARNINGS (LOSS) PER SHARE $ 0.07 $ 0.07 ================ ================= See accompanying notes to consolidated financial statements. 4 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 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 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 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. 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. There were no material temporary differences for the period presented, so deferred taxes have not been recorded in the accompanying financial statements. 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. 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. 8 TEMPORARY FINANCIAL SERVICES, INC. AND SUBSIDIARY (A DEVELOPMENT STAGE COMPANY) (UNAUDITED) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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 December 31, 2000June 30, 2001, 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 for the subscriptions were received by January 2, 2001. 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. 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. 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. 9 TEMPORARY FINANCIAL SERVICES, INC. AND SUBSIDIARY (A DEVELOPMENT STAGE COMPANY) (UNAUDITED) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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 $ 12,500 $ 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 $ 6,255 $ 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. 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. September ____, 2001 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. 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. Item 27. Exhibits* (1) (i) Form of Underwriting Agreement attached (ii) Form of Underwriter's Common Stock Purchase Warrant attached (iii) Form of Selected Dealer Agreement attached (3) (i) Articles of Incorporation ** (ii) Bylaws ** (5) Opinion of Counsel attached (10) Fund Impound agreement attached (21) Subsidiaries of the registrant ** (23) (i) Consent of accountants attached (ii) Consent of counsel *** * Omitted exhibits not applicable ** As previously filed *** See Exhibit (5) 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. 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 27th day of April, 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. SIGNATURE CAPACITY /s/ JOHN COGHLAN President, Chief Executive Officer and ------------------------ Chief Financial Officer /s/ BRAD HERR Secretary ------------------------ /s/ KRISTIE JESMORE Treasurer ------------------------ EX-1 3 exhibit1.txt TEMPORARY FINANCIAL SERVICES, INC. FORM SB-2/A Exhibit 1 (i) Form of Underwriting Agreement June , 2001 Public Securities, Inc. 300 North Argonne Road Suite 202 Spokane, Washington 99212 Gentlemen: TEMPORARY FINANCIAL SERVICES, a Washington Corporation (the "Company"), with principal offices located at 422 West Riverside, Suite 1313, Spokane, Washington, 99201, has an authorized capitalization of 100,000,000 shares of Common Stock, $0.001 par value and 5,000,000 shares of Preferred Stock, $0.001 par value ("Preferred Stock"). The Company proposes to issue and sell through Public Securities, Inc., (the "Underwriter") a minimum of 200,000 shares of Common Stock and a Maximum of 800,000 shares of Common Stock at the offering price of $5.00 per share. The shares of Common Stock are being offered on a "best efforts, minimum or maximum" basis. The Company wishes to confirm as follows its agreements with you. 1. Certain Definitions The following shall constitute the definitions of certain terms used in this Agreement: (a) "Underwriter" shall refer to Public Securities, Inc. (b) "Company" shall refer to TEMPORARY FINANCIAL SERVICES, INC., its affiliates, and subsidiaries. (c) "Commission" shall refer to the Securities and Exchange Commission. (d) "Act" shall refer to the Securities Act of 1933 as amended. (e) "Regulations" shall refer to the rules and regulations of the Commission. (f) "Share" shall refer to the Shares of the Company's Common Stock, $0.001 par value. The Shares are being offered on a "best efforts, minimum or maximum" basis. (g) "Common Stock" shall refer to the Shares of the Company's Common Stock, $0.001 par value. (h) "Effective Date" shall be the first date upon which the Registration Statement filed pursuant to this Agreement shall be declared effective by the Commission, i.e., the date when the Shares may be offered for sale to the public. (i) "Registration Statement" shall refer to the Registration Statement, Form S-B2 (File No. ) filed for the proposed sale of the Common Stock, prospectus, preliminary prospectus, Underwriter's Common Stock Purchase Warrant, Warrants, Shares, Common Stock, exhibits and financial statements as finally amended and revised prior to the Effective Date. Except as the context may otherwise require, such Registration Statement, as amended, on file with the Commission at the time the Registration Statement becomes effective (including the prospectus, financial statements, any schedules, exhibits and all other documents filed as a part thereof or that may be incorporated therein (including, but not limited to those documents or information incorporated by reference therein) and all information deemed to be a part thereof as of such time pursuant to paragraph (b) of Rule 430(A) of the Rules and Regulations), is hereinafter called the "Registration Statement," and the form of prospectus in the form first filed with the Commission pursuant to Rule 424(b) of the Rules and Regulations, is hereinafter called the "Prospectus." (k) "NASD" shall refer to the National Association of Securities Dealers, Inc. 2. Underwriter's Compensation (a) The Company hereby appoints the Underwriter as its exclusive agent during the continuance of the authorization hereunder to sell and obtain purchasers for 800,000 Shares at a public offering price of $5.00 per Shares and at an aggregate public offering price of $4,000,000 on a "best efforts, minimum or maximum basis. Unless 200,000 Shares are sold and payment received by the Company therefore within 120 days from the Effective Date, no Shares will be sold, and in that event the Underwriter will not receive any of the commissions mentioned, but will be entitled to all accountable out-of-pocket expenses, not to exceed $5,000 . Such exclusive agency shall be good and irrevocable unless and until terminated as herein and hereinafter set forth. (1) If the sale of the Securities by the Underwriter is not consummated for any reason not attributable to the Underwriter, or if (i) the Company unilaterally withdraws the Registration Statement or does not proceed with the public offering for reasons other than the affirmative wrongdoing of the Underwriter, or (ii) the representations in Section 3 hereof are not correct or the covenants cannot be complied with, or (iii) there has been a materially adverse change in the condition, prospects or obligations of the Company or a materially adverse change in stock market conditions from current conditions, or (iv) the "road show" presentation produced a negative affect on the intended syndicate members, or (v) the Company unilaterally terminates the financing, the Company will reimburse the Underwriter for its out-of-pocket expenses up to a maximum of $5,000 but any funds remaining unused from a $2,500 advance, will be returned to the Company. In the event of unilateral termination by the Company, the Underwriter will re-evaluate the Company and the Company agrees to pay the Underwriter a consulting and restructuring fee of $5,000 (b) Subject to the filing and the becoming effective of the Registration Statement and a prospectus in compliance with the provisions of the Act and the availability for sale to the public, pursuant to law, of the offered Shares and subject to the fulfillment of all of the obligations of the Company and compliance with all of the terms and conditions hereof by the Company and in reliance upon the warranties, representations and covenants made by the Company herein, the Underwriter accepts the foregoing exclusive agency and agrees to use its best efforts during the term of the within Agreement and the continuance of the authorization provided herein to sell the offered Shares when and as issuable at the public offering price set forth above; and to make such public offering at such time as Underwriter so determines and after the following have been completed: (1) Registration Statement and prospectus have become effective. (2) Approval of offering by NASD. (3) Blue Sky clearance from the states required by Underwriter. (4) Shares and/or Certificates are available for public offering. (5) Company furnishes Underwriter with sufficient number of prospectus. (c) As compensation for the services of the Underwriter herein, the Company shall allow the Underwriter, subject to the sale and receipt of funds for 200,000 Shares minimum and 800,000 maximum to be offered herein, a sale's commission of ten percent (10%) of the public offering price on all offered Shares to be sold hereunder. The Underwriter may organize a selling group (which group may include the Underwriter) or associate itself with such other Underwriters as it may deem necessary as long as such underwriters or members of the selling group are members of the NASD for the purpose of distributing the offered Shares and in such event, the Underwriter may allow to members of such selling group, or such other underwriters, such part of the aforementioned commission or discount as it may, in its sole discretion determine. Shares sold by members of the selling group who are not a member of the NASD, including foreign brokers, and dealers registered pursuant to the Securities Act of 1934, may only be sold at the price of $5.00 per Share. The Underwriter shall be paid a non-accountable expense allowance of one percent of the public offering price on all Shares sold (of which $XXXX has been paid by the Company to the Underwriter); and Warrants to purchase up to 80,000 shares of Common Stock at $6.00 per share, at the rate of one Underwriter's Warrant for every ten Shares sold in this offering. Subject to the sale of the minimum number of Shares, as set forth in Paragraph 6(p) hereof. Such commission and expense allowance shall be deductible by the Underwriter prior to remittance by it to the Company on account of the Shares sold. Up to 80% of these warrants shall be subject to a call feature by the issuer 12 months from their first exercisable date. Upon notice in writing to the underwriter, the underwriter shall have 30 days to exercise those called warrants, or they shall be cancelled. *After the minimum of $1,000,000 is reached, purchases by "original" shareholders shall be exempt compensation, with the exception of underwriter's warrants. **The offering shall be terminated on December 31, 2001. (1) Underwriter's Common Stock Purchase Warrant: At the Closing Date, the Company will sell to the Underwriter for a purchase price of $.01, per warrant, warrants to purchase Shares at 120% of the offering price of the Shares (the "Underwriter's Common Stock Purchase Warrant" or "Underwriter's Warrants"). Each Share will be identical to the Shares except that the Underwriter's Warrants cannot be exercised until one year after the effective date of the Registration Statement. The total number of Shares which may be purchased on the exercise of the Underwriter's Warrants will be 10% of the Shares sold in the offering. The Underwriter's Warrants shall be nonexercisable and nontransferable for a period of twelve (12) months after the date of the Prospectus used in the offering. The Company agrees to register a sufficient number of shares of its Common Stock pursuant to the Registration Statement so that a sufficient number of shares of its Common Stock underlying the Underwriter's Warrants are registered and available to be issued upon the exercise of the Underwriter's Warrants. The Company will set aside and at all times have available a sufficient number of registerable shares of its Common Stock to be issued upon the exercise of the Underwriter's Warrants. The Company andthe Underwriter agree that, prior to the effective date of the Company's Registration Statement, the Underwriter may designate that the Underwriter's Warrants be issued in varying amounts directly to its officers and not to the Underwriter, and to other Underwriters and their designees, such designation will only be made by the Underwriter if it determines that such issuances would not violate the interpretation of the Board of Governors of the NASD. The Underwriter has disclosed to the Company, and the Company has agreed, that the Underwriter may transfer, after twelve (12) months from the date of the Underwriter's Warrants, a portion or all of the Underwriter's Warrants to certain persons, including, but not limited to, the Underwriter's officers, directors, shareholders, employees, or registered representatives. The Underwriter and the Company agree that such transfers will only be made if they do not violate the registration provisions of the Act and the Underwriter will deliver an opinion of counsel to that effect to the Company. Upon written request of the then holder(s) of at least 51% of the total Underwriter's Warrants and securities issued upon exercise of the Underwriter's Warrants (originally issued to the Underwriter or his designees), made at any time within the period commencing twelve (12) months after the date of the Prospectus and ending four (4) years thereafter, the Company will file, not more than once, a Post-Effective Amendment, Registration Statement or Notification on Form l-A under the Act, registering or qualifying, as the case may be, the Underwriter's Warrants and/or the shares underlying the Underwriter's Warrants. The Company must file a Registration Statement and will not have a choice between filing a Registration Statement or a Notification on Form I-A if the shares underlying them cannot be sold under Regulation A because of the limited exemption. The Company agrees to use its best efforts to cause the above filing to become effective. All expenses of such registration or qualification, including, but not limited to, legal, accounting, "Blue Sky" registration/quali- fication costs, and printing fees, will be borne by the Company exclusive of any commissions. In addition to the above, the Company agrees that if, at any time during the term of the Underwriter's Warrants, it should file a Registration Statement with the Commission pursuant to the Act (or file a Notification on Form l-A) under the Act for a public offering of equity securities for cash, either for the account of the Company or Selling Shareholders, the Company will at its own expense, except commissions, offer to said holder(s) the opportunity to register the shares underlying the Underwriter's Warrants for public offering. This paragraph is not applicable to a Registration Statement filed with the Commission on Forms S-4 or S-8. In addition to the rights above provided, the Company will cooperate with the then holder(s) of the Underwriter's Warrants and shares issued upon the exercise of the Underwriter's Warrants in preparing and signing any Registration Statement or Notification, in addition to the Registration Statement and Notifications discussed above, required in order to sell or transfer the aforesaid Underwriter's Warrants and/or underlying shares and will supply all information required therefor, but such additional Registration Statement or Notification shall be at the then holder(s) cost and expense. (d) If at any time, any condition of the obligation of the Company hereunder shall not have been met or shall cease to be met and the Underwriter shall have given the Company notice of the desire of the Underwriter to terminate this Agreement on account of the non-fulfillment of any such condition or obligation, then upon such notice, the within Agreement shall terminate, saving all such rights as the respective parties may then by law possess. Any such notice must be in writing. If the within Agreement shall not be sooner terminated as provided in the within paragraph, then, and in all events, the Agreement herein shall terminate at such time as all of the Shares shall have been subscribed for pursuant to the terms of the public offering herein. The date upon which the Agreement herein shall terminate for whatever reason is herein sometimes referred to as the "Termination Date". 3. Representations and Warranties of the Company. As material inducements to the Underwriter to enter into this Agreement, the Company hereby represents and warrants to, and agrees with the Underwriter which representations, warranties and agreements shall survive the closing, as follows: (a) The Company has prepared and filed with the Commission a registration statement, and an amendment or amendments thereto, on Form SB-2 (No.333-XXXXXX ), including any related preliminary prospectus ("Preliminary Prospectus"), for the registration of the Securities, the Representative's Warrant (sometimes referred to herein collectively as the "Registered Securities"), under the Act, which registration statement and amendment or amendments have been prepared by the Company in conformity with the requirements of the Act, and the Rules and Regulations. The Company will promptly file a further amendment to said registration statement in the form heretofore delivered to the Underwriter and will not file any other amendment thereto to which the Underwriter shall have objected verbally or in writing after having been furnished with a copy thereof. (b) Neither the Commission nor any state regulatory authority has issued any order preventing or suspending the use of any Prospectus or the Registration Statement and no proceeding for an order suspending the effectiveness of the Registration Statement or any of the Company's Shares has been instituted or is pending or threatened. Each such Prospectus and/or any supplement thereto has conformed in all material respects with the requirements of the Act and the Rules and Regulations and on its date did not include any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein not misleading, in light of the circumstances under which they were made and (i) the Prospectus and/or any supplement thereto will contain all statements which are required to be stated therein by the Act and Rules and Regulations, and (ii) the Prospectus and/or any supplement thereto will not include any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading, in light of the circumstances under which they were made; provided, however, that no representations, warranties or agreements are made hereunder as to information contained in or omitted from the Prospectus in reliance upon, and in conformity with, the written information furnished to the Company by you as set forth in Section 2(e) above. (c) The Company has been duly incorporated and is validly existing as a corporation in good standing under the laws of the state of its incorporation, with full power and authority (corporate and other) to own its properties and conduct its businesses as described in the Prospectus and is duly qualified to do business as a foreign corporation in good standing in all other jurisdictions in which the nature of its business or the character or location of its properties requires such qualification, except where the failure to so qualify would not have a material adverse effect on the business, properties or operations of the Company and the subsidiaries as a whole. (d) The Company has full legal right, power and authority to authorize, issue, deliver and sell the Shares, and to enter into this Agreement, the Underwriter's Common Stock Purchase Warrant dated as of the initial closing date to be exercised and delivered by the Company to the Underwriter (the "Underwriter's Common Stock Purchase Warrant Agreement"), and to consummate the transactions provided for in such agreements, and each of such agreements has been duly and properly authorized, and on the Initial Closing Date will be duly and properly executed and delivered by the Company. This Agreement constitutes and on the Initial Closing Date the Underwriter's Common Stock Purchase Warrant will then constitute valid and binding agreements, enforceable in accordance with their respective terms (except as the enforceability thereof may be limited by bankruptcy or other similar laws affecting the rights of creditors generally or by general equitable principles and except as the enforcement of indemnification provisions may be limited by federal or state Securities laws). (e) Except as disclosed in the Prospectus, the Company is not in violation of its respective certificate or articles of incorporation or bylaws or in default in the performance or observance of any material obligation, agreement, covenant or condition contained in any material bond, debenture, note or other evidence of indebtedness or in any material contract, indenture, mortgage, loan agreement, lease, joint venture, partnership or other agreement or instrument to which the Company is a party or by which it may be bound or is not in material violation of any law, order, rule, regulation, writ, injunction or decree of any governmental instrumentality or court, domestic or foreign; and the execution and delivery of this Agreement, the Underwriter's Common Stock Purchase Warrant and the consummation of the transactions contemplated therein and in the Prospectus and compliance with the terms of each such agreement will not conflict with, or result in a material breach of any of the terms, conditions or provisions of, or constitute a material default under, or result in the imposition of any material lien, charge or encumbrance upon any of the property or assets of the Company pursuant to, any material bond, debenture, note or other evidence of indebtedness or any material contract, indenture, mortgage, loan agreement, lease, joint venture, partnership or other agreement or instrument to which the Company is a party nor will such action result in the material violation by the Company of any of the provisions of its respective certificate or articles of incorporation or bylaws or any law, order, rule, regulation, writ, injunction, decree of any government, governmental instrumentality or court, domestic or foreign, except where such violation will not have a material adverse effect on the financial condition of the Company. (f) The authorized, issued and outstanding capital stock of the Company is as set forth in the Prospectus and the Company will have the adjusted capitalization set forth therein on the Initial Closing Date; all of the shares of issued and outstanding capital stock of the Company set forth therein have been duly authorized, validly issued and are fully paid and nonassessable; the holders thereof do not have any rights of rescission with respect therefor and are not subject to personal liability for any obligations of the Company by reason of being stockholders under the laws of the State in which the Company is incorporated; none of such outstanding capital stock is subject to or was issued in violation of any preemptive or similar rights of any stockholder of the Company; and such capital stock (including the Shares, and the Underwriter's Common Stock Purchase Warrant) conforms in all material respects to all statements relating thereto contained in the Prospectus. (g) The Company is not a party to or bound by any instrument, agreement or other arrangement providing for it to issue any capital stock, rights, warrants, options or other Shares, except for this Agreement or as described in the Prospectus. The Shares, and the Underwriter's Common Stock Purchase Warrant are not and will not be subject to any preemptive or other similar rights of any stockholder, have been duly authorized and, when issued, paid for and delivered in accordance with the terms hereof, will be validly issued, fully paid and non-assessable and will conform to the respective descriptions thereof contained in the Prospectus; except for payment of the applicable purchase price paid upon exercise of the options or warrants, as the case may be the holders thereof will not be subject to any liability solely as such holders; all corporate action required to be taken for the authorization, issue and sale of the Shares and the Underwriter's Common Stock Purchase Warrant has been duly and validly taken; and the certificates representing the Shares and the Underwriter's Common Stock Purchase Warrant will be in due and proper form. Upon the issuance and delivery pursuant to the terms hereof of the Shares, and the Underwriter's Shares to be sold by the Company hereunder, the Underwriter will acquire good and marketable title to such Shares and Underwriter's Common Stock Purchase Warrant free and clear of any lien, charge, claim, encumbrance, pledge, security interest, defect or other restriction of any kind whatsoever other than restrictions as may be imposed under applicable securities laws. (h) The Company has good and marketable title to all properties and assets described in the Prospectus as owned by it, free and clear of all liens, charges, encumbrances or restrictions, except such as are described or referred to in the Prospectus or which are not materially significant or important in relation to its business or which have been incurred in the ordinary course of business; except as described in the Prospectus all of the leases and subleases under which the Company holds properties or assets as lessee or sublessee as described in the Prospectus are in full force and effect, and the Company is not in material default in respect of any of the terms or provisions of any of such leases or subleases, and no claim has been asserted by anyone adverse to the Company's rights as lessor, sublessor, lessee or sublessee under any of the leases or subleases mentioned above or affecting or questioning the Company's right to the continued possession of the leased or subleased premises or assets under any such lease or sublease; and the Company owns or leases all such properties as are necessary to its operations as now conducted and as contemplated to be conducted, except as otherwise stated in the Prospectus. (i) The financial statements, together with related notes, set forth in the Prospectus fairly present the financial position and results of operations of the Company at the respective dates and for the respective periods to which they apply. Said statements and related notes have been prepared in accordance with generally accepted accounting principles applied on a basis which is consistent in all material respects during the periods involved but any "stub" period has not been audited by an independent accounting firm. There has been no material adverse change or material development involving a prospective change in the condition, financial or otherwise, or in the prospects, value, operation, properties, business or results of operations of the Company whether or not arising in the ordinary course of business, since the date of the financial statements included in the Registration Statement and the Prospectus. (j) Subsequent to the respective dates as of which information is given in the Prospectus as it may be amended or supplemented, and except as described in the Prospectus, the Company has not, directly or indirectly, incurred any liabilities or obligations, direct or contingent, not in the ordinary course of business or entered into any transactions not in the ordinary course of business, which are material to the business of the Company as a whole and there has not been any change in the capital stock of, or any incurrence of long term debts by, the Company or any issuance of options, warrants or rights to purchase the capital stock of the Company or declaration or payment of any dividend on the capital stock of the Company or any material adverse change in the condition (financial or other), net worth or results of operations of the Company as a whole and the Company has not become a party to, any material litigation whether or not in the ordinary course of business. (k) To the knowledge of the Company, there is no pending or threatened, action, suit or proceeding to which the Company is a party before or by any court or governmental agency or body, which might result in any material adverse change in the condition (financial or other), business or prospects of the Company as a whole or might materially and adversely affect the properties or assets of the Company as a whole nor are there any actions, suits or proceedings against the C ompany related to environmental matters or related to discrimination on the basis of age, sex, religion or race which might be expected to materially and adversely affect the conduct of the business, property, operations, financial condition or earnings of the Company as a whole; and no labor disturbance by the employees of the Company individually exists or is, to the knowledge of the Company, imminent which might be expected to materially and adversely affect the conduct of the business, property, operations, financial condition or earnings of the Company as a whole. (l) Except as may be disclosed in the Prospectus, the Company has properly prepared and filed all necessary federal, state, local and foreign income and franchise tax returns, has paid all taxes shown as due thereon, has established adequate reserves for such taxes which are not yet due and payable, and does not have any tax deficiency or claims outstanding, proposed or assessed against it. (m) The Company has sufficient licenses, permits, right to use trade or service marks and other governmental authorizations currently required for the conduct of its business as now being conducted and as contemplated to be conducted and the Company is in all material respects complying therewith. Except as set forth in the Prospectus, the expiration of any such licenses, permits, or other governmental authorizations would not materially affect the Company's operations. To its knowledge, none of the activities or businesses of the Company are in material violation of, or cause the Company to materially violate any law, rule, regulations, or order of the United States, any state, county or locality, or of any agency or body of the United States or of any state, county or locality. (n) The Company has not at any time (i) made any contributions to any candidate for political office in violation of law, or failed to disclose fully any such contribution, or (ii) made any payment to any state, federal or foreign governmental officer or official, or other person charged with similar public or quasi public duties, other than payments required or allowed by applicable law. (o) Except as set forth in the Prospectus the Company knows of no outstanding claims for services either in the nature of a finder's fee, brokerage fee or otherwise with respect to this financing for which the Company or the Underwriter may be responsible, or which may affect the Underwriter's compensation as determined by the National Association of Securities Dealers, Inc. ("NASD") except as otherwise disclosed in the Prospectus. (p) The Company has its property adequately insured against loss or damage by fire and maintains such other insurance as is customarily maintained by companies in the same or similar business. (q) The Underwriter's Warrants herein described are duly and validly authorized and upon delivery to the Underwriter in accordance herewith will be duly issued and legal, valid and binding obligations of the Company, except as the enforceability thereof may be limited by bankruptcy or other similar laws affecting the rights of creditors generally or by equitable principles, and except as the enforcement of indemnification provisions may be limited by federal or state securities laws. The Underwriter's securities issuable upon exercise of any of the Underwriter's Common Stock Purchase Warrant have been duly authorized, and when issued upon payment of the exercise price therefor, will be validly issued, fully paid and nonassessable. (r) Except as set forth in the Prospectus, no default exists in the due performance and observance of any term, covenant or condition of any material license, contract, indenture, mortgage, installment sale agreement, lease, deed of trust, voting trust agreement, stockholders agreement, note, loan or credit agreement, purchase order, or any other agreement or instrument evidencing an obligation for borrowed money, or any other material agreement or instrument to which the Company is a party or by which the Company may be bound or to which the property or assets (tangible or intangible) of the Company is subject or affected. (s) To the best of the Company's knowledge it has generally enjoyed a satisfactory employer-employee relationship with its employees and, to the best of its knowledge, is in substantial compliance in all material respects with all federal, state, local, and foreign laws and regulations respecting employment and employment practices, terms and conditions of employment and wages and hours. To the best of the Company's knowledge, there are no pending investigations involving the Company, by the U.S. Department of Labor, or any other governmental agency responsible for the enforcement of such federal, state, local, or foreign laws and regulations. To the best of the Company's knowledge, there is no unfair labor practice charge or complaint against the Company pending before the National Labor Relations Board or any strike, picketing, boycott, dispute, slowdown or stoppage pending or threatened against or to its knowledge involving the Company, or any predecessor entity, and none has ever occurred. To the best of the Company's knowledge, no representation question is pending respecting the employees of the Company, and no collective bargaining agreement or modification thereof is currently being negotiated by the Company. To the best of the Company's knowledge, no grievance or arbitration proceeding is pending or to its knowledge threatened under any expired or existing collective bargaining agreements of the Company. No labor dispute with the employees of the Company is pending, or, to its knowledge is imminent; and the Company is not aware of any pending or imminent labor disturbance by the employees of any of its principal suppliers, manufacturers or contractors which may result in any material adverse change in the condition, financial or otherwise, or in the earnings, business affairs, position, prospects, value, operation, properties, business or results of operations of the Company. (t) Except as may be set forth in the Registration Statement, the Company does not maintain, sponsor or contribute to any program or arrangement that is an "employee pension benefit plan," an "employee welfare benefit plan," or a "multiemployer plan" as such terms are defined in Sections 3(2), 3(l) and 3(37), respectively, of the Employee Retirement Income Security Act of 1974, as amended ("ERISA") ("ERISA Plans"). The Company does not maintain or contribute, now or at any time previously, to a defined benefit plan, as defined in Section 3(35) of ERISA. No ERISA Plan (or any trust created thereunder) has engaged in a "prohibited transaction" within the meaning of Section 406 of ERISA or Section 4975 of the Internal Revenue Code (the "Code"), which could subject the Company to any tax penalty on prohibited transactions and which has not adequately been corrected. Each ERISA Plan is in compliance with all material reporting, disclosure and other requirements of the Code and ERISA as they relate to any such ERISA Plan. Determination letters have been received from the Internal Revenue Service with respect to each ERISA Plan which is intended to comply with Code Section 401 (a), stating that such ERISA Plan and the attendant trust are qualified thereunder. The Company has never completely or partially withdrawn from a "multiemployer plan." (u) None of the Company, or any of its employees, directors, stockholders, or affiliates (within the meaning of the Rules and Regulations) has taken or will take, directly or indirectly, any action designed to or which has constituted or which might be expected to cause or result in, under the Exchange Act, or otherwise, stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of the Shares, Underwriter's Common Stock Purchase Warrant, or otherwise. (v) None of the patents, patent applications, trademarks, service marks, trade names, copyrights, and licenses and rights to the foregoing presently owned or held by the Company, are in dispute or, to the best knowledge of the Company's management are in any conflict with the right of any other person or entity. The Company (i) except as disclosed in the Prospectus owns or has the right to use, all patents, trademarks, service marks, trade names and copyrights, technology and licenses and rights with respect to the foregoing, used in the conduct of its business as now conducted or proposed to be conducted without infringing upon or otherwise acting adversely to the right or claimed right of any person, corporation or other entity under or with respect to any of the foregoing, and except as set forth in the Prospectus or otherwise disclosed to the Underwriter in writing, to the best knowledge of the Company's management is not obligated or under any liability whatsoever to make any material payments by way of royalties, fees or otherwise to any owner or licensee of, or other claimant to, any patent, trademark, service mark, trade name, copyright, know-how, technology or other intangible asset, with respect to the use thereof or in connection with the conduct of its business or otherwise. There is no suit, proceeding, inquiry, arbitration, investigation, litigation or governmental or other proceeding, domestic or foreign, pending or, to the best of the Company's knowledge, threatened ( or circumstances that may give rise to the same) against the Company which challenges the rights of the Company with respect to any trademarks, trade names, service marks, service names, copyrights, patents, patent applications or licenses or rights to the foregoing used in the conduct of its business. (w) Except as disclosed in the Prospectus the Company owns and has adequate right to use to the best knowledge of the Company's management all trade secrets, know-how (including all other unpatented and/or unpatentable proprietary or confidential information, systems or procedures), inventions, designs, processes, works of authorship, computer programs and technical data and information (collectively herein "intellectual property") required for or incident to the development, manufacture, operation and sale of all products and services sold or proposed to be sold by the Company, free and clear of and without violating any right, lien or claim of others, including without limitation, former employers of its employees. The Company is not aware of any such development of similar or identical trade secrets or technical information by others. The Company has valid and binding confidentiality agreements with all of its officers, covering its intellectual property (subject to the equitable powers of any court), which agreements have remaining terms of at least two years from the effective date of the Registration Statement except where the failure to have such agreements would not materially and adversely effect the Company's business taken as a whole. The Company has good and marketable title to, or valid and enforceable leasehold estates in, all items of real and personal property stated in the Prospectus, to be owned or leased by it free and clear of all liens, charges, claims, encumbrances, pledges, security interests, defects, or other restrictions or equities of any kind whatsoever, other than those referred to in the Prospectus and liens for taxes not yet due and payable. (x) LeMaster & Daniels, whose reports are filed with the Commission as a part of the Registration Statement, are independent certified public accountants as required by the Act and the Rules and Regulations. (y) The Company has agreed to cause to be duly executed, agreements pursuant to which each of the Company's officers, directors, consultants, and holders of more than 5% of the outstanding Common Stock calculated as of the date immediately preceding the commencement of the public offering, and any person or entity deemed to be an affiliate of the Company pursuant to SEC Rules and Regulations, has agreed not to, directly or indirectly, sell, assign, transfer, or otherwise dispose of any shares of Common Stock or securities convertible into, exercisable or exchangeable for or evidencing any right to purchase or subscribe for any shares of Common Stock (either pursuant to Rule 144 of the Rules and Regulations or otherwise) for a period commencing on the effective date until after 12 months from the effective date of the offering, unless the price of the Common Stock, adjusted for any splits, trades at 175% of the public offering price for 20 consecutive days; (iii) or after the first day of the fourth year from the effective date of the prospectus (the Lock-up). Any shares of common stock released from the foregoing restrictions will remain restricted Shares subject however to the resale provisions of Rule 144. Shares issued upon the exercise of any options held by the Company's officers, directors or holders of 5% or more of the Company's Common Stock, it is agreed shall be locked up in accordance with the terms of the preceding paragraph. The Company will cause the Transfer Agent, as defined below, to mark an appropriate legend on the face of stock certificates representing all of such Shares and to place "stop transfer" orders on the Company's stock ledgers. The company president or CEO, company counsel and the Underwriter will have their signatures on the lock-up agreements. The Company also agrees that it will not release any Shares subject to this Agreement without the signatures of all parties referred to. (z) The Registered Shares have been approved for listing on NASDAQ or an Exchange. (aa) Except as set forth in the Prospectus or disclosed in writing to the Underwriter (which writing specifically refers to this Section), no officer or director of the Company, holder of 5% or more of Shares of the Company or any "affiliate" or "associate" (as these terms are defined in Rule 405 promulgated under the Rules and Regulations) of any of the foregoing persons or entities has or has had, either directly or indirectly, (i) an interest in any person or entity which (A) furnishes or sells services or products which are furnished or sold or are proposed to be furnished or sold by the Company, or (B) purchases from or sells or furnishes to the Company any goods or services, or (ii) a beneficiary interest in any contract or agreement to which the Company is a party or by which it may be bound or affected. Except as set forth in the Prospectus under "Certain Transactions" or disclosed in writing to the Underwriter (which writing specifically refers to this Section) there are no existing agreements, arrangements, understandings or transactions, or proposed agreements, arrangements, understandings or transactions, between or among the Company, and any officer, director, principal stockholder of the Company, or any partner, affiliate or associate of any of the foregoing persons or entities. (bb) Any certificate signed by any officer of the Company, and delivered to the Underwriter or to the Underwriter's counsel (as defined herein) shall be deemed a representation and warranty by the Company to the Underwriter as to the matters covered thereby. (cc) Each of the minute books of the Company has been made available to the Underwriter and contains a complete summary of all meetings and actions of the directors and stockholders of the Company, since the time of its incorporation and reflect all transactions referred to in such minutes accurately in all respects. (dd) As of the Initial Closing Date, the Company will enter into the Consulting Agreement substantially in the form filed as an exhibit to the registration statement with respect to the rendering of consulting services by the Underwriter to the Company. (optional) (ee) Except and only to the extent described in the Prospectus or disclosed in writing to the Underwriter (which writing specifically refers to this Section), no holders of any Shares of the Company or of any options, warrants or other convertible or exchangeable securities of the Company have the right to include any Common Stock issued by the Company in the Registration Statement or any registration statement to be filed by the Company or to require the Company to file a registration statement under the Act and no person or entity holds any anti-dilution rights with respect to any Common Stock of the Company. Except as disclosed in the Prospectus, all rights so described or disclosed have been waived or have not been triggered with respect to the transactions contemplated by this Agreement and the Underwriter's Common Stock Purchase Warrant (including the securities issuable thereunder). (ff) The Company has not entered into any employment agreements with its executive officers, except as disclosed in the Prospectus. (gg) No consent, approval, authorization or order of, and no filing with, any court, regulatory body, government agency or other body, domestic or foreign, is required for the issuance of the Registered Securities pursuant to the Prospectus and the Registration Statement, the issuance of the Underwriter's Common Stock Purchase Warrant, the performance of this Agreement, and the transactions contemplated hereby and thereby, including without limitation, any waiver of any preemptive, first refusal or other rights that any entity or person may have for the issue and/or sale of any of the Shares, and the Underwriter's Common Stock Purchase Warrant, except such as have been or may be obtained under the Act, otherwise or may be required under state securities or "blue sky" laws in connection with the Underwriter's purchase and distribution of the Shares and the Underwriter's Common Stock Purchase Warrant to be sold by the Company hereunder or may be required by the Rules of the National Association of Securities Dealers, Inc. ("NASD"). (hh) All executed agreements, contracts or other documents or copies of executed agreements, contracts or other documents filed as exhibits to the Registration Statement to which the Company is a party or by which it may be bound or to which its assets, properties or businesses may be subject have been duly and validly authorized, executed and delivered by the Company and constitute the legal, valid and binding agreements of the Company, enforceable against the Company, in accordance with their respective terms. The descriptions in the Registration Statement of agreements, contracts and other documents are accurate and fairly present the information required to be shown with respect thereto by Form SB-1, and there are no contracts or other documents which are required by the Act to be described in the Registration Statement or filed as exhibits to the Registration Statement which are not described or filed as required, and the exhibits which have been filed are complete and correct copies of the documents of which they purport to be copies. (ii) Within the past five (5) years, none of the Company's independent public accountants has brought to the attention of the Company's management any "material weakness" as defined in the Statement of Auditing Standard No. 60 in any of the Company's internal controls. (jj) Except as otherwise may be indicated herein, as of the effective date of the Prospectus, the Company has not: (1) issued any securities or incurred any liability or obligation direct or contingent, for borrowed money, or (2) entered into any material transactions not in the ordinary course of business, or (3) declared or paid any dividend on its stock. 4. Escrow Account. (a) Notwithstanding anything contained herein to the contrary, unless the Underwriter shall sell 200,000 Shares, none of the Shares will be distributed to the public. The Underwriter agrees to open an appropriate Impound Account maintained atSterling Savings Bank , for all monies received from the sale of these Shares. Such monies shall be deposited in full without any deductions for commissions and/or expenses. In the event that less than 200,000 Shares are sold and paid for within 90 days, from the date which the Underwriter commences the sale of said Shares, the proposed offering herein will be withdrawn and the sums paid will be returned in full to each such purchaser, without interest thereon or deduction therefrom. (b) Appropriate arrangements will be made by the Underwriter to provide for the receipt of funds from the subscribers of the Shares and to provide for the disposition thereof in accordance with the provisions of this Agreement. (c) Unless the Underwriter shall have sold 200,000 Shares, it shall not be entitled to receive any commission (except accountable out-of-pocket expenses as stated hereinafter). (d) The Underwriter shall comply in all respects with the requirements of Rule 15c2-4 of the rules and regulations made by the Commission under the Securities Exchange Act of 1434, as amended. The Underwriter shall deposit, by 12:00 noon the following business day, the proceeds of the sale of the offered Shares in an Escrow bank account, as agent for the Company, and the same shall be held in such bank account by the bank until the Closing Bate, and upon such Closing Date, the said funds (less the commissions, expenses and fees due to the Underwriter) shall be promptly transmitted to the Company, who shall at said time provide such documents, certificates, receipts and any and all other papers or instruments as counsel for the Underwriter may reasonably deem necessary or appropriate under the circumstances. 5. Sale of the Shares - Selected Dealers (a) In offering the Shares for sale, the Underwriter shall offer it solely as agent for the Company and such offer shall be made upon the terms and subject to the conditions set forth in the Registration Statement and prospectus. The Underwriter shall commence making such offer as agent for the Company) after all conditions of this Agreement have been satisfied. (b) The Underwriter may offer and sell the Shares for the Company's account through registered dealers selected by it, except that only members of the NASD may be included in the selling group pursuant to a form of Selling Agreement pursuant to which it may allow such concession (out of its underwriting commission) as it may determine, within the limits set forth in the Registration Statement and prospectus, but all such sales through selected dealers shall be made by the Company acting through the Underwriter as agent, and not by the - -Underwriter for its own account. All sales through selected dealers shall be as agents for the accounts of their customers, and the Underwriter shall not have authority to employ- such dealers as agents for the Company, (c) On each sale by the Underwriter of any of the Shares to selected dealers, the Underwriter shall require the selected dealer purchasing any such Shares to agree to reoffer the same on the terms and conditions of offering set forth in the prospectus and to comply with all Commission requirements that the Underwriter is required to comply with and not to offer or sell the offered Shares to the Public or to any broker/dealer not a member of the NASD, including foreign broker/dealer registered pursuant to the Securities Act of 1934, at a price of less than $5.00 per Unit. 6. Covenants of the Company. The Company covenants and agrees with the Underwriter as follows: (a) It will cooperate in all respects in making the Prospectus effective and will not at any time, whether before or after the effective date, file any amendment to or supplement to the Prospectus of which Underwriter shall not previously have been advised and furnished with a copy or to which Underwriter or Underwriter's counsel shall have reasonably objected or which is not in material compliance with the Act and the Rules and Regulations or applicable state law. (i) As soon as the Company is advised thereof, the Company will advise Underwriter, and confirm the advice in writing, of the receipt of any comments of the Commission or any state securities department, when the Registration Statement becomes effective if the provisions of Rule 430A promulgated under the Act will be relied upon, when the Prospectus has been filed in accordance with said Rule 430A, of the effectiveness of any posteffective amendment to the Registration Statement or Prospectus, or the filing of any supplement to the Prospectus or any amended Prospectus, of any request made by the Commission or any state securities department for amendment of the Prospectus or for supplementing of the Prospectus or for additional information with respect thereto, of the issuance of any stop order suspending the effectiveness of the Prospectus or any order preventing or suspending the use of any Prospectus or any order suspending trading in the Common Stock of the Company, or of the suspension of the qualification of the Shares, or the Common Stock Purchase Warrant for offering in any jurisdiction, or of the institution of any proceedings for any such purposes, and will use its best efforts to prevent the issuance of any such order and, if issued, to obtain as soon as possible the lifting or dismissal thereof. (ii) The Company will or has caused to be delivered to the Underwriter copies of such Prospectus, and the Company has consented and hereby consents to the use of such copies for the purposes permitted by law. The Company authorizes the Underwriter and the dealers to use the Prospectus and such copies of the Prospectus in connection with the sale of the Shares and the Underwriter's Common Stock Purchase Warrant for such period as in the opinion of Underwriter's counsel and the Company's counsel the use thereof is required to comply with the applicable provisions of the Act and the Rules and Regulations. The Company will prepare and file with the states, promptly upon the Underwriter's request, any such amendments or supplements to the Prospectus, and take any other action, as, in the opinion of Underwriter's counsel, may be necessary or advisable in connection with the initial sale of the Shares and the Underwriter's Common Stock Purchase Warrant and will use its best efforts to cause the same to become effective as promptly as possible. (iii) The Company shall file the Prospectus (in form and substance satisfactory to the Underwriter) or transmit the Prospectus by a means reasonably calculated to result in filing with the Commission pursuant to rule 424(b)(1) or pursuant to Rule 424(b)(3) not later than the Commission's close of business on the earlier of (i) the second business day following the execution and delivery of this Agreement, and (ii) the fifth business day after the effective date of the Registration Statement. (iv) In case of the happening, at any time within such period as a Prospectus is required under the Act to be delivered in connection with the initial sale of the Shares and the Underwriter's Common Stock Purchase Warrant of any event of which the Company has knowledge and which materially affects the Company, or the securities thereof, and which should be set forth in an amendment of or a supplement to the Prospectus in order to make the statements therein not then misleading, in light of the circumstances existing at the time the Prospectus is required under the Act to be delivered, or in case it shall be necessary to amend or supplement the Prospectus to comply with the Act, the Rules and Regulations or any other law, the Company will forthwith prepare and furnish to the Underwriter copies of such amended Prospectus or of such supplement to be attached to the Prospectus, in such quantities as Underwriter may reasonably request, in order that the Prospectus, as so amended or supplemented, will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances under which they are made. The preparation and furnishing of any such amendment or supplement to the Prospectus or supplement to be attached to the Prospectus shall be without expense to the Underwriter. (iv) The Company will to the best of its ability comply with the Act, the Exchange Act and applicable state securities laws so as to permit the initial offer and sales of the Securities, the Representatives Securities under the Act, the Rules and Regulations, and applicable state securities laws. (b) It will cooperate to qualify the Shares for initial sale under the securities laws of such jurisdictions as the Underwriter may designate and will make such applications and furnish such information as may be required for that purpose, provided the Company shall not be required to qualify as a foreign corporation or a dealer in securities. The Company will, from time to time, prepare and file such statements and reports as are or may be required to continue such qualification in effect for so long as the Underwriter may reasonably request. (c) So long as any of the Shares or the Underwriter's Common Stock Purchase Warrant remain outstanding in the hands of the public, the Company, at its expense, will annually furnish to its shareholders a report of its operations to include financial statements audited by independent public accountants, and will furnish to the Underwriter as soon as practicable after the end of each fiscal year, a balance sheet of the Company as at the end of such fiscal year, together with statements of operations, shareholders' equity, and changes in cash flow of the Company for such fiscal year, all in reasonable detail and accompanied by a copy of the certificate or report thereon of independent public accountants. (d) It will deliver to the Underwriter at or before the Initial Closing Date three signed copies of the signature pages to the Registration Statement and three copies of the registration statement including all financial statements and exhibits filed therewith, whether or not incorporated by reference. The Company will deliver to the Underwriter, from time to time until the effective date of the Prospectus, as many copies of the Prospectus as the Underwriter may reasonably request. The Company will deliver to the Underwriter on the effective date of the Prospectus and thereafter for so long as a Prospectus is required to be delivered under the Act and the Rules and Regulations as many copies of the Prospectus, in final form, or as thereafter amended or supplemented, as the Underwriter may from time to time reasonably request. (e) The Company will apply the net proceeds from the sale of the Shares substantially in the manner set forth under "Use of Proceeds" in the Prospectus. No portion of the proceeds shall be used, directly or indirectly, to acquire any securities issued by the Company, without the prior written consent of the Underwriter. (f) As soon as it is practicable, but in any event not later than the first (lst) day of the fifteenth (15th) full calendar month following the effective date of the Registration Statement, the Company will make available to its security holders and the Underwriter an earnings statement (which need not be audited) covering a period of at least twelve (12) consecutive months beginning after the effective date of the Registration Statement, which shall satisfy the requirements of Section 11(a) of the Act and Rule 158(a) of the Rules and Regulations. 7. Conditions of Underwriter's Obligations. The Underwriter's obligation to act as agent of the Company hereunder and to find purchasers for the Shares and to make payment to the Company on the Closing Date is subject to the accuracy of and compliance with the representations and warranties an the part of the Company herein as of the date hereof and as of the~ Closing Date, to the performance by the Company of its obligations and covenants hereunder, to the accuracy of certificates of the Company and officers of the Company to be delivered pursuant to this Agreement, all as at the Closing Date, and to the following further conditions: (a) The Registration Statement shall have become effective as and when cleared by the Commission, and the Underwriter shall have received notice thereof, on or prior to any closing date no stop order suspending the effectiveness of the Prospectus shall have been issued and no proceedings for that or similar purpose shall have been instituted or shall be pending, or, to your knowledge or to the knowledge of the Company, shall be contemplated by the Commission; any request on the part of the Commission for additional information shall have been complied with to the reasonable satisfaction of counsel to the Underwriter; and qualification, under the securities laws of such states as the Underwriter may designate, of the issue and sale of the Securities upon the terms and conditions herein set forth or contemplated and containing no provision unacceptable to the Underwriter shall have been secured, and no stop order shall be in effect denying or suspending effectiveness of such qualification nor shall any stop order proceedings with respect thereto be instituted or pending or threatened under such law. (b) On any closing date and, with respect to the letter referred to in subparagraph (iii), as of the date hereof, the Underwriter shall have received: (i) the opinion, together with such number of signed or facsimile copies of such opinion as the Underwriter may reasonably request, addressed to the Underwriter by Greg Lipsker of Workland & Witherspoon, counsel for the Company, (who may rely on the opinion of other counsel for certain legal matters), in form and substance reasonably satisfactory to the Underwriter and Charles A. Cleveland, P.S., counsel to the Underwriter, dated each such closing date, to the effect that: (A) The Company has been duly incorporated and is a validly existing corporation in good standing under the laws of the jurisdiction in which it is incorporated and has all necessary corporate power and authority to carry on its business as described in the Prospectus. (B) The Company is qualified to do business in each jurisdiction in which conducting its business requires such qualification, except where the failure to be so qualified would not have a material adverse effect on the Company's business or assets. (C) The Company has the full corporate power and authority to enter into this Agreement, the Underwriter's Common Stock Purchase Warrant and to consummate the transactions provided for therein and each such Agreement has been duly and validly authorized, executed and delivered by the Company. Each of this Agreement and the Underwriter's Common Stock Purchase Warrant, assuming due authorization, execution and delivery by each other party thereto, constitutes a legal, valid and binding agreement of the Company enforceable against the Company in accordance with its terms, subject to bankruptcy, insolvency or similar laws governing the rights of creditors and to general equitable principles, and provided that no opinion need be given as to the enforceability of any indemnification or contribution provisions, and none of the Company's execution or delivery of this Agreement, or the Underwriter's Common Stock Purchase Warrant, its performance hereunder or thereunder, its consummation of the transactions contemplated herein or therein, or the conduct of its business as described in the Registration Statement, the Prospectus, and any amendments or supplements thereto, conflicts with or will conflict with or results or will result in any material breach or violation of any of the terms or provisions of, or constitutes or will constitute a material default under, or result in the creation or imposition of any material lien, charge, claim, encumbrance, pledge, security interest, defect or other restriction of any kind whatsoever upon, any property or assets (tangible or intangible) of the Company pursuant to the terms of (A) the articles of incorporation or by-laws of the Company, (B) to the knowledge of such counsel, any material license, contract, indenture, mortgage, deed of trust, voting trust agreement, stockholders' agreement, note, loan or credit agreement or any other agreement or instrument to which the Company is a party or by which it is or may be bound, or (C) to the knowledge of such counsel, any statute, judgment, decree, order, rule or regulation applicable to the Company, whether domestic or foreign. (D) The Company had authorized and outstanding capital stock as set forth in the Prospectus under the heading "Capitalization" as of the date set forth therein, and all of such issued and outstanding shares of capital stock have been duly and validly authorized and issued, and to the knowledge of such counsel are fully paid and nonassessable, and to the knowledge of such counsel no stockholder of the Company is entitled to any preemptive rights to subscribe for, or purchase shares of the capital stock and to the knowledge of such counsel none of such securities were issued in violation of the preemptive rights of any holders of any securities of the Company. (E) To the knowledge of such counsel, the Company is not a party to or bound by any instrument, agreement or other arrangement providing for it to issue any capital stock, rights, warrants, options or other securities, except for this Agreement, the Underwriter's Common Stock Purchase Warrant, and except as described in the Prospectus. The Shares, underlying Securities, and the Underwriter's Common Stock Purchase Warrant each conforms in all material respects to the respective descriptions thereof contained in the Prospectus. The outstanding Shares, shares of Common Stock and the Underwriter's Common Stock Purchase Warrant and the underlying securities, upon issuance and delivery and payment therefore in the manner described herein, the Underwriter's Warrant will be, duly authorized, validly issued, fully paid and nonassessable. There are no preemptive or other rights to subscribe for or to purchase, or any restriction upon the voting or transfer of, any shares of Common Stock pursuant to the Company's articles of incorporation, by-laws, other governing documents or any agreement or other instrument known to such counsel to which the Company is a party or by which it is bound. (F) The certificates representing the Shares comprised of the Common Stock are in due and proper form and the Underwriter's Common Stock Purchase Warrant has been duly authorized and reserved for issuance and when issued and delivered in accordance with the respective terms of the Underwriter's Common Stock Purchase Warrant, will duly and validly issue, fully paid and nonassessable. (G) To the knowledge of such counsel, there are no claims, suits or other legal proceedings pending or threatened against the Company in any court or before or by any governmental body which might materially affect the business of the Company or the financial condition of the Company as a whole, except as set forth in or contemplated by the Prospectus. (H) Based on oral and/or written advice from the staff of the Commission, the Registration Statement has become effective and, to the knowledge of such counsel, no stop order suspending the effectiveness of the Prospectus is in effect and no proceedings for that purpose are pending before, or threatened by, federal or by a state securities administrator. (I) To the knowledge of such counsel, there are no legal or governmental proceedings, actions, arbitrations, investigations, inquiries or the like pending or threatened against the Company of a character required to be disclosed in the Prospectus which have not been so disclosed, questions the validity of the capital stock of the Company or this Agreement or the Underwriter's Common Stock Purchase Warrant or might adversely affect the condition, financial or otherwise, or the prospects of the Company or which could adversely affect the Company's ability to perform any of its obligations under this Agreement, or the Underwriter's Common Stock Purchase Warrant. (J) To such counsel's knowledge, there are no material agreements, contracts or other documents known to such counsel required by the Act to be described in the Registration Statement and the Prospectus not filed as exhibits to the Registration Statement and the Prospectus, and to such counsel's knowledge (A) the exhibits which have been filed are correct copies of the documents of which they purport to be copies; (B) the descriptions in the Registration Statement and the Prospectus and any supplement or amendment thereto of contracts and other documents to which the Company is a party or by which it is bound, including any document to which the Company is a party or by which it is bound incorporated by reference into the Prospectus and any supplement or amendment thereto, are accurate in all material respects and fairly represent the information required to be shown by Form SB-1. (K) No consent, approval, order or authorization from any regulatory board, agency or instrumentality having jurisdiction over the Company, or its properties (other than registration under the Act or qualification under state or foreign securities law or approval by the NASD) is required for the valid authorization, issuance, sale and delivery of the Shares or the Underwriter's Common Stock Purchase Warrant. (L) The statements in the Prospectus under "Risk Factors- ", " ", " " "Description of the Securities," and "Shares Eligible For Future Sale" have been reviewed by such counsel, and insofar as they refer to statements of law, descriptions of statutes, licenses, rules or regulations or legal conclusions, are correct in all material respects. In addition, such counsel shall state that such counsel has participated in conferences with officials and other representatives of the Company, the Underwriter, Underwriters' Counsel and the independent certified public accountants of the Company, at which such conferences the contents of the Registration Statement and Prospectus and related matters were discussed, and although they have not certified the accuracy or completeness of the statements contained in the Registration Statement or the Prospectus, nothing has come to the attention of such counsel which leads them to believe that, at the time the Registration Statement became effective and at all times subsequent thereto up to and on the Closing Date and on any later date on which Option Shares are to be purchased, the Registration Statement and any amendment or supplement, when such documents became effective or were filed with the Commission (other than the financial statements including the notes thereto and supporting schedules and other financial and statistical information derived therefrom, as to which such counsel need express no comment) contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading, or at the Closing Date or any later date on which any outstanding Warrants may be exercised, as the case may be, the Prospectus and any amendment or supplement thereto (other than the financial statements including the notes thereto and other financial and statistical information derived therefrom, as to which such counsel need express no comment) contained any untrue statement of a material fact or omitted to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. Such opinion shall also cover such other matters incident to the transactions contemplated hereby and the offering Prospectus as the Underwriter or counsel to the Underwriter shall reasonably request. In rendering such opinion, to the extent deemed reasonable by them, such counsel may rely upon certificates of any officer of the Company or public officials as to matters of fact of which the maker of such certificate has knowledge. (ii) a certificate, signed by the Chief Executive Officer and the Principal Financial or Accounting Officer of the Company dated the Closing Date, to the effect that with regard to the Company, each of the conditions set forth in Section 5(d) have been satisfied. (iii) a letter, addressed to the Underwriter and in form and substance satisfactory to the Underwriter in all respects (including the nonmaterial nature of the changes or decreases, if any, referred to in clause (D) below), from LeMaster & Daniels, LLP, respectively, as of the effective date of the Registration Statement and as of the Closing Date, as the case may be: (A) Confirming that they are independent public accountants with respect to the Company and its consolidated subsidiaries, if any, within the meaning of the Act and the applicable published Rules and Regulations. (B) Stating that, in their opinion, the financial statements, related notes and schedules of the Company and its consolidated subsidiaries, if any, included in the Registration Statement examined by them comply as to form in all material respects with the applicable accounting requirements of the Act and the published Rules and Regulations thereunder. (C) Stating that, with respect to the period from December 31, 2000, to a specified date (the specified date") not earlier than five (5) business days prior to the date of such letter, they have read the minutes of meetings of the stockholders and board of directors (and various committees thereof) of the Company and its consolidated subsidiaries, if any, for the period from December 31, 2000 through the specified date, and made inquiries of officers of the Company and its consolidated subsidiaries, if any, responsible for financial and accounting matters and, especially as to whether there was any decrease in sales, income before extraordinary items or net income as compared with the corresponding period in the preceding year; or any change in the capital stock of the Company or any change in the long term debt or any increase in the short-term bank borrowings or any decrease in net current assets or net assets of the Company or of any of its consolidated subsidiaries, if any, and further stating that while such procedures and inquiries do not constitute an examination made in accordance with generally accepted auditing standards, nothing came to their attention which caused them to believe that during the period from December 31, 2000, through the specified date there were any decreases as compared with the corresponding period in the preceding year in sales, income before extraordinary items or net income; or any change in the capital stock of the Company or consolidated subsidiary, if any, or any change in the long term debt or any increase in the short-term bank borrowings (other than any increase in short-term bank borrowings in the ordinary course of business) of the Company or any consolidated subsidiary, if any, or any decrease in the net current assets or net assets of the Company or any consolidated subsidiary, if any; and (D) Stating that they have carried out certain specified procedures (specifically set forth in such letter or letters) as specified by the Underwriter (after consultations with LeMaster & Daniels, LLP, CPA's relating to such procedures), not constituting an audit, with respect to certain tables, statistics and other financial data in the Prospectus specified by the Underwriter and such financial data not included in the Prospectus but from which information in the Prospectus is derived, and which have been obtained from the general accounting records of the Company or consolidated subsidiaries, if any, or from such accounting records by analysis or computation, and having compared such financial data with the accounting records of the Company or the consolidated subsidiaries, if any, stating that they have found such financial data to agree with the accounting records of the Company. (c) All corporate proceedings and other legal matters relating to this Agreement, the Prospectus and other related matters shall be satisfactory to or approved by counsel to the Underwriter and the Underwriter shall have received from Greg Lipsker and Workland & Witherspoon, Esq. a signed opinion dated as of each closing date, with respect to the incorporation of the Company, the validity of the Shares, the form of the Prospectus, (other than the financial statements together with related notes and other financial and statistical data contained in the Prospectus or omitted therefrom, as to which such counsel need express no opinion), the execution of this Agreement and other related matters as you may reasonably require. (d) At each closing date, (i) the representations and warranties of the Company contained in this Agreement shall be true and correct in all material respects with the same effect as if made on and as of such closing date; (ii) the Prospectus and any amendments or supplements thereto shall contain all statements which are required to be stated therein in accordance with the Act and the Rules and Regulations and in all material respects conform to the requirements thereof, and neither the Prospectus nor any amendment or supplement thereto shall contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary, in light of the circumstances under which they were made, in order to make the statements therein not misleading; (iii) there shall have been since the respective dates as of which information is given no material adverse change in the business, properties or condition (financial or otherwise), results of operations, capital stock, long term debt or general affairs of the Company from that set forth in the Prospectus, except changes which the Prospectus indicates might occur after the effective date of the Prospectus, and the Company shall not have incurred any material liabilities or material obligations, direct or contingent, or entered into any material transaction, contract or agreement not in the ordinary course of business other than as referred to in the Prospectus and which would be required to be set forth in the Prospectus; and (iv) except as set forth in the Prospectus, no action, suit or proceeding at law or in equity shall be pending or threatened against the Company which would be required to be set forth in the Prospectus, and no proceedings shall be pending or threatened against the Company or any subsidiary before or by any commission, board or administrative agency in the United States or elsewhere, wherein an unfavorable decision, ruling or finding would materially and adversely affect the business, property, condition (financial or otherwise), results of operations or general affairs of the Company. (e) On the Initial Closing Date, the Company shall have executed and delivered to the Underwriter, (i) the Underwriter's Common Stock Purchase Warrant substantially in the form filed as an Exhibit to the Registration Statement in final form and substance satisfactory to the Underwriter, and (ii) the Representative's Warrants in such denominations and to such designees as shall have been provided to the Company. (f) On or before the Initial Closing Date, the Shares shall have been duly approved for listing on an exchange or on the OTC Bulletin Board. (g) On or before the Initial Closing Date, there shall have been delivered to the Underwriter all of the Lock-up Agreements required to be delivered pursuant to Section 3(ii) and 4(h), in form and substance satisfactory to the Underwriter and Underwriter's counsel. (h) The Underwriter shall have received, on the Closing Date, a certificate dated as of the Closing Date, signed by the President, Treasurer and Secretary of the company, certifying that: (i) no order suspending the effectiveness of the Registration Statement of the sale of the Unit is in effect and no proceedings for such purpose are pending or are, to their knowledge, threatened by the Commission; (ii) they do not know of any litigation, instituted or threatened, against the Company of a character required to be disclosed in the Registration Statement which are not disclosed therein; they do not know of any contracts which are required to be summarized in the prospectus which are not so summarized; and they do not know of any material contacts required to be summarized in the prospectus which are not so summarized; and they do not know of any material contracts required to be filed as exhibits to the Registration which are not so filed; (iii) they have each carefully examined the registration Statement and the prospectus and, to the best of their knowledge, neither the Registration Statement or the prospectus, nor any amendment or supplement to either of the foregoing, contains any untrue statement of any material fact or omits to state any material fact required to be set forth in an amended or supplemented prospectus which has not been so set forth: (iv) the Shares have been registered and qualified for sale in all state required by the Underwriter; (v) since the respective dates as of which information is given in the Registration Statement and the prospectus, there has not been any material adverse change in the condition of the Company, financial or otherwise, or in the results of its operation except as reflected in or contemplated by the Registration Statement and the prospectus and, except as so reflected or contemplated since such date, there has not been any material transaction entered into by the Company; (vi) the representations and warranties set forth in this Agreement are true and correct and the Company has complied with all of its agreements herein contained; (vii) the Company is not delinquent in the filing of any federal ,state, county, and/or municipal taxes; they know of no proposed redetermination or reassessment of taxes adverse to the Company; and the Company has paid or provided by adequate reserves, for all known tax liabilities; (viii) they know of no material obligation or liability of the Company, contingent or otherwise, not disclosed in the Registration Statement and prospectus; (ix) this Agreement, the consummation of the transaction herein contemplated, and the fulfillment of the terms hereof, will not result in the breach by the Company of any terms or, or constitute a default under its Certificate of Incorporation or By-Laws, any indenture, mortgage, lease, deed of trust, bank loan, line of credit, or credit agreement or instrument to which the Company is now a party or pursuant to which the Company has acquired any right and/or obligations by succession or otherwise; and any existing agreement substantially affecting the Company in any way has been filed as an exhibit to the Registration Statement; (x) the financial statements and schedules filed with and as part of the registration Statement present fairly the financial position of the Company as of the dates thereof, all in conformity with generally accepted accounting principles of accounting applied on a consistent basis throughout the period involved. Since the respective dates of such financial statements, there has been no material adverse change in the condition or general affairs of the Company financial or otherwise, other than as referred to in the prospectus; and (xi) subsequent to the respective dates as of which the information is given in the registration Statement and the prospectus, except as may otherwise be indicated therein, the Company has not, prior to the closing date, either (A) issued any securities or incurred any liability or obligation, direct or indirect, contingent or otherwise for borrowed money, or (B) entered into any material transaction other than in the ordinary course of business. The Company has not declared, paid, or made any dividend or distribution of any kind on its capital stock. If any condition to the Underwriter's obligations hereunder to be fulfilled prior to or at the Closing Date is not so fulfilled, the Underwriter may terminate this Agreement or, if the Underwriter so elects, it may waive any such conditions which have not been fulfilled or extend the time for their fulfillment. 8. Indemnification. (a) The Company, its Board of Directors, will indemnify and hold harmless the Underwriter, and each person who controls the Underwriter or is affiliated with the Underwriter within the meaning of the Securities and Exchange Act of 1933 ("Act") and the Securities Exchange Act of 1934 ("Act") (including officers, directors, employees, controlling persons, affiliates, consultants, professional advisors, accountants, attorneys, or agents, of the Underwriter or any broker, underwriter, select dealer/selling agent connected with this offering of Shares), from and against any and all losses, claims, damages, expenses or liabilities, joint or several, to which they or any of them may become subject under the Act or under any other statutes or at common law or otherwise, and will reimburse and indemnify the Underwriter and each such person/entity specified above for any legal or other expenses [including the cost of any investigation and preparation] reasonably incurred by them or any of them in connection with investigating or defending any litigation or claim, whether or not resulting in any liability insofar as such losses, claims, damages, expenses, liabilities or actions arise out of or are based upon any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement, any post-effective amendment thereto, any Blue Sky application, the prospectus as the case may be, or any untrue statement or alleged untrue statement of a material fact contained in the Prospectus or preliminary prospectus (as amended or as supplemented thereof) or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary in order to make the statements therein not misleading; or any negligent misrepresentation of any officer, director, agent, consultant, accountant, attorney or employee of the Company; or any failure to perform any of the terms or conditions of this Agreement incident to any of the foregoing, or arising out of any act or occurrence related to or connected to this offering of Shares. The defense of such action shall be conducted by counsel of recognized standing and reasonably satisfactory to the Underwriter or such other person agreed to be indemnified by the Company. The Underwriter, each controlling person of the Underwriter, or an affiliate thereof, agree after their receipt of written notice of the commencement of any action against them as aforesaid, in respect of which indemnity may be sought from the Company, its Directors on account of the indemnity agreement contained in the subsection, to notify the Company promptly in writing of the commencement thereof. The Company agrees to notify the Underwriter promptly of the commencement of any litigation or proceeding against it or against any of the officers or directors of the Company of which it may be advised, in connection with the issue, offer, and/or sale of any of its securities. (b) The Underwriter, will indemnify and hold harmless the Company, the directors of the Company, the officers of the Company who shall have signed the Registration Statement and each person, if any, who controls the Company within the meaning of the Securities and Exchange Act of 1933 ("Act") and the Securities Exchange Act of 1934 ("Act"), from and against any and all losses, claims, damages, expenses or liabilities, joint or several, to which they or any of them may become subject under the Act or under any other statutes or at common law or otherwise, and, except as hereinafter provided, will reimburse the Company and such directors or controlling person identified above for any legal or other expenses [including the cost of any investigation and preparation] reasonably incurred by them or any of them in connection with investigating or defending any litigation or claims, whether or not resulting in any liability, only insofar as such losses, claims, damages, expenses, liabilities or actions arise out of or are based upon any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement, any post-effective amendment thereto, any Blue Sky application, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statement therein not misleading, all as of the date when the Registration Statement or such post-effective amendment, or the date the filing of any such Blue Sky application, as the case may be, becomes effective, or any untrue statement of alleged untrue statement of a material fact contained in the Preliminary prospectus or the Prospectus (as amended or as supplemented if the Company shall have filed with the Commission any amendments thereof or supplements thereto), or the@ omission or alleged omission to state therein a material fact necessary in order to make the statements therein, not misleading, but only if insofar as such statement or omission was made in reliance upon information furnished in writing to the Company by the Underwriter specifically for use in connection with the preparation of the Registration Statement, the preliminary prospectus or the Prospectus, or any such amendment thereafter supplement hereto or Blue Sky application. The Underwriter shall not be liable for amounts paid in settlement of any such litigation, if such settlement was affected without the Underwriter and its Counsel's consent. In case of the commencement of any action in respect of which indemnity may be sought from the Underwriter on account of its indemnity agreement contained in this subsection (), the Company, and each person to be indemnified by the Underwriter herein, shall have the same obligation to notify such Underwriter and the underwriter shall have the same right to participate in (and, to the extent that it shall desire, to direct) as set forth in subsection (a) above, the defense of such action at its own expense but such defense shall be conducted by counsel of recognized standing and reasonably satisfactory to the Company or such other person agreed to be indemnified by the Underwriter, The Underwriter agrees to notify the Company promptly of the commencement of any such litigation or proceeding against its or against any such controlling person of which it may be advised in connection with the offer, and/or sale of any of securities of the Company. 9. Termination. This Agreement may be terminated: (a) in the event the Shares are not sold as provided in Paragraphs 2 and 5; (b) at any time prior to the Closing Date by the Underwriter by written notice to the Company if, in the sole discretion of the Underwriter, it is impracticable to offer for sale, the Shares by reason of (i) the Company having sustained a loss, whether or not insured, by reason of fire, flood, accident, loan foreclosure, borrowings, litigation, or other calamity, which in the opinion of the Underwriter substantially affects the value of the property of the Company or materially interferes with the operation of the business of the Company, (ii) trading in securities on the New York Stock Exchange, Inc. or the American Stock Exchange, Inc. or the National Association of Securities Dealers Automated Quotation System or the over-the-counter market, having been suspended or limited or minimum prices having been established on such Exchange or NASDAQ or Bulletin Board; (iii) a banking moratorium having been declared by either federal or state authorities; (iv) an outbreak of major hostilities or other national or international calamity having occurred; (v) any action having taken by any government in respect of its monetary affairs which, in the opinion of the Underwriter, has a material adverse effect on the securities markets of the United States; (vi) the Underwriter believes no favorable public market exists for the sale of Shares, or (vii) misstatement, misrepresentations of the Company; (viii) failure by the Company to perform any act required by this Agreement; (ix) or the Securities are not listed on NASDAQ or the Electronic OTC Bulletin Board. If this Agreement shall be terminated pursuant to paragraph 7 or this paragraph 9, or if the purchase provided for herein is not consummated because any conditions to the Underwriter's obligations hereunder is not satisfied or because of any refusal, inability or failure on the part of the Company to comply with any of the terms or to fulfill any of the conditions of the Agreement, or if for any reason the Company shall be unable to perform all of its obligations under this Agreement, the Company shall not be liable to the Underwriter for damages on account of loss of anticipated profits arising out of the transactions covered by this Agreement, but the Company shall remain liable to the extent provided in paragraphs 6,7, and 8 herein. Where termination occurs pursuant to clauses (i) through (ix) of this paragraph, the Company will pay all accountable out-of-pocket expenses not to exceed $5,000 incurred by the Underwriter in contemplation of the performance by it of its obligations hereunder, including fees and disbursements of counsel for the Underwriter, and printing and traveling expenses of the Underwriter, "due diligence investigation" costs of the Underwriter, and any and all other expenses incurred by the Underwriter in connection with its preparation of the proposed public offering of Shares herein. Any notice under this paragraph 9 may be given by telephone, telefacsimile transmission, electronic or digital format but shall be subsequently confirmed by letter. 10. Miscellaneous. (a) The Company and the Underwriter know of no claims for services in the nature of a finder's fee or origination fee with respect to this financing resulting from the respective acts of their officers, directors, or employees, for which the Underwriter and Company may be responsible except as disclosed in the prospectus, and agree to indemnify and hold each other harmless from any claims for any services of such nature arising from any act of the Underwriter and the Company and their officers, directors, and employees, unless otherwise disclosed herein. (b) The Underwriter is registered as a broker/dealer and is a member of the National Association of Securities Dealers, Inc. (c) The Company agrees that immediately upon request of the Underwriter, it will give instructions to its transfer agent to issue the Shares and Warrants in the names and denominations submitted to it by the Underwriter at its own expense. The Underwriter agrees, when funds in sufficient amount as required by this Agreement are in liquid form, to submit within 5 days thereafter, to the transfer Agent, a list of the names and addresses of the subscribers and the dominations of the certificates and warrants to be issued by them. The Transfer Agent shall be required by the Company to issue said certificates and warrants within 5 days after receipt of the aforesaid list from the Underwriter and the delivery of the certificates shall be made to the Underwriter within 5 days thereafter against receipt of payment as provided in this Agreement. Further, the Company agrees to pay all expenses for and in connection with the preparation and issuance of the unit, stock and warrant certificates. 11. Survival of Representations, Warranties and Agreements. The respective indemnities, agreements, representations, warranties, and other statements of the Company or its officers, and directors as set forth in or made pursuant to this Agreement and the indemnity Agreements of the Company contained herein, shall remain operative and in full force and effect, regardless of any investigation made by or on behalf of the Company or the Underwriter or any controlling person and/or affiliate thereof, and will survive termination of this Agreement and the delivery of any payment for the Shares and the Closing Date. 12. Benefits. This Agreement has been made solely for the benefit of and shall be binding upon the Underwriter, the Company, and the extent expressed, any person controlling the Company or the Underwriter and the officers, directors of the Company, and their respective legal representative, successors and assigns, all as and to the extent provided herein, and no other person shall acquire or have any right under or by virtue of this Agreement. The term "legal representatives, successors, and assigns" shall not include any purchaser of any of the Shares from the Underwriter merely because of such purchase. 13. Washington Law/Arbitration. Any controversy arising out of, connected to, or relating to any matters herein of the transactions between the Company or the Underwriter (including for purposes of arbitration, officers, directors, employees, controlling persons, affiliates, consultants, professional advisors, accountants, attorneys, or agents, of the Underwriter or Company, or any broker, underwriter, select dealer, selling agent of the offering of Shares herein), on behalf of the undersigned, or this Agreement, or the breach thereof, including, but not limited to any claims of violations of Federal and/or State Securities Acts, Banking Statutes, Consumer Protection Statutes, Federal and/or State anti-Racketeering (e.g. RICO) claims as well as any common law claims and any State Law claims of fraud, negligence, negligent misrepresentations, and/ar conversion shall be settled by arbitration; and in accordance with this paragraph and judgment on the arbitrator's award may be entered in any court having jurisdiction thereof in accordance with the provisions of Revised Code of Washington, Chapter 7.04. In the event of such a dispute, each party to the conflict shall select an arbitrator, both of whom shall select a third arbitrator, which shall constitute the three person arbitration board. The decision of a majority of the board of arbitrators, who shall render their decision within thirty (30) days of appointment of the final arbitrator, shall be binding upon the parties. Venue shall lie in the County of Spokane, Spokane, Washington. This Agreement shall be governed by and construed in accordance with the laws of the State of Washington. 14. Notices. All notices or other communications hereunder shall be in writing and shall be deemed to have been duly given if delivered personally or sent by registered or certified mail postage prepaid, addressed as follows: If to the Company, its officers, directors, or shareholders to: John R. Coghlan 200 N. Mullan Suite 213 Spokane, Washington 99206 and to: Gregory B. Lipsker 601 West Main Spokane, Washington 99201 If to the Underwriter to: William F. Ross 300 North Argonne Road Suite 202 Spokane, Washington 99212 and to: Charles A. Cleveland Suite 304/ Rock Pointe Center North 1212 Washington Spokane, Washington 99201-2401 If the foregoing correctly states and sets forth in full the agreement between us, please indicate by signing this letter in the space provided below for that purpose. The within Agreement may executed simultaneously in two or more counterparts, each of which shall be deemed the original, but all of which together shall constitute one and the some instrument and shall be valid and binding between us, Yours Truly, TEMPORARY FINANCIAL SERVICES, INC. By: John Coghlan AGREED AND ACCEPTED: Public Securities, Inc. By: Exhibit 1 (ii) Form of Underwriter's Common Stock Purchase Warrant FORM OF UNDERWRITER'S COMMON STOCK PURCHASE WARRANT THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE NOT BEEN REGISTERED FOR RESALE UNDER THE SECURITIES ACT OF 1933 (THE "ACT") OR ANY STATE SECURITIES LAWS AND MAY NOT BE OFFERED, SOLD, TRANSFERRED, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF ANY EFFECTIVE REGISTRATION STATEMENT AS TO SUCH SECURITIES FILED UNDER THE ACT, OR AN EXEMPTION FROM REGISTRATION, AND COMPLIANCE WITH APPLICABLE STATE SECURITIES LAWS. THE ISSUER MAY REQUIRE AN OPINION OF COUNSEL SATISFACTORY TO THE ISSUER HEREOF THAT SUCH REGISTRATION IS NOT REQUIRED AND THAT SUCH LAWS ARE COMPLIED WITH. THIS WARRANT MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED PRIOR TO ONE YEAR AFTER THE EFFECTIVE DATE OF THE REGISTRATION STATEMENT, AND THE REGISTERED HOLDER OF THIS WARRANT, BY ITS/HIS/HER ACCEPTANCE HEREOF, AGREES THAT IT WILL NOT SELL, TRANSFER OR ASSIGN THIS WARRANT PRIOR TO THAT DATE. VOID AFTER 12:00 P.M., SPOKANE, WASHINGTON TIME, ON , 2006 Warrant to subscribe for and purchase up to 80,000 shares of Common Stock, $0.001par value, of TEMPORARY FINANCIAL SERVICES, INC. This is to Certify That, FOR VALUE RECEIVED, Public Securities, Inc. (the "Holder") is entitled to purchase, subject to the provisions of this Warrant, from TEMPORARY FINANCIAL SERVICES, INC., a Washington Corporation ("Company"), at any time on or after , 2001, and not later than 12:00 p.m., Spokane, Washington Time, on , 2006, a total of 000,000 shares of Common Stock of the Company ("Securities") exercisable at a purchase price of $6.00 for the Securities which is 120% of the public offering price. The number of Securities to be received upon the exercise of this Warrant and the price to be paid for the Securities may be adjusted from time to time as hereinafter set forth. The purchase price of a Security in effect at any time and as adjusted from time to time is hereinafter sometimes referred to as the "Exercise Price." This Warrant is or may be one of a series of Warrants identical in form issued by the Company to purchase an aggregate of up to 80,000 Shares of Common Stock. The Securities, as adjusted from time to time, underlying the Warrants are hereinafter sometimes referred to as "Warrant Securities". The Securities issuable upon the exercise hereof are in all respects identical to the securities being purchased by the Underwriter for resale to the public pursuant to the terms and conditions of the Underwriting Agreement entered into on this date between the Company and Holder. (1.) Exercise of Warrant. Subject to the provisions of Section (7) hereof, this Warrant may be exercised in whole or in part at anytime or from time to time on or after (to be subject to effective date) , 2001, but not later than 12:00 p.m., Spokane, Washington Time on , 2006, or if , 2006 is a day on which banking institutions are authorized by law to close, then on the next succeeding day which shall not be such a day, by presentation and surrender hereof to the Company or at the office of its stock transfer agent, if any, with the Purchase Form annexed hereto duly executed and accompanied by payment of the Exercise Price for the number of shares of Common Stock or Redeemable Warrants, as the case may be as specified in such Form, together with all federal and state taxes applicable upon such exercise. The Company agrees to provide notice to the Holder that any tender offer is being made for the Securities no later than the first business day after the day the Company becomes aware that any tender offer is being made for the Securities. If this Warrant should be exercised in part only, the Company shall, upon surrender of this Warrant for cancellation, execute and deliver a new Warrant evidencing the right of the Holder to purchase the balance of the shares purchasable hereunder along with any additional Redeemable Warrants not exercised. Upon receipt by the Company of this Warrant at the office of the Company or at the office of the Company's stock transfer agent, in proper form for exercise and accompanied by the total Exercise Price, the Holder shall be deemed to be the holder of record of the Securities issuable upon such exercise, notwithstanding that the stock transfer books of the Company shall then be closed or that certificates representing such Securities shall not then be actually delivered to the Holder. (2.) Reservation of Securities. The Company hereby agrees that at all times there shall be reserved for issuance and/or delivery upon exercise of this Warrant such number of shares of Securities as shall be required for issuance or delivery upon exercise of this Warrant. The Company covenants and agrees that, upon exercise of the Warrants and payment of the Exercise Price therefor, all Securities and other securities issuable upon such exercise shall be duly and validly issued, fully paid, non-assessable and not subject to the preemptive rights of any stockholder. As long as the Warrants shall be outstanding, the Company shall use its best efforts to cause all Securities issuable upon the exercise of the Warrants to be listed (subject to official notice of issuance) on all securities exchanges on which the Common Stock issued to the public in connection herewith may then be listed and/or quoted on NASDAQ. (3.) Fractional Shares. No fractional shares or scrip representing fractional shares shall be issued upon the exercise of this Warrant. With respect to any fraction of a share called for upon any exercise hereof, the Company shall pay to the Holder an amount in cash equal to such fraction multiplied by the current market value of such fractional share, determined as follows: (a) If the Securities are listed on a national securities exchange or admitted to unlisted trading privileges on such exchange, the current value shall be the last reported sale price of the Common Stock on such exchange on the last business day prior to the date of exercise of this Warrant or if no such sale is made on such day, the average of the closing bid and asked prices for such day on such exchange; or, (b) If the Securities are not so listed or admitted to unlisted trading privileges, the current value shall be the mean of the last reported bid and asked prices reported by the National Association of Securities Dealers Automated Quotation System (or, if not so quoted on NASDAQ or quoted by the National Quotation Bureau, Inc.) on the last business day prior to the date of the exercise of this Warrant; or (c) If the Securities are not so listed or admitted to unlisted trading privileges and bid and asked prices are not so reported, the current value shall be an amount, not less than book value, determined in such reasonable manner as may be prescribed by the Board of Directors of the Company, such determination to be final and binding on the Holder. (4.) Exchange, Assignment or Loss of Warrant. This Warrant is exchangeable, without expense, at the option of the Holder, upon presentation and surrender hereof to the Company or at the office of its stock transfer agent, if any, for other Warrants of different denominations entitling the Holder thereof to purchase (under the same terms and conditions as provided by this Warrant) in the aggregate the same number of Securities purchasable hereunder. This Warrant may not be sold, transferred, assigned, or hypothecated until after one year from the effective date of the registration statement except that it may be (i) assigned in whole or in part to the officers of the "Underwriter(s)", and (ii) transferred to any successor to the business of the "Underwriter(s)." Any such assignment shall be made by surrender of this Warrant to the Company, or at the office of its stock transfer agent, if any, with the Assignment Form annexed hereto duly executed and with funds sufficient to pay any transfer tax; whereupon the Company shall, without charge, execute and deliver a new Warrant in the name of the assignee named in-such instrument of assignment, and this Warrant shall promptly be canceled. This Warrant may be divided or combined with other Warrants which carry the same rights upon presentation hereof at the office of the Company or at the office of its stock transfer agent, if any, together with a written notice specifying the names and denominations in which new Warrants are to be issued and signed by the Holder hereof. The term "Warrant" as used herein includes any Warrants issued in substitution for or replacement of this Warrant, or into which this Warrant may be divided or exchanged. Upon receipt by the Company of evidence satisfactory to it of the loss, theft, destruction or mutilation of this Warrant, and (in the case of loss, theft or destruction) of reasonably satisfactory indemnification, and upon surrender and cancellation of this Warrant, if mutilated, the Company will execute and deliver a new Warrant of like tenor and date. Any such new Warrant executed and delivered shall constitute an additional contractual obligation on the part of the Company, whether or not the Warrant so lost, stolen, destroyed, or mutilated shall be at any time enforceable by anyone. (5.) Rights of the Holder. The Holder shall not, by virtue hereof, be entitled to any rights of a stockholder in the Company, either at law or equity, and the rights of the Holder are limited to those expressed in the Warrant and are not enforceable against the Company except to the extent set forth herein. (6.) Notices to Warrant Holders. So long as this Warrant shall be outstanding and unexercised (i) if the Company shall pay any dividend exclusive of a cash dividend, or make any distribution upon the Common Stock, or (ii) if the Company shall offer to the holders of Common Stock for subscription or purchase by them any shares of stock of any class or any other rights, or (iii) if any capital reorganization of the Company, reclassification of the capital stock of the Company, consolidation or merger of the Company with or into another corporation, sale, lease or transfer of all or substantially all of the property and assets of the Company to another corporation, or voluntary or involuntary dissolution, liquidation or winding up of the Company shall be effected, then, in any such case, the Company shall cause to be delivered to the Holder, at least ten (10) days prior to the date specified in (x) or (y) below, as the case may be, a notice containing a brief description of the proposed action and stating the date on which (x) a record is to be taken for the purpose of such dividend, distribution or rights, or (y) such reclassification, reorganization, consolidation, merger, conveyance, lease, dissolution, liquidation or winding up is to take place and the date, if any, is to be fixed, as of which the holders of Common Stock of record shall be entitled to exchange their shares of Common Stock for equivalent securities or other property deliverable upon such reclassification, reorganization, consolidation, merger, conveyance, dissolution, liquidation or winding up. (7.) Adjustment of Exercise Price and Number of Shares of Common Stock Deliverable. (A) (i) Except as hereinafter provided, in the event the Company shall, at any time or from time to time after the date hereof, issue any shares of Common Stock as a stock dividend to the holders of Common Stock, or subdivide or combine the outstanding shares of Common Stock into a greater or lesser number of shares (any such issuance, subdivision or combination being herein call a "Change of Shares"), then, and thereafter upon each further Change of Shares, the Exercise Price of the Common Stock issuable upon the exercise of the Warrant and the Redeemable Warrant in effect immediately prior to such Change of Shares shall be changed to a price (including any applicable fraction of a cent to the nearest cent) determined by dividing (i) the sum of (a) the total number of shares of Common Stock outstanding immediately prior to such Change of Shares, multiplied by the Exercise Price in effect immediately prior to such Change of Shares, and (b) the consideration, if any, received by the Company upon such issuance, subdivision or combination by (ii) the total number of shares of Common Stock outstanding immediately after such Change of Shares; provided, however, that in no event shall the Exercise Price be adjusted pursuant to this computation to an amount in excess of the Exercise Price in effect immediately prior to such computation, except in the case of a combination of outstanding shares of Common Stock. For the purposes of any adjustment to be made in accordance with this Section (7) the following provisions shall be applicable: (I) Shares of Common Stock issuable by way of dividend or other distribution on any capital stock of the Company shall be deemed to have been issued immediately after the opening of business on the day following the record date for the determination of shareholders entitled to receive such dividend or other distribution and shall be deemed to have been issued without consideration. (II) The number of shares of Common Stock at any one time outstanding shall not be deemed to include the number of shares issuable (subject to readjustment upon the actual issuance thereof) upon the exercise of options, rights or warrants and upon the conversion or exchange of convertible or exchangeable securities. (ii) Upon each adjustment of the Exercise Price pursuant to this Section (7), the number of shares of Common Stock and Redeemable Warrants purchasable upon the exercise of each Warrant shall be the number derived by multiplying the number of shares of Common Stock and Redeemable Warrants purchasable immediately prior to such adjustment by the Exercise Price in effect prior to such adjustment and dividing the product so obtained by the applicable adjusted Exercise Price. (B) In case of any reclassification or change of outstanding Securities issuable upon exercise of the Warrants (other than a change in par value, or from par value to no par value, or from no par value to par value or as a result of a subdivision or combination), or in case of any consolidation or merger of the Company with or into another corporation other than a merger with a "Subsidiary" (which shall mean any corporation or corporations, as the case may be, of which capital stock having ordinary power to elect a majority of the Board of Directors of such corporation (regardless of whether or not at the time capital stock of any other class or classes of such corporation shall have or may have voting power by reason of the happening of any contingency) is at the time directly or indirectly owned by the Company or by one or more Subsidiaries) or by the Company and one or more Subsidiaries in which merger the Company is the continuing corporation and which does not result in any reclassification or change of the then outstanding shares of Common Stock or other capital stock issuable upon exercise of the Warrants (other than a change in par value, or from par value to no par value, or from no par value to par value or as a result of subdivision or combination) or in case of any sale or conveyance to another corporation of the property of the Company as an entirety or substantially as an entirety, then, as a condition of such reclassification, change, consolidation, merger, sale or conveyance, the Company, or such successor or purchasing corporation, as the case may be, shall make lawful and adequate provision whereby the Holder of each Warrant then outstanding shall have the right thereafter to receive on exercise of such Warrant the kind and amount of securities and property receivable upon such reclassification, change, consolidation, merger, sale or conveyance by a holder of the number of securities issuable upon exercise of such Warrant immediately prior to such reclassification, change, consolidation, merger, sale or conveyance and shall forthwith file at the principal office of the Company a statement signed on its behalf by its President or a Vice President and by its Treasurer or an Assistant Treasurer or its Secretary or an Assistant Secretary evidencing such provision. Such provisions shall include provision for adjustments which shall be as nearly equivalent as may be practicable to the adjustments provided for in Section (7)(A). The above provisions of this Section (7)(B) shall similarly apply to successive reclassifications and changes of shares of Common Stock and to successive consolidations, mergers, sales or conveyances. (C) Irrespective of any adjustments or changes in the Exercise Price or the number of Securities purchasable upon exercise of the Warrants, the Warrant Certificates theretofore and thereafter issued shall (unless the Company shall exercise its option to issue new Warrant Certificates pursuant hereto) continue to express the Exercise Price per share and the number of shares purchasable thereunder as the Exercise Price per share and the number of shares purchasable thereunder as expressed in the Warrant Certificates when the same were originally issued. (D) After each adjustment of the Exercise Price pursuant to this Section (7), the Company will promptly prepare a certificate signed on its behalf by the President or Vice President, and by the Treasurer or an Assistant Treasurer or the Secretary or an Assistant Secretary, of the Company setting forth: (i) the Exercise Price as so adjusted, (ii) the number of Securities purchasable upon exercise of each Warrant, after such adjustment, and (iii) a brief statement of the facts accounting for such adjustment. The Company will promptly file such certificate in the Company's minute books and cause a brief summary thereof to be sent by ordinary first class mail to each Holder at his last address as it shall appear on the registry books of the Company. No failure to mail such notice nor any defect therein or in the mailing thereof shall affect the validity thereof except as to the holder to whom the Company failed to mail such notice, or except as to the holder whose notice was defective. The affidavit of an officer or the Secretary or an Assistant Secretary of the Company that such notice has been mailed shall, in the absence of fraud, be prima facie evidence of the facts stated therein. (i) Intent of Provisions. Notwithstanding any provision to the contrary, if any event occurs as to which, in the opinion of the Board of Directors of the Company, the other provisions of this Section 7 are not strictly applicable or if strictly applicable, would not fairly protect the rights of the Holders' Warrant in accordance with the essential intent and principles of such provisions, then such Board of Directors shall appoint a firm of independent certified public accountants (which may be the regular auditors of the Company) which shall give their opinion upon the adjustment, if any, on a basis consistent with such essential intent and principles, necessary to preserve, without dilution, the rights of the Holders. Upon receipt of such opinion by the Board of Directors of the Company, the Company shall forthwith make the adjustments described therein (E) No adjustment of the Exercise Price shall be made as a result of or in connection with the issuance or sale of Securities if the amount of said adjustment shall be less than $0.10, provided, however, that in such case, any adjustment that would otherwise be required then to be made shall be carried forward and shall be made at the time of and together with the next subsequent adjustment that shall amount, together with any adjustment so carried forward, to at least $.10. In addition, Holders shall not be entitled to cash dividends paid by the Company prior to the exercise of any Warrant or Warrants held by them. (F) In the event that the Company shall at any time prior to the exercise of all Warrants declare a dividend consisting solely of shares of Common Stock or otherwise distribute to its stockholders any assets, property, rights, or evidences of indebtedness, the Holders of the unexercised Warrants shall thereafter be entitled, in addition to the Securities or other securities and property receivable upon the exercise thereof, to receive, upon the exercise of such Warrants, the same property, assets, rights, or evidences of indebtedness, that they would have been entitled to receive at the time of such dividend or distribution as if the Warrants had been exercised immediately prior to such dividend or distribution. At the time of any such dividend or distribution, the Company shall make appropriate reserves to ensure the timely performance of the provisions of this Section (7). (G) (G.1) Right to Exercise on a Net Issuance Basis. In lieu of exercising this Warrant for cash, the Holder shall have the right to exercise this Warrant or any portion thereof (the "Net Issuance Right") into Common Stock as provided in this Section G.1 at any time or from time to time during the period specified on page one of this Warrant Agreement, hereof by the surrender of this Warrant to the Company with a duly executed and completed Exercise Form marked to reflect net issuance exercise. Upon exercise of the Net Issuance Right with respect to a particular number of shares subject to this Warrant and noted on the Exercise Form (the "Net Issuance Warrant Shares"), the Company shall deliver to the Holder (without payment by the Holder of any Exercise Price or any cash or other consideration) (X) that number of shares of fully paid and nonassessable shares of Common Stock equal to the quotient obtained by dividing the value of this Warrant (or the specified portion hereof) on the Net Issuance Exercise Date, which value shall be determined by subtracting (A) the aggregate Exercise price of the Net Issuance Warrant Shares immediately prior to the exercise of the Net Issuance Right from (B) the aggregate fair market value of the Net Issuance Warrant Shares issuable upon exercise of this Warrant (or the specified portion hereof) on the Net Issuance Exercise Date (as herein defined) by (Y) the fair market value one share of Common Stock on the Net Issuance Exercise Date (as herein defined). Expressed as a formula as shown below, such net issuance exercise shall be computed as follows: X = B-A -- Y Where: X = the number of shares of Common Stock that may be issued to the Holder Y = the fair market value ("FMV") of one share of Common Stock as of the Net Issuance Exercise Date A = the aggregate Exercise Price (i.e. the product determined by multiplying the Net Issuance Warrant Shares by the Exercise Price) B = the aggregate FMV (i.e. the product determined by multiplying the FMV by the Net Issuance Warrant Shares). (G.1.2) Determination of Fair Market Value. For purposes of this Section G.1.2, "fair market value" of a share of Common Stock as of the Net Issuance Exercise Date shall mean: (i) if the Net Issuance Right is exercised in connection with and contingent upon a Public Offering, and if the Company's registration Statement relating to such Public Offering has been declared effective by the SEC, then the initial "Price to Public" specified in the final Prospectus with respect to such offering. (ii) if the Net Issuance Right is not exercised in connection with and contingent upon a Public Offering, then as follows: (a) If traded on a securities exchange, the fair market value of the Common Stock shall be deemed to be the last reported sale price or if no reported sale takes place, the average of the last reported sale prices for the last three (3) trading days prior to the Net Issuance Date; (b) If traded on the Nasdaq National Market or the Nasdaq Small Cap Market, the fair market value of the Common Stock shall be deemed to be the average of the last reported sale price of the common Stock on such Market over the last three (3) trading days prior to the Net Issuance Exercise Date; (c) If traded over-the-counter other than on the Nasdaq National market or the Nasdaq SmallCap Market, the fair market value of the Common Stock shall be deemed to be the average of the midpoint between the closing bid and ask prices of the Common Stock over the 3-day trading period prior to the Net Issuance Exercise Date; and, (d) If there is no public market for the Common Stock, then the fair market value shall be determined by mutual agreement of the Warrantholder and the Company, and if the Warrantholder and the company are unable to so agree, at the Company's sole expense, by an investment banker of national reputation selected by the Company and reasonably acceptable to the Warrantholder. (8.) Piggyback Registration. If, at any time commencing one year from the effective date of the registration statement and expiring four (4) years thereafter, the Company proposes to register any of its securities under the Securities Act of 1933, as amended (the "Act") (other than in connection with a merger or pursuant to Form S-8, S-4 or other comparable registration statement) it will give written notice by registered mail, at least thirty (30) days prior to the filing of each such registration statement, to the Holders and to all other Holders of the Warrants and/or the Warrant Securities of its intention to do so. If the Holder or other Holders of the Warrants and/or Warrant Securities notify the Company within twenty (20) days after receipt of any such notice of its or their desire to include any such securities in such proposed registration statement, the Company shall afford each of the Underwriter and such Holders of the Warrants and/or Warrant Securities the opportunity to have any such Warrant Securities registered under such registration statement. In the event any underwriter underwriting the sale of securities registered by such registration statement shall limit the number of securities includable in such registration by shareholders of the Company, the number of such securities shall be allocated pro rata among the holders of Warrants and the holders of other securities entitled to piggyback registration rights. Notwithstanding the provisions of this Section, the Company shall have the right at any time after it shall have given written notice pursuant to this Section (irrespective of whether a written request for inclusion of any such securities shall have been made) to elect not to file any such proposed registration statement, or to withdraw the same after the filing but prior to the effective date thereof. (9.) Demand Registration. (a) At any time commencing one year from the effective date of the registration statement and expiring four (4) years thereafter, the Holders of the Warrants and/or Warrant Securities representing a "Majority" (as hereinafter defined) of such securities (assuming the exercise of all of the Warrants) shall have the right (which right is in addition to the registration rights under Section (i) hereof), exercisable by written notice to the Company, to have the Company prepare and file with the Securities and Exchange Commission (the "Commission"), on one occasion, a registration statement and such other documents, including a prospectus, as may be necessary in the opinion of both counsel for the Company and counsel for the Underwriter and Holders, in order to comply with the provisions of the Act, so as to permit a public offering and sale of their respective Warrant Securities for nine (9) consecutive months by such Holders and any other holders of the Warrants and/or Warrant Securities who notify the Company within ten (10) days after receiving notice from the Company of such request. (b) The Company covenants and agrees to give written notice of any registration request under this Section (i) by any Holder or Holders to all other registered Holders of the Warrants and the Warrant Securities within ten (10) days from the date of the receipt of any such registration request. (c) In addition to the registration rights under this Section (9) at any time commencing one year after the effective date of the registration statement and expiring four (4) years thereafter, the Holders of Representative's Warrants and/or Warrant Securities shall have the right, exercisable by written request to the Company, to have the Company prepare and file, on one occasion, with the Commission a registration statement so as to permit a public offering and sale for nine (9) consecutive months by such Holders of its Warrant Securities; provided, however, that the provisions of Section (9)(b) hereof shall not apply to any such registration request and registration and all costs incident thereto shall be at the expense of the Holder or Holders making such request. (10.) Covenants of the Company With Respect to Registration. In connection with any registration under Section (8) or (9) hereof, the Company covenants and agrees as follows: (a) The Company shall use its best efforts to file a registration statement within thirty (30) days of receipt of any demand therefor, shall use its best efforts to have any registration statement declared effective at the earliest possible time, and shall furnish each Holder desiring to sell Warrant Securities such number of prospectuses as shall reasonably be requested. (b) The Company shall pay all costs (excluding fees and expenses of Holder(s)' counsel and any underwriting or selling commissions), fees and expenses in connection with all registration statements filed pursuant to Sections (h), (i) and (j) hereof including, without limitation, the Company's legal and accounting fees, printing expenses, blue sky fees and expenses. If the Company shall fail to comply with the provisions of Section (10)(a), the Company shall, in addition to any other equitable or other relief available to the Holder(s), extend the Exercise Period by such number of days as shall equal the delay caused by the Company's failure. (c) The Company will take all necessary action which may be required in qualifying or registering the Warrant Securities included in a registration statement for offering and sale under the securities or blue sky laws of such states as are reasonably requested by the Holder(s), provided that the Company shall not be obligated to execute or file any general consent to service of process or to qualify as a foreign corporation to do business under the laws of any such jurisdiction. (d) The Company shall indemnify the Holder(s) of the Warrant Securities to be sold pursuant to any registration statement and each person, if any, who controls such Holders within the meaning of Section 15 of the Act or Section 20(a) of the Securities Exchange Act of 1934, as amended ("Exchange Act"), from and against all loss, claim, damage, expense or liability (including all expenses reasonably incurred in investigating, preparing or defending against any claim whatsoever) to which any of them may become subject under the Act, the Exchange Act or otherwise, arising from such registration statement but only to the same extent and with the same effect as the provisions pursuant to which the Company has agreed to indemnify the Underwriter contained in Section 7 of the Underwriting Agreement relating to the offering. (e) The Holder(s) of the Warrant Securities to be sold pursuant to a registration statement, and their successors and assigns, shall severally, and not jointly, indemnify the Company, its officers and directors and each person, if any, who controls the Company within the meaning of Section 15 of the Act or Section 20(a) of the Exchange Act, against all loss, claim, damage or expense or liability (including all expenses reasonably incurred in investigating, preparing or defending against any claim whatsoever) to which they may become subject under the Act, the Exchange Act or otherwise, arising from information furnished by or on behalf of such Holders, or their successors or assigns, for specific inclusion in such registration statement to the same extent with the same effect as the provisions contained in Section 7 of the Underwriting Agreement pursuant to which the Underwriter has agreed to indemnify the Company. (f) The Holder(s) may exercise their Warrants prior to the initial filing of any registration statement or the effectiveness thereof. (g) The Company shall not permit the inclusion of any securities other than the Warrant Securities to be included in any registration statement filed pursuant to Section (9) hereof, or permit any other registration statement to be or remain effective during the effectiveness of a registration statement filed pursuant to Section (9) hereof, other than a secondary offering of equity securities of the Company, without the prior written consent of the Holders of the Warrants and Warrant Securities representing a Majority of such securities. (h) The Company shall furnish to each Holder participating in the offering and to each underwriter, if any, a signed counterpart, addressed to such Holder or underwriter, of (x) an opinion of counsel to the Company, dated the effective date of such registration statement (and, if such registration includes an underwritten public offering, an opinion dated the date of the closing under the underwriting agreement), and (y) a "cold comfort" letter dated the effective date of such registration statement (and, if such registration includes an underwritten public offering, a letter dated the date of the closing under the underwriting agreement) signed by the independent public accountants who have issued a report on the Company's financial statements included in such registration statement, in each case covering substantially the same matters with respect to such registration statement (and the prospectus included therein) and, in the case of such accountants' letter, with respect to events subsequent to the date of such financial statements, as are customarily covered in opinions of issuer's counsel and in accountants' letters delivered to underwriters in underwritten public offerings of securities. (i) The Company shall as soon as practicable after the effective date of the registration statement, and in any event within 15 months thereafter, make "generally available to its security holders" (within the meaning of Rule 158 under the Act) an earnings statement (which need not be audited) complying with Section 11(a) of the Act and covering a period of at least 12 consecutive months beginning after the effective date of the registration statement. (j) The Company shall deliver promptly to each Holder participating in the offering requesting the correspondence and memoranda described below and to the managing underwriters, copies of all correspondence between the Commission and the Company, its counsel or auditors and all memoranda relating to discussions with the Commission or its staff with respect to the registration statement and permit each Holder and underwriter to do such investigation, upon reasonable advance notice, with respect to information contained in or omitted from the registration statement as it deems reasonably necessary to comply with applicable securities laws or rules of the National Association of Securities Dealers, Inc. ("NASD") or an Exchange. Such investigation shall include access to books, records and properties and opportunities to discuss the business of the Company with its officers and independent auditors, all to such reasonable extent and at such reasonable times and as often as any such Holder or underwriter shall reasonably request. (k) The Company shall enter into an underwriting agreement with the managing underwriters, which may be the Underwriter. Such agreement shall be satisfactory in form and substance to the Company, and such managing underwriters, and shall contain such representations, warranties and covenants by the Company and such other terms as are customarily contained in agreements of that type used by the managing underwriter; provided however, that no Holder shall be required to make any representations, warranties or covenants or grant any indemnity to which it shall object in any such underwriting agreement. The Holders shall be parties to any underwriting agreement relating to an underwritten sale of their Warrant Securities and may, at their option, require that any or all the representations, warranties and covenants of the Company to or for the benefit of such underwriters shall also be made to and for the benefit of such Holders. Such Holders shall not be required to make any representations or warranties to or agreements with the Company or the underwriters except as they may relate to such Holders and their intended methods of distribution. (l) For purposes of this Agreement, the term "Majority" in reference to the Holders of Warrants or Warrant Securities, shall mean in excess of fifty (50%) of the then outstanding Warrants and Warrant Securities that (i) are not held by the Company, an affiliate, officer, creditor, employee or agent thereof or any of their respective affiliates, members of their family, persons acting as nominees or in conjunction therewith or (ii) have not been resold to the public pursuant to a registration statement filed with the Commission under the Act. (11.) Buy-Out of Registration Demand. In lieu of carrying out its obligations to effect a Piggyback Registration or Demand Registration of any registrable securities pursuant to the Section, the Company may carry out such obligation by offering to purchase and purchasing such Registrable Securities requested to be registered in an amount in cash equal to the difference between (a) 95% of the last sale price of the Common Stock on the day the request for registration is made and (b) the Exercise Price in effect on such day; the purchase transaction closing within three (3) business days; provided however, that the Holder or Holders may decline such request rather than accept such offer by the Company. (12.) Conditions of Company's Obligations. The Company's obligation under Section 10 hereof shall be conditioned as to each such public offering, upon a timely receipt by the Company in writing of: (a) Information as to the terms of such public offering furnished by or on behalf of the Holders making a public distribution of their Warrant Securities. (13.) Continuing Effect of Agreement. The Company's agreements with respect to the Warrant Securities in this Warrant will continue in effect regardless of the exercise or surrender of this Warrant. (14.) Notices. Any notices or certificates by the Company to the Holder and by the Holder to the Company shall be deemed delivered if in writing and delivered personally or sent by certified mail, to the Holder, addressed to him or sent to 300 North Argonne Road, Suite 202, Spokane, Washington 99212, or, if the Holder has designated, by notice in writing to the Company, any other address, to such other address, and, if to the Company, addressed to John R. Coghlan, 422 West Riverside, Suite 1313, Spokane, Washington, 99201. The Company may change its address by written notice to (15.) Limited Transferability. This Warrant Certificate and the Warrant may not be sold, transferred, assigned or hypothecated for a one-year period after the effective date of the Registration Statement except to underwriters of the Offering referred to in the Underwriting Agreement or to individuals who are either partners or officers of such an underwriter or by will or by operation of law and if transfer occurs after one year, the warrant must be exercised immediately upon transfer or it shall lapse. The Warrant may be divided or combined, upon request to the Company by the Warrant holder, into a certificate or certificates evidencing the same aggregate number of Warrants. The Warrant may not be offered, sold, transferred, pledged or hypothecated in the absence of any effective registration statement as to such Warrant filed under the Act, or an exemption from the requirement of such registration, and compliance with the applicable federal and state securities laws. The Company may require an opinion of counsel satisfactory to the Company that such registration is not required and that such laws are complied with. The Company may treat the registered holder of this Warrant as he or it appears on the Company's book at any time as the Holder for all purposes. The Company shall permit the Holder or his duly authorized attorney, upon written request during ordinary business hours, to inspect and copy or make extracts from its books showing the registered holders of Warrants. (16.) Transfer to Comply With the Securities Act of 1933. The Company may cause the following legend, or one similar thereto, to be set forth on the Warrants and on each certificate representing Warrant Securities, or any other security issued or issuable upon exercise of this Warrant not theretofore distributed to the public or sold to underwriters for distribution to the public pursuant to Sections (8) or (9) hereof; unless counsel satisfactory to the Company is of the opinion as to any such certificate that such legend, or one similar thereto, is unnecessary: "The warrants represented by this certificate are restricted securities and may not be offered for sale, sold or otherwise transferred unless an opinion of counsel satisfactory to the Company is obtained stating that such offer, sale or transfer is in compliance wrath state and federal securities law. (17.) Applicable Law. This Warrant shall be governed by, and construed in accordance with, the laws of the State of Washington, without giving effect to conflict of law principles. (18.) Amendment/Assignability. This Warrant may not be amended except in a writing signed by each Holder and the Company. This Warrant Certificate and the options evidenced hereby may not be sold, transferred, pledged, hypothecated or otherwise disposed of except by Will, the Laws of Descent and Distribution, or other testamentary transfer. Each Holder of this Warrant Certificate, and any shares of capital stock of the Company issued upon exercise of any such warrant, by taking or holding the same, consents to and agrees to be bound by the provisions of this Section 7. Notwithstanding the above the Holder may transfer twelve (12) months from the date herein, a portion or all of the Holder's Warrants to certain persons, including but not limited to the Holder's officers, directors, shareholders, employees or Registered Representatives, (19.) Severability. If any provisions of this Warrant shall be held to be invalid or unenforceable, such invalidity or enforceability shall not affect any other provision of this Warrant. (20.) Survival of Indemnification Provisions. The indemnification provisions of this Warrant shall survive until , 2012. (21) Company to Provide Reports. Etc. While this Warrant Certificate remains outstanding, the Company shall mail to the persons in whose name this Warrant Certificate is registered copies of all reports and correspondence which the Company mails to its stockholders. (22) Representations and Warranties of Holder. The Holder hereby represents and warrants to the Company: (a) The Holder understands that this Warrant Certificate and the Common Shares to be issued herein, HAS NOT BEEN APPROVED OR DlSAPPROVED BY TME UNITED STATES SECURITIES AND EXCHANGE COMMISION, THE STATE OF WASHINGTON, OR ANY OTHER STATE SECURITIES AGENCIES. (b) This Warrant Certificate and the Common Stock to be issued herein may not be transferred, encumbered, sold, hypothecated, or otherwise disposed of to any person, without the express prior written consent of the Company and the prior opinion of counsel for the Company, that such disposition will not violate Federal and/or State Securities Acts. Disposition shall include, but is not limited to acts of selling, assigning, transferring, pledging, encumbering, hypothecating, giving, and any form of conveying, whether voluntary or not. (c) To the extent that any Federal and/or State Securities laws shall require, the Holder hereby agrees that any shares acquired pursuant to this Warrant Certificate shall be without preference as to dividends, assets, or voting rights and shall have no greater or lesser rights per share than the securities issued for cash or its equivalent. (d) This Warrant is subject in all respects to the terms and provisions of an Underwriting Agreement between the Company and Public Securities, Inc., (the Underwriter therein and the initial Holder hereof), relating to a public offering of the Common Stock of the Company dated , 2001. IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by its duly authorized officers and to be sealed with the seal of the Company this day of June, 2001. TEMPORARY FINANCIAL SERVICES, INC. By , President Date: Attest: Secretary Exhibt 1 (iii) PURCHASE FORM The Undersigned hereby exercises the Warrant Certificate to subscribe for and purchase shares of Common Stock, $.001 par value ("Common Shares"), of Temporary Financial Services, Inc., a Washington Corporation, evidenced by the within the Warrant Certificate and herewith makes payment of the Exercise. Kindly issue certificates for the Common Shares in accordance with the instructions given below. The certificate for the unexercised balance, if any, of the within Warrant Certificate will be registered in the name of the undersigned. Dated: (Signature) Instructions for registration of Common Shares Name (Please print) Social Security or Other Identifying Number: Address: Street City, State and Zip Code HOLDER: PUBLIC SECURITIES, INC. By: Title: President Instructions for registration of certificate representing the unexercised balance of Warrant (if any) Name (Please print) Social Security or Other Identifying Number: Address: Street City, State and Zip Code FORM OF ASSIGNMENT (to be executed by the registered holder hereof) FOR VALUE RECEIVED, does hereby sell, assign and transfer unto the right to purchase shares of the Common Stock of the Company, $.001 par value ("Common Shares"), of Temporary Financial Services, Inc. evidenced by the within Warrant, and does hereby irrevocably constitute and appoint attomey, to transfer such right on the books of the Company with full power of substitution in the premises. DATED: , 200 (Signature) (Signature FORM OF SELECTED DEALER AGREEMENT 800,000 SHARES (A WASHINGTON CORPORATION) ($5.00 PER SHARE) SELECTED DEALERS AGREEMENT ---------------------------- , 2001 Gentlemen: We have agreed to act as the exclusive agent of Temporary Financial Services, Inc., a Washington Corporation ("Company"), pursuant to an Underwriting Agreement between the Company and us ("Underwriter"), which may be obtained from us on written request, for the sale to the public of an aggregate of 800,000 Shares of Common Stock, par value $0.001 ("Shares"). The Shares are described in the enclosed Prospectus, additional copies of which will be supplied in reasonable quantities upon request to us. We invite your participation as a Selected Dealer ("Selected Dealer") in offering to the public, a part of the Shares at the initial public offering price of $5.00 per share. As a Selected Dealer, you will be allowed, subject to the sale of Shares in the public offering, a Commission of % per Shares on all Shares sold by you. Payment of such commissions will be made within five (5) business days after the payment of the proceeds to the Company. The Shares will be offered to the public on a "best efforts" basis subject to the approval of certain legal matters by counsel and subject to certain other items and conditions. We reserve the right to withdraw, cancel or modify any offer. You confirm you are a Selected Dealer: (i) registered with the Securities and Exchange Commission ("Commission") as a broker-dealer under the Securities Exchange Act of 1934, as amended ("1934 Act"), and a member in good standing with the National Association of Securities Dealers, Inc. ("NASD"); (ii) and, in making sales, to comply with the NASD's interpretation with Respect to FreeRiding and Withholding (IM-2110-1); (iii) actually engaged in the investment banking or securities business and who is a member in good standing of the National Association of Securities Dealers, Inc. ("NASD"). In making sales, you hereby agree to comply with the provisions of Article III of the Rules of Fair Practice of the NASD. Any agreement herein is conditioned on your being qualified and registered under applicable securities laws, if any, to act as a dealer or broker in securities and your compliance with the NASD's Rules of Fair Practice, including, but not limited to, IM2300, and Sections 8, 24, 25 and 36 of such Rules, or if you are a foreign broker-dealer not eligible for NASD membership, then it is conditioned upon your agreement to make no offer or sale of the Shares within the United States, its territories or possessions or to residents therein or nationals thereof, and in making offers and sales to conform to the applicable NASD Rules of Fair Practice and interpretations as though you were a member of the NASD. You represent that you meet such conditions and acknowledge your familiarity with applicable law, rules, regulations and releases, and agree that you will not directly or indirectly violate any of such applicable provisions in connection with your acting as a Selected Dealer. You confirm that you agree to abide by all the applicable rules and regulations of the Securities and Exchange Commission and interpretations thereof, including those as to "penny stocks" and "designated securities". Such rules include but are not limited to Rule 15c2-6, Exchange Act Rule 15(g), and the interpretations thereunder, and Exchange Act Rule 15c2-6. Your attention is called to and you agree to comply with the following: (a) Article III, Section 1 of the Rules of Fair Practice of the NASD and the interpretations of said Section promulgated by the Board of Governors of the NASD; (b) Section 10(b) of the 1934 Act and Regulation M, 10b-10 of the general rules and regulations promulgated under the 1934 Act; (c) Rule 15c2-8 of the general rules and regulations promulgated under the 1934 Act requiring the distribution of a preliminary Prospectus to all persons reasonably expected to be purchasers of the Securities from you at least 48 hours prior to the time you expect to mail confirmations; and, (d) all the applicable rules and regulations of the NASD and the interpretations thereof promulgated by the Board of Governors thereof, including those as to "Free Riding and Withholding", including Sections 8-24 and 8-36. All orders will be strictly subject to confirmation and we reserve the right in our uncontrolled discretion to reject any order in whole or in part, to accept or reject orders in the order of their receipt or otherwise, and allot. Neither you nor any other person is authorized by the Company or us to give any information or make any representations other than those contained in the Prospectus in connection with the sale of any of the Shares. No Dealer is authorized to act as agent for us when offering the Shares to the public or otherwise. A registration statement covering the offering has been filed with the Securities and Exchange Commission in respect to the Securities. You will be promptly advised when the registration statement becomes effective. Each Selected Dealer in selling Securities pursuant hereto agrees (which agreement shall also be for the benefit of the Company) that it will comply with the applicable requirements of the Securities Act of 1933 and of the Securities Exchange Act of 1934 and any applicable rules and regulations issued under said Acts. Nothing contained herein shall render the Selected Dealers a member of the Underwriting Group or partners with the Underwriter or with one another. Payment for the Shares purchased by your customer is to be made by 12:00 noon the next business day following receipt of the proceeds from your customers by your customer's check or by your certified or banks cashier's check made payable to "Sterling Savings Bank, ESCROW AGENT FOR TEMPORARY FINANCIAL SERVICES" at 00000-0000, at the initial public offering price against delivery of the Shares to be purchased by your customer. In addition, there shall be provided to us at 300 North Argonne Road, Suite 202, Spokane, Washington, 99212 Attn: William F. Ross, President, the names and addresses of the purchasers, the number of Shares purchased by each, the amount paid therefor, and whether the amount paid was in the form of cash or evidenced by a check. This agreement shall terminate at the close of business on the day after the Date of Delivery (as defined in the Underwriting Agreement), unless earlier terminated. We may terminate this Agreement at any time by written or telegraphic notice to you. In the event that prior to the termination of this Agreement we purchase in the open market or otherwise, any Shares delivered to you, you agree to repay to us the amount of the above concession to Selected Dealers plus brokerage commissions and transfer taxes paid in connection with such purchase or contract to purchase. You agree to indemnify us and to hold us harmless and each person, if any, who controls us, within the meaning of Section 15, of the Securities Act of 1933 ("1933 Act"), against any and all losses, claims, damages, or liabilities to which we may become subject as a result of you breach of this agreement or of your failure to perform any of the promises contained herein, and will also reimburse us, or any controlling connection with investigation or defending such action or claim. We shall have full authority to take such action as we may deem advisable in respect of all matters pertaining to the offering. We shall be under no liability to you except for lack of good faith and for obligations expressly assumed by us in this Agreement. Nothing contained in this paragraph is intended to operate as, and the provisions of this paragraph shall not in any way whatsoever constitute, a waiver by you of compliance with any provision of the 1933 Act, or of the rules and regulations of the Securities and Exchange Commission ("Commission") issued thereunder. Upon application to us, we will inform you as to the jurisdictions in which we believe the Shares have been qualified for sales under, or are exempt from the requirements of, the respective securities laws of such jurisdictions, but we assume no responsibility or obligation as to your right to sell Shares in any jurisdiction. You agree not to sell Securities in any other state or jurisdiction and to not sell Securities in any state or jurisdiction unless you are qualified or licensed to sell securities in such state or jurisdiction. You confirm that you are familiar with Rule 15c2-8 under the 1934 Act relating to the distribution of preliminary and final prospectuses and confirm that you have complied and will comply therewith. We hereby confirm that we will make available to you such number of copies of the Prospectus (as amended or supplemented) as you may reasonably request for the purposes contemplated by the 1933 Act, or the 1934 Act or the rules and regulations of the Commission thereunder. You, as a member of the NASD, by signing this Agreement, acknowledge that you are familiar with the cited laws and rules and agree that you will not directly and/or indirectly violate any provisions of applicable law in connection with your participation in the distribution of the Securities. You, by becoming a member of the Selected Dealers represent that (a) neither you nor any of your directors, officers, partners or "persons associated with" you (as defined in the By-Laws of the NASD), nor to your knowledge, any "related person" (defined by the NASD to include counsel, financial consultants and advisors, finders, members of the selling group or distribution group, and any other persons associated with or related to any of the foregoing) or any other broker-dealer, (i) within the last 18 months have purchased in private transactions, or intends before, at or within 6 months after the commencement of the public offering of the Securities, to purchase in private transactions, any securities of the Company or any parent, predecessor, or subsidiary thereof, (ii) within the last 12 months had any dealings with any of the Company or the parent, predecessor, subsidiary or controlling shareholder thereof, or (iii) have, except as contemplated by this Agreement, any agreement, arrangement or understanding to receive compensation in connection with (as defined by the NASD) the distribution of the Securities. Any notice from us to you shall be deemed to have been duly given if mailed or telegraphed to you at the address to which this Agreement is mailed. This Agreement will be governed by and construed in accordance with the laws of the State of Washington. Any controversy arising out of, connected to, or relating to any matters herein of the transactions between Selected Dealer and Public Securities, Inc. (including for purposes of arbitration, officers, directors, employees, controlling persons, affiliates, professional advisors, agents, or promoters of the Public Securities), on behalf of the undersigned, or this Agreement, or the breach thereof, including, but not limited to any claims of violations of Federal and/or State Securities Acts, Banking Statutes, Consumer Protection Statutes, Federal and/or State anti-Racketeering (e.g. RICO) claims as well as any common law claims and any State Law claims of fraud, negligence, negligent misrepresentations, and/or conversion shall be settled by arbitration; and in accordance with this paragraph and judgment on the arbitrator's award may be entered in any court having jurisdiction thereof in accordance with the provisions of Revised Code of Washington, 7.04. In the event of such a dispute, each party to the conflict shall select an arbitrator, both of whom then shall select a third arbitrator, which shall constitute the three person arbitration board. The decision of a majority of the board of arbitrators, who shall render their decision within thirty (30) days of appointment of the final arbitrator, shall be binding upon the parties. Please confirm your agreement hereto by a facsimile transmission of your acceptance and by signing and returning at once to us at 300 North Argonne Road, Suite 202, Spokane, Washington, 99212 Attn: William F. Ross, President, (509-892-5620) the enclosed duplicate of this letter. Upon receipt thereof, this letter and such signed duplicate copy will evidence the agreement between us. Your Truly: PUBLIC SECURITIES, INC. By: Title: Shares Selected Dealers Allocation AGREED AND ACCEPTED as of the date first above written: SELECTED DEALER By: Title: EX-5 4 exhibit5.txt TEMPORARY FINANCIAL SERVICES, INC. FORM SB-2/A Exhibit 5 Opinion of Counsel July 24, 2001 Temporary Financial Services, Inc. 200 N. Mullan Road, Ste. 213 Spokane, WA 99206 Re: Registration Statement on Form SB-2 Ladies and Gentlemen: We have examined the Registration Statement on Form SB-2 to be filed by you with the Securities and Exchange Commission on or about May 7, 2001 (the "Registration Statement") in connection with the registration under the Securities Act of 1933, as amended, of a total of 800,000 shares of your Common Stock (the "Shares"), to be offered for sale by you. As legal counsel for Temporary Financial Services, Inc., we have examined the proceedings taken in connection with the sale of the Shares by you in the manner set forth in the Registration Statement. It is our opinion that the Shares are legally and validly issued, fully paid and nonassessable. We consent to the use of this opinion as an exhibit to the Registration Statement, including the prospectus constituting a part thereof, and further consent to the use of our name wherever it appears in the Registration Statement and any amendments thereto. Very truly yours, /s/ WORKLAND & WITHERSPOON, PLLC EX-10 5 exhibit10.txt TEMPORARY FINANCIAL SERVICES, INC. FORM SB-2/A Exhibit 10. IMPOUND OF FUNDS AGREEMENT This Agreement, dated July 25, 2001, by and between Temporary Financial Services, Inc. (hereinafter referred to as "Issuer") and Sterling Savings Bank (hereinafter referred to as the "Depository"). The Depository is located at 111 N. Wall , Spokane, WA 99201. The Issuer warrants that it intends to apply for authority from the Administrator of Securities of the State of Washington to sell certain securities and the Issuer intends that, if it is unable to sell securities in the sum of $ 1,000,000 by the XX day of YY, 2001 (which date may, in the sole discretion of the Issuer, be extended for up to an additional 180 days upon written notice to the Depository) then the offering shall be terminated and the proceeds paid in by each of the subscribers shall be returned to them pursuant to this Agreement. The Depository is willing to act as the depository hereunder. In consideration of the mutual covenants and of other good and valuable consideration, the parties agree as follows: 1. The Issuer shall deposit all monies received from the sale of securities in a special impound account in the depository to be designated the "Temporary Financial Services, Inc Impound Account" (the "Impound Account"). The Issuer and its agents shall cause all checks received by it for the payment of securities to be made payable to the Depository Impound Account. The Issuer agrees to include with the deposits made in the Impound Account a copy of each subscription agreement which shall include the name, address and social security or other tax identification number of each Subscriber and the date and amount of each subscription. All funds so deposited shall be held in escrow by the Depository, and shall not be subject to judgment or creditors claims against the Issuer unless and until released to said Issuer in accordance with this Agreement. 2. Unless the Administrator directs to the contrary, the funds deposited in the Impound Account may be invested as directed by the Issuer in bank certificates of deposit, United States government obligations or placed in an interest bearing savings account. 3. Deposits in the form of checks which fail to clear the bank upon which they are drawn, together with the related subscription agreement, shall be returned by the Depository to the Subscriber. A copy thereof shall be sent to the company. 4. If the funds deposited in the Impound Account amount to or exceed $ 1,000,000 (The Minimum Subscription), the Issuer shall request the Depository to confirm the aggregate amount of deposit, the names of all subscribers and the amount deposited by each. The Issuer shall forward the Depository confirmation to the Securities Administrator. The Depository shall continue to hold such funds and all other funds thereafter deposited with it hereunder until it has received a direction in writing from the Administrator instructing the Depository as to the disposition of the funds. 5. Upon receipt by the Depository of written notification signed by the Issuer advising that it was unable to sell the minimum subscription within the specific offering period, the funds deposited in the Impound Account shall be returned by the Depository to the Subscribers according to the amount each contributed. All accrued interest, without deduction for Depository costs and fees, will be divided and returned to subscribers based upon the investment. 6. If, at any time prior to the disbursement of funds by the Depository as provided in Paragraph 4 or 5 of this Agreement, the Depository is advised by the Administrator that the registration to sell securities of the Issuer has been suspended or revoked, that any condition of its registration permit has not been met or that any provision of the Washington securities laws have not be complied with, then the Administrator may direct the Depository not to disburse the proceeds until further notice by the Administrator. 7. This Impound Agreement shall terminate upon the disbursement of funds pursuant to Paragraphs 4 or 5; provided, however, the Issuer may abandon the public offering. Upon the receipt of a letter from the Issuer stating that the offering has been abandoned, copy to the Administrator, the Depository is authorized to return the monies received hereunder to the subscribers according to the amount each subscriber contributed with all accrued interest, without deduction for Depository costs and fees, and this Agreement shall terminate upon said distribution. 8. The sole duty of the Depository other than as herein specified, shall be to establish and maintain the Impound Account and receive and hold the funds deposited by the company pursuant to all applicable banking laws and regulations of the State of Washington. 9. The Issuer acknowledges that the Depository is performing the limited function of Depository and that this fact in no way means the Depository has passed in any way upon the merits or qualifications of, or has recommended, or given approval to, any person, security or transaction. A statement to this effect shall be included in the offering circular. 10. The Administrator may, at any time, inspect the records of the Depository, insofar as they relate to this Agreement, for the purpose of making any determination hereunder or effecting compliance with and conformance to the provisions of this Agreement. 11. The Depository shall be paid a fee of $500.00 for its services hereunder. In the event that it shall be necessary to return subscriber funds, the bank shall receive an additional fee of $5.00 per subscriber plus reimbursement for time incurred at $40.00 per hour. 12. The terms and conditions of this Agreement shall be binding on the heirs, executors and assigns, creditors or transferees, or successors in interest, whether by operation of law or otherwise, of the parties hereto. If, for any reason, the Depository named herein should be unable or unwilling to continue as such depository, then the Company may substitute, with the consent of the Administrator, another person to serve as Depository. IN WITNESS WHEREOF, the parties have executed this Agreement the 25th day of July, 2001. Issuer: Temporary Financial Services, Inc. By _________________________________________ John R. Coghlan, President Depository: Sterling Savings Bank By _________________________________________ ACKNOWLEDGED: _________________________________________ Securities Division State of Washington EX-23 6 exhibit23.txt TEMPORARY FINANCIAL SERVICES, INC. FORM SB-2/A Exhibit 23 CONSENT OF INDEPENDENT ACCOUNTANTS Board of Directors Temporary Financial Services, Inc. and Subsidiary We hereby consent to the use in this Registration Statement on Form SB-2 of our report, dated February 15, 2001, relating to the consolidated financial statements of Temporary Financial Services, Inc. and Subsidiary. We also consent to the reference to our Firm under the captions "Experts" in the Prospectus. /s/ LeMASTER & DANIELS PLLC Certified Public Accountants Spokane, Washington August 1, 2001 -----END PRIVACY-ENHANCED MESSAGE-----